Lechon Producers purchased a machine for P6,000. The scrap value was estimated at P400 and its useful life at 22,400 machine hours. During 1978, the machine was used for 3,600 hours. What should be the depreciation expense for 1978?
Question
Lechon Producers purchased a machine for P6,000. The scrap value was estimated at P400 and its useful life at 22,400 machine hours. During 1978, the machine was used for 3,600 hours. What should be the depreciation expense for 1978?
Solution
To calculate the depreciation expense for 1978, we first need to determine the depreciable amount of the machine. This is done by subtracting the scrap value from the original cost of the machine.
Step 1: Calculate the depreciable amount Depreciable amount = Original cost - Scrap value Depreciable amount = P6,000 - P400 = P5,600
Next, we need to calculate the depreciation rate per machine hour. This is done by dividing the depreciable amount by the total useful life of the machine in hours.
Step 2: Calculate the depreciation rate per machine hour Depreciation rate = Depreciable amount / Useful life in hours Depreciation rate = P5,600 / 22,400 hours = P0.25 per hour
Finally, we can calculate the depreciation expense for 1978 by multiplying the depreciation rate per hour by the number of hours the machine was used in 1978.
Step 3: Calculate the depreciation expense for 1978 Depreciation expense = Depreciation rate per hour * Number of hours used Depreciation expense = P0.25 per hour * 3,600 hours = P900
So, the depreciation expense for 1978 should be P900.
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