On January 1, 20x1, DOC WILLIE Company acquired equipment from Catanduanes Factory Supplies with an estimated useful life of 10 years and a residual value of P50,000 for a total purchase cost of P200,000. Using the method of Sum-of-the-years’ digits, what is the carrying amount of the equipment on December 31, 20x2?
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, 20x1, DOC WILLIE Company acquired equipment from Catanduanes
Factory Supplies with an estimated useful life of 10 years and a residual value of P50,000
for a total purchase cost of P200,000. Using the method of Sum-of-the-years’ digits,
what is the carrying amount of the equipment
on December 31, 20x2?
At December 31, 2019, DOC WILLIE COMPANY's noncurrent operating asset and
|
|
Cost of Asset |
Accumulated Depreciation |
|
Land |
P 130,000 |
|
|
Buildings |
1,200,000 |
P 265,400 |
|
Machinery and equipment |
775,000 |
196,200 |
|
Automobiles and trucks |
132,000 |
86,200 |
|
Leasehold improvements |
221,000 |
110,500 |
|
|
Depreciation Method |
Useful Life |
|
Land improvements |
Straight line |
12 years |
|
Buildings |
150% declining balance |
25 years |
|
Machinery and equipment |
Straight line |
10 years |
|
Automobiles and trucks |
150% declining balance |
5 years |
|
Leasehold improvements |
Straight line |
8 years |
Depreciation is computed to the nearest month. The salvage values of the
(a) On January 2, 2020, the company purchased for P900,000 a tract of land as a factory site. An old building on the property was demolished and construction began on a new factory building which was completed at year-end.
|
Cost of demolition of old building |
P 90,000 |
|
Sale of scrap from old building |
5,000 |
|
Title Insurance and legal fees to purchase land |
20,000 |
|
Architect fee |
95,000 |
|
New building construction cost |
800,000 |
÷
(b) On January 4, 2020, another plant facility consisting of land and building was acquired from Tate Company in exchange for 100,000 doc willie Company's shares. On the acquisition date, the share had a closing market price of P14.40 on the Philippine Stock Exchange. The plant facility was carried at P500,000 for land and P1,500,000 for the building at the transaction date. Current appraised values for the land and building are P300,000 and P600,000, respectively.
(b) On March 6, 2020, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of P151,200. These expenditures had an estimated useful life of 12 years.
(c) The leasehold improvements were completed on December 31, 2016, and had an estimated useful life of 8 years. The related lease, which would have terminated on December 31, 2022, was renewable for an additional 4-year term. On April 29, 2020, doc willie exercised the renewal option.
(d) On July 1, 2020, machinery and equipment were purchased at a total invoice cost of P250,000. Additional costs of P10,000 for delivery and P30,000 for installation were incurred.
(e) On August 30, 2020, doc willie purchased a new automobile for P15,000.
(f) On September 30, 2020, a truck with a cost of P24,000 and a carrying amount of P8,100 on the date of sale was sold for P11,500. Depreciation for the 9 months ended September 30, 2020, was P2,352.
(g) On December 20, 2020, a machine with a cost of P17,000 and a carrying amount of P2,975 at date of disposition was scrapped without cash recovery.
- What is the depreciation expense on land improvements for 2020?
- What is the book value of doc willie Company's buildings on December 31, 2020?
- What is the depreciation expense on automobiles and trucks for 2020?
- What is the depreciation expense on leasehold improvements for 2020
- What is the book value of the machinery and equipment on December 31, 2020?
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