On 1 January 2019, ABC, Inc. decided to replace its existing machinery which it had acquired on 1 January 2016 for P40 million and initiated process for acquisition of new machinery. Simultaneously, it also initiated efforts to sell of the old machinery. The new machinery was commissioned on 30 March 2019. The company depreciates machinery assuming a zero residual value and 5-year total useful life. The carrying value of old machinery as at 1 January 2019 worked out to P16 million. If the fair value of the old machinery is P12 million and it would cost 10% of the sale proceeds to close the deal, find out when the company should classify the machinery as held-for-sale. 1.) What is the journal entry to record the reclassification? 2.) How much is the total depreciation expense to be recognized for 2019?
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.
On 1 January 2019, ABC, Inc. decided to replace its existing machinery which it had acquired on 1 January 2016 for P40 million and initiated process for acquisition of new machinery. Simultaneously, it also initiated efforts to sell of the old machinery. The new machinery was commissioned on 30 March 2019. The company depreciates machinery assuming a zero residual value and 5-year total useful life. The carrying value of old machinery as at 1 January 2019 worked out to P16 million. If the fair value of the old machinery is P12 million and it would cost 10% of the sale proceeds to close the deal, find out when the company should classify the machinery as held-for-sale.
1.) What is the
2.) How much is the total
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