Francisco purchased a machine on Jan 1, 2010 for $600,000. The machine had an estimated useful life of 10 years and an estimated residual value of $10,000. The company uses straight-line depreciation and records monthly depreciation. The machine was sold on December 31, 2015 for $350,000. What was the gain/loss on disposal of the machine?

Question

Quizplus · Accepted Answer

The gain on disposal is calculated as the difference between the selling price and the book value of the machine. The book value is calculated as the original cost minus the accumulated depreciation. The accumulated depreciation is calculated as the depreciation expense per year multiplied by the number of years the machine has been in use. In this case, the depreciation expense per year is ($600,000 - $10,000) / 10 = $59,000. The machine has been in use for 6 years, so the accumulated depreciation is $59,000 * 6 = $354,000. The book value of the machine is therefore $600,000 - $354,000 = $246,000. The gain on disposal is therefore $350,000 - $246,000 = $104,000.

Francisco Purchased a Machine on Jan 1, 2010 for $600,000