MR Construction and Supply has purchased its transit mixer. The cost of the mixer is 5 million pesos. Salvage value at the end of useful life (n = 5) is 1 million pesos. If its book value at the end of three years is 1.8 million pesos, what type of depreciation was used in computing its book value? Show your solutions. (a) Sum of the Years Digit Method (b) Sinking Line Method (c) Straight Line Method
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.
MR Construction and Supply has purchased its transit mixer. The cost of the mixer is 5 million pesos. Salvage value at the end of useful life (n = 5) is 1 million pesos. If its book value at the end of three years is 1.8 million pesos, what type of
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