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A truck cost $35,000, depreciates $7,000 per year, and has Accumulated Depreciation of $28,000 at 31 December 2013. It is sold on 1 April 2014 for $5,000 cash. What loss arises, after updating depreciation to the date of sale?
A$250
B$2,000
C$1,750
D$5,250
Answer & Solution
Correct answer: A. $250
1. Update depreciation for 3 months (1 Jan–1 Apr): $\$7{,}000 \times 3/12 = \$1{,}750$.
2. Accumulated Depreciation at 1 Apr $= \$28{,}000 + \$1{,}750 = \$29{,}750$.
3. Carrying amount $= \$35{,}000 - \$29{,}750 = \$5{,}250$.
4. Cash received = $5,000, which is less than carrying amount.
5. Loss $= \$5{,}250 - \$5{,}000 = \$250$.
6. Option B ignores the additional 3 months of depreciation; C is the catch-up depreciation itself; D is the updated carrying amount.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.7.1 "Selling a Fixed Asset (partial year)", p.166_
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