A car costing RM55,000 was purchased on 1 January 2015. It has an estimated useful life of 5 years and a residual value of RM15,000. On 1 January 2018 the car was sold for RM26,000. Calculate the gain or loss on the sale of the motor vehicle. Assume the car is depreciated using the straight line method.

Step 1: Calculate the depreciation of the car for 3 years. Formula: Cost - Residual value Estimated useful life * 3 years Journal entry to record depreciation for 1 year Debit Credit Depreciation expense Accumulated depreciation Step 2: Compare the cash that you get from selling the car (cash proceeds) and the book value of the car (Cost - Acc. Depreciation for 3 years) Cash proceeds Book value Gain/Loss?

A gain is recorded if the A loss is recorded if the cash proceeds is greater Gain/Loss? cash proceeds is less than than the book value. the book value.