Question

The accountant for Becker Company wants to develop a balance sheet as of December 31, 2016. A review of the asset records has revealed the following information:

a.	Asset A was purchased on July 1, 2014, for $40,000 and has been depreciated on the straight-line basis using an estimated life of six years and a residual value of $4,000.
b.	Asset B was purchased on January 1, 2015, for $79,200. The straight-line method has been used for depreciation purposes. Originally, the estimated life of the asset was projected to be six years with a residual value of $7,200; however, at the beginning of 2016, the accountant learned that the remaining life of the asset was only three years with a residual value of $2,400.
c.	Asset C was purchased on January 1, 2015, for $58,000. The double-declining-balance method has been used for depreciation purposes, with a four-year life and a residual value estimate of $5,000.

Required:

1.	Assume that these assets represent pieces of equipment. Calculate the acquisition cost, accumulated depreciation, and book value of each asset as of December 31, 2016.
2.	How would the assets appear on the balance sheet on December 31, 2016?
3.	Assume that Becker Company sold Asset B on January 2, 2017, for $32,600. Calculate the amount of the resulting gain or loss and prepare the journal entry for the sale. Where would the gain or loss appear on the income statement?

Answer 1

Question 1

	A	B	C =A-B
Particulars	Acquisition Cost	Accumulated Depreciation upto Dec 31, 2016	Book Value as on Dec 31,2016
Asset A	40,000	15,000	25,000
Asset B	79,200	33,600	45,600
Asset C	58,000	43,500	14,500

Question 2

Becker Company

Partial Balance Sheet

December 31, 2016

Particulars	Amount	Amount
Non Current Assets
Asset A	40,000
Less: Accumulated Depreciation of Asset A	(15,000)	25,000
Asset B	79,200
Less: Accumulated Depreciation of Asset B	(33,600)	45,600
Asset C	58,000
Less: Accumulated Depreciation of Asset C	(43,500)	14,500
Total Non Current Assets		85,100

Question 3

Gain / Loss on Sale = Sale Price of Asset B - Book Value of Asset B

Sale Price of Asset B = $ 32,600

Book Value of Asset B as on Jan 02,2017 = $ 45,600

Gain / (Loss) on Sale of Asset B = 32,600 - 45,600

Loss on Sale of Asset B = $ 13,600

Particulars	Debit	Credit
Cash A/C..Dr	32,600
Accumulated Depreciation A/C..Dr	33,600
Loss on Sale of Asset B A/C..De	13,000
To Asset B		79,200
(Being Sale of Asset B Recorded)

​​​​​​

Loss on Sale of Asset is deducted as an expense from Income Statement as it reduces the Profit of the Company.

Supporting Notes

For Asset A

Calculation of Annual Depreciation of Asset A using Straight Line Method = Cost of Asset - Residual Value / Useful Life of Asset A in Years

Cost of Asset = $ 40,000

Residual Value of Asset A = $ 4,000

Useful Life of Asset A in Years = 6 Years

Annual Depreciation = 40,000 - 4,000 / 6

Annual Depreciation = $ 6,000

Year	Amount of Depreciation
July 2014 to December 2014	3,000
January 2015 to December 2015	6,000
January 2016 to December 2016	6,000
Accumulated Depreciation upto Dec 31,2016	15,000

Depreciation for July 2014 to December 2014 = 6,000 * 6 Month / 12 Months = 3,000

Asset B

Calculation of Annual Depreciation of Asset A using Straight Line Method = Cost of Asset - Residual Value / Useful Life of Asset B in Years

Cost of Asset = $ 79,200

Residual Value of Asset B = $ 7,200

Useful Life of Asset B in Years = 6 Years

Annual Depreciation = 79,200 - 7,200 / 6

Annual Depreciation = $ 12,000

Calculation of Depreciation After Taking Change in

Book Value of Asset B as on Dec 31,2015 = 79,200 - 12,000

= $ 67,200

Calculation of Revised Annual Depreciation of Asset B using Straight Line Method = Cost of Asset as on Dec 31,2016 - Revised Residual Value / Revised Useful Life of Asset B in Years

Cost of Asset B as in Dec 31, 2015 = $ 67,200

Revised Residual Value of Asset B = $ 2,400

Useful Life of Asset B in Years = 3 Years

Annual Depreciation = 67,200 - 2,400 / 3

Annual Depreciation from 2016 Onwards = $ 21,600

Year	Amount of Depreciation
January 2015 to December 2015	12,000
January 2016 to December 2016	21,600
Accumulated Depreciation upto Dec 31,2016	33,600

For Asset C

Calculation of Annual Depreciation of Asset A using Straight Line Method = Cost of Asset - Residual Value / Useful Life of Asset C in Years

Cost of Asset C= $ 58,000

Residual Value of Asset C = $ 5,000

Useful Life of Asset C in Years = 4 Years

Annual Depreciation = 58,000 - 5,000 / 4

Annual Depreciation = $ 13,250

Depreciation Rate = Annual Depreciation / Cost of Asset - Residual Value of Asset C * 100

Depreciation Rate = 13,250 / 53,000 * 100

Depreciation Rate = 25%

Depreciation Rate as per Double Declining Balance Method = Depreciation Rate * 200%

= 25% * 200%

= 50%

	A	B	C =A* B	D=A-C
Year	Starting Book Value	Annual Depreciation Rate	Annual Depreciation	Ending Book Value
Dec 31,2015	58,000	50%	29,000	29,000
Dec 31 ,2016	29,000	50%	14,500	14,500
Total Accumulated Depreciation upto Dec 31, 2016			43,500