Financial Reporting and Analysis Q160
| 2011 | 2012 | |
| Machinery | $80 million | $91 million |
| Accumulated depreciation | $25 million | $31 million |
Further information provided is as follows:
| Gain on sale of machinery | $1.5 million |
| Depreciation expense for 2012 | $7 million |
| Capital expenditure on machinery | $14 million |
How much did the company receive in cash from the sale of machinery?
- Option : C
- Explanation : Gain = Selling Price - Book Value
Historical cost:
Beginning value of machinery + machinery bought – machinery sold = Ending value of machinery 80 million + 14 million – 91 million = 3 million Machinery sold = 3 million Accumulated depreciation: Beginning value of depreciation + depreciation expense – machinery depreciation = Ending value of depreciation 25 million + 7 million – 31 million = 1 million Machinery depreciation = 1 million Book value: Book value = Historical cost – accumulated depreciation Book value = 3 - 1 = 2 million Selling price: Selling price = Gain + Book Value Selling price = 1.5 million + 2 million = 3.5 million.
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