A building owned and previously occupied by the company was vacated and was being negotiated for sale. The sale is highly probable and is expected to be consummated within 6 months. The building had a cost of P20,000,000 and accumulated depreciation of P12,000,000. The fair value of the building is P9,000,000. The company expects to incur selling costs of P1,500,000 on the disposal of this building. Assume that the building was sold after the end of the reporting period at P9,200,000, after incurring disposal cost of P1,300,000. How is the profit (before income tax) during the year of sale affected?
A building owned and previously occupied by the company was vacated and was being negotiated for sale. The sale is highly probable and is expected to be consummated within 6 months. The building had a cost of P20,000,000 and accumulated depreciation of P12,000,000. The fair value of the building is P9,000,000. The company expects to incur selling costs of P1,500,000 on the disposal of this building. Assume that the building was sold after the end of the reporting period at P9,200,000, after incurring disposal cost of P1,300,000. How is the profit (before income tax) during the year of sale affected?
Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion
Section: Chapter Questions
Problem 29CE
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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.
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A building owned and previously occupied by the company was vacated and was being negotiated for sale. The sale is highly probable and is expected to be consummated within 6 months. The building had a cost of P20,000,000 and accumulated depreciation of P12,000,000. The fair value of the building is P9,000,000. The company expects to incur selling costs of P1,500,000 on the disposal of this building.
Assume that the building was sold after the end of the reporting period at P9,200,000, after incurring disposal cost of P1,300,000. How is the profit (before income tax) during the year of sale affected?
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