ABC Ltd. sold equipment on June 30 2020 for $110,000. The equipment had originally been purchased...

ABC Ltd. sold equipment on June 30 2020 for $110,000. The equipment had originally been purchased for $160,000 on July 1, 2015. At the time of purchase, the equipment’s useful life was estimated to be ten years and to only be worth $10,000 as scrap value at that time. What was the gain or loss reported by ABC on the sale of the equipment? (State any assumptions you make).

Solutions

Expert Solution

Answer: Gain or (loss) reported by ABC = $25,000 Gain

Explanation:

Assumption: In the absence of information it is assumed that the equipment is depreciated as per the straight-line method.

Depreciation per annum = (Cost - Scrap value) / Estimated useful life

= ($160,000 - $10,000) 10 years = $15,000

Accumulated depreciation as on date of sales [July 1, 2015 to June 30 2020] = $15,000 * 5 years = $75,000

Book value as on June 30 2020 = Cost - Accumulated depreciation

= $160,000 - $75,000 = $85,000

Gain or loss reported by ABC = Sales value - Book value as on June 30 2020

= $110,000 - $85,000 = $25,000 Gain

ekkarill92 answered 2 years ago

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