On Ist January, 1993, lobo Company purchased equipment for ₦18,000. it uses straight-line depreciation and estimates an eight-year useful life and a ₦2,000 ...

Answer Details

The company purchased the equipment for ₦18,000 and estimated its useful life to be eight years, with a salvage value of ₦2,000. Straight-line depreciation method is used to depreciate the equipment, which means that the cost of the equipment will be equally spread over eight years. Depreciation per year = (Cost - Salvage value) / Useful life Depreciation per year = (18,000 - 2,000) / 8 Depreciation per year = ₦2,000 So, by the end of 1996 (four years), the accumulated depreciation on the equipment will be: Accumulated depreciation = Depreciation per year x number of years Accumulated depreciation = ₦2,000 x 4 Accumulated depreciation = ₦8,000 The equipment's book value at the end of 1996 will be: Book value = Cost - Accumulated depreciation - Salvage value Book value = 18,000 - 8,000 - 2,000 Book value = ₦8,000 When the company sells the equipment for ₦80,000, it will have a gain or loss, which is the difference between the sales price and the book value. Sales price - Book value = Gain or loss ₦80,000 - ₦8,000 = ₦72,000 Since the sales price is higher than the book value, the company will have a gain of ₦72,000. Therefore, the answer is ₦6,000 gain.