On Jan. 1, 2010, an equipment was acquired through an exchange. The old equipment has an original cost of P3,500,000, estimated salvage value of P500,000, fair value of P1,800,000, total useful life of 15 years and remaining useful life of 10 years. The new equipment obtained through the exchange has a fair value of P1,500,000, salvage value of P500,000 and a remaining useful life of 10 years. Both have the same production capacity. The balance was settled with cash. On Jan. 1, 2013, it spent P100,000 for routinary repairs and P500,000 to replace a major part. The replaced part does not have a measurable initial cost. Based on data, the cost of the part increases by 3% per year. The new part has a useful life of 6 years. 1. What is the Gain or (loss) on exchange on Jan. 1, 2010? 2. What is the Depreciation expense for the year 2013?
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 Jan. 1, 2010, an equipment was acquired through an exchange. The old equipment has an original cost of P3,500,000, estimated salvage value of P500,000, fair value of P1,800,000, total useful life of 15 years and remaining useful life of 10 years. The new equipment obtained through the exchange has a fair value of P1,500,000, salvage value of P500,000 and a remaining useful life of 10 years. Both have the same production capacity. The balance was settled with cash.
On Jan. 1, 2013, it spent P100,000 for routinary repairs and P500,000 to replace a major part. The replaced part does not have a measurable initial cost. Based on data, the cost of the part increases by 3% per year. The new part has a useful life of 6 years.
1. What is the Gain or (loss) on exchange on Jan. 1, 2010?
2. What is the
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