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On 1/9/2018 ABC acquired a machinery at an acquisition cost of €25,000. The expected useful life was 8 years, and the residual value was zero. ABC adopted the straight-line depreciation method. ABC sold the above machinery on 1/3/2021 at a selling price of €16,000. Firm’s accounting period commences at 1st January and ends at 31st December of each year. The gross result (profit\loss) of the sale was: a. None of the given answers is correct. b. Profit €2,187 c. Loss €2,187 d. Profit €1,187 e. Loss €1,187

Answer :

Final answer:

The gross profit from selling the machinery is €187, based on a straight-line depreciation calculation over three years. None of the given answers in the options are correct.

Explanation:

This question relates to the straight-line depreciation method in accounting. To determine the gross result (profit/loss) of the sale, you need to know the book value of the machinery at the time of sales.

The machinery was acquired by ABC on 1/9/2018 for €25,000 with a useful life of 8 years and a residual value of zero. Therefore, the annual depreciation expense is €25,000 / 8 = €3,125.

The sale took place on 1/3/2021, which is three years later. So, the accumulated depreciation at the time of sale is: €3,125 x 3 = €9,375.

The book value of the machinery at the time of the sale is: Acquisition cost - Accumulated Depreciation = €25,000 - €9,375 = €15,813.

ABC sold the machinery on 1/3/2021 for €16,000. Therefore, the gross result of the sale is: Selling price - Book value at the time of sale = €16,000 - €15,813 = €187 profit.

Therefore, none of the given options (a to e) are correct.

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