Question

Eric’s Excavations has a financial year which ends on the 30th June. Eric purchased a truck for $200,000 on 1 July 2019, and estimates that the asset will have a residual value of $50,000 and a useful life of 5 years. The truck was sold on 31 December 2020 for $160,000. Required: Calculate the annual depreciation on the truck for the year ended 30th June 2020 and prepare the adjusting journal entry for depreciation . Show an excerpt from the Balance Sheet as at 30^th June 2020 of the Non-current assets .

Prepare the journal entries to account for depreciation for the year ended 30 June 2021, calculate the gain/(loss) on sale of truck and make the journal entries to dispose of the truck .

Calculations of gain/(loss)

Answer 1

	Annual Depreciation -
	Cost of the truck	$200,000
	Less: Salvage value of the truck	($50,000)
	Depreciable value of the truck (a)	$150,000
	Total number of years of life of the truck (b)	5
	Annual Depreciation (a/b) on June 2020	$30,000
Adjusting Journal Entry
Date	Account Titles and Explanation	Debit	Credit
30th June, 2020	Depreciation Expense	$30,000
	Accumulated Depreciation - Truck		$30,000
	(To record the annual depreciation on the truck)
	Balance Sheet (Partial)
	As on June 30th, 2020
	Non-Current Assets (Property, plant and equipment):
	Truck	$200,000
	Less: Accumulated Depreciation	($30,000)	$170,000
Adjusting Journal Entry
Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020	Depreciation Expense ($30,000*6/12 months	$15,000
	Accumulated Depreciation - Truck		$15,000
	(To record the six months depreciation on the truck)
No journal entry is prepared on 30 June 2021 for depreciation on the truck because the truck was sold on December 31, 2020.
	Calculation of gain or loss:
	Cost of the truck	$200,000
	Less: Accumulated depreciation	($30,000)
	Less: Depreciation expense	($15,000)
	Book value of the truck at the time of sale	$155,000
	Sold value of the Truck	$160,000
	Less: Book value of the truck	($155,000)
	Gain on sale of the truck	$5,000
Journal Entry to Disposal of the Truck
Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020	Cash	$160,000
	Accumulated Depreciation - Truck ($30,000 + $15,000)	$45,000
	Truck		$200,000
	Gain on Sale of Truck		$5,000
	(To record the disposal of the truck)