financial accounting?

Question

A firm purchased a second-hand truck for $40,000 on 1st January, 2004 and spent $10,000 on its overhauling. Depreciation is written off 10% p.a. on reducing balance
method. On 30th April 2007, the truck was sold for $30,000 being unsuitable. Prepare
the Truck Account from 2004 to 2007 assuming that Accounts are closed on 31st
December every year.

Answer 1

Cost of acquiring the truck and getting it to a state where it can be put to use is $50,000.
1.1.2004 Cost of truck $50,000
2004 depreciation ($5,000)
1.1.2005 Nbv $45,000
2005 depreciation ($4,500)
1.1.2006 Nbv $40,500
2006 depreciation ($4,050)
1.1.2007 Nbv $36,450
Depn for 4 mths ($1,215)
30.4.2007 Nbv $35,235
Sales proceeds $30,000
Loss on sale of truck $5,235

Answer 2

At 10 percent reducing balance annual depreciation, the assumption is that the truck has a 20 year life, which is unrealistic. Vehicles are normally amortized over 5 years. But accepting your 10 percent per year, depreciation would be

2004 - $5,000
2005 - 4,500
2006 - 4,050

The book value at the end of 2006 is $36,450

Depreciation for 4 months in 2007 is $1,215 leaving a book value of $35,235 at the time of sale.

The truck was sold at a loss of $5,235