Question1(e) The company made a net loss of $100,000 for the period ended 30 June 2024. The company sold a building for $100,000 cash and made a loss on sale of $5,000. The company also bought a new building during the period. Depreciation expense for buildings for the period was $50,000. Balances of asset and liability accounts are listed below: [table]
| 30 June 2024 | 30 June 2023 | $ | $ Cash | 55,000 | 25,000 Accounts Receivable | 30,000 | 60,000 Inventories | 23,000 | 50,000 Prepaid Insurance | 12,000 | 5,000 Buildings | 200,000 | 300,000 Accumulated depreciation (buildings) | (130,000) | (150,000) Accounts Payable | 60,000 | 70,000 Interest Payable | 55,000 | 10,000 Short term loan | 12,000 | 50,000
[/table] What is the value of the new building purchased during the financial period ended 30 June 2024? (1 mark) $75,000 $50,000 $100,000 $95,000 $150,000 ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

To tackle this problem, I’ll first lay out the key financial moves affecting the buildings account during the period.
We know the company sold a building for 100,000 cash and incurred a loss of 5,000 on the sale. This implies the book value of the sold building was 105,000 (since 100,000 − 105,000 = −5,000).
Next, the depreciation expense for buildings for the period was 50,000, which affects the accumulated depreciation.
Given the balance sheet figures: ending Buildings = 200,000 and ending Accumulated depreciation (buildings) = (130,000); beginning Buildings = 300,000 and beginning Accumulated depreciation = (150,000).
Now, let’s analyze the changes step by step.
Option-by-option analysis:
- $75,000: This is a viable purchase amount based on the accounting flow described below; we will verify consistency.
- $50,000: If the purchase were only 50,000, the ending balances would not reconcile with the sale and depreciation figures provided.
- $100,000: A purchase of 100,000 would similarly fail to align with the ending asset and accumulated depreciation levels given the sale and depreciation.
- $95,000: This amount would need a different combination of sale value and depreciation to balance, which is not supported by the data.
- $150,000: This would drastically overshoot the ending building balance when accounting for the sale and the initial balance.
Now we perform the algebra to confirm the correct figure.
1) Let the sold building cost be C_s and its accumulated depreciation be AD_s. We know:
   Book value = C_s − AD_s = 105,000 (since sale price 100,000 minus 105,000 book value gives a 5,000 loss).
2) Ending accumulated depreciation: Beginning AD (150,000) − AD_s + Depreciation expense (50,000) = Ending AD (130,000).
   Therefore, 150,000 − AD_s + 50,000 = 130,000 → 200,000 − AD_s = 130,000 → AD_s = 70,000.
3) From step 1: C_s − 70,000 = 105,000 → C_s = 175,000.
4) Assets balance for Buildings: Beginning cost 300,000 − C_s + Purchase P = Ending cost 200,000.
   So 300,000 − 175,000 + P = 200,000 → 125,000 + P = 200,000 → P = 75,000.
Conclusion: The value of the new building purchased during the period is 75,000.
- Why not $50,000? Because using the end and beginning balances with the sale and depreciation, the math forces the purchase to be 75,000 to reconcile both the cost and accumulated depreciation movements.
- Why not $100,000? This would produce mismatches in either the ending cost or the ending accumulated depreciation when cross-checked against the original balances and the sale details.
- Why not $95,000? Similar consistency tests show it would not balance the building cost and depreciation paths given the sale and depreciation figures.
- Why not $150,000? That would overshoot the ending building cost after considering the sale of a 175,000-cost building and 50,000 depreciation this year, causing inconsistency with the reported ending balance of 200,000.
Thus, the only option that reconciles all given data is 75,000.

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