Question

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $274,817.00 with an accumulated depreciation of $261,076.15. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $31,603.96. What is the amount of the gain or loss on this transaction? Select the correct answer.

Answer 1

Answer:

$17,863.11

Explanation:

The carrying amount or net book value of an asset is the difference between the historical cost of the asset and the accumulated depreciation. When an asset is disposed, this carrying amount has to be derecognized and the proceed from the sale recognized. The difference between these two amounts is the gain/loss on disposal.

When the amount received from the disposal of an asset is higher than the carrying value of the asset, the company makes a gain on disposal.

Carrying amount = $274,817.00 - $261,076.15.

= $13,740.85

Gain/(loss) on disposal

= $31,603.96 - $13,740.85

= $17,863.11