Andrews Manufacturing Company purchased a new machine on July 1, 20x1. It was expected to produce 200,000 units of product over its estimated useful life of eight years. Total cost of the machine was ₱600,000, and residual value was estimated to be ₱60,000. Actual units produced by the machine in 2001 and 2002 are shown below. 20x1 .............................................. 16,000 units 20x2 .............................................. 30,000 units Andrews reports on a calendar-year basis and uses the units-of-production method of depreciation. The amount of depreciation expense for this machine in 20x2 would be a.124,200 c. 81,000 b.90,000 d. 74,520
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.
- Andrews Manufacturing Company purchased a new machine on July 1, 20x1. It was expected to produce 200,000 units of product over its estimated useful life of eight years. Total cost of the machine was ₱600,000, and residual value was estimated to be ₱60,000. Actual units produced by the machine in 2001 and 2002 are shown below.
20x1 .............................................. 16,000 units 20x2 .............................................. 30,000 units
Andrews reports on a calendar-year basis and uses the units-of-production method of
a.124,200 c. 81,000
b.90,000 d. 74,520
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