On Ist January, 1993, lobo Company purchased equipment for N18,000. it uses straight-line depreciation with an estimates eight-year useful life and a N2,000 salvage value. On 31st December, 1996, it sells the equipment for N8000. In recording this sales, it should reflect?

  • A N10,000 loss
  • B N2,000 loss
  • C N4,000 loss
  • D N8,000 gain
jamb 1998accounting

The correct answer is C. N4,000 loss

equipment price = 18000

salvage value after 8 years useful life = 2000

If in 1996 ( 3 years later) it is sold for 8000, hence we have

18000 - (2000 x 3 yrs = 6000) = 12000

12000 - 8000 = 4000

This means that the equipment was supposed to have been sold for 12,000 after 3years of usage instead it was sold for 8,000. This shows a N4000 loss

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