Corporation purchased a truck on June 1 2012 at a cost of $170,000. The truck ha
ID: 2382011 • Letter: C
Question
Corporation purchased a truck on June 1 2012 at a cost of $170,000. The truck had a useful life of 8 years with an estimated salvage value of $10,000. They use the straight-line depreciation method and their fiscal year end is 12/31. On February 1, 2015 the truck needed an engine overall which cost $40,000 and extended the useful life for an additional 5 years beyond the original estimate. New salvage value is estimated to be $15,000. Prepare the appropriate journal entries at February 1, 2015 and December 31, 2015 for this truck.
Explanation / Answer
Feb 1 Truck A/c....Dr $ 40000
To Bank $ 40000
(Being capital expenditure incurred on the truck thereby capitalizing the asset and adding it to the value of asset)
Dec 31 Depreciation A/c....Dr $ 13500
To Truck $ 13500
(Depreciation charged at the end of the year on truck)
Profit and loss a/c...Dr $ 13500
To depreciation $ 13500
(being depreciation transferred to P/L a/c)
Note on depreciation:
Depreciation amount for 2012,13,14=$(170000-10000)/8*3
$60000
Hence Opening WDV for 2015=$110000
+Capital expenditure =$40000
Hence new WDV=$150000
Now depreciation shall be re computed as below
$(150000-15000)/10[13 years-10]
=$13500
hence depreciation for current year=$13500