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

Actual exam question for CIMA's CIMAPRA17-BA3-1 exam

Question #: 115
Topic #: 3

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?

A$36,000 profit

B$16,000 profit

C$8,000 loss

D$28,000 loss

Show Suggested Answer

Suggested Answer: D

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

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Lura

4 months ago

Residual value should be considered too, right?

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Fidelia

4 months ago

Definitely not option D, that seems way off.

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Vilma

5 months ago

Wait, how can it be a profit if they sold it for less than the book value?

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Huey

5 months ago

I think it’s option A, $36,000 profit!

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Eileen

5 months ago

Depreciation is $48,000 over 3 years.

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Lavera

5 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

6 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

6 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

6 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

6 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

6 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

6 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

7 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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