Question

An asset with a historical cost of $14,725 and accumulated depreciation of $10,000 was discarded, having no market value. How much will be recorded as a loss or gain on disposal?
a.loss of $4,725
b.gain of $4,725
c.no loss or gain
d.Cannot be determined.

Answer 1

Answer:

a.loss of $4,725

Explanation:

As the asset has a historical cost of $14,725 and accumulated depreciation = $10,000, its carrying value shall be : $4,725

That is carrying value = Historical cost - Accumulated depreciation = $14,725 - $10,000

As it is provided that the asset is discarded with $0 market value, there is no amount received when the asset is discarded.

Thus, Sale price = $0

Carrying value = $4,725

Thus, loss = Sale price - Carrying value = $0 - $4,725

Loss = $4,725 as the value is negative.

Therefore, option a is correct.