Question

Swann Company sold a delivery truck on April 1, 2016. Swann had acquired the truck on January 1, 2012, for $44,000. At acquisition, Swann had estimated that the truck would have an estimated life of 5 years and a residual value of $3,000. At December 31, 2015, the truck had a book value of $11,200. Required: 1. Prepare any necessary journal entries to record the sale of the truck, assuming it sold for: a. $10,600 b. $7,600 2. How should the gain or loss on disposal be reported on the income statement? 3. Assume that Swann uses IFRS and sold the truck for $10,600. In addition, Swann had previously recorded a revaluation surplus related to this machine of $5,000. What journal entries are required to record the sale?

Prepare the necessary journal entries on April 1, 2016 to record:

1.	depreciation expense of the delivery truck for 2016
2.	the sale of the truck, assuming it sold for $10,600 Prepare the necessary journal entries on April 1, 2016 to record: 1. depreciation expense of the delivery truck for 2016 2. the sale of the truck, assuming it sold for $7,600

Answer 1

Solution:

Given data:

*Cost of truck                        = $44,000          

*estimated life(years) = 5 years

*Residual value                     =$3,000

*Book value on Dec31,2015   =$11,200

Calculation of depreciation :

Formula;

Depreciation = Cost of truck - Residual value / estimated life

= $44,000-$3,000/5

=$8,200

Depreciation provided Annually =$8,200

Depreciation provided in 4years = $8,200*4

= $32,800

Depreciation provided for jan – march       =8,200/12*3months

=2,050

Computaion of gain/Loss on sale of truck

Provision for depreciation for jan-april 2016

(1a) : Journal entries if truck is sold for $10,600

(1b) : Journal entries if truck is sold for $7,600

  

(2) : How should the gain or loss on disposal be reported on the income statement?

In either case, gain or loss should be taken to income statement.

    * In case of gain,the amount of gain would be Shown in Revenue under “Other Income”

   * In case of Loss,the amount of Loss would be Shown in Expenses side as “Loss on sale of truck”

(3) : Under IFRS :

     If the Company has a revaluation surplus of $5,000,in the event of sale,the surplus since it would no longer Be required as the truck is sold would need to be written back to the Profil &l oss Account.