ExpertMedium2 marksShort Answer
ACCA · Question 26 · Preparing basic financial statements
Section A
During the year, a company sold a machine for cash. The machine originally cost $80,000 and had accumulated depreciation of $55,000. The company recorded a loss on disposal of $5,000 in the statement of profit or loss.
What is the cash inflow from investing activities regarding this disposal? (Enter numbers only)
Section A
During the year, a company sold a machine for cash. The machine originally cost $80,000 and had accumulated depreciation of $55,000. The company recorded a loss on disposal of $5,000 in the statement of profit or loss.
What is the cash inflow from investing activities regarding this disposal? (Enter numbers only)
How to approach this question
Calculate the carrying amount of the machine. Use the loss on disposal to work backwards to find the cash proceeds. Proceeds = Carrying Amount - Loss.
Full Answer
Carrying amount = $80,000 - $55,000 = $25,000. A loss of $5,000 means the cash received was $5,000 less than the carrying amount. Cash proceeds = $25,000 - $5,000 = $20,000. This $20,000 is the cash inflow shown in investing activities.
Common mistakes
Adding the loss to the carrying amount instead of subtracting it, resulting in $30,000.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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