A machine costs P 1, 500, 000. It has a salvage value of P600, 000 at the end of its economic life. Using the sum of the years digit method, the book value at the end of 2 years is estimated to be P870, 000. What is the machine economic life in years?
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 costs P 1, 500, 000. It has a salvage value of P600, 000 at the end of its economic life. Using the sum of the years digit method, the book value at the end of 2 years is estimated to be P870, 000. What is the machine economic life in years?
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