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CIMAPRA17-BA3-1 Exam - Topic 3 Question 115 Discussion

A company uses the straight line method of depreciation for its plant and machinery. Depreciation is at a rate of 20% per annum.A major item of machinery was purchased in 2003 at a cost of $240,000. At the time, it was estimated that the plant had an estimated useful life of five years and a residual value at the end of its useful life of $20,000.As a result of rapid changes in technology it was decided to sell the machinery in 2006 for $80,000. It is the company's policy to charge a full year's depreciation in the year of acquisition and none in the year of disposal.What was the profit/loss arising on the disposal of the asset?
D) $28,000 loss
A) $36,000 profit
B) $16,000 profit
C) $8,000 loss

CIMAPRA17-BA3-1 Exam - Topic 3 Question 115 Discussion

Actual exam question for CIMA's CIMAPRA17-BA3-1 exam
Question #: 115
Topic #: 3
[All CIMAPRA17-BA3-1 Questions]

A company uses the straight line method of depreciation for its plant and machinery. Depreciation is at a rate of 20% per annum.

A major item of machinery was purchased in 2003 at a cost of $240,000. At the time, it was estimated that the plant had an estimated useful life of five years and a residual value at the end of its useful life of $20,000.

As a result of rapid changes in technology it was decided to sell the machinery in 2006 for $80,000. It is the company's policy to charge a full year's depreciation in the year of acquisition and none in the year of disposal.

What was the profit/loss arising on the disposal of the asset?

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Suggested Answer: D

by Martin at Jul 31, 2025, 07:13 PM

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Lura
7 months ago
Residual value should be considered too, right?
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Fidelia
7 months ago
Definitely not option D, that seems way off.
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Vilma
8 months ago
Wait, how can it be a profit if they sold it for less than the book value?
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Huey
8 months ago
I think it’s option A, $36,000 profit!
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Eileen
8 months ago
Depreciation is $48,000 over 3 years.
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Lavera
8 months ago
If I recall correctly, the total depreciation over the three years should be $144,000, which might help in figuring out the book value before the sale.
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Coletta
8 months ago
I’m a bit confused about whether to include the residual value in the calculation of the depreciation expense for each year.
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Cherry
9 months ago
I think we did a similar question in class where we had to calculate the profit on disposal. I remember the formula involved the sale price minus the book value.
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Elise
9 months ago
I remember calculating depreciation using the straight line method, but I'm not sure how to factor in the residual value correctly.
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Rory
9 months ago
This is a tricky one. I'm not sure if I'm remembering the depreciation rules correctly. I better review the formulas and double-check my work to make sure I don't make any mistakes.
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Dona
9 months ago
I think I've got this! The key is to calculate the depreciation for each year, then subtract the accumulated depreciation from the original cost to get the net book value. Finally, I'll compare the net book value to the sale price to determine the profit or loss.
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Adelle
9 months ago
Hmm, I'm a bit unsure about how to handle the full year's depreciation in the year of acquisition and none in the year of disposal. I'll need to double-check the depreciation calculation.
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Sheridan
9 months ago
Okay, this looks like a straightforward depreciation question. I'll need to calculate the accumulated depreciation and the net book value at the time of disposal to determine the profit or loss.
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Enola
10 months ago
Okay, let's see... Depreciation, residual value, disposal price... Yup, B) is the way to go. *chef's kiss*
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Yen
10 months ago
Woah, talk about a rapid change in technology! I wonder if they upgraded to a fancy new robot arm or something.
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Claribel
10 months ago
Aha, got it! The answer is B) $16,000 profit. Easy peasy, lemon squeezy.
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Stephaine
6 months ago
Glad we agree on B!
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Arleen
7 months ago
I was worried about the residual value.
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Kristian
7 months ago
Right? Simple math!
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Mohammad
7 months ago
I thought it would be more complicated!
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Gwenn
11 months ago
I agree with Salome, because the machinery was sold for $80,000 but the book value was only $64,000.
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Leota
11 months ago
Wait, did they really sell the machinery for $80,000? That's a steal!
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Salome
12 months ago
I think the answer is B) $16,000 profit.
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Juan
12 months ago
Hmm, this seems straightforward enough. Let me work through the numbers...
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Merlyn
10 months ago
B: That's correct. The machinery was sold for $80,000 in 2006, and the accumulated depreciation up to that point was $64,000.
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Dalene
10 months ago
A: The profit/loss arising on the disposal of the asset was $16,000 profit.
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