On May 1, 2011, Platypus Ltd. purchased a new machine for $132,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated residual value of $6,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2020, the machine was sold for $18,000. The loss to be recognized from the sale is
A) $0.
B) $2,700.
C) $6,000.
D) $8,700.

Question

Quizplus · Accepted Answer

The cost of the machine is $132,000, and its residual value is $6,000, giving a depreciable amount of $126,000 over ten years. Using the straight-line method, annual depreciation is $126,000 / 10 = $12,600. By March 1, 2020, the machine has been depreciated for 9 years and 10 months (or 118 months), totaling $12,600 * 9.83 (118/12) = $124,038 in accumulated depreciation. The book value of the machine on March 1, 2020, is $132,000 - $124,038 = $7,962. Selling it for $18,000 results in a gain, not a loss. Therefore, the correct answer is A) $0, which contradicts the initial calculation. The correct calculation should be: The book value of the machine on March 1, 2020, is $132,000 - $12,600 * (9 + 2/12) = $132,000 - $12,600 * 9.1667 = $132,000 - $115,500 = $16,500. Selling it for $18,000 results in a gain, not a loss, indicating a mistake in the initial explanation. The correct depreciation calculation is $12,600 annually, and by March 1, 2020, the correct accumulated depreciation should be calculated based on the full years and months depreciated, leading to the correct book value and determining the correct gain or loss on sale.