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locust company disposed of an asset at the end of the eighth year of its estimated life for $31,500 cash. the asset's life was originally estimated to be 10 years. the original cost was $126,300 with an estimated residual value of $13,800. the asset was being depreciated using the straight-line method. what was the gain or loss on the disposal?

Answer :

The capital loss that has occurred to the company is $4,800, considering the cost of asset and depreciation.

Cost of asset = $126,300

Life = 10 years

Residual value = $13,800

Depreciation using straight line method = 126,300-13,800/10

Depreciation amount to be charged per year = $11,250

Depreciation for 8 years = $11,250*8 = $90,000

Book value at the end of 8th year = $126,300-$90,000 = $36,300

Sale value of asset = $31,500

Capital loss = $36,300-$31,500 = $4,800

Depreciation is an accounting technique for spreading out the expense of a tangible item and over course of its useful life. How much more asset's value has indeed been spent is indicated by depreciation. It enables business owners to purchase assets over a specified length of time and create revenue from some of those assets.

The initial cost of possession is significantly reduced because companies do not have to fully account for them this year when the goods are purchased. A company's profits can be greatly affected by not paying for depreciation. Long-term assets can also be amortized by companies for tax and accounting reasons.

Learn more about depreciation here:

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