Question

. Dallas Wildcat Drilling Co. sells an oil-drilling rig for $3,000,000. The drilling rig was purchased in 2013 for $2,000,000. Depreciation deductions of $1,200,000 have been taken up to the time of sale. What amount and character of gain will Dallas report from the sale of this asset?

Answer 1

$2,200,000 gain

Step-by-step explanation:

When the amount received from the disposal of an asset is lower than the carrying or net book value (NBV) of the asset, the company makes a loss on disposal otherwise, the company makes a gain on disposal.

The carrying amount of the asset is the difference between the asset's cost and accumulated depreciation as at the date of disposal.

Asset NBV = $2,000,000 - $1,200,000

= $800,000

Gain/(loss) on disposal = $3,000,000 - $800,000

= $2,200,000