On December 31, 20x1, DEF Company reported the following information: Equipment 6,250,000 Accumulated depreciation 2,187,500 The equipment was measured using the cost model and depreciated on a straight line basis over a 10-year period. On the same date, the management decided to change to basis of measuring the equipment from the cost model to the revaluation model. The equipment had a fair value of ₱5,687,500 with remaining useful life of 5 years on December 31, 20x1. 1. What amount should be reported as revaluation surplus on December 31, 20x1? 2. What is the depreciation of the equipment for 20x2? 3. What amount should be reported as revaluation surplus on December 31, 20x2?
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, 20x1, DEF Company reported the following information:
Equipment 6,250,000
The equipment was measured using the cost model and depreciated on a straight line basis over a 10-year
period.
On the same date, the management decided to change to basis of measuring the equipment from the cost
model to the revaluation model.
The equipment had a fair value of ₱5,687,500 with remaining useful life of 5 years on December 31, 20x1.
1. What amount should be reported as revaluation surplus on December 31, 20x1?
2. What is the depreciation of the equipment for 20x2?
3. What amount should be reported as revaluation surplus on December 31, 20x2?
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