Had a hard time on this one: An analyst gathered the following information regarding the long-lived assets of a company ($000): 20X2 20X1 Land $75 $60 Plant and equipment 640 592 ------ ------ 715 652 Less: Accumulated 224 188 depreciation Property, plant and $491 $464 equipment – net Depreciation Expense $42 Capital expenditures 82 Proceeds from sale of equipment 18 The gain or loss from the sale of long-lived assets during 20X2 was closest to ($000): a. $5 gain. b. $5 loss. c. $13 gain. d. $13 loss. Answer : A
i am struggling with the way you wrote the Q out…
I’m sorry…I adjusted the format before I post it and didn’t expect it came out this way…
yeh i figured…
any thoughts on this one? i’m losing my mind on it.
715 - 652 = 63 which is the net change in FA Add back the depreciation of 42, so 63 + 42 = 105. 82 was spent on new FA, so subtract this from 105, leaving 23. Of this 23 amount, subtract the proceeds from the sale of FA (18) which leaves you with 5 - which is the net gain weird question really
You need to calculate the net value of assets without the sale. It is calculated in this way: 464000+82000-42000=504000. Since we know that with asset sale the net value of assets is 491000, then we know that the difference between this two numbers must the book value of asset sold. It is 13000. 18000-13000=5000 profit. Hope it is clear…
Mihaz, could you explain the logic behind the way you calculated net value of assets without the sale? everything else made sense to me. thanks.
The follg formula ALWAYS WORKS. PPE Net End = PPE Net Begin + Purchases - Depr - Sales Sales above is the Book Value of the Sales. Substituting 491=464+82-42-Sales Sales=13 you are given you sold it for 18. So you made a 18-13= 5$ gain. Ans A
Sure. All the data is given. You add capital expenditures and substract depreciation.
Much appreciated guys! CP, your explanation is much more straightforward than Stalla. They presented with a T a/c which really drives me nuts.