Jeng Limited disposed a fixed asset in 1999 for N2,000. The asset was purchased in 1996 at a cost of N10,000 and has been depreciated at the rate of 20% per annum using the straight line method. What is the profit or loss on the disposal asset?
The correct answer is C. N2,000 loss
The asset was purchased in 1996 at a cost of N10,000. Using the straight-line method of depreciation at a rate of 20% per annum, the annual depreciation would be N2,000 (20% of N10,000).
By 1999, the asset would have been depreciated for 3 years (from 1996 to 1999), so the accumulated depreciation would be N6,000 (N2,000 per year for 3 years).
The book value of the asset at the time of disposal in 1999 would be the original cost minus the accumulated depreciation, which is N4,000 (N10,000 - N6,000).
The asset was disposed of for N2,000, which is N2,000 less than the book value. Therefore, the company incurred a loss of N2,000 on the disposal of the asset.
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