Question

Swann Company sold a delivery truck on April 1, 2019. Swann had acquired the truck on January 1, 2015, for $39,500. At acquisition, Swann had estimated that the truck would have an estimated life of 5 years and a residual value of $4,000. Swann uses the straight-line method of depreciation. At December 31, 2018, the truck had a book value of $11,100.

Required:

1.	Prepare any necessary journal entries to record the sale of the truck, assuming it sold for: a. $11,025 b. $7,525
2.	How should the gain or loss on disposal be reported on the income statement?
3.	Assume that Swann uses IFRS and sold the truck for $11,025. In addition, Swann had previously recorded a revaluation surplus related to this machine of $5,000. What journal entries are required to record the sale?

Answer 1

Date	account and explanation	Debit	Credit
Apr-01	Depreciation Expense	$ 1,775.00
	Accumulated depreciation-equipment		$ 1,775.00

Book value as on 31 December 2018	11100
Less: Depreciatiob for 3 months	1775
(39500-4000)/5*3/12
Book value as on 31 March 2019	9325
Accumulated Depreciation	30175
(39500-9325)

1. a.

Date	account and explanation	Debit	Credit
Apr-01	Cash	$11,025.00
	Accumulated depreciation-equipment (28400+1775)	$30,175.00
	Gain on sale of equipment		$    1,700.00
	Equipment		$ 39,500.00
	(To record sale of equipment)

1-b.

Date	account and explanation	Debit	Credit
Apr-01	Cash	$ 7,525.00
	Accumulated depreciation-equipment (28400+1775)	$30,175.00
	Loss on sale of equipment	$ 1,800.00
	Equipment		$ 39,500.00
	(To record sale of equipment)

2.

2a) Reporting
Other revenue
Gain on sale of equipment	$ 1,700.00
2b) Reporting
Other Expense
Loss on sale of equipment	$ 1,800.00

3. As per IFRS when revalued asset is disposed of revaluation surplus is transferred to retained earnings.  

Date	account and explanation	Debit	Credit
	Revaluation Surplus	$ 5,000.00
	Retained Earnings		$         5,000.00

Entry to record sale :

Date	account and explanation	Debit	Credit
Apr-01	Cash	$11,025.00
	Accumulated depreciation-equipment (28400+1775)	$30,175.00
	Gain on sale of equipment		$    1,700.00
	Equipment		$ 39,500.00
	(To record sale of equipment)

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