Citi Company purchased factory equipment on March 10, 2019. The company accountant revealed the following information regarding this asset: Purchase price – P1,600,000; Residual value – 100,000; Estimated useful life – 8 years. The equipment was sold on November 30, 2022, for P300,000. Required: a) What amount should Citi record as depreciation expense for the year ended December 31, 2019, using double-declining balance method, assuming the company had the policy of recording half-year depreciation in the year of acquisition? b) What was the gain or loss on the sale of the equipment in 2022, assuming that Citi used the straight-line method of depreciation and had the policy of computing depreciation to the nearest full month?
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.
Citi Company purchased factory equipment on March 10, 2019. The company accountant revealed the
following information regarding this asset: Purchase price – P1,600,000; Residual value – 100,000; Estimated
useful life – 8 years.
The equipment was sold on November 30, 2022, for P300,000.
Required:
a) What amount should Citi record as
double-declining balance method, assuming the company had the policy of recording half-year
depreciation in the year of acquisition?
b) What was the gain or loss on the sale of the equipment in 2022, assuming that Citi used the straight-line
method of depreciation and had the policy of computing depreciation to the nearest full month?
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