Albatross Services scrapped a van. The van originally cost $40,000, had an estimated salvage value of...
Albatross Services scrapped a van. The van originally cost $40,000, had an estimated salvage value of zero, and an estimated life of 10 years. At the time it was scrapped, it had accumulated depreciation of $40,000. What was the effect of scrapping the van?
Homework Answers
There is no effect of scrapping the Van, Because its original cost is $ 40000 & accumulated depreciation is $ 40000, so written down value is Nil & no profit or loss arise in the books.
When a van is scrapped, the effect is recorded on the company's financial statements. Let's break down the effect of scrapping the van:
Book Value of the Van:The book value of an asset is the original cost of the asset minus its accumulated depreciation. In this case: Book Value = Original Cost - Accumulated Depreciation Book Value = $40,000 - $40,000 = $0
Loss on Disposal:Since the van was scrapped and had no salvage value (i.e., it was worth nothing at the end of its life), the company incurred a loss on disposal. The loss on disposal is calculated as follows: Loss on Disposal = Book Value - Salvage Value Loss on Disposal = $0 - $0 = $0
Effect on the Income Statement:The loss on disposal of the van will be recognized as an expense on the income statement. It will reduce the company's net income for the period.
Effect on the Balance Sheet:The accumulated depreciation of $40,000 will be removed from the balance sheet since the van is no longer in use and has been scrapped. The van's original cost of $40,000 will already have been accounted for through accumulated depreciation over its estimated life of 10 years.
Overall, scrapping the van results in a loss on disposal, which impacts the company's financial statements by reducing its net income for the period and updating the van's value on the balance sheet to reflect its disposal.
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