Accounting Online Program Certification Practice Test

How much profit did Exe plc realize on the disposal of its machine?

1. £2,440

2. £3,000

3. £1,500

4. £2,000

The correct answer is: £2,440

To determine the profit that Exe plc realized on the disposal of its machine, it's essential to calculate the difference between the sale proceeds from the disposal and the carrying amount (book value) of the machine at the time of disposal. If the profit calculated is £2,440, that indicates that the sale proceeds exceeded the carrying amount of the machine by this amount. In this context, the carrying amount includes the initial cost of the machine minus any accumulated depreciation at the time of the sale. Understanding the figures involved is crucial. For instance, if the machine was originally purchased for a certain amount and was subsequently depreciated over its useful life, the carrying amount would reflect this reduction in value. The sale proceeds would be the actual cash received from the sale of the machine. Thus, the calculation would involve taking the cash received for the machine (sale proceeds) and subtracting the carrying amount. If the resulting figure is £2,440, it validates the assertion that this is the profit realized from the disposal. This emphasizes the importance of knowing not only the proceeds from sales but also how depreciation affects asset valuation and ultimately influences profit calculation.