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Accumulated Depreciation Calculation

- The company purchased a machine for Rs. 4.5 million with payment terms of 2% discount within 10 days or net 30 days. They paid beyond the discount period. - Additional costs included Rs. 80,000 for delivery and Rs. 310,000 for installation, making the total cost Rs. 4.89 million. - The machine's useful life was estimated at 5 years with a residual value of Rs. 800,000 and productive capacity of 200,000 units. - In the first two years, 30,000 units were produced in 2019 and 48,000 units in 2020. Using the output method, the accumulated depreciation as of December 31, 2020 is Rs. 1

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Kenneth Jao
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12 views2 pages

Accumulated Depreciation Calculation

- The company purchased a machine for Rs. 4.5 million with payment terms of 2% discount within 10 days or net 30 days. They paid beyond the discount period. - Additional costs included Rs. 80,000 for delivery and Rs. 310,000 for installation, making the total cost Rs. 4.89 million. - The machine's useful life was estimated at 5 years with a residual value of Rs. 800,000 and productive capacity of 200,000 units. - In the first two years, 30,000 units were produced in 2019 and 48,000 units in 2020. Using the output method, the accumulated depreciation as of December 31, 2020 is Rs. 1

Uploaded by

Kenneth Jao
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Question

Canada Company purchased a machine at an invoice price of P4,500,000 with terms 2/10, n/30. The entity paid the
required amount for the machine beyond the discount period. The entity paid P80,000 for delivery of the machine
and P310,000 for installation and testing. The machine was ready for use on January 1, 2019. It was estimated that
the machine would have a useful life of 5 years and a residual value of P800,000. Engineering estimated indicated
that the useful life of productive units was 200,000. Units actually produced during the first two years were 30,000
in 2019 and 48,000 in 2020. The entity decided to use the output method of depreciation. What is the accumulated
depreciation of the machine on December 31, 2020?
 
A. 1,560,000
B. 1,600,000
C. 960,000
D. 600,000

Expert Solution

 Step 1

Solution :

The question has mentioned that amount was paid beyond the discount period , discount has not been
availed.

Cost of asset                    = cost of asset + delivery charge + installation cost             

                                           =4500000 + 80000 + 310000

                                           =4890000

Salvage value                   =800000

Depreciable base            = cost – salvage value

                                           =4890000 – 800000

                                           =4090000

Useful life (production units )     =200000

Depreciation per unit     =depreciable base / estimated production

                                           =4090000 / 200000

                                           =20.45 per unit

Now,

Depreciation for year ending 31 dec 2019            = 30000 * 20.45

                                                                                      =613500

Depreciation for year ending 31 dec 2020            = 48000 * 20.45

                                                                                      = 981600

Accumulated depreciation on 31 dec 2020           = 1595100

 Step 2

Since the option given are not correct .

Let us assume that the amount was paid within a discount period

Then

Purchase price of asset = 4500000 – 2%

                                           =4410000

Cost of asset                    = cost of asset + delivery charge + installation cost             

                                           =4410000 + 80000 + 310000

                                           = 4800000

Salvage value                   =800000

Depreciable base            = cost – salvage value

                                           = 4800000– 800000

                                           = 4000000

Useful life (production units )     =200000

Depreciation per unit     =depreciable base / estimated production

                                           = 4000000 / 200000

                                           =20 per unit

Now,

Depreciation for year ending 31 dec 2019            = 30000 * 20

                                                                                      = 600000

Depreciation for year ending 31 dec 2020            = 48000 * 20

                                                                                      = 960000

Accumulated depreciation on 31 dec 2020           = 1560000

Hence the correct answer is option a. 1560000


WA S TH IS H EL P FU L ?

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