On July 1, 2010, GRACE Company purchased P2,160,000 snow-making equipment having an estimated useful life of 5 years
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 July 1, 2010, GRACE Company purchased P2,160,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of P90,000.
Instructions
(a) Complete the form below by determining the depreciation expense and year-end book values for 2010 and 2011 using the
- sum-of-the-years'-digits method.
- double-declining balance method.
(b) Assume the company had used straight-line depreciation during 2019 and 2020. In 2021, the company determined that the equipment would be useful to the company for only one more year beyond 2021. The salvage value is estimated at P120,000. Compute the amount of depreciation expense for the 2021 income statement.
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