Question

Tanner Ltd purchased an item of equipment on the first day of the financial period, 1...

Tanner Ltd purchased an item of equipment on the first day of the financial period, 1 July 2015, for $200 000. The equipment was depreciated using the reducing balance method and a rate of 40 per cent. It was sold on 1 July 2017. If the machine was sold for $65 000, what was the gain or loss on disposal?

A.

Gain of $14 000

B.

Gain of $10 000

C.

Loss of $7000

D.

Gain of $7000

explain the reason please

Business   Accounting   
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Homework Answers

Answer #1

C. Loss of $7000

Calculation-

Cost of Equipment = $200000

Depreciation from 1 July 2015 to 30 June 2016 = Cost x 40% = $80000

Balance of Equipment on 30 June 2016 = Cost - Depreciation = $200000-$80000 =$120000

Depreciation from 1 July 2016 to 30 June 2017 = Opening Balance x 40% =$120000 x 40% =$48000

Balance of Equipment On 30 June 2017 = $120000-$48000 =$72000

Book Value of Equipment on 1 July 2017 = $72000

Selling Price = $65000

Profit / (loss) on sale = Selling Price - Book Value = $65000 - $72000 = (7000) loss

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