On January 1, 2002, STD & Company purchased a large quantity of laptop computers for their associates. The cost of these computers was P10,000,000. On the date of purchase, the management estimated that the computers would last approximately 5 years and would have a residual value at that time of P1,000,000. The company used the sum-of-years' digit method of depreciation. During 2005, the management realized that technological advancements and the volume of files being uploaded had made the computers virtually obsolete and that they would have to be replaced. Management decided to depreciate the computers using the double declining balance method of depreciation in 2005. What is the depreciation for the year 2005?
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 January 1, 2002, STD & Company purchased a large quantity of laptop computers for their associates. The cost of these computers was P10,000,000. On the date of purchase, the management estimated that the computers would last approximately 5 years and would have a residual value at that time of P1,000,000. The company used the sum-of-years' digit method of depreciation. During 2005, the management realized that technological advancements and the volume of files being uploaded had made the computers virtually obsolete and that they would have to be replaced. Management decided to
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