SUM OF THE YEAR’S DIGIT METHOD A structure costs P12,000 new. It is estimated to have a new life of 5 years with a salvage value at the end of life of P1,000. Determine the book value at the end of each year of life. Year Initial Book Value Depreciation Book Value 1 12, 000 2
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.
SUM OF THE YEAR’S DIGIT METHOD
A structure costs P12,000 new. It is estimated to have a new life of 5 years with a salvage value at the end of life of P1,000. Determine the book value at the end of each year of life.
|
Year |
Initial Book Value |
|
Book Value |
|
1 |
12, 000 |
||
|
2 |
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