XYZ Corp was incorporated ten years ago. XYZ makes annual financial statements following ASPE. The year end

Fantastic news! We've Found the answer you've been seeking!

Question:

XYZ Corp was incorporated ten years ago. XYZ makes annual financial statements following ASPE. The year end is June 30, 2021.
Sam, who is the sole shareholder and general manager of XYZ is working with the company bookkeeper to prepare year end statements. There are some transactions that took place in the past year for which Sam and the bookkeeper seek advice.

Prepare a detailed memorandum to discuss issues and relevant accounting treatment. Here is the info:

> In 2011 when XYZ was formed, they bought an expensive tow truck

> Because in 2011 no one involved in the accounting at XYZ understood accounting, the tow truck was depreciated on a straight-line basis on the assumption that it had no salvage or residual value. Tow trucks have a considerable salvage/residual value and this one in particular the amount is likely material;

> On September 15, 2020, XYZ had to replace the engine of the tow truck, paying $60,000. They also installed in the truck a considerable amount of GPS technology. All amounts were expensed;

> On June 15, 2021 the tow truck was burned up in a fire. Cause unknown. One of the tow truck drivers said the truck was likely worth $120,000 and so the bookkeeper recorded: Dr. Insurance receivable $120,000; Cr. Gain on fire $120,000;

> On July 10, 2021 the insurance company wrote a letter that stated, “we believe that the fire was intentional and so we deny your claim.”