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Depreciation
Depreciation
(1+0.06)3 −1
F = 14,336 = P45,640.92
0.06
2. An asset is purchased for P500,000.00. The
salvage value in 25 years is P100,000.00. What are Amount to be raised:
the depreciations in the first three years using
= P150,000 – P45,640.92
straight line method?
= P140,359.08
Solution: Annual Depreciation
FC−SV 5. A machine costing P720,000 is estimated to have
D= a life of 10 years. If the annual rate of depreciation is
N
25%, determine the total depreciation using a
500,000 − 100,000 constant percentage of the declining balance
=
25 method.
D = 16,000 Solution:
Total Depreciation for 3 years: 𝑛 SV
k=1− √
Total Dep = nD FC
SV
= 3(16,000) = (1 − 𝑘)𝑛
FC
Total Dep = P48,000 SV = FC(1 − 𝑘)𝑛
SV = 720,000 (1 − 0.25)10
SV = P40,545.73
3. A unit of welding machine cost P45,000 with an Depreciation = FC – SV
estimated life of 5 years. Its salvage value is P2,500,
find its depreciation rate of sinking fund method. = 720,000 – 40,545.73
Assuming that will deposit the money to a bank
Depreciation = P679,454.27
giving 8.5%. Solve for the depreciation.
6. The cost of a certain asset is P3000, its life is 6
Solution: i = 0.085
years and scrap value is P500. Find the annual rate
(FC−SV)𝑖 of depreciation under a constant percentage method
Depreciation =
(1+𝑖)𝑛 −1 and construct a depreciation table.
= Solution:
(45000−2500) 0.085
(1+0.085)5 −1
FC = P3000 , SC = 500 n =6
𝑛 SV
k=1− √ =
FC
6 500
k= 1− √ k = 0.25816
3000
Depreciation table:
Year Depreciation, FC(k) Book Value (FC – Dep)
1 3000(.25816) = 774.48 3000 - 774.48 = 2225.52
2 2225.52(.25816) = 574.54 2225.52 – 574.54 = 1650.98
3 1650.98(.25816) = 426.22 1650.98 – 426.22 = 1224.76
4 1224.76(.25816) = 316.18 1224.76 – 316.18 = 908.58
5 908.58 (.25816) = 234.56 908.58 – 234.56 = 674.02
6 674.02 (.25816) = 174.02 674.02 – 174.02 = 500.00
Solution:
6650 = 7000 – SV
SV = 350
x = 350 (salvage value)