Day SA acquired the following assets in January 2017. Equipment, estimated service life, 5 years; residual value, P15,000 P465,000 Building, estimated service life, 30 years; no residual value P780,000 The equipment has been depreciated using the sum-of-the-years'-digits method for the first 3 years for financial reporting purposes. In 2020, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or residual value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated residual value. The building is depreciated on the straight-line method. Required a. Prepare the journal entry to record depreciation expense for the equipment in 2020. b. Prepare the journal entry to record depreciation expense for the building in 2020. (Round to nearest peso.)
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.
Day SA acquired the following assets in January 2017.
Equipment, estimated service life, 5 years; residual value, P15,000 P465,000
Building, estimated service life, 30 years; no residual value P780,000
The equipment has been
total estimated service life of the building from 30 years to 40 years, with no change in the estimated residual value. The building is depreciated on the straight-line method.
Required
a. Prepare the
b. Prepare the journal entry to record depreciation expense for the building in 2020. (Round to nearest peso.)
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