A corporation acquired a truck on July 1, 2012, at a cost of $162,000. The truck

Question

A corporation acquired a truck on July 1, 2012, at a cost of $162,000.  The truck has a six-year useful life and an estimated salvage value of $18,000.  The straight-line method of depreciation was used.  On January 1, 2015, the truck was overhauled atr a cost of $15,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salavge value is still estimated at $18,000).  In computing depreciation, the corportation uses the nearest full month assumption to calculate depreciation.

Calculate the depreciable base of the truck, before and after the overhaul on January 1, 2015.

Prepare the appropriate entries for January 1, 2015 and Decemeber 31, 2015.

Explanation / Answer

Annual depreciation for the period of the truck=(Cost-Salvage value)/Number of years

=$(162000-18000)/6

=$24000

Now WDV as on July 1 2015=162000-(24000*3)

=$162000-72000

=$90000

Now depreciating for the period from 1st july to 1st jan=24000/2

=$12000

Now Depreciable base as on 1st jan 2015=$90000-12000

=$78000

Now the overhaul expense would increase the life hence would be added to the cost of the truck

Hence new WDV shall be=$78000+15000

=$93000

Now recomputing the depreciation for balance number of years =$(93000-18000)/5

=$15000 per year

Journal entries

1st jan 2015 Truck ac....Dr 15000

to cash a/c 15000

(being overhaul expenses incurred on the truck thereby increasing its life and added to the cost of truck)

31st dec 2015 Depreciation...dr 15000

to truck 15000

(Being depreciation charged to the truck)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.