Goodman Company exchanges an asset with The Pryce Corporation. Details of the exchange are as follows: Goodman’s Piece of equipment: Pryce’s building: Cost $800,000 Cost $960,000 Accumulated depreciation 230,000 Accumulated depreciation 350,000 Fair value 700,000 Fair value 850,000 Required- Prepare the journal entry in the books of both Goodman and Pryce, assuming both are public companies. Assume now that Goodman paid $80,000 in this transaction. Record the appropriate journal entry in Goodman books. Repeat b) assuming now that Goodman is a private company and that the fair value of Pryce’s building is the most determinable fair value.
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.
Goodman Company exchanges an asset with The Pryce Corporation. Details of the exchange are as follows:
|
Goodman’s Piece of equipment: |
Pryce’s building: |
|
|
Cost $800,000 |
Cost |
$960,000 |
|
|
Accumulated depreciation |
350,000 |
|
Fair value 700,000 |
Fair value |
850,000 |
Required-
- Prepare the
journal entry in the books of both Goodman and Pryce, assuming both are public companies. - Assume now that Goodman paid $80,000 in this transaction. Record the appropriate journal entry in Goodman books.
- Repeat b) assuming now that Goodman is a private company and that the fair value of Pryce’s building is the most determinable fair value.
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