bject to depreciation it’s be: of its operation. The rev incurredlonger growth in business. For example, the production se 50,000 units whereas the sales volume requirements Methods of Computing Depreciation “There are various methods of computing depreciation. This be discusses only the most common and simplest method of computing ___ the “straight-line method”. There are three (3) factors that must be considered in determining ¢ These are: 1. Acquisition Cost — it is the amount paid or liability incurred whe acquired. It includes the purchase price and other incident acquisition. | Scrap Value — the estimated value of the asset at the end of it life. This is sometimes called salvage value or residual value. a Economic or Useful Life — the e: : # the asset can be of use. stimated length of time ila, the computed depreciation represents ands called Annual Depreciation Expense’.tt, 20A, Metro Davao Commercial acquired air conditioning unit for office P80,000. Freight paid was P5,000 and cost of installation was P15,000. ted useful life is 5 years and a residual value of P10,000. the above formula, annual depreciation is computed as follows: a ee 10,000 Estimated years = 5 years hss = P28,000 - Annual the air conditioning unit was acquired on Oct. 1, 20A and the annual iting period ends on Dec. 31, 20A, the depreciation to be recorded shall be ent to the fraction of 3/12 (counting from Oct. 1 to Dec. 31) times P18,000 is equal to P4,500. This is what we call a Fractional Depreciation because we ction of the annual depreciation. {justing entry on Dec. 31. 20A will record depreciation of the air conditioning the three (3) months period only: ADJUSTING ENTRY: 20A Depreciation Expense P4,500 Dec. 31 Accumulated Depreciation 4,500 To record depreciation expense from the period Oct. 1 to December 31, 20A. ‘Note: The Depreciation Expense to be recorded on the next accounting period which covers from Jan. 1, 20B to Dec. 31, 208 will be P18,000. on the next page is @ table (Lapsing Schedule) showing the expiration of of fixed asset, Office Equipment from the date of its acquisition up to the its useful life.ike note of the following: amount of th ch period equival e Accumulated Depreciation is Kept on Jent to the recorded depreciation expel wi Property and Equipment is shown with its ‘cost of the the “net book value” column. nd of its life on Sept. 30, 20F, the fixed asset is said ” On this date, the total amount of the Accumulated is acquired without scrap vi all much simpler: on aawe unt which will be shown in the Expense sive Income while the Accumulated or asset-offset account which will be d Asset, Office Equipment of Pa P5,000 is called Net Book \ eePrey OEM a Otcecesoret Fe ae eB | “"omce eovmem $000 Re 120,000 Detery ar pe eae Delive 12,000 > ‘account h Individual contra-asset Each caries an ENT AT DIS ECORDING ACQUISITION OF PROPERTY AND EQUIPM| Ri d equipment, say for examy ine is hen property and equipment, say f ple a machine Wher chi jount of the discount is considered asa “reduction” from its; the am Amachine is acquired on account Costing P100,000. 1f pate within of purchase, a 10% discount can by @ availed. Journal Entry on the date of pure Machine P100, Accounts Payable . To recorg Cost of Machine acquired. chase:pst often, after the acq gts before it can be used B acquisition of @ oroverty an equipment is not intended for sale by the yed wise for the business to sell its fixed asset in in be more productive in its operations. When, €vent happened, the eOSt’ of the fixed asset together with its valuation account Biness. However, it might bed anah een ee fue. Depreciation-Office Equipment Office Equipment : Gain on Disposal of Office Equipment To record the disposal of computer. (The sale resulted to having a gain because the cash aes net book value. While the cash proceeds is P30,000, P28,000.) Case 2: The computer was sold for P25,000. Journal Entry to record the disposal at a loss: Cash Acc. Depreciation-Office Equipment Loss on disposal of Office Equipment Office Equipment To record the sale of computer, ‘ P 25,000 7,000 3,000 Fesulted to having a loss because the cash Proceeds iss he cash proceeds is P25,000, the nto oUF data for adj % of the entory of supplies Bags?Estimated Life in Years Monthly Depreciation Expense Annual Depreciation Expense _ 30,000 ir No. of months in a year 12 mos. 4. Advertising Expense has been incurred already but still 3,000. 3 ADJUSTING ENTRY: 20A March 31 Z ? Advertising Expense Accrued Advertising Expense To take up accrued advertising. ‘are also recorded in the General Journal as folloisting Entries that ral Ledger. Only accorFF | 31| [| OWNER’S EQUITY EXPENSES Uncollectible Account Ex| 20A_| Particulars F | Debit 208 2a Mar| 33| Ee 350 [Z 4 350, Depreciation Expense "Particulars F[ Debit 20a | Parti 2,500 ~ ~ Laundry Supy F | Debit ~ 20,000w do you compare dit oviding uncollectible accoui True or False Write “T” if the statement is correct and The term accrued when associated with an liability. ee Sa = ae : The account Accrued Rent Income is similar to Rent Receivable. Failure to prepare adjusting entry on accrued expense will result to have an understated net income. Failure to prepare adjusting entry on accrued income will result to have an overstated net income. In IAS No. 16, property and equipment are considered as depreciable assets which are all subject to depreciation including land. When a company acquires two oF more fixed assets, each fixed asset carries its valuation account. sald the related accumulated depreciation