Question

Below is the useful life list of some fixed assets (tangible assets).

Asset Class	Description of Asset	Useful Life (years)
01.01	Office furniture	5
02.04	Information systems (computers & printers)	3
03.02	Vehicles (automobiles)	4
04.01	Buildings	40
05.03	Machineries (plastic fabrication)	7
05.04	Machineries (metal fabrication)	10

ABC Corporation sold its old plastic injection machinery by the end of its 5^th year (May 2019). Sales price of this transaction is 75 000USD. The purchase price of the machinery was                     350 000USD and it was purchased in June 2014. Based on this information,

Assume that the company is using straight-line depreciation method.

a. Please do the depreciation booking for the year 2019

b. Please do the booking of selling the fixed asset

Answer 1

It is assumed that the accounting year followed is January to december.

ABC corporation sold its old plastic machinery by the end of its 5th year i.e may 19 . Sales price = $75000 and purchase price of machinery = $ 350000.

For the machineries (plastic fabrication) the useful life of asset is 7 years

and straight line method of depreciation is used,

Hence depreciation per year =( cost - salvage value )/ useful life

Depreciation per year = (350000 - 0) 7 = $ 50000 per year,

Deprecation for 1st year of 2014 = 50000 * 7/12 ( from june to december) = 29167.

Depreciation for 2nd year i.e 2015 to 5th (part)year 2018 = 50000*4 = $200000.

Depreciation for 5th year remaining i.e jan to june 2019  = 50000*5/12 = $20833.

Total accumulated Depreciation for the assets till it is sold = $ 29167+$200000+$20833 = $250000.

Hence Book value at the time of sale = Cost - Accumulated Depreciation = $350000 - $250000 = $100000

Sale price of assets = $ 75000

Thus the Loss on sale of Machinery = 25000 USD ( 1000000-75000).

A)

Thus the Depreciation booking for 2019 depreciation is ( assumed accumulatiion is used)

Date	Account Title and Explanation	Debit($)	Credit($)
May.19	Depreciation Expenses	20833
	To Accumulated Depreciation		20833
	( Depreciation charged till may)

B)

Thus the entry for selling the fixed assets:

Date	Account Title and Explanation	Debit($)	Credit($)
May.19	Cash Account	75000
	Accumulated Depreciation	250000
	Loss on sale of assets	25000
	To Machinery Account		350000
	( Machinery sold at loss)