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ACCA · Question 25 · Preparing Basic Financial Statements
A company's property, plant and equipment had a carrying amount of $450,000 at the start of the year and $520,000 at the end of the year. During the year, depreciation of $60,000 was charged, and a machine with a carrying amount of $30,000 was sold for $35,000. What was the cash outflow for the purchase of new property, plant and equipment during the year? (Enter numbers only)
A company's property, plant and equipment had a carrying amount of $450,000 at the start of the year and $520,000 at the end of the year. During the year, depreciation of $60,000 was charged, and a machine with a carrying amount of $30,000 was sold for $35,000. What was the cash outflow for the purchase of new property, plant and equipment during the year? (Enter numbers only)
How to approach this question
Set up a T-account for PPE Carrying Amount. Opening balance + Additions - Depreciation - Carrying amount of disposals = Closing balance. Solve for Additions.
Full Answer
Opening carrying amount: $450,000
Less: Depreciation ($60,000)
Less: Carrying amount of disposal ($30,000)
Subtotal = $360,000
Closing carrying amount = $520,000
Additions (Purchases) = $520,000 - $360,000 = $160,000.
Common mistakes
Using the sale proceeds ($35,000) instead of the carrying amount ($30,000) in the PPE account reconciliation.
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