Q: An item of plant originally purchased for $65,000 and with a book value of $12,000 was sold during the year for cash.
What is the amount I should put into purchases for plant and equipment? Thanks a lot.
A: To answer this, look at the plant and equipment account only (i.e. cost prices of plant and equipment): - We started with $795,000 - We sold an item that cost us $65,000 - We bought some plant and equipment for a certain amount (the answer we're looking for) - We had $1,290,000 of plant equipment at the end of the year.
If we arrange this in a mathematical formula we would have: 795,000 - 65,000 + X = 1,290,000 X = 1,290,000 - 795,000 + 65,000 X = 560,000
So the purchases of plant and equipment for the year must have been $560,000.
By the way, I have detailed explanations of accumulated depreciation and depreciation (multiple lessons) and exercises on these topics in my basic accounting books.