AN ASSET FOR DRILLING WAS PURCHASED AND PLACE IN SERVICE BY A PETROLEUM PRODUCTION COMPANY. ITS INITIAL INVESTMENT IS P60,000 AND IT HAS AN ESTIMATED SV OF P12,000 AT THE END OF AN ESTIMATED USEFUL LIFE OF 14 YEARS. COMPUTE THE DEPRECIATION AMOUNT IN THE THIRD YEAR AND THE BV AT THE END OF 5TH YEAR OF LIFE BY EACH OF THESE METHODS: a. SL METHOD b. SF METHOD @ 5% PER YEAR c. DB METHOD d. DDB METHOD e. SYD METHOD
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.
AN ASSET FOR DRILLING WAS PURCHASED AND PLACE IN SERVICE BY A PETROLEUM
PRODUCTION COMPANY. ITS INITIAL INVESTMENT IS P60,000 AND IT HAS AN ESTIMATED SV OF
P12,000 AT THE END OF AN ESTIMATED USEFUL LIFE OF 14 YEARS. COMPUTE THE
EACH OF THESE METHODS:
a. SL METHOD
b. SF METHOD @ 5% PER YEAR
c. DB METHOD
d. DDB METHOD
e. SYD METHOD
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