Equipment that was purchased for $30,000 has accumulated depreciation of $27,000. It is sold to the scrap yard for $3,500. What is the gain or loss on the disposal of this fixed asset?
Explanation
Answer - D - The disposal of the fixed asset will result in a gain of $500:
Book Value = Cost − Accumulated depr.
Book value = 30,000 − 27,000 or 3,000
Selling price was $3,500
If selling price is over book = gain; under book = loss
Key Takeaway: The first step to determine a gain or loss is to determine the current book value of the asset. The book value is the original cost of the asset, less the accumulated depreciation. If the selling price of the fixed asset is higher than the current book value, a gain is recognized, if lower, than a loss is recognized.
