The cost of equipment is P500,000 and the cost of installation is P30,000. If the salvage value is 10% of the cost of equipment at the end of 5 years, determine the depreciation charge and book value at the end of the third year using (a) straight line method, (b) declining balance method, and (c) sum of the years digit 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.
The cost of equipment is P500,000 and the cost of installation is P30,000. If the salvage value is 10% of the cost of equipment at the end of 5 years, determine the
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
