Question
In: Accounting
Q. Baoshan Energy Ltd. in Shanghai, China, has a tank lorry that costed the company ¥300,000...
Q. Baoshan Energy Ltd. in Shanghai, China, has a tank lorry that costed the company ¥300,000 when it was purchased on January 1, 2016. The vehicle has an estimated useful life of 10 years and no residual value. Baoshan uses straight-line method of depreciation on equipment. Baoshan decides to dispose the tank lorry and sells it to Pudong Oil & Gas Co. on August 31, 2020. (Currency in Chinese yuan, ¥)
Instructions:
A. What journal and T-account entries would Baoshan Energy make to record the sale of the tank lorry for ¥170,000 cash on August 31, 2020?
B. What journal and T-account entries would Baoshan Energy make to record the sale of the tank lorry for ¥100,000 cash on August 31, 2020?
Solutions
Expert Solution
Cost of lorry = 300,000
Useful life = 10 years.
Residual value = 0
Annual depreciation = (Cost - residual value)/Useful life = 300000/10 = 30,000
Monthly depreciation = 30000/12 = 2,500
From January 1, 2016 to August 31, 2020, Baoshan Energy Ltd has used the lorry for 4 years and 8 months,.or 56 months
Total depreciation = 2500*56 = 140,000
Book value of lorry = 300,000 - 140,000 = 160,000
In case A, sale value of lorry is 170,000
Therefore, profit on sale of lorry = 170,000 - 160,000 = 10,000
Journal entry:
| Date | Account name and description | Debit | Credit |
| August 31, 2020 | Cash | 170000 | |
| Tank Lorry | 160000 | ||
| Profit on sale of lorry | 10000 |
In T Accounts, Cash will be debited 170,000, Tank Lorry will be credited 160,000, and profit on sale of lorry will be credited 10,000.
In case B, sale value of lorry is 100,000
Therefore, loss on sale of lorry = 160,000 - 100,000 = 60,000
Journal entry:
| Date | Account name and description | Debit | Credit |
| August 31, 2020 | Cash | 100,000 | |
| Loss on sale of lorry | 60,000 | ||
| Tank Lorry | 160,000 |
In T Accounts, Cash will be debited 100,000, Tank Lorry will be credited 160,000, and loss on sale of lorry will be debited 60,000.
Hope this helps :)
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