A company buys a new piece of machinery for £55,000 cash.It is expected to last for 8 years and will have a scrap value of £7,000 The company uses straight line depreciation
A) In the year of purchase, there is a cash movement of £55,000 and a depreciation charge and therefore a reduction in profit of £6,000.
B) In the year of purchase, there is a cash movement of £49,000 which is £55,000 paid for the machine and £6,000 depreciation charge.
C) In the year of purchase, there is a cash movement of £6,875 which is the depreciation charge.
D) In the year of purchase, there is a net cash movement of £48,125. This is the £55,000 paid for the machine and £6,875 depreciation charge.
Correct Answer:
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