August 31, 2018, ABC purchased a building at
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 August 31, 2018, ABC purchased a building at P13,000,000 to earn rent income from operating leases. The entity incurred legal fees and transfer taxes of P500,000. The building has a residual value of P1,500,000 and an estimated useful life of 30 years. During the first year of acquisition, incurred operating costs of P2,000,000 but only earned rent income of P500,000. It was valued at P16,000,000 and P14,000,000 as of the end of 2018 and 2019.
- What is the carrying value of the investment property as of Dec. 31, 2018 using the cost model?
- What is the gain/(loss) on change in fair value for the year 2019 if the entity uses the fair value model?
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