Grigor purchased a freehold building for use in his business on 1 February 20X1 for £235 000.He estimated a useful life of 100 years for the building, with no residual value.On 1 February 20X6 he sold the building for £247 000.What was his profit or loss on sale?

Question

Quizplus · Accepted Answer

The building was purchased for £235,000 and sold for £247,000, resulting in a profit of £12,000. However, depreciation must be taken into account. The building had a useful life of 100 years, so the annual depreciation expense is £235,000 / 100 = £2,350. Over the five years that Grigor owned the building, he would have accumulated £2,350 * 5 = £11,750 in depreciation expense. Subtracting this from the profit on sale gives a net profit of £12,000 - £11,750 = £23,750.

Grigor Purchased a Freehold Building for Use in His Business