If a company purhased an equipment for 320,000 on January 1, year 1 and the equipment is expected to have a life of 5 years with 20,000$ salvage value, and on July 1 year 4 , it was sold for cash at a gain of 10,000, how much investing cash inflows did the company receive from the sale of the equiment?
I am having trouble understanding how the bok value of the equipment is calculated at the time of the sales.
If it was purchased on Junuary 1 year 1, and was sold on July 1 year 4, there is 3.5 years passed no? Like Year 1 is the whole year, year 2 is the second whole year, year 3 is the 3rd whole year, and July 1 year 4 is a 0.5 year, for a total of 3.5 years!
I would get (320,000-20,000)/5=60,000 depreciation expense per year.
On the date of sale, the total depreciation expense = 3.5*60000=210,000.
The solution gives me 60000*4.5=270,000.
Which I don’t see why?
Can somebody just clarify this simple math problem?
I’ve only taken one exam (June 2012 L1), but if there’s one thing I learned from it, it’s that CFAI writes some damn good questions. They eliminate any ambiguity and ask for the information they want in as concise a way as possible - you’ll know exactly what they’re looking for. As far as Schweser, their questions are not nearly as well-written.
Never questioned what was being asked once in 240 questions at L1.
