On June 30, 2017, Everglades Company reported the following balances: Machinery at cost 30,000,000 Accumulated depreciation 10,500,000 The equipment was measured using the cost model and depreciated on a straight-line basis over a 10-year period. On December 31, 2017, the directors of Everglades decided to change the basis of measuring the machinery from the cost model to the revaluation model. The machinery was revaluated to the fair value of P27,000,000 with an expected remaining life of 5 years. The income tax rate is 30%. What amount should be recognized as revaluation surplus on December 31, 2017? A . 9,000,000 C. 7,500,000 B. 6,300,000 D. 5,250,000
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 June 30, 2017, Everglades Company reported the following balances:
Machinery at cost 30,000,000
The equipment was measured using the cost model and depreciated on a straight-line basis over a 10-year
period. On December 31, 2017, the directors of Everglades decided to change the basis of measuring the
machinery from the cost model to the revaluation model. The machinery was revaluated to the fair value of
P27,000,000 with an expected remaining life of 5 years. The income tax rate is 30%. What amount should
be recognized as revaluation surplus on December 31, 2017?
A
.
9,000,000 C. 7,500,000
B. 6,300,000 D. 5,250,000
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