Answer:
First we must record the depreciation expense for January, February and March:
Depreciation expense for 3 months = ($42,000 - $5,000) x 3/60 = $1,850
April 1, depreciation expense for January, February and March:
Dr Depreciation Expense 1,850
Cr Accumulated depreciation 1,850
the book value of the truck = $12,400 - $1,850 = $10,550
1) If the truck was sold at $12,000:
April 1, truck is sold at $12,000
Dr Cash 12,000
Dr Accumulated depreciation 31,450
Cr Gain from sale 1,450
Cr Truck 42,000
If the truck was sold at $9,000:
April 1, truck is sold at $9,000
Dr Cash 9,000
Dr Accumulated depreciation 31,450
Dr Loss from sale 1,550
Cr Truck 42,000
2) The gain or loss resulting from the disposal of the truck must be included in the income statement under gain/loss from sale of assets.
3) If Swann uses IFRS and had recorded a revaluation surplus on the truck:
April 1, truck is sold at $12,000
Dr Cash 12,000
Dr Revaluation surplus 4,000
Dr Loss from sale 1,450
Cr Truck 14,550
