On January 1, 2006, LUOGI Company owned a machine having a carrying amount of P240,000. The machine was purchased four years earlier for P400,000. LUOGI uses straight-line depreciation. During December 2006 LUOGI determined that the machine suffered permanent impairment of its operational value and will not be economically useful in its production process after December 31, 2006. On January 5, 2007 LUOGI sold the machine for P70,000 at fair value as December 31, 2006 incurring a disposal cost of P5,000. In its income statement for the year ended December 31, 2006, LUOGI should recognize a loss of 135,000 O200,000 175,000
On January 1, 2006, LUOGI Company owned a machine having a carrying amount of P240,000. The machine was purchased four years earlier for P400,000. LUOGI uses straight-line depreciation. During December 2006 LUOGI determined that the machine suffered permanent impairment of its operational value and will not be economically useful in its production process after December 31, 2006. On January 5, 2007 LUOGI sold the machine for P70,000 at fair value as December 31, 2006 incurring a disposal cost of P5,000. In its income statement for the year ended December 31, 2006, LUOGI should recognize a loss of 135,000 O200,000 175,000
Chapter1: Financial Statements And Business Decisions
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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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