A machine bought at P420,000 has an economic life of 6 years with a salvage value of P50,000. Cost of money is 12% per year. The first year depreciation is found to be P105,714. What method of depreciation is used?
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 machine bought at P420,000 has an economic life of 6 years with a salvage value of P50,000. Cost
of money is 12% per year. The first year
depreciation is used?
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