Answer:
(D) $6,000 gain; (C) $60,000 loss on disposal
Explanation:
In the first question,
Original cost = $180,000
Estimated useful life = 5 years
Expected salvage value = $30,000
Therefore, annual deprecation = (180,000-30,000)/5 = 150,000/5 = $30,000.
With an accumulated depreciation of $105,000 on January 1, 2014 and a sale of the equipment on July 1, 2014, we need to add to the accumulated depreciation the depreciation for the six month period from January 1 to July 1 to determine the accumulated depreciation up to the point of sale.
6 month depreciation = 1 year depreciation/2 = 30,000/2 = 15,000
Therefore, accumulated depreciation up to the point of sale = 105,000 + 15,000 = 120,000.
Therefore, net book value (NBV) at time of sale = original cost - accumulated depreciation
= 180,000 - 120,000 = 60,000.
Thus, given a sale value of 66,000, there gain/(loss) on sale = sale value - NBV = 66,000 - 60,000 = 6,000 gain.
In the Second Question,
Original cost = $225,000
Sale value = $75,000
Accumulated depreciation = $90,000 (up to the point of sale).
Therefore, NBV at the point of sale = original cost - accumulated depreciation = 225,000 - 90,000 = 135,000.
Thus, profit/(loss) on disposal = sale value - NBV = 75,000 - 135,000 = -60,000 = 60,000 loss on disposal.
