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Accounting treatment of property, plant, and equipment (including a sale)

On Jan 01, 01, entity E acquires an automobile for CU 24 that represents an item of property, plant, and equipment in E”s operations. Depreciation is calculated according to the straight-line method. Unexpectedly, the automobile is already sold on Jun 30, 02 for CU 20.

Version (a)

E is a car rental agency. Each year, E acquires a large number of new automobiles because it is E”s policy to offer the newest automobiles to its customers via operating leases. After one or two years, the automobiles are usually sold profitably. Also, the automobile mentioned above is leased to E”s customers via operating leases. Until its sale, a useful life of two years is assumed for the automobile (according to IAS 16.57) as well as a residual value of CU 16.

Posting status for (a):

The lease income arising from the operating leases has already been recognized correctly.

Version (b)

In contrast to (a), E does not sell the automobile in the course of its ordinary activities. Until its sale, a useful life of six years and a residual value of CU 6 are assumed for the automobile.

Required

Prepare any necessary entries in E”s financial statements as on Dec 31 for the years 01 and 02.