Enter Sandman Co. purchased manufacturing equipment from Sad But True Co. on January 1, 20x8 at a total cost of ₱9,000,000. Enter Sandman uses the straight-line method of depreciation and estimates that the equipment has a useful life of 10 years. On July 1, 20x8 and July 1, 20x9 Enter Sandman performed major regular inspections on the equipment costing ₱380,000 and ₱425,000, respectively. The costs of inspection satisfied the recognition criteria for capitalization. How much is the carrying amount of the equipment on December 31, 2009?
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.
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