Reference no: EM131815431

At the beginning of the current period, Jessica Ltd sold a used depreciable asset to its wholly owned subsidiary, Amelie Ltd, for $80,000. Jessica Ltd had originally paid $200,000 for this asset, and at time of sale to Amelie Ltd had charged depreciation of $150 000. This asset is used differently in Amelie Ltd from how it was used in Jessica ltd; thus, whereas Jessica Ltd used a 10% p.a. straight-line depreciation method, Amelie Ltd uses a 20% straight-line depreciation method.

In calculating the depreciation expense for the consolidated group (as opposed to that recorded by Amelie Ltd), the group accountant, RuiFen Xue, is unsure of which amount the depreciation rate should be applied to ($200,000, $50 000, $80 000) and which depreciation rate to use (10% or 20%).

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