Question

Steven, Inc., acquired a truck on January 1, 2016 for $40,000 cash. The truck was estimated to have a useful life of 10 years with no residual value, and the firm decided to use straight-line amortization. On January 1, 2017, management determined that the remaining useful life was actually only 6 more years. On June 30, 2018, the truck was sold for $25,000.

How much would Steven record as the value of the truck when it is acquired on January 1, 2016?

How much would Steven record as the amortization expense related to the patent for 2016?

Compute the amount of amortization that would be recorded for 2017.

Compute the amount of the loss that would be recorded upon the sale of the truck on June 30, 2018.

Thank you for your help!

Answer 1

IAS 16 - Properties, Plant and Equipment

Defintion : Cost

It is the amount of cash or cash equivalenhets paid or the fair value of the consideration transferred to acquire, purchase or construct an asset.

Hiere in the question steven acquired truck on jan 1. 2016 for $40000 , so we record value of the truck at $40000 .

Depreciable Amount

It is the amount of asset which will be depreciated over its useful life and is determined as the cost of an asset less its residual value

Here in the question cost-residual value / life of the asset , 40000-0/10=$40000 ( Recorded in the year 2016)

Depreciation Method:

(a) The depreciation method opted by the entity should be in accordance with the pattern of economic benefits which are to be consumed by the entity over its useful life.

(b) The entity should review the depreciation method opted at each reporting date and if there is any change in the pattern of consumption of economic benefits related to the asset, then the entity should change the depreciation method in accordance with the new pattern of consumption of economic benefits and such change will be accounted for as change in accounting estimate, which will be applied prospectively from that date.

Here in the question steven reviewed and found a change in the pattern of consumption of economic benefits and such change will be accounted for as change in accounting estimate , which will be applied prospectively from that date $36000-0/6=$6000 (irecorded n the year 2017)

Disposal

An entity will de-recognize the asset from statement of financial position when:
(a) The asset is disposed off:
(b) No economic benefits are expected either from use or from sale of asset

• Any gain or loss on the disposal of asset will be charged to the statement of profit or loss which will be the difference between carrying value and disposal proceeds

Here in the question carrying value is. $30000 and disposal proceeds is $25000 and $5000 difference that is loss charged to profit and loss account .