A company expects to retire an existing machine at the end of 2013 and will replace it with a new machine for the same task at an estimated cost of P700,000. The old machine is expected to be sold for P50,000 when it is replaced. To provide for replacement, the company intends to deposit the following amounts in an account earning interest at 8% compounded quarterly: P200,000 at the end of 2010, P150,000 at the end of 2011 and P100,000 at the end of 2012. Does the company need to raise an additional amount to replace the machine at the end of 2013? If yes, state the additional amount needed. If no, determine the excess amount.
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.
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1) A company expects to retire an existing machine at the end of 2013 and will replace it with a new machine for the same task at an estimated cost of P700,000. The old machine is expected to be sold for P50,000 when it is replaced. To provide for replacement, the company intends to deposit the following amounts in an account earning interest at 8% compounded quarterly: P200,000 at the end of 2010, P150,000 at the end of 2011 and P100,000 at the end of 2012. Does the company need to raise an additional amount to replace the machine at the end of 2013? If yes, state the additional amount needed. If no, determine the excess amount.
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