Prepare journal entries to record the acquisition and the first year’s depreciation, assuming that the composite method is used on a straight-line basis. If the company sells machine B after four years for P 10,000 prepare the journal entry.
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.
The Wilcox Company acquires four machines that have the following characteristics:
|
Machine |
Cost |
Estimated Residual Value |
Estimated Service Life |
|
A |
P26,000 |
P2,000 |
6 years |
|
B |
19,000 |
1,000 |
9 |
|
C |
30,000 |
5,000 |
5 |
|
D |
28,000 |
- |
7 |
Required
- Prepare journal entries to record the acquisition and the first year’s
depreciation ,
assuming that the composite method is used on a straight-line basis.
- If the company sells machine B after four years for P 10,000 prepare the
journal entry .
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