- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 7. Analysis of Long-Term Assets
- Subject 3. Derecognition of Assets
CFA Practice Question
Nepster Inc. provides the following information from its accrual-basis financial statements:
12/31 Buildings (net): $300,000
Depreciation Expense: $25,000
B. $65,000
C. $85,000
1/1 Buildings (net): $280,000
12/31 Buildings (net): $300,000
Depreciation Expense: $25,000
How much did Nepster pay for buildings during the year if buildings with a book value of $40,000 were disposed of during the year?
A. $45,000
B. $65,000
C. $85,000
Correct Answer: C
The correct amount must take into account the book value of the buildings disposed of, depreciation expense, and the change in the Buildings account balance. The correct computation is the $20,000 change in the Buildings (net) account plus the $40,000 book value plus the $25,000 Depreciation Expense = $85,000
Ending Build. = Opening Build. + acquisitions - sales - depreciation expense (300,000 = 280,000 + X- 40,000-25,000)
User Contributed Comments 6
| User | Comment |
|---|---|
| Jmiller74 | The question is written incomplete, it does not mention the change in the book value by 20K. |
| John1965 | Yes it is complete: the 20,000 comes from 300,000 - 280,000. |
| johntan1979 | There is no change in book value whatsoever. Book value of disposed asset = $40,000 $20,000 is Ending building - Beginning building = $300k - $280k |
| farhan92 | took me a minute or so to find the book value -.- |
| ascruggs92 | Start 280,000 Less: Depreciation Exp. (25,000) Less: Disposal of Assets (40,000) Buildings Acct. Balance before purchases 215,000 Purchases 85,000 Ending Balance: 300,000 |
| cfastudypl | using the fixed asset t-account: closing balance 300k + depreciation 25k + disposal value 40k less opening balance 280k = 85k(300+25+40-280) |