Question

At the beginning of fiscal 2019, a county government acquires equipment for $4,000,000. The equipment has an estimated life of 5 years, and straight-line depreciation is used, with no residual value, if appropriate. At the end of fiscal 2020 (two years later), the government disposes of the equipment for $1,800,000.

If the equipment is reported in the general fund, what amount is included in the fiscal 2019 reconciliation of the change in fund balances of governmental funds to the change in net position of governmental activities, related to this equipment?

	A.	Add $3,200,000.
	B.	Subtract $4,000,000.
	C.	Subtract $800,000.
	D.	Add $4,000,000.

Answer 1

Depreciation on equipment is calculated for the year 2019 is calculated below:

Given that:

Cost of Equipment = $4,000,000

Useful life = 5 Years

Salvage Value = $0

Depreciation on equipment is calculated for the year 2019 = (Cost of Asset - Salvage Value)/ Useful Life

=($4,000,000 - $0)/ 5 Years

= $4,000,000/ 5

=$800,000

In fiscal 2019 $800,000 should be deducted from the balance of general fund to change in net position of governmental activities related to this equipment.

So correct answer is option(C) or Subtract $800,000