O Level Accounting (7707)•7707/12/O/N/23
Explanation
Loss on disposal via straight-line depreciation Steps:
- Annual depreciation = (cost - scrap value) / useful life = (550) / 5 years = $60.
- Accumulated depreciation after 3 years = 3 × 180.
- Book value at sale = 180 = $670.
- Loss on disposal = book value - sale price = 100 = $570.
Why B is correct:
- Straight-line method allocates depreciable amount evenly; loss equals carrying amount minus proceeds (GAAP definition).
Why the others are wrong:
- A assumes no scrap value (depreciation $170/year), ignoring estimated residual.
- C reverses formula, treating $570 as gain instead of loss.
- D misapplies profit calculation, possibly confusing remaining life value.
Final answer: B
Topic: Accounting for depreciation and disposal of non-current assets
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