AITH Manufacturing Inc. purchased a new machine on January 2, 2019, that was built to perform one function on its assembly line. Data pertaining to this machine are: Acquisition cost P330,000 Residual value P30,000 Estimated service life: Years 5 Service hours 250,000 Production output 300,000 Required: Using each of the following methods, compute the annual depreciation rate and charge for the years ended December 31, 2019 and 2020: (1) Straight-line (2) Service hours (assume 32,000 hours for 2019 and 36,000 hours for 2020). (3) Productive-output (assume 31,000 units for 2019 and 37,000 units for 2020).
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.
FAITH Manufacturing Inc. purchased a new machine on January 2, 2019, that was built to perform one function on its assembly line. Data pertaining to this machine are:
Acquisition cost P330,000
Residual value P30,000
Estimated service life:
Years 5
Service hours 250,000
Production output 300,000
Required: Using each of the following methods, compute the annual
|
(1) |
Straight-line |
|
(2) |
Service hours (assume 32,000 hours for 2019 and 36,000 hours for 2020). |
|
(3) |
Productive-output (assume 31,000 units for 2019 and 37,000 units for 2020). |
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