Jamela Company acquired a welding machine on account with an invoice price of P5,000,000 subject to a cash discount of 10% which was not taken. Jamela Company incurred freight and insurance during shipment of P50,000 and testing and installation cost of P150,000. Welding supplies were acquired at a cost of P80,000.
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.
Jamela Company acquired a welding machine on account with an invoice price of P5,000,000 subject to a cash discount of 10% which was not taken.
Jamela Company incurred freight and insurance during shipment of P50,000 and testing and installation cost of P150,000. Welding supplies were acquired at a cost of P80,000.
The residual value is 10% of its total cost while its estimated useful life is 5 years.
Question: What is the cost of the new welding machine?
Please include explanation in each capitalizable costs.
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