An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is P600K and it has an estimated salvage value of P32K at the end of an estimated useful life of 14 years. Compute the total depreciation after 4 years and the book value at the end of 7 years using the sinking fund method at interest rate of 6%.
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.
Subject: Engineering Economy
Problem:
An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is P600K and it has an estimated salvage value of P32K at the end of an estimated useful life of 14 years. Compute the total
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