On September 3,Year 5 , Bob the Builder traded in a piece of equipment with a book value of $2,000 (initial cost $40,000) and paid $40,000 in cash. The old equipment could have been sold for $7,200 at the date of trade-in but was accepted for a trade-in allowance of $9,600 on the new equipment. He estimates that useful life would be 4 years and residual value would be $4,000. On August 8, Year 7, Bob sells this equipment for $20,000. Assume that straight-line depreciation is recognized once at the end of fiscal year (December 31) and that the company follows IFRS.

(1) Calculate gain or loss on sale, assuming the company adopts mid-month convention for partial-year depreciation.

(2) Calculate gain or loss on sale, assuming the company adopts half-year convention for partial year depreciation.

(3) Calculate gain or loss on sale, assuming the company records a full year of depreciation expense in the year of acquisition and no depreciation expense in the year of disposal.

Answer rating: 100% (QA)

New equipment was acquired March 3 Year 5 at cost of 25000 cash and trade in allowance of 9600 Useful life is 4 years with residual value of 4000 Augu... View the full answer