On January 1, 1978, the purchasing engineer of a Cement Co. purchased a new machine at a cost of P140,000. Depreciation has been computed by the straight line method based on an estimated useful life of five years and residual scrap value of P12,800. On January 2, 1981, extraordinary repairs were performed at a cost of P30,400. Because of the thorough going nature of these repairs, the normal life of the machinery was extended materially. The revised estimate of useful life was four years from January 1, 1981. Determine the annual provisions for depreciation for the years 1978 to 1980 and the adjusted provision for depreciation on December 31, 1981. Assume payment in cash for the machine and extraordinary repairs.
On January 1, 1978, the purchasing engineer of a Cement Co. purchased a new machine at a cost of P140,000. Depreciation has been computed by the straight line method based on an estimated useful life of five years and residual scrap value of P12,800. On January 2, 1981, extraordinary repairs were performed at a cost of P30,400. Because of the thorough going nature of these repairs, the normal life of the machinery was extended materially. The revised estimate of useful life was four years from January 1, 1981. Determine the annual provisions for depreciation for the years 1978 to 1980 and the adjusted provision for depreciation on December 31, 1981. Assume payment in cash for the machine and extraordinary repairs.
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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On January 1, 1978, the purchasing engineer of a Cement Co. purchased a new machine at a cost of P140,000. Depreciation has been computed by the straight line method based on an estimated useful life of five years and residual scrap value of P12,800. On January 2, 1981, extraordinary repairs were performed at a cost of P30,400. Because of the thorough going nature of these repairs, the normal life of the machinery was extended materially. The revised estimate of useful life was four years from January 1, 1981. Determine the annual provisions for depreciation for the years 1978 to 1980 and the adjusted provision for depreciation on December 31, 1981. Assume payment in cash for the machine and extraordinary repairs.
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