Question

Assume that on January 2, 2020 Floro purchased Equipment for K8, 800 cash, expecting the equipment to remain in service for five years. Floro has depreciated the Equipment on a Double Declining Balance basis, with K1, 300 estimated residual value. On August 31, 2020 Floro sold the Equipment for K2, 900 cash.

Record both the depreciation values on the Equipment to the date of sale and the calculations to record the sale of the Equipment, showing the gain or loss on disposal of the asset.

Answer 1

Answer:

Date	Account Titles & Explanation	Debit	Credit
August 31 , 2020	Depreciation Account	213
	Accumulated Depreciation		213
	(To record the depreciation expense)
August 31 , 2020	Cash Account	900
	Accumulated Depreciation	213
	Equipment		800
	Gain on sale of Equipment		313
	(To record the sale of equipment)

Workings:

Double Declining Balance methods = Cost of Equipment x Double declining rate

Double declining rate = (100 / Useful life) x 2 = (100 / 5) x 2 = 40%

Depreciation Expense up to date of sale = (800 x 40%) x 8/12 = 213

Book value of Equipement as on date of sale = 800 - 213 = 587

sale price of equipment = 900

Gain on sale of Equipment = 900 - 587 = 313