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20 August, 14:22

An asset was acquired on August 1, 2021, for $22,000 with an estimated five-year life and $2,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on April 30, 2023, for $13,000. Partial-year depreciation is calculated based on the number of months the asset is in service.

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  1. 20 August, 16:22
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    The answer is ($2,000). Loss of $2,000

    Explanation:

    Straight line depreciation = (cost of the asset - residual/salvage value) : number of years

    The number of years is 5 and changing this to months will be 60months (5 x 12months)

    So we have:

    ($22,000 - $2,000) : 60 months

    $333.33

    August 1, 2021 through April 30 2023 is 21 months

    So accumulated depreciation is:

    $333.33 x 21 months

    = $7,000.

    Therefore the book value on April 30,2023 is:

    $22,000 - $7,000

    =$15,000

    On this date, the asset was sold for $13,000

    Therefore, we have a loss of $2,000 ($13,000 - $15,000). The sale price is less than the carrying amount (book value) of the asset.
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