Share
Explore BrainMass

Jim Reed manages a fleet of utility trucks for a rural count

Discussion post 1
Jim Reed manages a fleet of utility trucks for a rural county government. He's been in his job 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the salvage value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at salvage value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.

Requirements:

When a business sells a fully depreciated asset for its salvage value, is a gain or loss recognized?

(answer)

The net difference in debits and credits of assets will be recognized as a gain or loss when a business sells a fully depreciated asset for its salvage value for non-like property or when the fair value of either asset received or given up is known (Horngren, Harrison, & Oliver, 2012). A gain is recorded when the total debits is greater than the total of credits. A credit entry is journalized and represents a gain on sale of an asset. A loss is recorded when total debits is less than the total credits. A debit entry is journalized and represents a loss on sale of an asset. Neither a gain nor loss is recorded when total debits equals total credits of asset received or given up
How do businesses determine what salvage values to use for their various assets? Are there "hard and fast" rules for salvage values?

(answer)

Businesses determine what salvage values to use for their various assets by estimating the assets value at the end of it useful life. There are no "hard and fast" rules for salvage values. However, businesses want to get the most use for their money from an asset
How would an organization prevent the kind of fraud depicted here?

(answer)

Obviously, there needs to be some separation of duties. Jim has been in his current position too long and has become complacent in his duties, such so that he has incorporated a way to defraud the company he works for and makes some extra cash on the side. Nobody is checking behind him to ensure he is performing his duties accurately. He is too involved in several of the accounting functions. Organizations should separate accounting functions, whereas one person places orders, the next person receives ordered items, another person records accounting transactions, and so forth. Never should any employee have access to more than one accounting function within any company. Internal controls - checks and balances need to be in place to discourage employee thefts and prevent fraud.

Solution Preview

When a business sells a fully depreciated asset for its salvage value, is a gain or loss recognized?

The net difference in debits and credits of assets will be recognized as a gain or loss when a business sells a fully depreciated asset for its salvage value for non-like property or when the fair value of either asset received or given up is known (Horngren, Harrison, & Oliver, 2012). A gain is recorded when the total debits is greater than the total of credits. A credit entry is journalized and represents a gain on sale of an asset. A loss is recorded when total debits is less than the total credits. A debit entry is journalized and represents a loss on sale of an asset. Neither a gain nor loss is recorded when total debits equals total credits of asset received or given up
REACTION: This response is overly mechanical. The concept is that a fully depreciated asset will NEVER have a gain or loss when it is sold for salvage. You ...

Solution Summary

A "reaction" to each response is given agreeing with some points but not others and adding one missed point.

$2.19