Exercise 3: Revaluation of PPE An equipment was acquired on January 1, 20X2 for P5,000,000 and is expected to have a 10-year life. Straight-line depreciation will be used. On January 1, 20X4, the asset is appraised at a gross replacement cost of P5,625,000 or P4,500,000 sound value. On January 1, 20X7, the asset is appraised at a sound value of P2,000,000. Required: Provide the entries to record the foregoing events.
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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