Drabinski Ltd. decided on 1 July 20X3 to dispose of an
asset group consisting of land, a building, and equipment. An
active plan of disposal is being carried out, and sale is highly
probable within the following year. The assets’ carrying values and
estimated recoverable amounts at 1 July 20X3 are as follows:
Cost/ Carrying Value/Estimated Recoverable Amount/
Land $400,000 $400,000 $420,000
Building 2,700,000 1,500,000 900,000
Equipment 900,000 400,000 300,000
TOTAL $4,000,000 $2,300,000 $1,620,000
On 31 December 20X3, the net recoverable amount of the group is
reliably estimated to be $1,640,000. On 1 April 20X4, the asset
group is sold for $1,700,000, net of costs to sell.
Prepare journal entries that are appropriate to record the
information above. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
1. Record the entry to write the depreciable assets down to their carrying value in their respective asset accounts
2. Record entry to reclassify the assets with loss or
gain, if any.
3. Record the current value of assets.
4. Record the sale of the disposal group
Homework Answers
Answer:
| No. | Date | General Journal | Debit | Credit |
| 1 | 1 Jul 20X3 | Accumulated depreciation-Building | $1200000 | |
| Accumulated depreciation-Equipment | $500000 | |||
| Building | $1200000 | |||
| Equipment | $500000 | |||
| 2 | 1 Jul 20X3 | Loss on Disposal group held for sale | $700000 | |
| Current Asset -Disposal group held for sale | $1600000 | |||
| Land | $400000 | |||
| Building | $1500000 | |||
| Equipment | $400000 | |||
| 3 | 31 Dec 20X3 | Current Asset -Disposal group held for sale | $40000 | |
| Gain on disposal group held for sale | $40000 | |||
| ($1640000-$1600000=$40000) | ||||
| 4 | 1 Apr 20X4 | Cash or Receivables on sale of disposal group | $1700000 | |
| Current Asset -Disposal group held for sale | $1640000 | |||
| Gain on sale of disposal group | $60000 | |||
Workings :
Computation Of Accumulated Depreciation (1 July 20X3)
Accumulated Depreciation to be reserved = Cost of Asset - Carrying Value of Asset
; That is,
Land= $400000 - $400000 = $0
Building= $2700000 - $1500000 = $1200000
Equipment= $900000 - $400000 = $500000
Computation of Loss on disposal group held for sale
= Carrying Value - Estimated recoverable Value
Land= $400000 - $420000 = $0
Building= $1500000 - $900000 = $600000
Equipment= $400000 - $300000 = $100000
Hence, Loss on disposal group held for sale is $700000 (($0 + $600000 + $100000 )
Computation of Gain or (loss) on sale of disposal group
Cash or Receivables on sale of disposal group - Current Asset -Disposal group held for sale
; That is
$1700000 - $1640000 = $60000
> If you have any doubts please free to comment and up vote it if you are satisfied with my answer.
Thank you
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