On October 1, 2019, Venus Company purchased machinery for P1,900,000. Salvage value was estimated to be P100,000. The machinery will be depreciated over eight years using the sum-of-years'-digits method. If depreciation is computed on the basis of the nearest full month, how much should Venus record depreciation expense for 2020 on this machinery? 

 

Answer:

Depreciation expense of 2020 is P 387,500

Step-by-step explanation

Dep. expense using sum-of-the-years-digits method is computed using the formula given below:

Dep. Expense = (Initial cost - Salvage value) × (remaining life ÷ sum of digits of years)

Dep. expense of 2019 = (Initial cost - Salvage value) × (remaining life ÷ sum of digits of years) × period due

                                   = (P 1,900,000 - P 100,000) × (8 ÷ 36) × (3 ÷ 12)

                                   = P 100,000

Dep. expense of 2020 = {(P 1,900,000 - P 100,000) × (8 ÷ 36) × (9 ÷ 12)} + {(P 1,900,000 - P 100,000) × (7 ÷ 36) × (3 ÷ 12)}

                                   = P 300,000 + P 87,500

                                   = P 387,500

Hence, the depreciation expense of 2020 is P 387,500