Question

Assuming Donavon uses the straight-line method and the company sold the machine on July 1, 20x3 for $47,000, determine the gain/loss on disposal.

Answer 1

Hi, your question is incomplete, I tried to search for it online but I could not find it.

However, below are the explanations I can give to help you solve the problem.

Before we calculate the gain/loss on disposal of the asset (machine) we must first determine the following amounts ;

1. Cost of the Asset

Have the original cost of the asset handy. This is the cost when the entity purchased machine.

2. Accumulated Depreciation

This is the sum of all the depreciation charges on the asset from the date it was first available for use up to the date the the asset is sold. In this case the accumulated depreciation is up to July 1, 20x3. Calculate the depreciation charge using the policy stated - straight line that is (Cost - Salvage Value) ÷ Estimated useful life.

3. Proceeds from Sale

This is the amount of Cash that the company received as a result of the Sale. In our case the Company received proceeds of $47,000.

Now, that we have the three (3) amounts above, we can calculate the gain/loss on disposal of the asset (machine) as :

Gain/loss on disposal = Proceeds - Carrying Amount (Cost - Accumulated depreciation)