Marwan purchased equipment 3 years ago for £60,000. Marwan estimated that the residual value of the equipment would be £15,000 and he has depreciated the asset at the rate of 30% on the reducing balance basis. He has now sold the asset for £22,000. What was the profit or loss on the disposal of this asset?

Question

Quizplus · Accepted Answer

The book value after 3 years using reducing balance depreciation is calculated as follows: Year 1: £60,000 - (30% of £60,000) = £42,000; Year 2: £42,000 - (30% of £42,000) = £29,400; Year 3: £29,400 - (30% of £29,400) = £20,580. The asset was sold for £22,000, resulting in a profit of £22,000 - £20,580 = £1,420.

Marwan Purchased Equipment 3 Years Ago for £60,000