ACCA Applied Knowledge · Financial Accounting · Depreciation
Delta Co bought a machine on 1 January 20X1 for $50,000. It is depreciated at 20% per year on the reducing balance basis. On 31 December 20X2, after the second year's depreciation was charged, the machine was sold for $29,000. What was the profit or loss on disposal?
The carrying amount at disposal is $32,000 after two years of 20% reducing balance depreciation. Proceeds of $29,000 are lower than this, so there is a loss on disposal of $3,000.
- AProfit of $1,000Correct
- BLoss of $3,000
- CProfit of $3,000
- DLoss of $1,000
Explanation
Year 1 depreciation is 20% x 50,000 = 10,000, leaving 40,000. Year 2 depreciation is 20% x 40,000 = 8,000, leaving a carrying amount of 32,000. Proceeds of 29,000 less carrying amount of 32,000 gives a loss of 3,000. Option A is wrong: a $1,000 profit would come from using a different carrying amount. So the correct answer is loss of $3,000.
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