Problem 3 Xavier Company purchased a machinery on January 1, 2015 for P7,200,000. The machinery had useful life of 10 years with no residual value and was depreciated using the straight line method. In 2018, a decision was made to change the depreciation method from straight line to sum of years' digit method. The useful life and residual value remained unchanged. Required: 1. How much is the depreciation expense for 2018? 2. How much is the balance of accumulated depreciation as of December 31, 2018? 3. How much is the carrying amount of machinery as of December 31, 2018?
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.
![Problem 3
Xavier Company purchased a machinery on
January 1, 2015 for P7,200,000.
The machinery had useful life of 10 years with no
residual value and was depreciated using the
straight line method.
In 2018, a decision was made to change the
depreciation method from straight line to sum of
years' digit method. The useful life and residual
value remained unchanged.
Required:
1. How much is the depreciation expense for
2018?
2. How much is the balance of accumulated
depreciation as of December 31, 2018?
3. How much is the carrying amount of
machinery as of December 31, 2018?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7f70c3c5-27c8-444d-b3ba-63075c0b1997%2F41029f71-0c81-41cc-8525-6a78bdc0ea6a%2Fr24yuw6_processed.jpeg&w=3840&q=75)
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