On January 1, 2021, Bug Company purchased equipment with a cost of P10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line depreciation. At December 31, 2021 and December 31, 2022, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end: 12/31/2021 12/31/2022 Fair value less cost to sell P9,115,000 P8,850,000 Value-in-use P9,155,000 P8,815,000 There is a change in the asset’s useful life at the end of 2021 to 15 years from the date of acquisition. Which of the following statements is (are) correct if Bug Company uses revaluation model to account for this asset? Statement 1: The balance of revaluation surplus at the end of 2022 is P348,929. Statement 2: A gain on recovery of P223,786 is reported in Bug’s income statement for year ended December 31, 2022. Statement 3: The asset is reported as of December 31, 2022 at P8,724,857. Group of answer choices None of the statements is correct Only statement 1 is correct Only statement 2 is correct Only statement 3 is correc
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 January 1, 2021, Bug Company purchased equipment with a cost of P10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line
12/31/2021 12/31/2022
Fair value less cost to sell P9,115,000 P8,850,000
Value-in-use P9,155,000 P8,815,000
There is a change in the asset’s useful life at the end of 2021 to 15 years from the date of acquisition. Which of the following statements is (are) correct if Bug Company uses revaluation model to account for this asset?
Statement 1: The balance of revaluation surplus at the end of 2022 is P348,929.
Statement 2: A gain on recovery of P223,786 is reported in Bug’s income statement for year ended December 31, 2022.
Statement 3: The asset is reported as of December 31, 2022 at P8,724,857.
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