Bob asked:
The question is: On December 31,2007, ABC Inc. has a machine with a carrying amount of $940,000.(the original cost is $1,300,000 and related accumulated amortization at this date is $360,000).Amortization is calculated at $60,000 per year on a straight line basis. A fire completely destroyed the machine on August,2008. An insurance settlement of $430,000 was received for this casualty. Did ABC suffer any loss due to the fire? Explain with calculation. Thanks you.
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The question is: On December 31,2007, ABC Inc. has a machine with a carrying amount of $940,000.(the original cost is $1,300,000 and related accumulated amortization at this date is $360,000).Amortization is calculated at $60,000 per year on a straight line basis. A fire completely destroyed the machine on August,2008. An insurance settlement of $430,000 was received for this casualty. Did ABC suffer any loss due to the fire? Explain with calculation. Thanks you.
http://1mortgagecalculator.info
Accumulated amortization up to December 31,2007 was $360,000. You didn’t mention which part of August the fire occurred. Assuming you depreciate for 8 months in 2008, accd depn at Aug 31, 2008 is $400,000 which makes the carrying amount $900,000. But you received only $430,000 from the insurers, so you incurred a loss of $470,000.
Dr Accumulated depreciation $400,000
Dr Loss on destruction of machine $470,000
Dr Cash $430,000
Cr Machine $1,300,000
You should ask your teacher why for a machine it’s amortization and not depreciation.