Jimenez, Angel Kaye October 8, 2020

BSA 2nd year ACC 216 9:45-11:45

Assignment- Depreciation Methods

Problem 1

Gianina Company takes a full year’s depreciation in the year of an assets acquisition, and no
depreciation in the year of disposition. Data relating to one depreciable asset acquired in 2003,
with residual value of P900,000 and estimated useful life of 8 years, at December 31, 2004 are:
Cost 9,900,000

Accumulated depreciation 3,750,000

Using the same depreciation method in 2003 and 2004, how much depreciation should Gianina
record in 2005 for this asset?

a. 1,125,000

b. 1,250,000

c. 1,650,000

d. 1,500,000

Depreciable Amount = Cost – Residual Value

Depreciable Amount = 9,900,000 – 900,000

Depreciable Amount = 9,000,000

Depreciation based on Time: Accelerated Depreciation Method

Sum-of-the-years’ Digits (SYD):

✓ SYD Denominator = Life x [(Life + 1) / 2]

✓ SYD Denominator = 8 x [(8 + 1) / 2] = 36

*Alternatively: (8+7+6+5+4+3+2+1) = 36

Year Depreciable Amount SYD Rate Depreciation Expense

2003 P9,000,000 8/36 P2,000,000
2004 P9,000,000 7/36 P1,750,000
2005 P9,000,000 6/36 P1,500,000

*In 2005, the depreciation Expense should be recorded P1,500,000.

Problem 2

On January 1, 2000 Vladimir Company purchased a machine for P4,800,000 and depreciated it by the
straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 2003,
Vladimir determined that the machine had a useful life of 6 years from the date of acquisition and will
have a salvage value of P150,000. An accounting change was made in 2003 to reflect these additional
data. What should be the accumulated depreciation on December 31, 2003?

a. 2,750,000

b. 2,800,000

c. 1,000,000

d. 900,000

Year Depreciation Accumulated Depreciation Carrying Amount

01/01/00 - - P4,800,000
12/31/00 P 600,000 600,000 4,200,000
12/31/01 600,000 1,200,000 3,600,000
12/31/02 600,000 1,800,000 3,000,000
12/31/03 950,000 2,750,000 2,050,000
P2,750,000

Year 2003

Depreciation: Depreciable amount = Carrying Amount – Residual Value

Depreciable amount = 3,000,000 – 150,000

Depreciable amount = 2,850,000

Depreciation for the year = Depreciable amount / Remaining useful life

Depreciation for the year = 2,850,000 / 3 year

Depreciation for the year = 950,000

On December 31, 2003 the total accumulated depreciation is P 2,750,000.

Problem 3

On October 1, 2018, Miami Company bought machinery under a contract that required a down payment
of P500,000 plus 12 monthly payments of P300,000 for total payments of P4,100,000. The cash price of
the machinery was P3,800,000. The machinery has an estimated useful life of five years and residual
value of P200,000. Daryl uses the SYD method of depreciation. In its 2019 income statement, what
amount should Daryl report as depreciation for this machinery?

Depreciation based on Time: Accelerated Depreciation Method

Sum-of-the-years’ Digits (SYD):

✓ SYD Denominator = Life x [(Life + 1) / 2]

✓ SYD Denominator = 5 x [(5 + 1) / 2] = 15

*Alternatively: (5+4+3+2+1) = 15

Full year Depreciation Charges:

Year Depreciable Amount SYD Rate Depreciation Accumulated Carrying

Depreciation Amount
(a) (b) C= (a)(b) d e=historical
cost - d
1 - - - - P3,800,000
1 P3,600,000 5/15 P1,200,000 P1,200,000 2,600,000
2 3,600,000 4/15 960,000 2,160,000 1,640,000
3 3,600,000 3/15 720,000 2,880,000 920,000
4 3,600,000 2/15 480,000 3,360,000 440,000
5 3,600,000 1/15 240,000 3,600,000 200,000
P3,600,000

Partial year Depreciation Charges:

Year Depreciable Amount SYD Rate Depreciation

2018 P1,200,000 3/12 P300,000
2019 1,200,000 9/12 900,000
960,000 3/12 240,000
Depreciation Expense for 2019

P 900,000 + 240,000 = P 1,140,000

Problem 4

LA Company purchased a boring machine on January 1, 2019 for P8,100,000. The useful life of the
machine is estimated at 3 years with a residual value at the end of this period of P600,000. During its
useful life, the expected units of production from the machine are 10,000 units for 2019; 9,000 units for
2020 and 6,000 units for 2021. What is the depreciation expense for 2020 using the most appropriate
depreciation method?

Depreciation based on Actual Physical Use: Units of Production Method

Output Method (based on units produced):

✓ Depreciation rate = Depreciable amount / Estimated total units

✓ Depreciation rate = (8,100,000 – 600,000) / (25,000)
✓ Depreciation rate = (7,500,000 / 25,000)
✓ Depreciation rate = 300 per unit of output

Year Actual Units x Depreciation Accumulated Carrying Amount

Depreciation Rate Depreciation
1/1/19 - - - P8,100,000
12/31/19 (10,000 x 300) P3,000,000 P3,000,000 5,100,000
12/31/20 (9,000 x 300) 2,700,000 5,700,000 2,400,000
12/31/21 (6,000 x 300) 1,800,000 7,500,000 600,000
P7,500,000

The Depreciation expense for 2020 is P 2,700,000.