Dawn Company purchased a machine on January 1, 2018 for P3,000,000. At the date of acquisition, the machine had useful life of six years with no residual value. The machine was depreciated on a straight line basis. On January 1, 2021, the entity determined that the machine had a useful life of five years from the date of acquisition with residual value of P100,000. What amount should be recorded as depreciation for 2021?
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.
Dawn Company purchased a machine on January 1, 2018 for P3,000,000. At the date of acquisition, the machine had useful life of six years with no residual value. The machine was
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