Why do we transfer the amount of accumulated depreciation to machinery account of asset sold in case of original cost method in cash flow statement
Hi Riya,
The amount of accumulated depreciation on asset sold is transferred from Accumulated Depreciation A/c to Asset A/c so as to determine the amount of profit/loss on the sale of a particular asset.
In original cost method, the depreciation charged every year is recorded separately in Accumulated Depreciation A/c but the cost of asset is recorded in Asset A/c. Now, at the time of sale, to determine the book value of the asset (i.e. cost less depreciation till date) the total depreciation or the accumulated depreciation must be transferred to the Asset A/c where sale value is recorded.
Hope, you understood the concept now.
The amount of accumulated depreciation on asset sold is transferred from Accumulated Depreciation A/c to Asset A/c so as to determine the amount of profit/loss on the sale of a particular asset.
In original cost method, the depreciation charged every year is recorded separately in Accumulated Depreciation A/c but the cost of asset is recorded in Asset A/c. Now, at the time of sale, to determine the book value of the asset (i.e. cost less depreciation till date) the total depreciation or the accumulated depreciation must be transferred to the Asset A/c where sale value is recorded.
Hope, you understood the concept now.