On January 2, 2017, Greenwood Company purchased and placed in operation a machine estimated to have a 10-year life and no salvage value. The machine cost P600,000 and was depreciated on a straight-line basis. On December 27, 2020, a P60,000 device that increased the machine's output by one fourth was added to the machine. The new device made no change in the machine's estimated life and salvage value. During the first week of January, 2024 the machine was completely overhauled at a cost of P180,000. The overhaul added three additional years to the machine's estimated life but did not change its salvage value. Prepare entries in general form to record: a) the purchase of the machine b) the 2017 depreciation c) the addition of the new device d) the 2021 depreciation e) overhauling of the machine f) the 2024 depreciation
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 2, 2017, Greenwood Company purchased and placed in operation a machine estimated to have a 10-year
life and no salvage value. The machine cost P600,000 and was
2020, a P60,000 device that increased the machine's output by one fourth was added to the machine. The new device
made no change in the machine's estimated life and salvage value. During the first week of January, 2024 the machine
was completely overhauled at a cost of P180,000. The overhaul added three additional years to the machine's estimated
life but did not change its salvage value.
Prepare entries in general form to record:
a) the purchase of the machine
b) the 2017 depreciation
c) the addition of the new device
d) the 2021 depreciation
e) overhauling of the machine
f) the 2024 depreciation
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
