A truck was acquired on July 1, 2018, at a cost of P216,000. The truck had a six-year useful life and an estimated salvage value of P24,000. The straight-line method of depreciation was used. On January 1, 2021, the truck was overhauled at a cost of P20,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at P24,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned. Prepare the appropriate entries for January 1, 2021 and December 31, 2021. Show supporting computations.
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.
A truck was acquired on July 1, 2018, at a cost of P216,000. The truck had a six-year
useful life and an estimated salvage value of P24,000. The straight-line method of
depreciation was used. On January 1, 2021, the truck was overhauled at a cost of
P20,000, which extended the useful life of the truck for an additional two years beyond
that originally estimated (salvage value is still estimated at P24,000). In computing
depreciation for annual adjustment purposes, expense is calculated for each month the
asset is owned. Prepare the appropriate entries for January 1, 2021 and December 31,
2021. Show supporting computations.
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