Tanner Ltd purchased an item of equipment on the first day of the financial period,1 July 2015,for $200 000.The equipment was depreciated using the reducing balance method and a rate of 40 per cent.It was sold on 1 July 2017.
-If the machine was sold for $65 000,what was the gain or loss on disposal?

Question

Quizplus · Accepted Answer

Using the reducing balance method at the rate of 40%, the accumulated depreciation for two years is:
= $200 000 x (40/100) x 2
= $160 000
The carrying value of the equipment on the day of sale is:
= $200 000 - $160 000
= $40 000
Since the equipment was sold for $65 000, there is a loss on disposal of:
= $65 000 - $40 000
= $25 000
Therefore, the answer is C, a loss of $7 000 is the best choice given in the options.

Tanner Ltd Purchased an Item of Equipment on the First