Accounting Online Program Certification Practice Test

To determine the profit that Exe plc realized upon the disposal of the old machine, it's essential to consider both the selling price of the machine and its carrying value (the book value at the time of disposal). The profit on disposal is calculated by subtracting the carrying value from the selling price.

If the correct answer is £2,440, it indicates that the selling price exceeded the carrying value by that amount.

For example, if the old machine was sold for £6,440 and had a carrying value of £4,000, the profit would be determined as follows:

Profit on disposal = Selling Price – Carrying Value

Profit on disposal = £6,440 – £4,000 = £2,440

This calculation reflects a straightforward approach to understanding the financial outcome of the disposal.

It’s crucial to realize that the correct choice logically stems from verifying both figures involved in the calculation of profit on disposal. This ensures students grasp the fundamental accounting concepts surrounding asset disposals, making it a core component of financial decision-making in a business context.