Bugis Corp. acquired a machine on January 1, 2012. Details of the machine at December 31, 2019 are given below: Component Cost Depreciation basis Engine P170,000,000 Useful life of 40,000 hours Outer casings 510,000,000 25 years straigh
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.
Bugis Corp. acquired a machine on January 1, 2012. Details of the machine at December 31, 2019 are given below:
Component Cost
Engine P170,000,000 Useful life of 40,000 hours
Outer casings 510,000,000 25 years straight line
Other components 255,000,000 12 years straight line
P765,000,000
During the year 2020, the following events took place:
Engine, which had run for 30,000 hours till date developed serious snags. It was replaced by a better engine with a cost of P238 million and estimated life of 50,000 hours. The new engine was used for 5,000 hours during the year.
Polishing and painting was done to the outer casings at a cost of P1.3 million.
Other components were upgraded at a cost of P102 million. The remaining life of the other components is 5 years.
Compute the total depreciation for the year 2020, assume that all the work mentioned above was completed at the beginning of 2020.
P85,850,000
P90,950,000
P81,676,470
P81,600,000
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