Crowe AG purchased a heavy-duty truck on March 1, 2019, for €40,000. It was estimated that it would have a useful life of 10 years and would have no residual value. The company uses the straight-line method of depreciation. It was traded on August 1, 2023, for a similar truck costing €41,000; €15,000 was allowed as trade - in value (also fair value) on the old truck and €22,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange has commercial substance. What is the entry to record the exchange?
Crowe AG purchased a heavy-duty truck on March 1, 2019, for €40,000. It was estimated that it would have a useful life of 10 years and would have no residual value. The company uses the straight-line method of depreciation. It was traded on August 1, 2023, for a similar truck costing €41,000; €15,000 was allowed as trade - in value (also fair value) on the old truck and €22,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange has commercial substance. What is the entry to record the exchange?
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:Crowe AG purchased a heavy-duty truck on March 1, 2019, for €40, 000. It was
estimated that it would have a useful life of 10 years and would have no residual
value. The company uses the straight-line method of depreciation. It was traded
on August 1, 2023, for a similar truck costing €41,000; €15,000 was allowed as
trade - in value (also fair value) on the old truck and €22,000 was paid in cash. A
comparison of expected cash flows for the trucks indicates the exchange has
commercial substance. What is the entry to record the exchange?
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