Question

ABC Moving and Storage acquired a new truck for $100,000, paying $20,000 cash and signing a promissory note for the balance. According to the bill of sale, ABC also paid cash for sales tax of 8%, plus registration, tags and delivery fees of $400. The new truck is estimated to have a 5-year economic life and a residual (salvage) value of $8,400. ABC uses straight-line depreciation. Due to delays, the truck was not placed in service until April 1, 2020. ABC has a December 31 fiscal year.
Prepare journal entries to record the purchase of the truck and related depreciation for 2020.

Answer 1

Truck(Motor vehicle) A/c dr. 1,00,000

To Cash A/c 20,000

To Promissory note A/c 80,000

Truck (Sales Tax 8000 +400 other) A/c Dr. 8400

To Cash A/c 8400

(All expenses related to asset should be capitalised)

Depreciation A/c dr. 20,000

To Truck A/c 20,000

[100,000(1,08,400 - 8400 salvage value ) ÷5 years = 20,000]

Note - For accounting purpose depreciation should be calculated when asset is ready to use. Because regardless of usage, passage of time affects value of asset.