On August 1, 2015, Hulu Corporation purchased an equipment with an invoice price of Php60,000. Other costs incurred were freight costs, Php1,100; installation wiring and foundation, Php2,200; material and labor costs in testing equipment, Php1,700; oil lubricants and supplies to be used with equipment, Php500; fire insurance policy covering equipment for the current year of usage, Php1,400. The equipment is estimated to have a Php5,000 salvage value at the end of its 8-year useful service life. If the straight-line method of depreciation was used, how much is the book value of the equipment as of December 31, 2016
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.
On August 1, 2015, Hulu Corporation purchased an equipment with an invoice price of Php60,000. Other costs incurred were freight costs, Php1,100; installation wiring and foundation, Php2,200; material and labor costs in testing equipment, Php1,700; oil lubricants and supplies to be used with equipment, Php500; fire insurance policy covering equipment for the current year of usage, Php1,400. The equipment is estimated to have a Php5,000 salvage value at the end of its 8-year useful service life.
If the straight-line method of
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