On January 1, 2020, Dan Company purchased a new machine for P4,000,000. The new machine has an estimated useful life of eight years and a residual value of 10% of the purchase price. Depreciation was computed using the double decline balance method. At the start of 2021, due to obsolescence and physical damage, the machinery is found to be impaired. Dan Company determined the following information with respect to the machinery at year end of 2020. Fair value less cost of disposal P 2,800,000 Value in use 2,650,000 Required: a) Prepare journal entries for the years 2020 and 2021. b) What amount of depreciation expense would be shown in the Income Statement ending December 31, 2021?
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, 2020, Dan Company purchased a new machine for P4,000,000. The new machine has an estimated useful life of eight years and a residual value of 10% of the purchase price.
Fair value less cost of disposal P 2,800,000
Value in use 2,650,000
Required:
- a) Prepare
journal entries for the years 2020 and 2021. - b) What amount of depreciation expense would be shown in the Income Statement ending December 31, 2021?
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