The draft balance sheet of Four Corporation as of December 31, 2020 reported the net property, plant and equipment at P6,270,000. Details of the amount follow: Land at cost Building at cost Less accumulated depreciation at 12/31/19 Plant at cost Less accumulated depreciation at 12/31/19 P1,000,000 P4,000,000 800.000) 5,200,000 3,200,000 (3.130.000) 2.070.000 P6.270.000 The following matters are relevant (a) The company policy for all depreciation is that a full year's charge is made in the year of acquisition or completion and none in the year of disposal. (b) Included in the sales revenue is P300,000 being the sales proceeds of an item of plant that was sold on June 30, 2020. The plant had originally cost P900,000 and had been depreciated by P630,000 as of December 31, 2019. Other than recording the proceeds in sales and cash, no otheraccounting entries for the disposal of the plant have been made. All plant is depreciated at 25% per annum on the reducing balance basis. (c) On September 30, 2020, the company completed the construction of a new warehouse. The construction was achieved using the company's own resources as follows: Purchased materials Direct labor Supervision Design and planning costs P150,000 800,000 65,000 20,000 Included in the above figures are P10,000 for materials and P25,000 for labor costs that were effectively lost due to the foundations being too close to a neighboring property. All the above costs are included in cost of sales. The building was brought into immediate use upon completion and has an estimated useful life of 20 years (straight-line depreciation).
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.
1. The carrying amount of the new warehouse as of December 31, 2020 is
2. The
3. The carrying amount of plant as of December 31, 2020 is
4. The total
5. The revaluation surplus as of December 31, 2020 is
![The draft balance sheet of Four Corporation as of December 31, 2020 reported the net property, plant
and equipment at P6,270,000. Details of the amount follow:
Land at cost
Building at cost
Less accumulated
depreciation at 12/31/19
Plant at cost
Less accumulated
depreciation at 12/31/19
P1,000,000
P4,000,000
800.000)
5,200,000
3,200,000
(3.130.000)
2.070.000
P6.270.000
The following matters are relevant
(a) The company policy for all depreciation is that a full year's charge is made in the year of acquisition
or completion and none in the year of disposal.
(b) Included in the sales revenue is P300,000 being the sales proceeds of an item of plant that was sold
on June 30, 2020. The plant had originally cost P900,000 and had been depreciated by P630,000
as of December 31, 2019. Other than recording the proceeds in sales and cash, no otheraccounting
entries for the disposal of the plant have been made. All plant is depreciated at 25% per annum on
the reducing balance basis.
(c) On September 30, 2020, the company completed the construction of a new warehouse. The
construction was achieved using the company's own resources as follows:
Purchased materials
Direct labor
Supervision
Design and planning costs
P150,000
800,000
65,000
20,000
Included in the above figures are P10,000 for materials and P25,000 for labor costs that were
effectively lost due to the foundations being too close to a neighboring property. All the above costs
are included in cost of sales. The building was brought into immediate use upon completion and
has an estimated useful life of 20 years (straight-line depreciation).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F744faf79-9f26-4447-99c7-4cf3d34db63c%2F392d2bc8-4905-4fb2-a214-bbf03c23dfaa%2Foug002a_processed.png&w=3840&q=75)
![(d) At the beginning of the current year, the company had an open market basis valuation of its
properties (excluding the newly constructed warehouse). Land was valued at P1.2 million and the
property at P4.8 million. The directors wish these values to be incorporated into the financial
statements. The properties had an estimated remaining life of 20 years at the date of the valuation
(straight-line depreciation is used). The company makes a transfer to retained eamings in respect
of the excess depreciation on revalued assets.
(e) Depreciation for the year 2020 has not yet been accounted for the in the draft financial statements.
Based on the above and the result of your audit, answer the following:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F744faf79-9f26-4447-99c7-4cf3d34db63c%2F392d2bc8-4905-4fb2-a214-bbf03c23dfaa%2Fryme8it_processed.png&w=3840&q=75)
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