The manufacturing cost of a machine is P907,936. Bank charges, arrester and brokerages cost 2% of the manufacturing cost while incidental expenses cost 5% of the manufacturing cost. Foundation and installation costs were P36,946. Salvage value is estimated to be P184,649 after 23 years. Find the appraisal value of the machine after 12 years using straight line method.
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.
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