Amie sells a motor vehicle for £6000.The carrying amount of the vehicle at the point of sale was £5400.Using the accounting equation, what is the effect of this transaction on Amie's business assets, capital and liabilities?
A)Assets - decrease; capital - decreases; liabilities - no change.
B)Assets - increase; capital - increases; liabilities - no change.
C)Assets - increase; capital - decreases; liabilities - no change.
D)Assets - decrease; capital - no change; liabilities - decrease.

Question

Quizplus · Accepted Answer

The sale of the vehicle for £6000 when its carrying amount was £5400 results in a profit of £600 (£6000 - £5400). This increases assets by the cash received and increases capital by the profit amount. Liabilities do not change as this transaction does not involve any borrowing or repayment of debt.

Amie Sells a Motor Vehicle for £6000