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

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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.