Problem 28-3 (IAA) (AA).e8 asidos On January 1, 2020 Universal Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1, 2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating that available resources after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike.

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Q: Problem 28-3 (IAA) (AA).88 On January 1, 2020 Universal Company paid P5,400,000 for property…

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Q: roblem 28-3 (IAA) On January 1,2020 Universal Company paid P5,400,000 for property containing…

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A:

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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.