On October 1, 2017, ABC Company purchased a delivery equipment for P1,000,000. It had an estimated useful life of 6 years, estimated residual value of P100,000, and is to be depreciated using straight-line method. On July 1, 2020, the delivery equipment was overhauled at a cost of P97,500. The overhaul extended the useful life from 6 years to 8 years. In addition, the estimated residual value is changed from P100,000 to P55,000. (Hint: This overhaul cost is to be debited to accumulated depreciation) 1. How much is the carrying amount of the delivery equipment after the overhauling cost on July 1, 2020? 2. How much is the revised annual depreciation? 3. How much is the depreciation expense for 2020?
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 October 1, 2017, ABC Company purchased a delivery equipment for P1,000,000. It had an estimated useful life of 6 years, estimated residual value of P100,000, and is to be
1. How much is the carrying amount of the delivery equipment after the overhauling cost on July 1, 2020?
2. How much is the revised annual depreciation?
3. How much is the depreciation expense for 2020?
Step by step
Solved in 2 steps
