The Bread Company is planning to purchase a new machine that it will depreciate on straight-line basis over a ten year period. A full year's depreciation will be taken in the year of acquisition. The machine is expected to produce cash flow, net of income taxes, of P30,000 in each of the ten years. The accounting (book value) rate of return is expected-to be 10% on the initial increase in required investment. The cost of the new machine will be
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 Bread Company is planning to purchase a new machine that it will
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
