Original cost of the tractor = 85,000 Less
Accumulated depreciation = 60,000
Remaining book value of the tractor = 85,000 - 60,000
= 25,000.
Amount received from insurance company = 20,000
Therefore loss due to fire = 25,000 - 20,000
= 5,000
The company should recognize this amount as its own loss and debit the loss account. Corresponding credit should be given to tractor account so that tractor account will show zero balance.
