[jglypf]

Can someone please help me understand this question?

A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by the

Answer: Cash proceeds received

The solutions approach is to prepare the journal entry that would be made when an asset is retired under the composite depreciation method.

Cash (cash proceeds)
Accumulated depreciation (plug)
Truck original cost)
The net decrease in the carrying amount of the assets is the credit to the asset account less the plug to accumulated depreciation. This amount would be equal to the cash proceeds received.

I’m fully aware that no gain/loss will be recorded under the composite method. What I don’t understand is the wording of the question. Why does the net carrying amount of these asset accounts decrease by the amount of cash received?? Net carrying amount they’re asking is not the same as the original cost of the asset, is it? And how do you know if this is a gain or loss?

[jglypf]

Thank you both for the suggestions! I'll definitely check them out 🙂

[Author]

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