Question

Chen Company completed the following transactions and events involving its delivery trucks. Round the answers to the nearest dollar
(a) On January 1, 2016 Chen Company paid $19,415 cash plus $1,165 in sales tax for a new delivery truck estimated to have a five-year life and a $3,000 residual value. Delivery truck costs are recorded in the Trucks accounts.
What was the annual depreciation expense on the truck in 2016?
(b) Due to new information obtained earlier in year 2017, the truck’s estimated useful life was changed from five to four years, and the estimated residual value increased to $3,500.
What was the annual depreciation expense on the truck in 2017?
(c) Chen Company sold the truck on Dec 31, 2018 for $6,200 cash.
What was the gain or loss recorded for the truck disposal?

Answer 1

	a)	Depreciation expenses for the year 2016
	Cell reference	Particulars	$
	A	Cost of asset	19,415
	B	Sales tax	1,165
	C=A+B	Total cost of asset	20,580
	D	Residual value of asset	3,000
	E=C-D	Depreciable value of asset	17,580
	F	Life of asset	5
	G=E/F	Depreciation expenses for the year 2016	3,516
	b)	Depreciation expenses for the year 2017
	Cell reference	Particulars	$
	A	Cost of asset	19,415
	B	Sales tax	1,165
	C=A+B	Total cost of asset	20,580
	D	Revised Residual value of asset	3,500
	E	Depreciation expenses for the year 2016	3,516
	F=C-D-E	Revised depreciable value of truck due to change in life (refer Note:-1)	13,564
	G	Balance life of asset (refer Note:-1)	3
	H=F/G	Revised depreciation for the year 2017	4,521
	Note:-1 The Company has revised the life of asset from 5 years to 4 year and the effect of change in life of asset are given prospectively in the books of accounts and the Company has already claimed the depreciation for the year 2016 that will be deducted from the value of asset and balance value of asset will be depreciated for the balance period of 3 year as one year has been expired(i.e. year 2016)
	c)	Profit or loss on sale of truck
	Cell reference	Particulars	$
	A	Value of asset	20,580
	B	Depreciation for the year 2016	3,516
	C	Depreciation for the year 2017	4,521
	D	Depreciation for the year 2018	4,521
	E=A-B-C-D	Written down value of asset as on 31 Dec 2018	8,021
	F	Sale value of asset	6,200
	G=E-F	Loss on sale of asset	1,821