A plastic extrusion machine cost P120.000 was purchased 4 years ago and is estimated to have a service life of 6 more years with salvage value of P15,000. If it is to replaced by a new machine and its trade-in-value is P40,000. Find the sunk cost if money worth 10% per annum.
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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PROBLEM:
5. A plastic extrusion machine cost P120.000 was purchased 4 years ago and is estimated to have a service life of 6 more years with salvage value of P15,000. If it is to replaced by a new machine and its trade-in-value is P40,000. Find the sunk cost if money worth 10% per annum.
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