ACCTBA1- Depreciation 2
21
DEPRECIATION OF PROPERTY AND EQUIPMENT Property , Plant and Equipment are long lived tangible assets such as land, building, furniture, machinery and equipment used in the operation of the business. All plant assets but land decline in value in usefulness as they age. This decline in value because of usage is an expense of the business. This is called Depreciation expense. To compute for depreciation, the accountants systematically spread the cost of the plant asset over the year’s of its useful life. Depreciation means the systematic allocation of the cost of a depreciable asset to expense over asset’s useful life. HOW TO COMPUTE FOR DEPRECIATION: There are several methods of determining the amount of depreciation to be charged as an expense of each accounting period. The most widely used means of estimating depreciation is the STRAIGHT LINE METHOD OF DEPRECIATION. Under the straight line approach, an equal portion of the asset’s cost is allocated to
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Depreciation
Transcript of ACCTBA1- Depreciation 2
DEPRECIATION
DEPRECIATION OF PROPERTY AND EQUIPMENTProperty , Plant and Equipment are long lived tangible assets such as land, building, furniture, machinery and equipment used in the operation of the business. All plant assets but land decline in value in usefulness as they age. This decline in value because of usage is an expense of the business. This is called Depreciation expense. To compute for depreciation, the accountants systematically spread the cost of the plant asset over the years of its useful life.
Depreciation means the systematic allocation of the cost of a depreciable asset to expense over assets useful life.
HOW TO COMPUTE FOR DEPRECIATION:
There are several methods of determining the amount of depreciation to be charged as an expense of each accounting period. The most widely used means of estimating depreciation is the STRAIGHT LINE METHOD OF DEPRECIATION.
Under the straight line approach, an equal portion of the assets cost is allocated to depreciation expense in every period of the assets estimated useful life.
The formula for computing depreciation expense by straight line method is as follows:
Depreciation Expense/year = Cost of the PPE Salvage Value Estimated Useful lifePro-forma Adjusting Journal Entry:
Depreciation Expense Equipment xx
Accumulated Depreciation Equipment xx
To record depreciation for the year
ILLUSTRATION:
Computer
Date of acquisition: Jan 1, 2010
Cost: P 120,000
Life: 5 years Salvage Value : P20,000
Depreciation = P120,000 P20,000
-------------------------
5 years
= P20,000/year
1st Year2010
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)===============================================
Financial Statement Presentation: December 31, 2010Notes to Financial StatementNote 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 20,000 P100,000Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx2nd Year2011
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)======================================================Financial Statement Presentation: December 31, 2011Notes to Financial StatementNote 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 40,000 P 80,000Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
=====================================================
3rd Year2012
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)======================================================
Financial Statement Presentation: December 31, 2012Notes to Financial StatementNote 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 60,000 P 60,000Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx=====================================================4th Year2013
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
=====================================================Financial Statement Presentation: December 31, 2013Notes to Financial StatementNote 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 80,000 P 40,000
Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx======================================================5th Year2014
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
======================================================Financial Statement Presentation: December 31, 2014Notes to Financial StatementNote 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 100,000 P 20,000
Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================
ILLUSTRATION 2:
Computer
Date of acquisition: August 1, 2010
Cost: P 120,000
Life: 5 years Salvage Value : P20,000
Depreciation = P120,000 P20,000
-------------------------
5 years
= P20,000/year
1ST Year P 20,000 x 5/12 = 8,333.33
August 1- December 31 = 5 months
2010
Dec 31 Depreciation Expense- Equipment 8,333.33 Accumulated Depreciation-Equipment 8,333.33 To record depreciation (P20,000 x 5/12)===============================================
Financial Statement Presentation : December 31, 2010
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 8,333.33 P111,666.67Note 2: Depreciation Expense
Depreciation Equipment P 8333.33
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================2nd Year2011
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
======================================================
Financial Statement Presentation : December 31, 2011Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 28,333.33 P 91,666.67Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================3rd Year
2012
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
======================================================
Financial Statement Presentation : December 31, 2012
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 48,333.33 P 71,666.67
Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================
4th Year2013
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
======================================================
Financial Statement Presentation: December 31, 2013
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 68,333.33 P 51,666.67Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================5th Year2014
Dec 31 Depreciation Expense- Equipment 20,000
Accumulated Depreciation-Equipment 20,000
To record depreciation (P120,000-20,000/5 years)
======================================================Financial Statement Presentation: December 31, 2014
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 88,333.33 P31,666.67Note 2: Depreciation Expense
Depreciation Equipment P 20,000
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================6th Year P 20,000 x 7/12 = 11,666.67 2015Dec 31 Depreciation Expense- Equipment 11,666.67 Accumulated Depreciation-Equipment 11,666,67 To record depreciation (P20,000 x 7/12)
======================================================
Financial Statement: December 31, 2015
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment P120,000
Less: Accumulated Depreciation Equipment 100,000 20,000
Note 2: Depreciation Expense
Depreciation Equipment P 11,666.67
Depreciation Furniture xxx
Depreciation Transport Vehicle xxx P xxx
======================================================
