Question

Piper's Pizza sold baking equipment for $25,000. The equipment was originally purchased for $72,000, and depreciation through the date of sale totaled $51,000. What was the gain or loss on the sale of the equipment

Answer 1

Answer:

The gain on disposal is of $4000

Explanation:

To calculate the gain or loss on disposal, we first need to calculate the Carrying value, also known as the Net Book Value, of the asset at the time of sale. The Carrying value is calculated using the following formula,

Carrying Value or NBV = Cost - Accumulated depreciation

Carrying Value or NBV = 72000 - 51000  

Carrying Value or NBV = $21000

If the asset is sold for more than its carrying value, there is a gain on disposal. If it is sold for less than its carrying value, there is a loss on disposal.

As the asset was sold for $25000 which is more than its carrying value of $21000, there is a gain on disposal.

Gain on disposal = 25000 - 21000   = $4000 Gain