A firm purchased 12-years ago a computerized machine worth P 758,123. As the life of the machine was 20 years, funds are reserved based on a Double Declining Balance method of depreciation. Now the firm wishes to replace it with a current model possessing several advantages. The firm can sell it today for P 58,258. The new machine will cost P 1,095,347. How much new capital will be required to make the purchase?
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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