Henessy Co. is planning to buy a machine costing P84,000 to be depreciated on the straight-line method basis over 10 years life. The related cash flow from operations, net of income taxes, is expected to be P10,000 a year for each of the first 6 years and P12,000 for the next 4 years. It was also estimated that the salvage value of the project at the end of year 1 to be P60,000 and decreases by P5,000 each year thereafter, provided further that at the end of 10 years, the machine has no salvage value. Compute the payback bailout period in years.
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.
Henessy Co. is planning to buy a machine costing P84,000 to be
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