Gunter’s business sells an item of machinery for £2660 on 30 June 2012. The balances at the beginning of the accounting year (1 January 2012) for the asset were:
Cost: £17 700
Accumulated depreciation: £15 930
Gunter charges depreciation on this class of asset at the rate of 10% per annum on cost, with a month’s depreciation charged for each full month of ownership in the year of disposal. He has assumed a nil residual value for this asset.
Two of the following eight statements are correct:
1 Profits decrease by £890
2 Profits increase by £890
3 Profits increase by £1 775
4 Profits decrease by £1 775
5 Cash increases by £2 660
6 Cash increases by £1 775
7 Cash decreases by £2 660
8 Cash decreases by £1 775
Which statements are correct?
a) 1 and 7
b) 4 and 6
c) 2 and 8
d) 3 and 5