Rambutan Company purchased for cash on January 1, 2018, three machines which cost a total of P 120,000. Estimated selling prices of the machines were: Machine 1, P 40,000, Machine 2, P 50,000, and Machine 3, P 60,000. The machines were believed to have a useful life of ten years without residual value. The company records depreciation annually on a monthly basis. On January 1, 2021, Machine 1 was sold for P 25,000 cash. The proceeds were credited to the Machinery account. On July 1, 2022, Machine 3 was traded in for a new machine (No.4) which had a cash price of P 50,000 with Rambutan paying P 20,000 for the difference with the trade-in value of the old machine. Machine 4 has estimated service life of 10 years without residual value. What should be the balance of the Accumulated Depreciation - Machinery on December 31, 2022 after adjustment of the books?

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Answer i The initial combined cost for 3 machines is P120000 which has the fair value of Machine 1 P40000 fair value of Machine 2 P50000 and Machine 3 P60000 ii So the lumpsum purchase cost will be allocated on fair value basis for each Machine at 456 ratio Machine 1 will be allocated 4th part machine 2 will have 5th part and machine 3 has 6th part so a total 15 part will be divided as follows Cost allocated to Machine 1 P ... View the full answer