A construction company has purchased a motor for P20,000 and a generator for P8,000 to produce its own energy to meet electricity demands in the construction site. The assembly of the motor-generator set-up costs P5,000. The service will operate for 10 years, 1,600 hours per year. The maintenance cost is P1,200 per year, and the cost to operate is P5per hour for fuel and other costs. The salvage value at the end of ten years is equal to P1,000. Using straight-line depreciation, what is the annual cost of operation?
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.
A construction company has purchased a motor for P20,000 and a generator for P8,000 to produce its own energy to meet electricity demands in the construction site. The assembly of the motor-generator set-up costs P5,000. The service will operate for 10 years, 1,600 hours per year. The maintenance cost is P1,200 per year, and the cost to operate is P5per hour for fuel and other costs. The salvage value at the end of ten years is equal to P1,000. Using straight-line
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