MAKINA Company acquired a machine for P6,400,000 on August 31, 2002. The machine has a 5-year life, a P1,000,000 salvage value, and was depreciated using the straight line method. On May 31, 2005, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the machine total P3,000,000. The machine's fair value on May 31, 2005 is P2,700,000 with no residual value. Assuming a loss on impairment is recognized on May 31, 2005, what is MAKINA's depreciation for June 2005? 100,000 111,110 127,040 45,000
MAKINA Company acquired a machine for P6,400,000 on August 31, 2002. The machine has a 5-year life, a P1,000,000 salvage value, and was depreciated using the straight line method. On May 31, 2005, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the machine total P3,000,000. The machine's fair value on May 31, 2005 is P2,700,000 with no residual value. Assuming a loss on impairment is recognized on May 31, 2005, what is MAKINA's depreciation for June 2005? 100,000 111,110 127,040 45,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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