Question

Q 9.26: Crawford Trucking plans to dispose of two trucks in 2018. They sell the first truck on January 2 and the second truck on July 9. If the end of their fiscal year is December 31, how will the calculation of book value differ for these two vehicles

Answer 1

Answer:

Crawford Trucking

Calculation of book value for disposal of two vehicles:

a) The Truck sold on January 2 would not have depreciation expenses computed for it.  The book value on January 1 would be the same on January 2.  It is not practical to compute depreciation expense for 1 day.

b) The Truck sold on July 9 would have depreciation computed for the year 2018 pro rated for six months.  The book value would be less than the Truck sold on January 2.

Explanation:

Depreciation expense may be pro rated depending on the prevailing circumstances.  This becomes necessary because the sold unit may not be fully utilized for the period under review.  Under the matching principle of generally accepted accounting principles, it is imperative to match revenue to the period they were incurred.