On April 1, 2020, an entity purchased machinery for P3,300,000. The machinery has an estimated useful life of five years with residual value of P300,000. Depreciation is computed by the sum of the years' digits method. What is the depreciation for 2021?
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 April 1, 2020, an entity purchased machinery for P3,300,000. The machinery has an estimated useful life of five years with residual value of P300,000.
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