At the beginning of the current period, Ikea Ltd sold a depreciable asset to its wholly owned subsidiary, Freedom Ltd, for $100000. Ikea Ltd had originally paid $200000 for this asset, and at time of sale to Freedom Ltd had charged accumulated depreciation of $120000. This asset is used differently in Freedom Ltd from how it was used in Ikea Ltd; thus, whereas Ikea Ltd used a 10% p.a. straight-line depreciation method, Freedom Ltd uses a 20% straight-line depreciation method.

In calculating the depreciation expense for the consolidated group (as opposed to that recorded by Freedom Ltd), the group accountant, Frank Walker, is unsure of which amount the depreciation rate should be applied to ($200000, $100000 or $80000) and which depreciation rate to use (10% or 20%).

REQUIRED: Provide a detailed response, explaining which depreciation rate should be used and to what amount it should be applied.