Use the information below to answer the following questions:
Equipment with a cost of $160 000 has an estimated residual value of $10 000 and an estimated useful life of 4 years.
-Consider the following transactions:
(i)Equipment with a book value of $100 000 is sold for $130 000 cash.
(ii)Land is revalued upwards from $1m to $1.5m.The land has not previously been revalued downwards.
Which of the above transactions increases or decreases profits?
A) (i)only
B) (ii)only
C) (i)and (ii)only
D) Neither.

Question

Use the information below to answer the following questions:
Equipment with a cost of $160 000 has an estimated residual value of $10 000 and an estimated useful life of 4 years.
-Consider the following transactions: 
(i)Equipment with a book value of $100 000 is sold for $130 000 cash.
(ii)Land is revalued upwards from $1m to $1.5m.The land has not previously been revalued downwards.
Which of the above transactions increases or decreases profits?
A) (i)only
B) (ii)only
C) (i)and (ii)only
D) Neither.

Quizplus · Accepted Answer

(i) The sale of equipment with a book value of $100 000 for $130 000 cash results in a gain of $30 000 ($130 000 - $100 000). This gain increases profits.
(ii) The upward revaluation of land does not have an immediate effect on profits. It only increases the value of the land on the balance sheet. Therefore, transaction (ii) does not increase or decrease profits.

Use the Information Below to Answer the Following Questions