Sale of Non-Current Asset Question

by Cheong
(Malaysia)

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 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 for the year must have been $560,000.