Question

At the start of the current year, SBC Corp. purchased 25% of Sky Tech Inc. for $41 million. At the time of purchase, the carrying value of Sky Tech's net assets was $84 million. The fair value of Sky Tech's depreciable assets was $16 million in excess of their book value. For this year, Sky Tech reported a net income of $84 million and declared and paid $16 million in dividends. The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is:

Answer 1

Answer:

The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is $4 million

Explanation:

For computing the additional depreciation, the calculation is shown below:

= Fair value of assets × purchase rate

= $16 million × 25%

=$4 million

Since the company have high fair value than book value plus only 25% is purchased . So, these things is to be considered in the computation part.

And, The other cost like purchase cost, net assets value, net income, dividend paid is irrelevant. Thus, it is not being considered in the computation part.

Hence, The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is $4 million