At the end of its economic life of P45,000 operational hours, an item costing P500,000 has a salvage value of 12% of its original cost. It was utilized for P4000 hours in the first year. Using the straight line method, calculate the book value at the conclusion of the first year.
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.
At the end of its economic life of P45,000 operational hours, an item costing P500,000 has a salvage value of 12% of its original cost. It was utilized for P4000 hours in the first year. Using the
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