Question

Disposal of Fixed Asset

Pacifica Manufacturing retired a computerized metal stamping machine on December 31, 2019. Pacifica sold the machine to another company and did not replace it. The following data are available for the machine:

Cost (installed), 1/1/2014 $880,000
Residual value estimated on 1/1/2014 60,000
Estimated life as of 1/1/2014 10 years
The machine was sold for $225,000 cash. Pacifica uses the straight-line method of depreciation.

Answer 1

Answer:

$328000

Explanation:

Given: Cost of machine= $880000

           Residual value= 60000

           Estimated life= 10 years

Company use straight line depreciation method.

∴ Depreciation = $\frac{\textrm{cost of machine- residual value}}{estimated\ useful\ life}$

⇒ Depreciation= $\frac{880000 - 60000}{10} = \frac{820000}{10}$

∴ Depreciation= $\ 82000$ per year.

Now, lets find the value of depreciation.

∵ Machine is sold on December 31, 2019, which is 6 years after it is installed.

∴ Depreciation value after 6 years= $\textrm{Depreciation value every year \times number of years used}$

Depreciation value after 6 years= $82000\times 6 = \ 492000$

Next, finding the value of machine after 6 years of depreciation.

Value of machine after 6 years= $820000 - 492000= \ 328000$

∴ Disposal value of machine after 6 years of usage is $\ 328000$, however, machine was sold at $225000.