Brown Ltd purchased a machine on the first day of the financial period,1 July 2015,for $100 000.The machine was depreciated using the reducing balance method and a rate of 20 per cent.
-It was sold on 1 July 2016.If the machine was sold for $70 000 on 1 July 2017,what was the gain or loss on disposal?
A) Gain of $6000
B) Loss of $10 000
C) Gain of $10 000
D) Loss of $6000

Question

Quizplus · Accepted Answer

The machine's value after one year of depreciation (20% of $100,000) would be $80,000 ($100,000 - $20,000). Selling it for $70,000 results in a loss of $10,000. However, after two years (by 1 July 2017), it would have depreciated further. In the second year, it depreciates 20% of $80,000, which is $16,000, making its book value $64,000 ($80,000 - $16,000). Selling it for $70,000 when its book value is $64,000 results in a gain of $6,000.

Brown Ltd Purchased a Machine on the First Day of the Financial