Question

s company sold a machine to p on jan 1, 2014. s company orignally bought the...

s company sold a machine to p on jan 1, 2014. s company orignally bought the machine on jan 1, 2011. straight line deprecation is being used. the orignal life of the machine has not changed
original cosst to s company 150,000
sales price to p company 108,750
orginal life of the machine(years) 8.
how would this look in terms of deprecation each year? like how woudl this affect Ps book in 2016? thanks
Business   Accounting   
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Answer #1

In books of S company:-

Original cost = 150000

Life of asset = 8 years

Annual depreciation= 150000 / 8 = 18750

Depreciation for 3 years = 18750 * 3 = 56250

Written down value = 150000 - 56250 = 93750

Sale price = 108750

Profit on sale of machine = 108750 - 93750 = 15000

Annual Depreciation in books of s company = 18750

In books of P company:-

Original cost = 108750

Balance useful life = 5 years

Annual depreciation = 21750

Depreciation for year 2016 = 21750

Written down value of the machine for the yaer ended 2016

108750 - (21750*3) = 43500

P company will have a depreciation of 21750 in year 2016 assuming useful life of asset remains same.

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