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mario ltd purchased a machine for $50,000 on the 1st january 2017. the machine was judged...

mario ltd purchased a machine for $50,000 on the 1st january 2017. the machine was judged to have a five-year life with residual value of $5000. during 2019 the market for the product decline and the machine WAS SOLD on 1 january 2020 for $7,000. according to IAS 16, WHAT WAS THE LOSS ON THE DISPOSAL?

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Answer #1

Depreciation would be calculated as per Straight line method of depreciation

= (Cost of asset - residual value)/ life of asset

Depreciation per year for machine = ($50000-$5000)/5

=$9000 per year

Depreciation for the period 1.jan.2017 to 31.dec.2019 = $9000 x 3

= $27000

Carrying amount of machine on 1st jan 2020= Cost of machine - depreciation till 1st jan 2020

= $50000-$27000

= $23000

Loss on disposal = Carrying amount - Sale value

= $23000 - $7000

= $16000

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