Chartered Financial Analyst Level 1
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An analyst collects the following data (in € thousands) regarding a company's equipment:
- Purchase price of the equipment: 1,000
- Accumulated depreciation: 250
- Gain on sale of the equipment: 400
Ignoring taxes, the proceeds from the sale of the equipment (in € thousands) would be:
An analyst collects the following data (in € thousands) regarding a company's equipment:
- Purchase price of the equipment: 1,000
- Accumulated depreciation: 250
- Gain on sale of the equipment: 400 Ignoring taxes, the proceeds from the sale of the equipment (in € thousands) would be:
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Explanation:
The correct answer is B. 1,150. The proceeds from the sale of long-lived assets are calculated as the carrying amount of the asset plus any gain on the sale. The carrying amount is the historical cost minus accumulated depreciation. In this case:
- Carrying amount = Purchase price (1,000) - Accumulated depreciation (250) = 750
- Proceeds from sale = Carrying amount (750) + Gain on sale (400) = 1,150
Option A (750) only considers the carrying amount, while Option C (1,400) incorrectly adds the gain to the purchase price without accounting for depreciation.