Is the deprciation charge of a disposed tangible fixed asset included in the total depriciation charges?

Question

Take it for example:

Company A bought a car worth 50,000 $ on 1 January 2007 and used the straight line depreciation method: 20% of the cost. Six months into the year, Company A decided to sell the car and made a loss on this disposal. The accumulated depreciation was 5000$. Shall this amount be accounted for in the total depreciation charge of the financial year ended 31st December 2007?

I have been troubled by this doubt for a time. If someby could help me with it, I shall be obliged.

Answer 1

For the 6 mths that you owned the car, you'd have depreciated it at the rate of $10,000/12 each month. At the end of 6 mths, the amount of depn sitting in the income statement would be $5,000. Since you sold the car, depreciation would stop, but the $5k sits in the income statement for the rest of the year till Dec 31.

Just to make it clearer, let's assume you sold the car for $41,000. After 6 mths, when you sell the car, your entry:
Dr Cash or AR $41,000
Dr Accumulated depreciation $5,000
Dr Loss on disposal $4,000
Cr Car at cost $50,000

The loss on disposal of $4k would go to the income statement and also stays there till the end of the year.

Answer 2

It's been about 10 years since I've worked on Fixed Assets (I was a Full-Charge Bookkeeper for several corporations for almost 20 years), but if I remember correctly (and after a quick glance at my old Accounting books to refresh my memory), the Depreciation Expense of $5,000 would remain on the books as an expense, only the amount of $5,000 in that asset's Accumulated Depreciation on the balance sheet would be reversed.
Your adjusting entry to record the sale and to remove the asset would be:

DR: Cash (B/S) $42,000 (example)
DR: Accum Depr (B/S) $ 5,000
DR: Loss / (Gain) on Sale of Asset (I/S) $ 3,000

CR: Asset-Auto (B/S) ($50,000)

The total effect to the YTD 2007 Income Statement (I/S) at 12/31/2007 on this item is $8,000 ($5,000 YTD Depr Expense + $3,000 Loss on Sale=$8,000 Total Exp). Asset $50,000 - $42,000 Cash Sale Price = $8,000 Total Cost (or Expense on the I/S).

I hope this helps.