Answer:
Debit: Accumulated Depreciation = $12,000
Debit: Loss on storage building = $8000
Credit: Storage building = $20,000
Explanation:
Assuming that a straight-line depreciation method is used...
Straight-line depreciation is when the same amount is depreciation every year for the life of the asset. It is calculated as :
(Cost of asset - residual value) / number of useful life
Depreciation per year = (20,000 - 0) / 5 = $4000
For 3 years, the asset would have depreciated a total of 3 x $4000 = $12,000
Its net book value as the time of fire being $20,000 - $12,000 = $8,000
The building being burned down is a loss on storage building. Hence, the asset and its accumulated depreciation would have to be written-off the books and recorded as a loss incurred...
Recording entries:
Debit: Accumulated Depreciation = $12,000
Debit: Loss on storage building = $8000
Credit: Storage building = $20,000
