On January 1, 2012, Jungle Company sold a machine to Safari Company for $30,000. The machine had an original cost of $24,000 and accumulated depreciation on the asset was $ 9000 at the time of the sale. The machine has a 5 year remaining life and will be depreciated on a straight line basis with no salvage value. Safari Company is an 80% owned subsidiary of Jungle Company. Required: 1-Explain the adjustments that would have to be made to arrive at consolidated net income for the years 2012 through 2016 as a result of this sale. 2-prepare the elimination that would be required on the Dec 31, 2012 consolidated worksheet as a result of this sale. 3-prepare the entry for Dec 31, 2013, worksheet as a result of this sale.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
- On January 1, 2012, Jungle Company sold a machine to Safari Company for $30,000. The machine had an original cost of $24,000 and accumulated depreciation on the asset was $ 9000 at the time of the sale. The machine has a 5 year remaining life and will be depreciated on a straight line basis with no salvage value. Safari Company is an 80% owned subsidiary of Jungle Company.
Required:
1-Explain the adjustments that would have to be made to arrive at consolidated net income for the years 2012 through 2016 as a result of this sale.
2-prepare the elimination that would be required on the Dec 31, 2012 consolidated worksheet as a result of this sale.
3-prepare the entry for Dec 31, 2013, worksheet as a result of this sale.
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