On January 1, 2018, Bray Company purchased for P2,400,000 a machine with a useful life of ten years and no residual value. The machine was depreciated by the double-declining balance method and the carrying amount of the machine was P1,536,000. On December 31, 2019, Bray Company changed to the straight-line method on January 1, 2020. What should be the depreciation expense on this machine for the year ended December 31, 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, 2018, Bray Company purchased for P2,400,000 a machine with a useful life of ten years and no residual value. The machine was
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