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1 February, 17:45

rawford Trucking plans to dispose of two trucks in 2022. They sell the first truck on January 2 and the second truck on July 9. If the end of their fiscal year is December 31, how will the calculation of book value differ for these two vehicles?

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  1. 1 February, 20:08
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    Answer: C : They will need to subtract a partial year of depreciation from the book value of the second truck but not the first truck.

    Explanation:

    When disposing of fixed assets such as vehicles, depreciation has to be charged on them to see their Net Book Value.

    Companies usually depreciate their vehicles on a yearly basis in accordance with the end of their fiscal year. This company therefore most likely depreciates on December 31.

    The first truck is sold 2 days after this Depreciation so there is no need to add more depreciation to it.

    However the second truck on the other hand was sold 6 months later. Depreciation needs to charged on this substantial period but since it was not for the full year, a partial one needs to be charged.
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