Royal Plastics provides the following information about its moulding machinery:
$$\begin{array} { l r }
\text { Opening balance of machinery account } & \$ 500,000 \
\text { Closing balance of machinery account } & \$ 650,000 \
\text { Depreciation expense for the year } & \$ 50,000 \
\text { Depreciation charged on machinery sold } & \$ 130,000 \
\text { Profit on sale of machinery } & \$ 20,000 \
\text { Carrying value of machinery } & \$ 90,000
\end{array}$$
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What is the total cost of machinery purchased during the year?

Question

Royal Plastics provides the following information about its moulding machinery:
$$\begin{array} { l r } 
\text { Opening balance of machinery account } & \$ 500,000 \
\text { Closing balance of machinery account } & \$ 650,000 \
\text { Depreciation expense for the year } & \$ 50,000 \
\text { Depreciation charged on machinery sold } & \$ 130,000 \
\text { Profit on sale of machinery } & \$ 20,000 \
\text { Carrying value of machinery } & \$ 90,000
\end{array}$$
-
What is the total cost of machinery purchased during the year?

Quizplus · Accepted Answer

To find the total cost of machinery purchased during the year, we first calculate the net change in the machinery account, then adjust for sales and depreciation. The net change in the machinery account is the closing balance minus the opening balance: $650,000 - $500,000 = $150,000. The carrying value of the machinery sold was $90,000, and it was sold for a profit of $20,000, meaning the sale price was $110,000. However, to find the cost of machinery purchased, we need to adjust the net change by adding back the depreciation expense and subtracting the net book value of the machinery sold (not the sale price). The depreciation charged on the machinery sold is a red herring here; we use the annual depreciation expense for the adjustment. So, the calculation is $150,000 (net change) + $50,000 (depreciation expense) + $130,000 (depreciation on sold machinery) - $90,000 (carrying value of sold machinery) = $240,000 + $130,000 = $370,000.

Royal Plastics Provides the Following Information About Its Moulding Machinery