The following data relate to a piece of equipment owned by Xyza Company, a calendar-year company. The company's policy is to depreciate its property, plant and equipment items to the nearest month. Acquisition date-July 1, 2020 Cost-P125,000 Estimated residual value–P5,000 Estimated service life–5 years What is the depreciation expense for the equipment for the year ended December 31, 2021 under the - (1) sum-of-the years' digits method and (2) double declining balance method. (1) 40,000 and (2) 50,000 (1) 36,000 and (2) 40,000 (1) 40,000 and (2) 48,000 (1) 40,000 and (2) 36,000
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.
Acquisition date-July 1, 2020
Cost-P125,000
Estimated residual value–P5,000
Estimated service life–5 years
What is the depreciation expense for the equipment for the year ended December 31, 2021 under the -
(1) sum-of-the years' digits method and
(2) double declining balance method.
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