Computing Depreciation, asset book value and gain or loss on asset sale Palepu Company owns and operates a delivery van that originally cost $27,200. Straight-line depreciation on the van has been recorded for 3 years, with a $2,000 expected salvage value at the end of its estimated 6 years useful life. Depreciation was last recorded at the end of the third year, at which time Palepu disposes of this van. a. Compute the net book value of the van on the sale date.b. Compute the gain or loss on sale of the van if its sales price is for:1. Cash equal to book value of van2. $15,000 cash3. $12,000 cash
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Computing
Palepu Company owns and operates a delivery van that originally cost $27,200.
Straight-line depreciation on the van has been recorded for 3 years, with a $2,000 expected salvage value at the end of its estimated 6 years useful life. Depreciation was last recorded at the end of the third year, at which time Palepu disposes of this van.
a. Compute the net book value of the van on the sale date.
b. Compute the gain or loss on sale of the van if its sales price is for:
1. Cash equal to book value of van
2. $15,000 cash
3. $12,000 cash
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