In the course of your review of the accounts, you discover the following adjustments: Depreciation – for the year was ₱50,000. 75% is chargeable to factory operation and 25% to general operations. There is unpaid payroll of ₱2,800 (direct) and ₱500 for factory supervision. Prepayments that expired are ₱8,000 where 50% is applicable to factory operation and 10% to general operation. Inventories at Dec. 31, 2005 are: Finished Goods ₱25,000 Work in Process 45,000 Direct Materials 25,000
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.
In the course of your review of the accounts, you discover the following adjustments:
Depreciation – for the year was ₱50,000. 75% is chargeable to factory operation and 25% to general operations.
- There is unpaid payroll of ₱2,800 (direct) and ₱500 for factory supervision.
- Prepayments that expired are ₱8,000 where 50% is applicable to factory operation and 10% to general operation.
- Inventories at Dec. 31, 2005 are:
|
Finished Goods |
|
₱25,000 |
|
Work in Process |
|
45,000 |
|
Direct Materials |
|
25,000 |
- Income tax is 20% of net income of 2005.
Requirement (using above details):
Prepare statement of cost of goods manufactured of 2005.
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