On December 31, 2020, before the books were closed, the management of David Company made the following determination about its machinery. The machinery was purchased on January 1, 2017 for P7,200,000. The machinery has a useful life of 10 years with no residual value and was depreciated using the straight line method. In 2020, a decision was made to change the depreciation method from straight line to sum of year’s digits method. What is the depreciation of this machinery for 2020?
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, 2020, before the books were closed, the management of David Company made the following determination about its machinery. The machinery was purchased on January 1, 2017 for P7,200,000. The machinery has a useful life of 10 years with no residual value and was
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