Final answer:
The loss or gain on repossession of merchandise is the difference between its fair value and the amount owed. This is akin to calculating equity in property, where equity is the market value minus the debt owed.
Step-by-step explanation:
The loss (gain) on repossession of merchandise is the difference between the estimated fair value of the merchandise and the amount owed on it. In business, this concept is similar to calculating equity in real estate, where equity is the market value of a property minus what is still owed to the bank. For instance:
- Fred's house value is $200,000, he owes $180,000 to the bank, therefore his equity is $20,000.
- Freda's house value is $250,000 and she owes nothing to the bank, making her equity the full $250,000.
- Frank's house value is $160,000 and he owes $60,000 to the bank, leaving him with an equity of $100,000.
In all examples, the equity represents the owner's financial interest in the property and is calculated by subtracting the amount owed from the property's market value.