passwella.
Menu

WAEC Financial Accounting 1996 Question 10

Question 10

Depreciation

An equipment costing N60,000 was bought on 1st January 1991. Depreciation was provided at 20 percent annually on straight line method. It was sold on 30th June 1994 for N15,750.
In the year of sale, profit was

  1. A.reduced by N15,750
  2. B.increased by N15,750
  3. C.reduced by N12,000
  4. D.increased by N2,250
  5. E.reduced by N2,250.
Show the answer and explanation

Answer: E (reduced by N2,250.)

Explanation

The equipment was sold for N15,750 but its book value was N18,000, so there is a loss on disposal of N2,250 that reduces profit.