Question

Jim Reed manages a fleet of utility trucks for a rural county government. He's been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual 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 1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized? no soul or loss recogreed 2. How do businesses determine what residual values to use for their various assets? Are there "hard and fast” rules for residual values? Judgeiere ad e 3. How would an organization prevent the kind of fraud depicted here?

Answer 1

Gain or loss is to be in books of accounts when fully depacciated asset is its residual value. recognised a sold for when an asset is fully depreciated over its useful life, its book value will be "zero" If the asset with book value of Rero is sold for some amount which is residud value, then gain = Residual value - Book value, which is to be regonised Recognised in books of accounts. mining of a value resi riesidual asset i t Residual value is the value that the asset after its useful life. estimated" will recover Residual value is the amount that is realised by selling the asset as scrap after its useful life.

Residual value is determined purely on the basis of estimates. These estimates are to be reviewed year by year so that any changes in market conditions which has an impact on residual value can be detected & the value has to be adjusted revised accordings. There are no hard e past rules to determine residual value of an asetoho mil ca The type of fraud in the qural country government is that the employee Emanager) colluded with outsiders (buddies) to make gain at the cost of company. The main reason for such type of employee frauds is lack of segregation of duties". The company / government should employ a different person -Cother than tim) to measure the residual value of asset.

By Segregating different prevented to the duties & between individual, fraud can be some extent. Company should make sure that rappl o residual value has be measuged fairly e should review іE 00 yeo b gaa ba313 while selling the trucks as Scrap, the company instead of relying on Jim ( should go for "Auction" which should be open for all, so that there would be some transparency in the sale value.