Question

A company had a tractor destroyed by fire. the tractor originally cost $85,000 with accumulated depreciation of $60,000. the proceeds from the insurance company were $20,000. the company should recognize:

Answer 1

Original cost of the tractor = 85,000 Less Accumulated depreciation = 60,000 Remaining book value of the tractor = 85,000 - 60,000 = 25,000. Amount received from insurance company = 20,000 Therefore loss due to fire = 25,000 - 20,000 = 5,000 The company should recognize this amount as its own loss and debit the loss account. Corresponding credit should be given to tractor account so that tractor account will show zero balance.