An asset was purchased for $33,000 on January 1, 2019. The asset's estimated useful life was five years, and its residual value was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss if the asset is sold for $26,000 on December 31, 2019, the last day of the accounting period.

loss of $1,200

Explanation:

Depreciation is the systematic allocation of cost to an asset. it is given as

Depreciation = (cost - salvage value)/useful life

When an asset is sold at an amount lower than its carrying or net book value, a loss on sale/disposal is recognized otherwise, a gain on disposal. The netbook value is the cost less accumulated depreciation.

Depreciation =  ($33,000 - $4,000)/5

= $5800

Netbook value at disposal = $33,000 - $5800

= $27,200

Gain/(loss) on disposal = $26,000 - $27,200

= ($1,200)

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