Question

Price Aladdin bought a machine for use in his business on 1 November 2004. He gave the supplier a cheque for $11,570 and traded in an old machine. The supplier allowed him $4,430(Trade in value) in part exchange for the old machine. Price Aladdin depreciates machinery on the reducing balance basis at a rate of 20% per annum. The old machine had cost $12,000 and had been (Accumulated depreciation) by $5,856.

What is the profit or loss on the trade in of the old machine?

Answer 1

To determine the profit or loss on the trade-in, the net book value of the old machine ($6,144) is subtracted from its trade-in value ($4,430), resulting in a loss of $1,714.

Step-by-step explanation:

The student is asking for the calculation of the profit or loss on the trade-in of an old machine in the context of a business transaction. To determine the profit or loss on the disposal of a fixed asset like machinery, we compare the trade-in value received to the net book value (cost minus accumulated depreciation) of the machine.

The original cost of the old machine is $12,000, and it has accumulated depreciation of $5,856. Thus, the net book value of the machine at the time of trade-in is $12,000 - $5,856 = $6,144.

The trade-in value received is $4,430. Therefore, the loss on the trade-in is $6,144 - $4,430 = $1,714.