ACCA Applied Knowledge · Financial Accounting · Depreciation
Harlow Co bought equipment on 1 January 20X1 for $80,000, with a residual value of $8,000 and a useful life of 6 years, depreciated straight-line. On 31 December 20X3 the equipment was sold for $35,000. What was the profit or loss on disposal?
The disposal gives a loss of $9,000. Annual depreciation is $12,000, so after three years the carrying amount is $80,000 less $36,000, which is $44,000. Proceeds of $35,000 are $9,000 below that carrying amount.
- ALoss of $1,000Correct
- BProfit of $1,000
- CLoss of $9,000
- DProfit of $11,000
Explanation
Annual depreciation = (80,000 - 8,000)/6 = $12,000. After 3 years accumulated depreciation is $36,000, so carrying amount is $44,000. Proceeds of $35,000 give a loss of $9,000. Option 'Loss of $1,000' is wrong; the correct figure is a loss of $9,000.
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