A Accounting

Profit or loss on fixed asset disposal (video below)

A company purchases a machine with an expected useful life of 6 years for $1,500. After two years of use, management revised the expected useful life to 8 years. The machine is to be depreciated at 20% per annum on the reducing balance basis. A full year’s depreciation is charged in the year of purchase, with none in the year of sale. During year 4, it is sold for $750.

What is the profit or loss on disposal?

Answer

Depreciation = beginning net book value x Depreciation rate

Carrying amount (net book value) = cost – accumulated depreciation or

Carrying amount (Year n) = cost x (1-depreciation rate)ˆn

$
Carrying amount: 1,500 x 0.8 x 0.8 x 0.8 768
Proceeds of sale (750)
Loss on disposal 18


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