Answer:
a. Debit Other income/disposal account (p/l) $204,000
Credit Asset account $204,000
Being entries to derecognize cost of asset on disposal
Debit Accumulated depreciation account $150,800
Credit Other income/disposal account (p/l) $150,800
Being entries to derecognize the accumulated depreciation of asset as at date of disposal
Debit Cash account $21,000
Credit Other income/disposal account (p/l) $21,000
Being entries to record amount received on disposal of asset
b. Debit Other income/disposal account (p/l) $204,000
Credit Asset account $204,000
Being entries to derecognize cost of asset on disposal
Debit Accumulated depreciation account $150,800
Credit Other income/disposal account (p/l) $150,800
Being entries to derecognize the accumulated depreciation of asset as at date of disposal
Debit Cash account $84,000
Credit Other income/disposal account (p/l) $84,000
c. Debit Other income/disposal account (p/l) $204,000
Credit Asset account $204,000
Debit Accumulated depreciation account $150,800
Credit Other income/disposal account (p/l) $150,800
Being entries to derecognize the accumulated depreciation of asset as at date of destruction of machine by fire
Debit Cash account $31,500
Credit Other income/disposal account (p/l) $31,500
Being entries received on the insurance settlement
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
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
Total cost = $192000 + $10000 + $2000
= $204,000
Depreciation
= ($192000 + $10000 + $2000 - $23040)/6
= $30,160
Accumulated depreciation at the end of its fifth year
= 5 * $30,160
= $150,800
