Answer:
The correct answer is Option C.
Explanation:
The unit-of-production method is used when the asset value closely relates to the units of output it is able to produce. It is expressed with the formula below:
(Original Cost - Salvage value) / Estimated production capacity x Units/year
At Year 2018, depreciation expense (DE) is: ($240,000 - $40,000) / 10,000 operating hours x 2,400 hours = $48,000
At Year 2019, depreciation expense (DE) is: ($240,000 - $40,000) / 10,000 operating hours x 2,100 hours = $42,000
Accumulated depreciation for 2 years is $48,000 + $42,000 = $90,000.
Note that this depreciation method results in higher depreciation charge when the asset is heavily used, at this time, it was in Year 2018.
The net book value (NBV) of the asset becomes $240,000 - $90,000 = $150,000
Gain or (loss) on disposal = Sales proceed - NBV
Gain or (loss) on disposal = $140,000 - $150,000
Loss on disposal =$10,000
