Depreciation

Let’s Check
Problem 1. Sheena Company had the following transactions regarding its property, plant and
equipment.

a. A machine is purchased on May 1, 2017 costing 1,000,000 with useful life of 5 years and a
residual value of 100,000. The company uses the straight line method.

1,000,000-100,000 = 900,000/5 = 180,000

1,000,000 MAY 1, 2017

2017 (8) 120,000 120,000 880,000 DEC. 31, 2017

2018 (12) 180,000 300,000 700,000 DEC. 31, 2018

2019 (12) 180,000 480,000 520,000 DEC. 31, 2019

2020 (12) 180,000 660,000 340,000 DEC. 31, 2020

2021 (12) 180,000 840,000 160,000 dec. 31, 2021

2022 (4) 60,000 900,000 100,000 RV 5/1/2022 dec. 31,

2022

b. On April 1, 2017, a machine costing 6,000,000 was purchased and the SYD method is used.
The useful life of the machine was 10 years with a residual value of 500,000.

Answer:
Year 2017 10/55 * 5500,000 = 1,000,000 * 9/12=750000

Year 2018 10/55 * 5,500,000 = 1,000,000 * 3/12 = 250,000

9/55 * 5,500,000 = 900,000 * 9/12= 675,000 925,000

Year 2019 9/55 * 5,500000 = 900,000 * 3/12=225,000

8/55 * 5,500,000 = 800,000 * 9/12=600,000 825,000

Year 2020 8/55 * 5,500,000 = 800,000 * 3/12= 200,000

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 7/55 * 5,500,000 = 700,000 *9/12= 525,000 725,000

Year 2021 7/55 * 5,500,000 = 700,000 * 3/12= 175,000

6/55 * 5,500,000 = 600,000 * 9/12 = 450,000 625,000

Date Dep A/D CA

6,000,000
12/31/17 750,000 750,000 5,250,000
12/31/2018 925,000 1,675,000 4,325,000
12/31/2019 825,000 2,500,000 3,500,000
12/31/2020 725,000 3,225,000 2,775,000
12/31/2021 625,000 3,850,000 2,150,000

c. On January 1, 2017, purchased a machine for 1,600,000 used in a factory with a useful life of
5 years and a residual value of 80,000. The machine was depreciated by the double declining
balance method.

Answer: 1/5 = 20% * 2 = 40%

1,600,000
2017 640,000 640,000 960,000
2018 384,000 1,024,000 576,000
2019 230,400 1,254,400 345,600
2020 138,240 1,392,640 207,360
2021 127,360 1,520,000 80,000

d. A machine purchased on March 1, 2017 for P8,000,000 has a production capacity over its
economic life of 4,000,000 in terms of units of products capacity to produce and 3,040,000 in
terms of service hours available for production. The residual value amounted to 400,000. Units
produced per year in terms of units and service hours worked are shown below:
Units produced Service Hours worked

Year 1 800,000 650,000

Year 2 850,000 690,000
Year 3 750,000 660,000
Year 4 750,000 635,000
Year 5 650,000 345,000
Year 6 200,000 60,000

Answer Production method 8,000,000 – 400,000 / 4,000,000 = 1.9

8,000,000
Year 1 1,520,000 1,520,000 6,480,000

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Year 2 1,615,000 3,135,000 4,865,000
Year 3 1,425,000 4560,000 3,440,000
Year 4 1,425,000 5,985,000 2,015,000
Year 5 1,235,000 7,220,000 780,000

Hours Worked method 7,600,000/3,040,000 = 2.5

8,000,000
Year 1 1,625,000 1,625,000 6,375,000
Year 2 1,725,000 3,350,000 4,650,000
Year 3 1,650,000 5,000,000 3,000,000
Year 4 1,587,500 6,587,500 1,412,500
Year 5 862,500 7,450,000 550,000

Required : In each of the following transactions, prepare the depreciation table for the first 5
years only. Follow the format suggested below:

Date Depreciation expense Accumulated Dep’n Carrying Amount

Let’s Analyze (refer to the power point I gave you)

1. Happy Company owned a power plant which consisted of the following assets all acquired at
the beginning of current year.
Cost Residual value Useful life in years
Building 3,510,000 270,000 15
Machinery 1,188,000 108,000 8
Equipment 702,000 162,000 4
Required:
a. Compute the composite rate.
b. Compute the composite life
c. Prepare journal entry to record the depreciation for the current year following the

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composite method.
d. Prepare journal entry to record the retirement of the machinery at the end of the 5th year
assuming the proceeds from retirement amount to 110,000.
e. Prepare journal entry to record the depreciation for the 6th year following the composite
method.