The company would recognize a $2,000 gain.
Solution:
Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life
Depreciation expense per year = ($64,000 Cost - $10,000 Salvage) ÷ 6 Year life = $9,000
Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000
Book value = $64,000 Cost - $36,000 Accumulated depreciation = $28,000
Gain on sale = $30,000 Sales price - $28,000 Book value = $2,000)
What is Depreciation expense?
- Depreciation is an accounting technique that distributes an asset's cost over the course of its useful life.
- The cost of an asset that has been depreciated for a particular period, or period, is known as depreciation expense, and it indicates how much of the asset's worth was used up in that year.
- The total amount of depreciation expense that has been assigned for an asset since it was first used is known as accumulated depreciation.
- Depreciation expense is recorded as a non-cash expense on the income statement, which lowers the company's net profits.
- The balance sheet's counter asset account records accumulated depreciation, which lowers the reported gross value of fixed assets.
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