Answer:
Debit Depreciation expense $14,400
Credit Accumulated depreciation $14,400
(1) Debit Other income/disposal account (p/l) $201,600
Credit Fixed Asset account $201,600
Debit Accumulated depreciation account $129,600
Credit Other income/disposal account (p/l) $129,600
Debit Cash account $63,000
Credit Other income/disposal account (p/l) $63,000
(2) Debit Other income/disposal account (p/l) $201,600
Credit Fixed Asset account $201,600
Debit Accumulated depreciation account $129,600
Credit Other income/disposal account (p/l) $129,600
Debit Cash account $52,920
Credit Other income (p/l) $52,920
Explanation:
Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.
It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset
Mathematically,
Depreciation = (Cost - Salvage value)/Estimated useful life
Annual Depreciation = $201,600/7
= $28,800
Between January and July 1 is 6 months hence depreciation
= 6/12 * $28800
= $14,400
Accumulated depreciation at time of sale/destruction
= 4*$28800 + $14400
= $129,600
When the amount received from the disposal of an asset is higher than the carrying value of the asset, the company makes a gain on disposal. The proceed from the disposal of an asset may be recorded in the disposal or other income account.
On disposal, the carrying amount of the asset is derecognized by
Debit Other income/disposal account (p/l)
Credit Asset account
with the cost of the asset, then,
Debit Accumulated depreciation account
Credit Other income/disposal account (p/l)
With the accumulated depreciation of the asset at the date of disposal,
Furthermore,
Debit Cash account
Credit Other income/disposal account (p/l)
with the amount received from the disposal or sale of the asset
