A sports club buys maintenance machinery for £500,000. The club's directors estimate that the maintenance machinery will have a four year useful life. At the end of the four years, the directors expect the club will be able to sell the maintenance machinery for £100,000. Depreciation will be charged on the maintenance machinery over its four year useful life. If the sports club sells the maintenance machinery for £160,000 after 3½ years, what will the carrying amount of this maintenance machinery be at this time?

Question

Quizplus · Accepted Answer

The carrying amount is calculated by subtracting the accumulated depreciation from the original cost. The original cost is £500,000 and the salvage value after 4 years is expected to be £100,000, leading to a total depreciation of £400,000 over 4 years. Annually, this is £100,000 (£400,000/4). After 3½ years, the accumulated depreciation is £350,000 (£100,000 * 3.5), making the carrying amount £150,000 (£500,000 - £350,000).

A Sports Club Buys Maintenance Machinery for £500,000