On January 1, 2017, Jungkook Company purchased an equipment for P1,970,000. On this date, the equipment has an estimated economic useful life of 12 years and estimated residual value of P98,000. It is the company’s policy to depreciate this type of equipment using a sum-of-years digit. On January 1, 2021, Jungkook Company made a review of the estimated useful life and salvage value of the equipment and review revealed that the asset has a revised total life of 14 years and a residual value of P100,000. The company also changed the method of depreciation to straight-line. What is the carrying value of the asset of December 31, 2022?   CHOICES: P769,600 P865,800 P789,600 P875,800

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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.