Your company purchased an asset with a total cost of $300,000. The asset has an expected useful life of 20 years.  The asset also has an expected residual value of $50,000.  Depreciation is calculated using the Straight Line Method.  After 4 years of owning the asset, you decide to sell the asset for $315,000.  Calculate the gain or loss if the sale was for $100,000.  Please calculate the gain or loss on the sale and please document the journal entries.  See page 421 for an example.

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.