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3 May, 02:00

A machine 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. 3 May, 02:19
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    Loss on Sale of Equipment = $10,000.

    Explanation:

    The gain or loss on sale of Property, plant, and Equipment is calculated by comparing Carrying Value (Cost - Accumulated Depreciation) and Sale Proceeds. The carrying value of a machine at the end of 4th year is:

    CV = 78,000 - { [ (78,000 - 3,000) / 5 ] * 4} = 78,000 - 60,000 = $18,000.

    Calculating Gain/Loss:

    Gain / (Loss) = Carrying value - Sales Proceeds = 18,000 - 8,000 = ($10,000).

    Because the company has sold a machine worth of $18,000 for $8,000, so it has incurred a loss of $10,000 on the transaction. This loss is recognized in the Statement of Profit or Loss.
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