Module-10 Accounting For Fixed Assets and Depreciation

CHAPTER - 10
ACCOUNTING FOR FIXED ASSETS

AND DEPRECIATION
Sr.
Course Outline Topics
No
1 Basic Definition and Concept
2 Depreciation Methods and Depreciation Rates
3 Basic Depreciation Accounting
4 Disposal of Fixed Assets - Accounting Entries
5 Disposal of Fixed Assets - at the beginning of the year (for Loss)
6 Disposal of Fixed Assets - at the beginning of the year (for Gain)
7 Disposal of Fixed Assets - during the year – (for Loss)
8 Disposal of Fixed Assets - during the year – (for Gain)
9 Exchange of Asset
Topic videos 87-95 are mandatory part of this module
Basic Definitions and Concepts
Property Plant and Equipment

▪ These are asset that will be used over a period of time (in excess of one year)
▪ These are not held for re-sale in the normal course of trading
▪ These may be held for:
– Production of goods or services
– Selling of goods or services
– Administrative purposes
– Rental to others
Recognition Criteria
▪ Cost can be measured reliably
▪ Probability of inflow of economic benefits in future
Measurement
▪ At recognition
o Purchased constructed/manufactured assets are initially measured at cost
o Exchanged assets are initially measured at fair value, unless:
▪ The exchange transaction lacks commercial substance or
▪ Fair value cannot be determined, in these circumstances; carrying amount of the asset given
up will be the value of the asset taken in exchange.
After recognition
▪ After once recognized the items of property, plant and equipment are measured at either of the two models:
o Cost model
▪ Cost of asset less accumulated depreciation less accumulated impairment loss
o Revaluation model (not in syllabus)
▪ Revalued amount less accumulated depreciation subsequent to revaluation and accumulated
impairment loss subsequent to revaluation.
Cost components
▪ Purchase price less trade discounts and rebates
▪ Import duties
▪ Non-refundable purchase taxes
▪ Directly attributable cost
▪ Estimated cost of dismantling, removal and site restoration
Directly attributable cost is the cost that is incurred to bring the asset into a condition, which is necessary for it to be
capable of use as intended by management of entity.
Impairment loss (not in syllabus)

▪ When carrying amount of asset is greater than its recoverable amount the difference is Impairment Loss.
Depreciation
▪ Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life
Depreciable amount
▪ Cost of an asset, or other amount substituted for cost, less its residual value
Useful life
▪ Period over which an asset is expected to be used; or
▪ Number of production units expected to be obtained from the asset
Depreciation rate is determined based on useful life and residual value of the asset.
Depreciation methods
▪ Straight line method
▪ Reducing balance method
▪ Sum of years digit method
▪ Number of units output method
▪ Number of service hours method
Selection of depreciation method depends upon pattern of economic benefits of the asset to the entity.
Practice 10.1 (Depreciation Methods / Depreciation Rates)

Machine bought on 1.1.20X9 for Rs.80,000. Its residual value is estimated Rs.2,000 with 4 years useful life. It can work for
12,000 hours in total and can produce 40,000 units in total (as per estimate)
Following is its actual results in 20X9 and 20Y0

Year Service Units
Hours Produced
20X9 2,000 7,000
20Y0 5,000 15,000
Calculate depreciation for two years using each of the following methods:
1. Straight line method
2. Reducing balance method
3. Service hour method
4. Units output/produced method
5. Sum of years’ digit method
Answer:
Rs.
Cost of Machine 80,000
Less Residual value (2,000)
Depreciable amount 78,000
1. Straight Line Method
Depreciable Amount
= Depreciation
useful Life
78,000
= 19500 Year 20X9 Rs. 19,500
4
78,000 x 25% Year 20Y0 Rs. 19,500
2. Reducing Balance Method
 
1− n Residual Value   100 = %
 Cost 
 
Where n = useful life
 2,000 
 1 − 4  x 100 = 60%
 80,000 
Year 20X9 80,000 x 60% Rs. 48,000
Year 20Y0 32,000 x 60% Rs. 19,200
Under reducing balance method first year’s depreciation is calculated by applying

depreciation rate on cost, whereas in subsequent years depreciation is calculated
by applying depreciation rate on opening balance of Net Book Value (NBV).
3. Service Hours Method/Usage method
Depreciable Amount
= Depreciation Rate Per Hour
Total Estimated Hours
78,000
= Rs.6.50 PerHour Year 20X9 2,000 x 6.50 Rs. 13,000
12,000
Year 20Y0 5,000 x 6.50 Rs. 32,500
4. Units Output/Production Method
Depreciable Amount
= Depreciation Rate Per Unit
Total Estimated Output
78,000
= Rs.1.95 PerUnit Year 20X9 7,000 x 1.95 Rs. 13,650
40,000
Year 20Y0 15,000 x 1.95 Rs. 29,250
5. Sum of Years’ Digit Method
Year Rs.
20X9 1 78,000 x 4/10 = 31,200
20Y0 2 78,000 x 3/10 = 23,400
20Y1 3 78,000 x 2/10 = 15,600
20Y2 4 78,000 x 1/10 = 7,800
Sum of years 1 + 2 + 3 + 4 = 10. In the year 20X9 i.e.

first year the Machine is expected to be used for 4
year, in second year the Machine is expected to be
used for 3 years, in third year the Machine is
expected to be used for next 2 years and in last year
the Machine is expected to be used in the current
year only.
Basic Accounting for Depreciation
Accounting Entries
1. Fixed Asset A/c.
Cash/Bank/Creditor A/c.
(Purchase of Fixed Asset upon payment or on credit)
2. Depreciation Expense A/c.

Provision for Depreciation A/c.
(Provision against depreciation expense for the year)
3. Profit & Loss A/c.

Depreciation Expense A/c.
(Depreciation expense closed to Income Statement)
Practice 10.2 (Basic Depreciation Accounting)
20X9 Rs.
January 1, Opening balance Plant and Machinery 25,000
January 1, Opening Balance Accumulated Depreciation 10,000
July 1, Purchased New Plant 20,000
Required: Prepare Plant and Machinery Account and Provision for Depreciation Account for the year ending on
December 31, 20X9 assuming the following scenarios:
I
Depreciation method Reducing Balance Method
Depreciation rate 10%
Depreciation basis Full year depreciation in the year of purchase
II
Depreciation basis Time proportionate
III
Depreciation method Straight Line Method
Depreciation basis Full year depreciation in the year of purchase
IV
Answer:
Scenario 1 (Reducing balance method – Full year depreciation)
Plant and Machinery account

Particulars Rs. Particulars Rs.
20X9 20X9
Jan 1 Balance b/f 25,000 Dec 31 Balance c/f 45,000
July 1 Bank 20,000
45,000 45,000
Provision for Depreciation

20X9 20X9
Dec 31 Balance c/f 13,500 Jan 1 Balance b/f 10,000
Dec 31 Depreciation Expense 3,500
13,500 13,500
Depreciation charge = (opening NBV x rate) 25,000 – 10,000 = 15,000 x10% Rs. 1,500
20,000 X 10% Fully Year Rs. 2,000
3,500
Scenario 2
(Reducing balance method – Time proportionate depreciation)

20X9 20X9
July 1 Bank 20,000
45,000 45,000
20X9 20X9
12,500 12,500
Rs.
Depreciation charge (opening NBV x rate) 25,000 – 10,000 = 15,000 x10% 1,500
New Machine 20,000 x 10% x 6/12 1,000
2,500
Scenario 3
(Straight Line Method – full year depreciation)
20X9 20X9
July 1 Bank 20,000
45,000 45,000
20X9 20X9
14,500 14,500
Depreciation charge = (Closing cost x rate) 45,000 x10% = Rs. 4,500

Scenario 4
(Straight Line Method – Time proportionate depreciation)
20X9 20X9
July 1 Bank 20,000
45,000 45,000
20X9 20X9
13,500 13,500
Rs.
Depreciation charge = (opening cost x rate) 25,000 x10% 2,500
New Machine 20,000 x10% x 6/12 1,000
3,500
Accounting Entries for Disposal of Fixed Asset
1. Asset Disposal A/c.

Fixed Asset A/c.
(Asset transferred to asset disposal account, with the amount of gross carrying amount / cost of asset)
2. Provision for Depreciation A/c.

Asset Disposal A/c.
(Accumulated depreciation balance till the date of disposal transferred to asset disposal account)
3. Bank A/c.
Asset Disposal A/c.
(Disposal Consideration / sales proceeds received on disposal of the asset)
4.
a) Asset Disposal A/c.
Income Statement
(Profit/Gain on disposal of asset transferred to income statement for the period)
b) Income Statement
Asset Disposal A/c.
(Loss on disposal of asset transferred to income statement for the period)
Exercise Question 10.3
Scenario 1
(Disposal of fixed assets at the beginning of year – for loss)
On Jan. 1 20X9 machine costing Rs.70,000 and accumulated depreciation being Rs.50,000
was sold for Rs.15,000 on Jan 1 20X9.
Machine Account
20X9 20X9
Jan 1 Balance b/f 70,000 Jan 1 Disposal a/c 70,000
Balance c/f Nil
70,000 70,000
Provision for Depreciation Account
20X9 20X9
Jan 1 Disposal a/c 50,000 Jan 1 Balance b/f 5,000
Balance c/f Nil
50,000 50,000
Asset Disposal Account
Particulars Rs Particulars Rs
20X9 20X9
Jan 1 Machine a/c 70,000 Jan 1 Provision for depreciation 50,000
Jan 1 Cash a/c 15,000
Dec 31 Income Statement (Loss) 5,000
70,000 70,000
Scenario 2
(Disposal of fixed assets at the beginning of year – for gain)
On Jan 1 20X9 machine costing Rs.70,000 and accumulated depreciation being Rs.50,000
was sold for Rs.22,000 on Jan 1 20X9.
Machine Account
20X9 20X9
Jan 1 Balance b/f 70,000 Jan 1 Disposal a/c 70,000
Balance c/f Nil
70,000 70,000
2009 20X9
Jan.1 Disposal a/c 50,000 Jan 1 Balance b/f 50,000
Balance c/f Nil
50,000 50,000
Asset Disposal account
20X9 20X9
Jan. 1 Machine a/c 70,000 Jan 1 Provision for depreciation 50,000
Dec.31 Income Statement 2,000 Jan 1 Cash a/c 22,000
(Profit)
72,000 72,000
Scenario 3
(Disposal of fixed assets during the year – for loss)
On Jan 1 20X9 machine costing Rs.70,000 and accumulated depreciation being Rs.50,000
was sold for Rs.15,000 on June 30 20X9. The above machine was depreciated at 10% on
reducing balance method.
Machine Account
20X9 20X9
Jan 1 Balance b/f 70,000 June 30 Disposal a/c. 70,000
Balance c/f Nil
70,000 70,000
20X9 20X9
June 30 Disposal a/c. 51,000 Jan 1 Balance b/f 50,000
Balance c/f Nil June 30 Depreciation expense 1,000
51,000 51,000
20X9 20X9
June 30 Machine a/c. 70,000 June 30 Provision for depreciation 51,000
June 30 Cash a/c. 15,000
Dec 31 Income Statement (Loss) 4,000
70,000 70,000
Depreciation Expense Account
20X9 20X9
June 30 Provision for Dep. 1,000 Dec 31 Income Statement 1,000
1,000 1,000
* Working:
Cost 70,000
Less Accumulated Depreciation 50,000
NBV 20,000 x 10% = 2,000 x 6 = 1,000
12
Scenario 4
On Jan 1 20X9 machine costing Rs.70,000 accumulated depreciation being Rs.50,000 was sold for Rs.22,000 on June 30
20X9. The above machine was depreciated at 10% on Straight line Method.
Machine Account
20X9 20X9
Jan 1 Balance b/f 70,000 June 30 Disposal a/c 70,000
Balance c/f NIL
70,000 70,000
20X9 20X9
June 30 Disposal 53,500 Jan 1 Balance b/f 50,000
Balance c/f NIL June 30 Depreciation Expense* 3,500
53,500 53,500
20X9 20X9
June 30 Machine a/c 70,000 June 30 Provision for depreciation 53,500
Dec.31 Income Statement 5,500 June 30 Cash A/c 22,000
(Profit)
75,000 75,500
Depreciation Expense Account
20X9 20X9
June 30 Provision for Dep 3,500 Dec 31 Income Statement 3,500
3,500 3,500
* Working:
6
Cost 70,000 x 10% = 7,000 x = 3,500
12
Exercise Question 10.4
(Disposal and Addition of fixed assets during the year)
20X9 Rs.
January 1, Opening Balance Plant and Machinery 25,000
January 1, Opening Balance Accumulated Depreciation 10,000
July 1, Old plant disposed of costing 5,000
Provision for depreciation of the old plant on 1-1-X9 2,000
July 1, Purchased New Plant 20,000
Disposal proceeds 2,500
Required: Prepare Plant and Machinery Account, Provision for Depreciation Account and Asset Disposal Account
for the year ending on December 31, 20X9 assuming the following scenarios:
1.
Depreciation basis Full year depreciation in the year of purchase and no depreciation in the year of disposal.
2.
3.
Depreciation basis Full year depreciation in the year of purchase and no depreciation in the year of disposal.
4.
Answer:
Scenario 1
20X9 20X9
Jan 1 Balance b/f 25,000 July 1 Disposal a/c 5,000
July 1 Bank 20,000 Dec 31 Balance c/f 40,000
45,000 45,000
Provision for Depreciation account

20X9 20X9
July 1 Disposal a/c 2,000 Jan 1 Balance b/f 10,000
Dec 31 Balance c/f 12,000 Dec 31 Depreciation Expense 4,000
14,000 14,000
Machine Disposal account

20X9 20X9
July 1 Plant & Machine 5,000 July 1 Provision for dep a/c 2,000
July 1 Bank 2,500
Dec 31 Income Statement 500
5,000 5,000
Depreciation Charge for Asset used during the reporting period (SLM – Full Year Basis)
Cost
Rs.
Opening balance b/f 25,000
Opening balance Disposed off (5,000)
Opening balance in use for full year 20,000
Opening balance Cost 20,000 x 10% 2,000

New Machine 20,000 x 10% 2,000
Depreciation charge for the year 4,000
Scenario 2
Plant and Machinery Account

20X9 20X9
45,000 45,000
Provision for Depreciation account

20X9 20X9
Dec 31 Balance c/f 11,000 July 1 Depreciation Expense 250
13,250 13,250
Machine Disposal account

20X9 20X9
July 1 Bank 2,500
5,000 5,000
Depreciation Charge for Assets in use on reporting date (SLM – Time proportion Basis)
Cost
Rs.
Opening balance b/f 25,000
Opening balance Disposed of (5,000)
Opening balance in use for full year 20,000
Opening balance Cost 20,000 x 10% 2,000

New Machine 20,000 x 10% x 6/12 1,000
Depreciation Charge of Asset sold during the year
Opening balance cost of asset sold during the year 5,000 x 10% x 6/12 = 250
Accumulated depreciation of asset sold till the date of disposal = 2,000 + 250 = 2,250
Scenario 3
Plant and Machinery Account

20X9 20X9
45,000 45,000

20X9 20X9
July 1 Disposal A/c. 2,000 Jan 1 Balance b/f 10,000
Dec 31 Balance c/f 11,200 Dec 31 Depreciation Expense 3,200
13,200 13,200
Machine Disposal Account

20X9 20X9
July 1 Bank 2,500
5,000 5,000
Depreciation Charge for Asset used during the reporting period (RBM – Full Year Basis)
Cost Accumulated NBV

Depreciation
Rs. Rs. Rs.
Opening balance b/f 25,000 10,000 15,000
Opening balance Disposed of (5,000) (2,000) (3,000)
Opening balance in use for full year 20,000 8,000 12,000
Rs.
Opening balance NBV 12,000 x 10% = 1,200
New Machine 20,000 x 10% = 2,000
Scenario 4

20X9 20X9
45,000 45,000

20X9 20X9
Dec 31 Balance c/f 10,200 July 1 Dep Expense 150
Dec 31 Dep Expense 2,200
12,350 12,350
Machine Disposal Account

20X9 20X9
July 1 Plant & Machine 5,000 July 1 Provision for dep. a/c. 2,150
July 1 Bank 2,500
5,000 5,000
Depreciation Charge for Assets in use on reporting date (RBM – Time proportion Basis)
Cost Accumulated NBV

Depreciation
Rs. Rs. Rs.
Opening balance b/f 25,000 10,000 15,000
Opening balance Disposed off (5,000) (2,000) (3,000)
Opening balance in use for full year 20,000 8,000 12,000
Rs.
Opening balance NBV 12,000 x 10% = 1,200
New Machine 20,000 x 10% x 6/12 = 1,000
Depreciation Charge for Asset sold during the year
Opening NBV balance of asset sold during the year 3,000 x 10% x 6/12 = 150
Accumulated depreciation of asset sold till the date of disposal = 2,000 + 150 = 2,150
Exchange of Asset
Exchange of Asset – Trade-in-Allowance

When an old asset is exchanged with a new asset the seller of new asset will offer an allowance while receiving payment
for selling asset in consideration of the exchange of old asset. Such allowance is known as “trade in allowance”. The buyer
will subtract “trade in allowance” from the cost of new asset while making payment to the seller.
Cost of new asset = Cash consideration + Trade in allowance.
Cost of new asset – trade in allowance = Cash consideration
Asset account will be debited with the cost of new asset i.e., cash paid plus trade in allowance.
Trade in allowance is considered as disposal proceeds of the old asset.
Exchange of Asset – Commercial Substance
When an asset is exchanged with another asset and commercial substance does not exist in such exchange, the cost of
asset taken through exchange is carrying amount of asset given up.
But when the commercial substance does exist, then cost of asset taken through exchange would be fair value of asset
given up.
When fair value of both assets is not determinable the carrying amount of asset given up would be considered as cost
of asset taken through exchange.
Existence of commercial substance means; that the entity specific values (present value of future expected cash flows)
of both assets are not equal.
Important Tips to Remember (ITTRs)
1. Final balance of depreciation expense a/c is closed into the income statement as expense.
2. Carried forward balance of provision for depreciation is subtracted from carried forward balance of fixed asset
to get net book value, which is shown in Statement of Financial Position.
3. While calculating depreciation charge for the year, following information must be gathered first.
a. Depreciation rate 10% or 5% etc.
b. Deprecation method SLM or RBM etc.
c. Deprecation basis Time Proportionate or Full Year Basis etc.
4. Where date of purchase/disposal is given always use time proportionate basis if question is silent regarding the
basis. But where the date of purchase and disposal are not given and the question is silent regarding the basis
then charge full year’s depreciation in the year of purchase and no deprecation in the year of disposal.
5. While calculating depreciation charge under straight line method subtract residual value from cost of the asset
and then apply depreciation rate. This process will be followed in each year of useful life. In case the residual
value is nil then depreciation rate will be applied on original cost in each year of its useful life. That is why straight
line method is also named as original cost method.
6. While calculating depreciation charge under reducing balance method, in first year of useful life, depreciation
rate is applied on cost, whereas in subsequent years depreciation rate is applied on opening balance of net book
value of the asset for full year assuming there is no addition during the year.
7. In the year of disposal, depreciation charge will be calculated from opening date till the date of disposal and
accounting entry will be:
Depreciation expense Dr.
Provision for depreciation Cr.
This accounting entry (for such amount) shall be recorded in order to complete accumulated depreciation till the
date of disposal.
Remember: The above accounting effect shall be made if and only if time proportionate basis is being
followed.
8. While recording accounting entries for disposal of fixed asset, follow the following steps:
a. Identify/calculate the amount of accumulated depreciation till the date of disposal in accordance with
depreciation basis and then pass the accounting entry to transfer accumulated depreciation into asset
disposal account.
b. Transfer cost of asset sold/disposed into asset disposal account.
c. Whether the asset is sold for cash credit or claim for insurance is lodged, the amount will be considered
as disposal proceeds and will be credited in disposal account.
9. Single accounting entry for disposal of assets:
Provision for depreciation A/c. Dr.
Cash/Bank/Insurance claim A/c. Dr.
Income statement (for loss - if any) Dr.
Fixed Asset A/c. Cr.
Income statement (For gain - if any) Cr.
10. When an old asset is exchanged with a new asset the seller of new asset will offer an allowance while receiving
payment for selling asset in consideration of the exchange of old asset. Such allowance is known as “trade in
allowance”. The buyer will subtract “trade in allowance” from the cost of new asset while making payment to
the seller.
Cost of new asset = Cash consideration + Trade in allowance.
Cost of new asset – trade in allowance = Cash consideration
11. Asset account will be debited with the cost of new asset i.e., cash paid plus trade in allowance.
12. Trade in allowance is considered as disposal proceeds of the old asset.
13. Whenever the rate of deprecation, useful life of asset, depreciation method and/or residual value of asset is
changed, accounting effects of such changes shall be recognized prospectively i.e. in the current year and
subsequent years.
14. When an asset is exchanged with another asset and commercial substance does not exist in such exchange, the
cost of asset taken through exchange is carrying amount of asset given up.
But when the commercial substance does exist, then cost of asset taken through exchange would be fair value
of asset given up. When fair value of both assets is not determinable the carrying amount of asset given up would
be considered as cost of asset taken through exchange.
15. Existence of commercial substance means; that the entity specific value (present value of future expected cash
flows) of both assets are not equal.
MCQs
1. Bashir acquired a Motor Van on 1 May 20X3 at cost of Rs.30,000. The Motor Van has an estimated
useful life of four years, and an estimated residual value of Rs.6,000.
Bashir charges depreciation on the straight-line basis, with a proportionate charge in the period of
acquisition.
What will the depreciation charge for the Motor Van be in B’s accounting period to 30 September
20X3?
A. Rs.3,000
B. Rs.2,500
C. Rs.2,000
D. Rs.5,000
30,000 – 6,000 = 24,000/4years = 6,000 x 5/12 months = 2,500 for the proportionate period of five
months
2. A non-current asset was disposed of for Rs.2,200 during the last accounting year. It had been
purchased exactly three years earlier for Rs.5,000, with an estimated residual value of $500, and had
been depreciated on the reducing balance basis, at 20% per annum.
The gain or loss on disposal was:
A. Rs.360 loss
B. Rs.150 loss
C. Rs.104 loss
D. Rs.200 profit
(Net book value = 5,000 – 1,000 – 800 – 640 = 2,560) – (Disposal proceed 2,200) = Loss 360
Residual value is not subtracted while calculating depreciation on reducing balance method.
The following information relates to the next three questions:

An equipment which had cost of Rs.20,000 and had accumulated depreciation of Rs.17,200 was sold
during 20X7 for Rs.4,800. The total cost of machinery shown in the December 20X6 statements of
financial positions was Rs.180,000 and the related accumulated depreciation was Rs.92,000. The
company uses 10% straight-line depreciation on machinery and no depreciation is charged in the
year in which an asset is sold.
3. What is the balance on the accumulated depreciation account at 31/12/20X7?
Rs. ___________________90,800
(92,000 – 17,200 + 16,000 [160,000 x 10%])
4. What is the gain or loss on disposal of the equipment?
A. A gain of Rs.3,400
B. A loss of Rs.3,400
C. A gain of Rs.1,400
D. A gain of Rs.2,000
(20,000 – 17,200 = NBV 2,800) – (Sales Proceed 4,800) = Gain 2,000

5. What is the annual depreciation for 20X7?
$___________________16,000
Opening balance at cost 180,000 – cost of asset sold 20,000 = 160,000 x 10% = 16,000

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CHAPTER - 10

ACCOUNTING FOR FIXED ASSETS

Property Plant and Equipment

Impairment loss (not in syllabus)

Practice 10.1 (Depreciation Methods / Depreciation Rates)

Following is its actual results in 20X9 and 20Y0

Under reducing balance method first year’s depreciation is calculated by applying

Sum of years 1 + 2 + 3 + 4 = 10. In the year 20X9 i.e.

2. Depreciation Expense A/c.

3. Profit & Loss A/c.

Plant and Machinery account

Provision for Depreciation

Plant and Machinery account

Depreciation charge = (Closing cost x rate) 45,000 x10% = Rs. 4,500

1. Asset Disposal A/c.

2. Provision for Depreciation A/c.

Provision for Depreciation account

Machine Disposal account

Opening balance Cost 20,000 x 10% 2,000

Plant and Machinery Account

Provision for Depreciation account

Machine Disposal account

Opening balance Cost 20,000 x 10% 2,000

Depreciation Charge of Asset sold during the year

Plant and Machinery Account

Provision for Depreciation Account

Machine Disposal Account

Cost Accumulated NBV

Plant and Machinery account

Provision for Depreciation Account

Machine Disposal Account

Cost Accumulated NBV

Exchange of Asset – Trade-in-Allowance

Exchange of Asset – Commercial Substance

The following information relates to the next three questions:

(20,000 – 17,200 = NBV 2,800) – (Sales Proceed 4,800) = Gain 2,000

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