Question

P8-38 Derecognition Taya Ltd. purchased equipment in February 2016 for $200,000. At the time of purchase...

P8-38 Derecognition

Taya Ltd. purchased equipment in February 2016 for $200,000. At the time of purchase it was estimated that the equipment would have a useful life of four years with no residual value. In September 2018, the equipment was destroyed in a flood. In February 2019, Taya Ltd. received an insurance settlement of $101,500. The company depreciates all equipment on a straight-line basis. Its policy is to record a full month of depreciation in all months that assets are available for use.

Required

Prepare the journal entry to record the derecognition of the asset.

Business   Accounting   
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Answer #1

Solution:

Total months for which asset utilized = Feb 2016 to Sep 2018 = 32 months

Accumulated depreciation till Sep 2018 = $200,000 * 32/48 = $133,333

Journal Entries - Taya Ltd
Event Particulars Debit Credit
1 Cash Dr $101,500.00
Accumulated depreciation - Equipment Dr $133,333.00
       To Equipment $200,000.00
       To Gain on disposal of equipment $34,833.00
(To record derecognition of equipment)
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