Long Lived Assets - Depreciation Question

CFA Level I FRA
#1

A financial analyst at BETTO S.A. is analyzing the result of the sale of a vehicle for 85,000 Argentine pesos (ARP) on 31 December 2009. The analyst compiles the following information about the vehicle: Acquisition cost of the vehicle ARP 100,000 Acquisition date 1 January 2007 Estimated residual value at acquisition date ARP 10,000 Expected useful life 9 years Depreciation method Straight-line

The result of the sale of the vehicle is most likely: a gain of ARP 15,000.

Okay, I’m confused because only a year of depreciation was taken out even though the company had it for two years (maybe even 3) before the sale. There was a somewhat similar depreciation question in the same exercise with about the same time period and two years of depreciation was taken out in that question. Help me understand this. Thanks

#2

First, the company had it for three years, not two: all of 2007, all of 2008, and all of 2009.

Second, they took three years of depreciation, not one: all of 2007, all of 2008, and all of 2009.

Therefore, the book value was ARP100,000 − 3(ARP10,000) = ARP70,000, and the gain on the sale was ARP85,000 − ARP70,000 = ARP15,000.

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#3

OMG, you are so right. Not sure what I was thinking. Thanks for clearing it up.

#4

You’re quite welcome.

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