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.
Machine X has an initial cost of P 45,000, annual maintenance of P 2,250 per year, an no salvage value at the end of its four-year useful life.
Machine Y costs P 90,000. The first year there is no maintenance cost. The second year, maintenance is P450, and increases P450 per year in the subsequent years. The machine has an anticipated value P22,500 salvage value at the end of its 12-year useful life.
If interest is 8%, what is the present worth of cost of 12 years of Machine X?
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