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Hello,
Can you please explain following:
our PUP figure in this example of Ausra and Danute is $27,000 (36-9 depreciation), how come we are charging profit on TNCA of $36,000 against Ausra profits instead of $27,000 ?
If company policy is to charge depreciation in the year of purchase, should not we deduct $27,000 from the year profits of $60,000 instead of $36,000?
Because when the profit figure is given , depreciation is already charged against it, isnt it?Hope my question is clear enough, thank you in advance.
No, when the transfer took place, we we not at the end of the year so no depreciation had been charged by Danute for the year as at the date of transfer.
Now it’s in the hands of Ausra, Ausra charges a full year in the year of purchase and Danute charges nothing in the year of sale
The 36,000 – 9,000 depreciation should, from memory, be deducted from Danute and not from Ausra. We used to deduct the profit from the seller and the depreciation from the buyer but that changed about 4 years ago so now the NET figure (in this case, 27,000) is deducted from the seller’s retained earnings
OK?
Right! I totally didn’t take into consideration that depreciation was charged to Danute profits, thats what messed me up.
Thanks a lot
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