On January 1, 2016, LLC Corporation purchased a building and equipment that have the following useful lives, residual values, and costs. Building, 40-year estimated useful life, P50,000 residual value, P1,200,000 cost Equipment, 12-year estimated useful life, P10,000 residual value, P130,000 cost The building has been depreciated under the double-declining-balance method through 2019. In 2020, the company decided to switch to the straight-line method of depreciation. LLC also decided to change the total useful life of the equipment to 9 years, with a residual value of P5,000 at the end of that time. The equipment is depreciated using the straight-line method. Required Prepare the journal entry(ies) necessary to record the depreciation expense on the building in 2020. Compute depreciation expense on the equipment 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 January 1, 2016, LLC Corporation purchased a building and equipment that have the following useful lives, residual
values, and costs.
Building, 40-year estimated useful life, P50,000 residual value, P1,200,000 cost
Equipment, 12-year estimated useful life, P10,000 residual value, P130,000 cost
The building has been
to switch to the straight-line method of depreciation. LLC also decided to change the total useful life of the equipment to 9
years, with a residual value of P5,000 at the end of that time. The equipment is depreciated using the straight-line method.
Required
- Prepare the
journal entry (ies) necessary to record the depreciation expense on the building in 2020. - Compute depreciation expense on the equipment for 2020.
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