On January 1, 2019, Yolanda Company purchased a plating machine for P5,400,000. Yolanda received a government grant of P400,000 toward this capital cost. The machine is to be depreciated using straight line method with a five year life and no salvage value. The accounting policy is to treat the government grant as a reduction in the cost of the asset. What is the carrying amount of the machine on 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, 2019, Yolanda Company purchased a plating machine for P5,400,000. Yolanda received a government grant of P400,000 toward this capital cost. The machine is to be
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