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 :)

ekkarill92 answered 2 years ago
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