On August purchased 1, 2004, Witten Corporation a new machine on a deferred payment basis. A down payment of P6,000 was made and 4 annual installments of P9,000 each are to be made beginning on September 1, 2004. The cash equivalent price of the machine was P38,000. Due to an employee strike, Witten could not install the machine immediately, and thus incurred P500 of storage costs. Costs of installation (excluding the storage costs) amounted to P1,200. The amount to be capitalized as the cost of the machine is P38,000 P39,200 P39,700 P42,000
On August purchased 1, 2004, Witten Corporation a new machine on a deferred payment basis. A down payment of P6,000 was made and 4 annual installments of P9,000 each are to be made beginning on September 1, 2004. The cash equivalent price of the machine was P38,000. Due to an employee strike, Witten could not install the machine immediately, and thus incurred P500 of storage costs. Costs of installation (excluding the storage costs) amounted to P1,200. The amount to be capitalized as the cost of the machine is P38,000 P39,200 P39,700 P42,000
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:On August 1, 2004, Witten Corporation
purchased a new machine on a deferred
payment basis. A down payment of P6,000
was made and 4 annual installments of P9,000
each are to be made beginning on September
1, 2004. The cash equivalent price of the
machine was P38,000. Due to an employee
strike, Witten could not install the machine
immediately, and thus incurred P500 of storage
costs. Costs of installation (excluding the
storage costs) amounted to P1,200. The
amount to be capitalized as the cost of the
machine is
OP38,000
OP39,200
OP39,700
P42,000
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