Korn Company purchased land, land improvements and building from Intouch Company for P28.8M and furniture and equipment from In Company for P11.2M. The total cash outlay for the two transactions amounted to P40M. The appraised value of the assets are: Building -P12M; Furniture -P7M; Equipment- P5M; Land- P21M; and Land Improvements- P3M. What is the allocated cost of the
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.
Korn Company purchased land, land improvements and building from Intouch Company for P28.8M and furniture and equipment from In Company for P11.2M. The total cash outlay for the two transactions amounted to P40M. The appraised value of the assets are: Building -P12M; Furniture -P7M; Equipment- P5M; Land- P21M; and Land Improvements- P3M. What is the allocated cost of the building?
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