DEPRECIATION OF PROPERTY AND EQUIPMENT

Property , Plant and Equipment are long lived tangible assets such
as land, building, furniture, machinery and equipment used in the
operation of the business. All plant assets but land decline in
value in usefulness as they age. This decline in value because of
usage is an expense of the business. This is called Depreciation
expense.
To compute for depreciation, the accountants
systematically spread the cost of the plant asset over the years of
its useful life.
Depreciation means the systematic allocation of the cost of a
depreciable asset to expense over assets useful life.
HOW TO COMPUTE FOR DEPRECIATION:
There are several methods of determining the amount of
depreciation to be charged as an expense of each accounting
period. The most widely used means of estimating depreciation is
the STRAIGHT LINE METHOD OF DEPRECIATION.
Under the straight line approach, an equal portion of the assets
cost is allocated to depreciation expense in every period of the
assets estimated useful life.

The formula for computing depreciation expense by straight line

method is as follows:
Depreciation Expense/year = Cost of the PPE Salvage Value
Estimated Useful life
Pro-forma Adjusting Journal Entry:
Depreciation Expense Equipment
Accumulated Depreciation Equipment
To record depreciation for the year
ILLUSTRATION:
Computer
Date of acquisition: Jan 1, 2010
Cost: P 120,000
Life: 5 years
Salvage Value : P20,000
Depreciation = P120,000 P20,000
------------------------5 years
= P20,000/year

xx
xx

1st Year
2010
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

===============================================
Financial Statement Presentation: December 31, 2010
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
20,000
Note 2: Depreciation Expense
Depreciation Equipment
Depreciation Furniture
Depreciation Transport Vehicle

P100,000

P 20,000
xxx
xxx P xxx

2nd Year
2011
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

======================================================
Financial Statement Presentation: December 31, 2011
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
40,000 P 80,000
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx P xxx
=====================================================

3rd Year
2012
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

======================================================
Financial Statement Presentation: December 31, 2012
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
60,000 P 60,000
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx P xxx
=====================================================

4th Year
2013
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

=====================================================
Financial Statement Presentation: December 31, 2013
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
80,000 P 40,000
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx P xxx
======================================================

5th Year
2014
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

======================================================
Financial Statement Presentation: December 31, 2014
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment 100,000 P 20,000
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx P xxx
======================================================

ILLUSTRATION 2:
Computer
Date of acquisition: August 1, 2010
Cost: P 120,000
Life: 5 years
Salvage Value : P20,000
Depreciation = P120,000 P20,000
------------------------5 years
= P20,000/year

1ST Year
P 20,000 x 5/12 = 8,333.33
August 1- December 31 = 5 months
2010
Dec 31 Depreciation Expense- Equipment
8,333.33
Accumulated Depreciation-Equipment
8,333.33
To record depreciation (P20,000 x 5/12)

===============================================
Financial Statement Presentation : December 31, 2010
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment 8,333.33

P111,666.67

Note 2: Depreciation Expense

Depreciation Equipment
P 8333.33
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx
P xxx
======================================================

2nd Year
2011
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

======================================================
Financial Statement Presentation : December 31, 2011
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment 28,333.33 P 91,666.67
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx
P xxx
======================================================

3rd Year
2012
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)
======================================================
Financial Statement Presentation : December 31, 2012
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
48,333.33 P 71,666.67
Note 2: Depreciation Expense
Depreciation Equipment
Depreciation Furniture
Depreciation Transport Vehicle

P 20,000
xxx
xxx

P xxx

======================================================

4th Year
2013
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)
======================================================
Financial Statement Presentation: December 31, 2013
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment
68,333.33 P 51,666.67
Note 2: Depreciation Expense
Depreciation Equipment
P 20,000
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx
P xxx
======================================================

5th Year
2014
Dec 31 Depreciation Expense- Equipment
20,000
Accumulated Depreciation-Equipment
20,000
To record depreciation (P120,000-20,000/5 years)

======================================================
Financial Statement Presentation: December 31, 2014
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment 88,333.33 P31,666.67
Note 2: Depreciation Expense
Depreciation Equipment
Depreciation Furniture
Depreciation Transport Vehicle

P 20,000
xxx
xxx

P xxx

======================================================

6th Year
P 20,000 x 7/12 = 11,666.67
2015
Dec 31 Depreciation Expense- Equipment
11,666.67
Accumulated Depreciation-Equipment
11,666,67
To record depreciation (P20,000 x 7/12)

======================================================
Financial Statement: December 31, 2015
Notes to Financial Statement
Note 1: Property, Plant and Equipment
Equipment
P120,000
Less: Accumulated Depreciation Equipment 100,000 20,000
Note 2: Depreciation Expense
Depreciation Equipment
P 11,666.67
Depreciation Furniture
xxx
Depreciation Transport Vehicle
xxx
P xxx
======================================================