A company purchases a machine with an expected useful life of 6 years for $9,000. After two years of use, management revised the expected useful life to 8 years. The machine is to be depreciated at 30% 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 $3,000. What is the profit or loss on disposal? A $1,000 profit B $87 loss C $1,410 profit D $840 profit
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company purchases a machine with an expected useful life of 6 years for $9,000. After two years of
use, management revised the expected useful life to 8 years. The machine is to be
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 $3,000.
What is the profit or loss on disposal?
A $1,000 profit
B $87 loss
C $1,410 profit
D $840 profit
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