A motor car costing D100,000 was depreciated at 20% per annum by the diminishing balance method. Two years later, it was sold for D60,000. Using the informa...

A motor car costing D100,000 was depreciated at 20% per annum by the diminishing balance method. Two years later, it was sold for D60,000. Using the information, the net profit or loss on the sale was

Answer Details

Using the diminishing balance method, the depreciation for the first year would be 20% of D100,000 which is D20,000. The written down value at the end of the first year would be D80,000 (D100,000 - D20,000). In the second year, the depreciation would be 20% of D80,000 which is D16,000. The written down value at the end of the second year would be D64,000 (D80,000 - D16,000). The net book value (NBV) of the motor car at the time of sale would be D64,000. Therefore, the loss on sale would be the difference between the net book value (NBV) and the sale price. Loss on sale = NBV - Sale price Loss on sale = D64,000 - D60,000 Loss on sale = D4,000 So, the net loss on the sale of the motor car is D4,000. Therefore, the correct option is D 4,000 loss.