Upon inspection of the records of Eisenhower Company in connection to its financial statement audit for the year ended December 31, 2022, the following errors were revealed: A fire insurance premium of P 40,000 was paid and charged to insurance expense in 2021. This covers one year from April 1, 2021. Inventory at December 31, 2020 was understated by P 80,000. Inventory at December 31, 2021 was understated by P 120,000. The year 2021 last quarter taxes amounting to P 60,000 were paid on January 19, 2022 and charged to expense account of 2022. A cash advance of P 100,000 in payment of goods to be delivered in January 2022 was received on December 15, 2021 and credited to Sales. The gross profit on sales is 40%. The net income for the year ended December 31, 2021 before any adjustments is P 1,550,000. Group of answer choices 1,600,000 1,200,000 1,440,000 1,550,000

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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.