On December 31, 2011, Lin Co. purchased an equipment with an estimated useful life of 10 years. The equipment was expected to have a residual value of P5,000 at the end of its service life. The sum-of-the-years-digits method was used in computing depreciation. For the year ended December 31, 2015, the depreciation applicable to this equipment was P42,000. What was the acquisition cost of the equipment? a. P335,000 c. P293,750 b. P330,000 d. P325,000
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.
On December 31, 2011, Lin Co. purchased an equipment with an estimated useful life of 10 years. The
equipment was expected to have a residual value of P5,000 at the end of its service life. The
sum-of-the-years-digits method was used in computing
2015, the depreciation applicable to this equipment was P42,000.
What was the acquisition cost of the equipment?
a. P335,000 c. P293,750
b. P330,000 d. P325,000
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