A motor vehicle was purchased for $25,000, depreciated using the reducing-balance method for 3 years at 20% p.a. and was then sold for a price that was $1,600 more than the carrying amount of the vehicle. The cash received on the sale of the motor vehicle was:
A)$12,800.
B)$14,400.
C)$11,200.
D)$11,600.

Question

Quizplus · Accepted Answer

The reducing balance method of depreciation involves reducing the value of the asset by a fixed percentage each year. The calculation for each year is as follows:1. Year 1: $25,000 - (20% of $25,000) = $25,000 - $5,000 = $20,0002. Year 2: $20,000 - (20% of $20,000) = $20,000 - $4,000 = $16,0003. Year 3: $16,000 - (20% of $16,000) = $16,000 - $3,200 = $12,800The carrying amount after 3 years is $12,800. The vehicle was sold for $1,600 more than this amount, so the sale price was $12,800 + $1,600 = $14,400.

A Motor Vehicle Was Purchased for $25,000, Depreciated Using the Reducing-Balance