Question

At the beginning of the current period, Perfect Products Inc. (PPI) sold a used depreciable asset to its wholly owned subsidiary, Simply Scrumptious Ltd. (SSL), for $80,000. PPI had originally paid $200,000 for this asset, and at time of sale to SSL had charged depreciation of $150,000. This asset is used differently in SSL from how it was used in PPI; thus, whereas PPI used a 10% p.a. straight-line depreciation method, SSL uses a 20% straight-line depreciation method.
In calculating the depreciation expense for the consolidated group (as opposed to that recorded by SSL), the group accountant, Max Stern, is unsure of which amount the depreciation rate should be applied to ($200,000, $50,000, or $80,000) and which depreciation rate to use (10% or 20%).
Required
Provide a detailed response to Max, explaining which depreciation rate should be used and to what amount it should be applied.


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  • CreatedJune 09, 2015
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