Carillion Company is considering the disposal of equipment that is no longer nee
ID: 2500410 • Letter: C
Question
Carillion Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $600,000 and accumulate depreciation to date totals $460,000. An offer has been received to lease the machine for its remaining using life for a total of $310,000, after which the equipment will have no salvage value. The repair, insuring, and property tax expenses that would be incurred by Carillion Company on the machine during the period of the lease are estimate at $75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission. Prepare a differential analysis report, dated June 15 of the current year, on whether the equipment should be leased or sold.Explanation / Answer
First calculate the book value of equipment:
Whether asset is sold or leased, we need to consider the book value in the calculations becasue the company has purchased the equipment at $600,000 that meanse asset is increased in balance sheet with same amount and total accumulated depreciation charged is $460,000 that means $460,000 is deducted from the asset balance but still there is increase of $140,000 on assets side of balance sheet so this increase should be adjusted when equipment is sold or leased.
Particulars Amount ($) Cost of equipment 600,000 Less: Accumulated depreciation 460,000 Book value of equipment 140,000