ABC company acquired a machine in January 2016 at a cost of P2,500,000. The estimated residual value of the machinery is P400,000 and has an estimated useful life of 8 years to be depreciated under the straight-line method. In January 2020, ABC has determined that there was a permanent impairment in the value of the machinery and accordingly recorded an impairment loss of P450,000. The estimated remaining useful life of the machine is two years with no residual value. What is the carrying amount of the machinery that should be reported in the December 31, 2020 statement of financial position?
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.
6. ABC company acquired a machine in January 2016 at a cost of P2,500,000. The estimated residual value of the machinery is P400,000 and has an estimated useful life of 8 years to be
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