Straight Line Method: On March 31, 2013, Company A purchased a vehicle costing $
ID: 2477603 • Letter: S
Question
Straight Line Method: On March 31, 2013, Company A purchased a vehicle costing $25,000, had a useful life of 5 years, and no residual value. How much depreciation expense will be recorded at the end of 2013? What is the net book value at the end of 2015? How much depreciation expense will be recorded at the end of 2016? What is the net book value on 01/01/17? If they sell the truck for its residual value in cash on 04/01/18, what is the journal entry to record the sale? What if they receive $4,000 in cash upon sale? What if they receive $2,000 in cash upon sale? What is the journal entry if they no longer can use the item and it has no saleable value?Explanation / Answer
Using Straight line method depreciation is calculated as = (Cost of asset - residual Value ) / life of asset = (25000 - 0) / 5 = 5000 per year In year 2013 asset is purchased on march 31 and used for 9 months so depreciation will be charged for proporionate 9 months In year 2018 we have sold asset on april 01 , so used only for 3 months, depreciation will be charged on proportionate basis for 3 months Depreciation chart for several years is summarised as Year Opening + Addition = Sub total - depreciation Closing book value for year book value 2013 0 25000 25000 3750 21250 2014 21250 0 21250 5000 16250 2015 16250 0 16250 5000 11250 2016 11250 0 11250 5000 6250 2017 6250 0 6250 5000 1250 2018 1250 0 1250 1250 0 Depreciation for 2013 = Normal Depreciation x 9 /12 months = 5000 x 9/12 = 3750 Depreciation for 2018 = Normal Depreciation x 3 /12 months = 5000 x 3/12 = 1250 answer a) 3750 b) 11250 c) 5000 d) 6250 e) Cash 4000 Profit on sale of asset 4000 If they sold it for 4000 Cash 2000 Profit on sale of asset 2000 If they sold it for 2000