ABC Corp entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000 was paid as follows: Down payment P 400,000 Note payable in 3 equal annual installments 1,200,000 20,000 shares of ABC, fair value of P40 per share 800,000 TOTAL 2,400,000 Prior to the machine’s use, installation cost of P50,000 was incurred. The machine has a residual value of P100,000. required: What is the cost of the machine for financial reporting purposes?
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.
ABC Corp entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000 was paid as follows:
Down payment P 400,000
Note payable in 3 equal annual installments 1,200,000
20,000 shares of ABC, fair value of P40 per share 800,000
TOTAL 2,400,000
Prior to the machine’s use, installation cost of P50,000 was incurred. The machine has a residual value of P100,000.
required:
What is the cost of the machine for financial reporting purposes?
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