Red Company has an equipment costing P700,000 with an estimated residual value of P70,000 and an estimated useful life of 6 years. After using and depreciating the asset for the past two years, the company upgraded the machine parts and the cost of upgrading amounted to P150,000. Assuming the upgrading costs improved the quality of the asset’s output, what is the revised depreciation expense for the 3rd year using the straight-line method?
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.
Red Company has an equipment costing P700,000 with an estimated residual value of P70,000 and an estimated useful life of 6 years. After using and
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