ccumulated Cost depreciation Land 875, 000 ------ Building 7, 500, 000 1, 644, 500 Machinery and equipment 2, 250, 000 635, 000 Leasehold improvements 216, 000 108, 000 Depreciation meth
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.
On January 1, 2019, Magnanimous Company’s property, plant and equipment and accumulated
depreciation had balances as follows:
Accumulated
Cost depreciation
Land 875, 000 ------
Building 7, 500, 000 1, 644, 500
Machinery and equipment 2, 250, 000 635, 000
Leasehold improvements 216, 000 108, 000
Depreciation method and useful life
Building- doubles declining balance, 25 years
Machinery and equipment- straight line, 10 years
Leasehold improvements- straight line
Land improvements- straight line
Transactions during 2019 and other information
a. On January 1, 2019, a plant facility consisting of land and building was acquired from King
Company in exchange for 25, 000 shares of Magnanimous Company.
b. On this date, the share had a market price of P50. Current assessed values of land and building for
property, tax purposes are P150, 000 and P600, 000, respectively.
c. On March 31, 2019, new parking lot, street and sidewalk at the acquired plant facility were
completed at a total cost of P192, 000. These expenditures had an estimated useful life of 12 years.
d. The leasehold improvement was completed on December 31, 2015, and had an estimated useful
life of 8 years. The related lease, which would have terminated on December 21, 2021, was
renewable for an additional four-year term. On April 30, 2019, Magnanimous Company exercised
the renewal option.
e. On July 1, 2019, machinery and equipment were purchased at a total invoice cost of P340, 000.
Additional cost of P10, 000 for delivery and P50, 000 for installation were incurred.
f. On November 1, 2019, Magnanimous Company purchased for P350, 000 at tract of land for
undetermined use.
g. On December 15, 2019, a machine with a cost of P170, 000 and carrying amount of P29, 750 at
date of disposition was scrapped without cash recovery.
Required: Determined the balances of the following for the year ended December 31, 2019
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