The Nickle Company purchased an asset for P17,000 on January 2, 2021. The asset has an expected residual value P1,000.
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.
The Nickle Company purchased an asset for P17,000 on January 2, 2021. The asset has
an expected residual value P1,000. The
next for three alternative depreciation methods:
Year Method A Method B Method C
2021 P4,000 P6,400 P6,375
2022 4,000 4,800 3,984
Required
- Which depreciation method is the company using in each example?
- Compute the depreciation expense for 2023 and 2024 under each method
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