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17 June, 11:23

Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.)

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  1. 17 June, 12:13
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    Loss of $7,000

    Explanation:

    Data provided in the question:

    Purchasing cost = $78,000

    Residual value = $3,000

    Useful life = 5 years

    Selling cost = $8,000

    Now,

    Annual depreciation = [ Cost - Residual value ] : Useful life

    = [ $78,000 - $3,000 ] : 5

    = $75,000 : 5

    = $15,000

    Therefore,

    Accumulated depreciation of 4 years = 4 * Rate of depreciation

    = 4 * $15,000

    = $60,000

    Therefore,

    Book value at the end of 4 year = Cost - Accumulated depreciation

    = $75,000 - $60,000

    = $15,000

    Since,

    Book value at the end of 4 year is greater than the selling cost

    therefore,

    there is loss = Book value - Selling cost

    = $15,000 - $8,000

    = $7,000

    Hence,

    Loss of $7,000
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