Stan sells an item of machinery for £8000.The machine had cost £17 500 and accumulated depreciation up to the date of sale was £8600.Using the accounting equation, what was the effect of this transaction on Stan's business assets, capital and liabilities?
A)Assets - increase; capital - increases; liabilities - no change.
B)Assets - increase; capital - no change; liabilities - increase.
C)Assets - decrease; capital - decreases; liabilities - no change.
D)Assets - increase; capital - no change; liabilities - decrease.

Question

Quizplus · Accepted Answer

Assets decrease because the sale of the machinery (cost £17,500 with £8,600 depreciation) results in removing the net book value of the machinery (£17,500 - £8,600 = £8,900) from assets and adding the sale proceeds of £8,000, leading to a net decrease (£8,900 - £8,000 = £900). Capital decreases due to the loss on sale (£8,900 book value - £8,000 sale proceeds = £900 loss), which reduces the owner's equity. Liabilities remain unchanged as the transaction does not directly affect them.

Stan Sells an Item of Machinery for £8000