Question

A company purchased equipment for $100,000 that is expected to have a useful life of 10 years and no salvage value. The company sold the equipment at the end of the fourth year of its useful life, at which point it had fair market value of $90,000. If the asset was sold for $70,000 and was being depreciated using the straight line method as was reported at book value, what amount of gain or loss would be reported at the time of the sale?  

		$20,000 gain
		$10,000 gain
		no gain or loss would be reported.

Answer 1

The above image shows the depreciation schedule if the machine is depreciated using straight line method over its useful life of 10 years.

Now the machine is sold at the end of 4rth year when the balance after depreciation is 60000 Now if the asset is sold at 70000 then the profit is of 10000

Fair market value is not to be considered while calculating profit and loss as it is not relevant