A plant asset cost $90,000 when it was purchased on January 1, 2011. It was depreciated by the straight-line method based on a 9-year life with no salvage value. On June 30, 2018, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement?
A) No gain or loss.
B) $20,000 loss.
C) $15,000 loss.
D) $10,000 gain.

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation expense would be ($90,000/9) = $10,000. As of June 30, 2018, the asset had been in service for 7.5 years, and accumulated depreciation would be (7.5 x $10,000) = $75,000. Therefore, the carrying value of the asset on June 30, 2018 would be:

Cost - Accumulated Depreciation = $90,000 - $75,000 = $15,000

Since there is no salvage value, the loss on retirement would be the carrying value of the asset. Therefore, a $15,000 loss should be recognized on the retirement.

A Plant Asset Cost $90,000 When It Was Purchased on January