Question

Tyson purchased a fleet of 20 trucks on July 1, 2009 for $120,000 each.  The trucks are expected to last 10 years with no salvage value and will be depreciated straight-line.  On January 1, 2011, one of the trucks was sold for $105,000.  Tyson’s year-end is December 31^st.  Prepare the journal entry for the sale of the truck assuming Tyson uses the group depreciation method.

Answer 1

Answer

Under Group Depreciation method, we don’t recognize any gain or loss on sale, we include Gain or Loss in Accumulated Depreciation Account.

Depreciation Rate = 1/ useful life

= 1/10 Years

= 10%

Depreciation for 1 truck per year = $120,000 * 10%

= $12,000 per year.

Depreciation for 2009 = Cost * Rate * 6 Months (July to December)

= $120,000 * 10% * 6/12 months

Depreciation for 2009 = $6,000

Depreciation for 2010 = $120,000 * 10%

Depreciation for 2010= $12,000

Total Depreciation till sale = $6,000 + $12,000

= $18,000

Cost of Truck on Jan 1, 2011 = Cost – Depreciation till date

= $120,000 – 18,000

Cost of Truck on Jan 1, 2011= $102,000

The cost of Truck is $102,000 and we sold the truck for $105,000 and there is $3,000 Gain but under Group depreciation method we don’t recognize the gain and all amount is adjusted to Accumulated Depreciation Account.

Accumulated depreciation = Cost – Sale value

= $120,000 – 105,000

Accumulated depreciation = $15,000

Date	Particulars	Dr. $	Cr. $
Jan 1, 2011	Cash	105,000
	Accumulated Depreciation	15,000
	Truck Assets		120,000
	(Being one of the truck sold)

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