Mondale Winery depreciates its equipment using the group method. The cost of equ

Question

Mondale Winery depreciates its equipment using the group method. The cost of equipment purchased in 2016 totaled $465,000. The estimated residual value of the equipment was $44,000 and the group depreciation rate was determined to be 12%.

What is the annual depreciation for the group?

If equipment that cost $46,000 is sold in 2017 for $39,000, what amount of gain or loss will the company recognize for the sale?

Mondale Winery depreciates its equipment using the group method. The cost of equipment purchased in 2016 totaled $465,000. The estimated residual value of the equipment was $44,000 and the group depreciation rate was determined to be 12%.

Explanation / Answer

Answer to Part 1.

Annual Depreciation for the Group = (Cost – Salvage Value) * Group Depreciation Rate
Annual Depreciation for the Group = ($465,000 - $44,000) * 12%
Annual Depreciation for the Group = $50,520

Answer to Part 2.

Gain / Loss on Sale of Equipment = Sale Value - Book Value of Equipment on the date of Sale
Book Value of Equipment on the date of Sale = Cost – Accumulated Depreciation
Depreciation per year = $46,000 * 12%
Depreciation per year = $5,520

Accumulated Depreciation = $5,520 * 2
Accumulated Depreciation = $11,040

Book Value of Equipment on the date of Sale = $46,000 - $11,040
Book Value of Equipment on the date of Sale = $34,960

Gain / Loss on Sale of Equipment = $39,000 - $34,960
Gain on Sale of Equipment = $4,040

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