Question

ABC Company purchased equipment on January 1, 2019 for $10,000 with a salvage value of $2,000...

ABC Company purchased equipment on January 1, 2019 for $10,000 with a salvage value of $2,000 and 2 years useful life. The company decided to sell the equipment on October 1, 2020 for $3,000.
Compute the amount of:
Annual Depreciation Expense .
Depreciation Expense of the Year 2019
Depreciation Expense of the Year 2020
Accumulated Depreciation at disposal date
Book Value at disposal date
Gain or Loss on Disposal amount

Business   Accounting   
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Answer #1

Sol :

Depreciation =    (Book Value - Salvage Value) / Useful life

Depreciation for the first year 2019(1st Jan - 31st Dec) = 10000-2000 /2 = 4000

Depreciation for the second year 2020(1st Jan - 1st Oct) = 4000*10/12 = 3333.33

Note : Since the asset is sold on 1st Oct 2020 depreciation expense to be booked for the second year up-to the sale date.

Book value of the asset at the end first year = 10000-4000=6000

Book value of the asset at the time of sale =6000-3333 = 2667

Asset is sold at 3000

Profit from the sale of asset = sold value - Book value

= 3000 - 2667 = 333

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