A plant asset cost ¥900,000 when it was purchased on January 1, 2007. It was depreciated by the straight-line method based on a 9-year life with no residual value. On June 30, 2014, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement?

Question

Quizplus · Accepted Answer

To calculate the gain or loss on retirement, we need to compare the book value (cost minus accumulated depreciation) of the asset with the amount that we received on retirement. In this case, since the asset was discarded with no cash proceeds, the amount received is zero. 
As the asset was depreciated by straight line method, the annual depreciation would be (900,000 / 9) = ¥100,000. Therefore, the total accumulated depreciation on June 30, 2014 (end of 6.5 years) would be (100,000 × 6.5) = ¥650,000. 
The book value of the asset on June 30, 2014 would be (900,000 - 650,000) = ¥250,000. 
Since we received no cash proceeds on retirement, the loss would be the entire book value of the asset, which is ¥250,000. Therefore, the correct answer is C) ¥150,000 Loss (not ¥200,000 as that would be a double counting error).

A Plant Asset Cost ¥900,000 When It Was Purchased on January