1. The company computes depreciation to the nearest day. (Use 12 months of 30 days each.) 2. The company computes depreciation to the nearest month. Assets purchased in the first half of the month are considered owned for the whole month. 3. The company computes depreciation to the nearest whole year. Assets purchased in the first half of the month are considered owned for the whole year.
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.
On May 10, 2021, the Horan Company purchased equipment for P 25,000. The
equipment has an estimated service life of five years and zero residual value. Assume that
straight- line
Required
Compute the depreciation for 2021 for each of the following four alternatives:
1. The company computes depreciation to the nearest day. (Use 12 months of 30 days
each.)
2. The company computes depreciation to the nearest month. Assets purchased in the
first half of the month are considered owned for the whole month.
3. The company computes depreciation to the nearest whole year. Assets purchased in
the first half of the month are considered owned for the whole year.
4. The company records one-half year’s depreciation on all assets purchased during the
year.
Step by step
Solved in 2 steps with 2 images
