Question

Paul's uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the
a) cash proceeds received.

b) cash proceeds received and original cost of the truck.

c) original cost of the truck.

d) original cost of the truck less the cash proceeds.

Answer 1

Answer:

A) cash proceeds received.

Explanation:

If you have a fixed asset and you fully depreciate it, it will still maintain its estimated salvage value. Therefore when the asset is sold and the salvage value is received, the value of the vehicles account should decrease while cash account should increase.

No matter what depreciation method you use, in order to calculate how much you will depreciate, you must subtract the salvage value from the asset's purchase value. That means that even if the asset has been fully depreciated, it will still maintain its salvage value.