Sokolsky Excavating purchased a used dump truck for $90,000 on January 1, 2018. Thecompany has depreciated the dump truck using the straight-line method over its estimated10-year life with a $6,000 residual value. Sokolsky sold the dump truck on January 1,2021, for $68,700. Total accumulated depreciation on the dump truck on the date of salewas $25,200. What gain or loss should be recorded on the sale?a. A gain of $3,900b. A loss of $3,900c. A loss of $21,300d. A gain of $21,300
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Sokolsky Excavating purchased a used dump truck for $90,000 on January 1, 2018. The
company has depreciated the dump truck using the straight-line method over its estimated
10-year life with a $6,000 residual value. Sokolsky sold the dump truck on January 1,
2021, for $68,700. Total accumulated depreciation on the dump truck on the date of sale
was $25,200. What gain or loss should be recorded on the sale?
a. A gain of $3,900
b. A loss of $3,900
c. A loss of $21,300
d. A gain of $21,300
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