On January 1, 2016, Makakaya Co. acquired machinery with a cost of P2,200,000 with an estimated useful life of 10 years and an estimated salvage value of P200,000. On January 1, 2017, the machinery has a recoverable amount (fair value) of P1,280,000 with an estimated useful residual value of P155,000. On January 1, 2019, based on objective evidence, the machinery was found to have been impaired. The machinery now has a recoverable amount (fair value) of P600,000 with an estimated residual value of P40,000. 2016 2017 CA
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, Makakaya Co. acquired machinery with a cost of P2,200,000 with an estimated useful life of 10 years and an estimated salvage value of P200,000. On January 1, 2017, the machinery has a recoverable amount (fair value) of P1,280,000 with an estimated useful residual value of P155,000.
On January 1, 2019, based on objective evidence, the machinery was found to have been impaired. The machinery now has a recoverable amount (fair value) of P600,000 with an estimated residual value of P40,000.
2016 2017 CA<RA 2019
2,200,000 1,280,000 600,000
Assuming the company is using a revaluation model, answer the following:
- How much is the
depreciation expense in 2016? - How much is the revaluation surplus on January 1, 2017?
- How much is the depreciation expense in 2017?
- How much is the impairment loss in 2019?
- How much is the depreciation expense in 2019?
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