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Hi tutors of OpenTuition,
May I ask you a question? I do not understand this calculation:
Cost of sales (260,000 + (110,000 × 6/12) + (W3) 800 – (W4) 40,000 + 3,000)
Why do we have to add the 800 but not deduct it?
The question says that “profit on this transfer as a reduction in its depreciation costs. All depreciation is charged to cost of sales. ” Therefore, I think we should deduct the 800.
Thank you for your time.Hi,
If we have transferred the asset and there is a reduction in the depreciation costs then we need to get the depreciation figure back to what it should have been prior to the transfer. To do this we would need to add back the saving incurred. Effectively it is saying that the depreciation is now 1,000 when it was 1,800 (say). The 1,000 has been recorded as it is showing the reduction in depreciation but we now need to get it up to the 1,800 and so need to add the 800.
Thanks
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