te. The equipment had a remaining useful life of 8 years and estimated residual value of P50,000. On December 31, 2022, there are indications that the impairment loss recognized in 2019 may be reversed. The value in use is based on estimated net cash flows of P1,000,000 every year (discount rate is 7%) while the asset is in use while the fair value was at P4,200,000 and costs to sell is estimated at P90,000. Which of the following statements is (are) correct? Statement 1: The asset is reported in the statement of financial position as of December 31, 2022 at P4,110,000. Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250. Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250. Group of answer choices Only statement 3 is correct
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.
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On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10,000,000 less
Statement 1: The asset is reported in the
Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250.
Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250.
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