Problem 13 The Eduardo Company, an SME, started in business on January 1, 2019, by acquiring three machines having a costs of P52,400, 40,000, and P44,000, respectively. Since that date, the company has computed depreciation at 20% on the balance of the asset account at the end of each year, which amount has been credited directly to the asset account. All purchases since January 2019, have been debited to the machinery account and the cash received from sales has been credited to the account. The following transactions took place a. On September 30, 2019, a machine was purchased on an installment basis. The list price was P60,000, but 12 payments of P6,000 each were made by the company. Only the monthly payments were recorded in the machinery account starting with September 30, 2019. Freight and installation charges of P2,000 were paid and entered in the machinery account on October 10, 2019. b. On June 30, 2020, a machine was purchased for P80,000, 2/10, n/30, and recorded at P80,000 when paid for on July 7, 2020. c. On June 30, 2021, the machine acquired for P52,400 was traded for a larger one having a list price of P93,000. Allowance of P43,000 was received on the old machine, the balance of the list price being paid in cash and charged to the machinery account. d. On January 1, 2022, the machine which cost P44,000 was sold for P25,000, but because the cost of removal and crating was P1,250, the machinery account was credited with only P23,750. e. On October 1, 2023, the machine purchased for P40,000 was sold for cash and the cash received amounting to P8,000 was credited to the account. f. The useful life of the machinery is 5 years. Required: 1. Show the per book balance of machinery before any adjustments from 2019 to 2023. 2. Compute the correct balance of the machinery (gross) from 2019 to 2023. 3. Compute the correct accumulated depreciation of the machinery from 2019 to 2023.
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.
Problem 13
The Eduardo Company, an SME, started in business on January 1, 2019, by acquiring three machines
having a costs of P52,400, 40,000, and P44,000, respectively. Since that date, the company has computed
credited directly to the asset account. All purchases since January 2019, have been debited to the
machinery account and the cash received from sales has been credited to the account.
The following transactions took place
a. On September 30, 2019, a machine was purchased on an installment basis. The list price was P60,000,
but 12 payments of P6,000 each were made by the company. Only the monthly payments were
recorded in the machinery account starting with September 30, 2019. Freight and installation charges
of P2,000 were paid and entered in the machinery account on October 10, 2019.
b. On June 30, 2020, a machine was purchased for P80,000, 2/10, n/30, and recorded at P80,000 when
paid for on July 7, 2020.
c. On June 30, 2021, the machine acquired for P52,400 was traded for a larger one having a list price of
P93,000. Allowance of P43,000 was received on the old machine, the balance of the list price being
paid in cash and charged to the machinery account.
d. On January 1, 2022, the machine which cost P44,000 was sold for P25,000, but because the cost of
removal and crating was P1,250, the machinery account was credited with only P23,750.
e. On October 1, 2023, the machine purchased for P40,000 was sold for cash and the cash received
amounting to P8,000 was credited to the account.
f. The useful life of the machinery is 5 years.
Required:
1. Show the per book balance of machinery before any adjustments from 2019 to 2023.
2. Compute the correct balance of the machinery (gross) from 2019 to 2023.
3. Compute the correct
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