A machine originally cost £24,000 and has accumulated depreciation of £15,000 at the date of sale. It is sold for £7,500 cash. What is the profit or loss on disposal?
Answer and explanation
Correct answer: D. Loss of £1,500
- Step 1: Net book value = £24,000 − £15,000 = £9,000.
- Step 2: Proceeds £7,500 are below NBV £9,000.
- Step 3: Loss on disposal = £9,000 − £7,500 = £1,500.
Answer
Loss of £1,500.
Why not the others: Profit of £1,500: The sign is reversed: the proceeds are below the net book value of £9,000, so it is a loss. Profit of £7,500: This treats the whole proceeds as profit, forgetting to compare them with the net book value. Loss of £16,500: This compares the proceeds with the original cost less nothing, ignoring that £15,000 has been depreciated already.
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