buy equipment then depriciate it,has no salvage value then you sell it. Determine weather it's a gain or a loss.---- that's how it was said on our study guide and I didn't really understand it?

buy equipment then depriciate it,has no salvage value then you sell it. determine weather its a gain or a loss.---- thats how it was said on our study guide and i didnt really understand it??


(1)When you buy equipment you record the amount you paid for in the account: "equipment"
(2)Then you find annual depreciation. To do this you subtract the salvage value (the amount that you expect the equipment to be worth at the end of the equipment's useful life) from the amount you paid for the equipment. You then divide that amount by the equipment's useful life.
(3) When you sell the equipment you subtract the total depreciation, called "accumulated depreciation" from the amount you originally paid for the equipment. This amount is called the net book value(NBV). You compare net book value to the price you sold the equipment for; if the selling price is greater than NBV you have a gain, if selling price is less than NBV you have a loss.

Example
You buy equipment for $100 and estimate that it will have a useful life of 10 years and zero salvage value. In ten years you sell the machine for $10.

Price you paid = $100
Useful life =10 yrs
Salvage value= $0
Annual depreciation: (Price you paid - salvage value)/useful life
(100 - 0)/10= 100/10= $10/yr
After 10 yrs accumulated depreciation=$100
NBV=Price you paid - accumulated depreciation
NBV=100-100=0
Selling price =10
10>0 selling price>NBV
gain of $10

If you had sold it after the 8th year NBV would have been $20 (100-80) and you would have reported a $10 loss because NBV>selling price.

Example.

In 2001 you buy a piece of equipment for 6,000.

You depreciate it at 1,000 per year.

So 2001, = 500
2002 – 2006 = 1,000
2007 = 500

Now, the equipment has a NBV of 0 in 2007.

Calculation:
6,000 original cost – Depreciation (500 for 2001, + 1,000 x 5 years + 500 for 2007)

You sell it for $50.

It is “worth” 0 on your balance sheet, yet you sold it for $50. Therefore, you have a gain of $50.