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JAMB Principles of Accounts 1998 Question 19

Question 19

Depreciation

On 1st 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 salvage value. On 31st December, 1996, it sells the equipment for ₦8,000. In recording this sale, it should reflect

  1. A.₦10,000 loss
  2. B.₦2,000 loss
  3. C.₦6,000 gain
  4. D.₦8,000 gain.
Show the answer and explanation

Answer: B (₦2,000 loss)

Explanation

Depreciation = (18 000 − 2 000) ÷ 8 = 2 000 a year; 4 years = 8 000. Book value = 10 000. Sold for 8 000, so loss = ₦2 000.