Luna Springs Inc. exchanged an old vehicle for a new vehicle on August 31, 2014. The original cost of Luna Springs Inc.'s old vehicle was $45,000 on January 1, 2010. Depreciation was calculated using the straight line method over a ten-year useful life, with an estimated residual value of $3,000. The fair value of the old vehicle on August 31, 2014 was $21,500. The list price of the new vehicle was $30,000. Luna Springs Inc. paid $2,000 in cash as part of the exchange. The new vehicle should be recorded on Luna Springs Inc.'s books at: $25400, $23500, $30000, or none of the above
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.
Luna Springs Inc. exchanged an old vehicle for a new vehicle on August 31, 2014. The original cost of Luna Springs Inc.'s old vehicle was $45,000 on January 1, 2010.
The new vehicle should be recorded on Luna Springs Inc.'s books at: $25400, $23500, $30000, or none of the above
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