As of Dec. 31, 2020, ABC Corporation reported total assets of P600,000 and total liabilities of P250,000. During the audit, the following were determined: Advertising expense amounting to P45,000 was recorded on Jan. 1, 2020 but the contract is good for three years. The Supplies account balance was not yet established. It should be reported as P2,000. Unearned revenue of P70,000 is recorded in the books but this has decreased to P50,000 as year-end. A write-off of P30,000 should be recorded. The allowance for bad debts is correctly stated even after this adjustment. Accounts payable amounting to P23,000 was settled but it was recorded as P32,000. What is the correct equity balance as of Dec. 31, 2020?
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.
As of Dec. 31, 2020, ABC Corporation reported total assets of P600,000 and total
liabilities of P250,000. During the audit, the following were determined:
Advertising expense amounting to P45,000 was recorded on Jan. 1, 2020 but the contract
is good for three years.
The Supplies account balance was not yet established. It should be reported as P2,000.
Unearned revenue of P70,000 is recorded in the books but this has decreased to P50,000
as year-end.
A write-off of P30,000 should be recorded. The allowance for
stated even after this adjustment.
Accounts payable amounting to P23,000 was settled but it was recorded as P32,000.
What is the correct equity balance as of Dec. 31, 2020?
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