Question

On July 31, 2021, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,430,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer & Explanation:

Depreciation a/c ...dr

Loss a/c .....dr

Charity a/c .. dr        

          To machine a/c    

• Machine amount = Machine cost value (eg, lets suppose = 2,000,000)
• Charity amount = fair value of machine at time of donation = 1,4300,000. It is the amount that could have been otherwise received on machine sale, but is given as charity.
• Accumulated depreciation is the total depreciation on machine upto date (eg, lets suppose = 5,00,000)
• Loss = (Machine cost - accumulated depreciation) - current fair value

    Eg: If cost = 2,000,000 & accumulated depreciation = 5,00,000. Machine value should be = 2,000,000 - 5,00,000 = 15,000,000. The fall in value from 15,000,000 to 1,430,000 = 70,000 is loss on machine disposal.