On January 3, 2018, Leni company acquired an item of property, plant and equipment at a cost of P1,000,000. The asset's estimated residual value is P100,000 and estimated useful life of 10 years. The company uses straight-line of depreciation computed to the nearest month. On October 1, 2021, the asset was reclassified as "held for sale". Its fair value on this date was P500,000 and the cost to sell was estimated at P20,000. In January 2022, the asset was sold for P500,000 incurring disposal costs of P10,000 on the sale. How much gain on sale is reported for year 2022?
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 3, 2018, Leni company acquired an item of property, plant and equipment at a cost of P1,000,000. The asset's estimated residual value is P100,000 and estimated useful life of 10 years. The company uses straight-line of
How much gain on sale is reported for year 2022?
Step by step
Solved in 3 steps
