Ontario Ltd. purchased a machine on Jan 1, 2019 for $750,000. The machine had an estimated useful life of 5 years and an estimated residual value of $50,000. The company uses straight-line depreciation and records monthly depreciation. The machine was sold on December 31, 2022 for $200,000. 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 sale 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 annual depreciation multiplied by the number of years the machine has been in use. In this case, the annual depreciation is $700,000 / 5 = $140,000. The machine has been in use for 4 years, so the accumulated depreciation is $140,000 * 4 = $560,000. The book value is therefore $750,000 - $560,000 = $190,000. The gain on disposal is therefore $200,000 - $190,000 = $10,000.