On November 5, 2020, BLUE Company purchased a land and a building for a lump-sum amount of 5,500,000 from TEAL Corporation. The land was purchased by TEAL last October of 2005 for 1,750,000, and the building was constructed on February of 2006 for 4,000,000. The fair values of the land and building on the date of acquisition are 1,100,000 and 1,650,000, respectively. How much is allocated to land and building upon initial recognition of BLUE? a. LAND - 2,750,000; BUILDING \u003d 0 b. LAND - 1,673,913; BUILDING \u003d 3,826,087 c. LAND - 2,200,000; BUILDING \u003d 3,300,000 d. LAND - 2,750,000; BUILDING \u003d 2,750,000 LAND - ₱ 0; BUILDING \u003d ₱ 5,500,000
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.
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On November 5, 2020, BLUE Company purchased a land and a building for a lump-sum amount of 5,500,000 from TEAL Corporation. The land was purchased by TEAL last October of 2005 for 1,750,000, and the building was constructed on February of 2006 for 4,000,000. The fair values of the land and building on the date of acquisition are 1,100,000 and 1,650,000, respectively. How much is allocated to land and building upon initial recognition of BLUE?
a. LAND - 2,750,000; BUILDING \u003d 0 |
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b. LAND - 1,673,913; BUILDING \u003d 3,826,087 |
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c. LAND - 2,200,000; BUILDING \u003d 3,300,000 |
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d. LAND - 2,750,000; BUILDING \u003d 2,750,000 |
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LAND - ₱ 0; BUILDING \u003d ₱ 5,500,000 |
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