1. Spacek Company purchased a machine at a cost of P635,000 on January 1, 2020.

It was
estimated that the machine would have a residual value of P35,000. The estimated useful life is
5 years, 60,000 service hours and 150,000 production units.
Actual operations Service hours Unit produced
2020 14,000 34,000
2021 13,000 32,000
2022 10,000 25,000
2023 11,000 29,000
2024 12,000 30,000

Prepare a depreciation table for the following methods:

a. Straight line

Annual depreciation : 635,000 – 35,000 / 5 yrs

= 120,000

Year Depreciation Cost Accumulated Carrying

Depreciation Amount
2020 120,000 635,000 120,000 515,000
2021 120,000 635,000 240,000 395,000
2022 120,000 635,000 360,000 275,000
2023 120,000 635,000 480,000 155,000
2024 120,000 635,000 600,000 35,000

b. Service hours

Depreciation rate : 635,000 – 35,000 / 60,000 hrs

= 10 / hr
Year Depreciation Cost Accumulated Carrying
Depreciation Amount
2020 10 x 14,000 140,000 635,000 140,000 495,000
2021 10 x 13,000 130,000 635,000 270,000 365,000
2022 10 x 10,000 100,000 635,000 370,000 265,000
2023 10 x 11,000 110,000 635,000 480,000 155,000
2024 10 x 12,000 120,000 635,000 600,000 35,000
c. Production method

Depreciation rate : 635,000 – 35,000 / 150,000 units

= 4 / unit
Year Depreciation Cost Accumulated Carrying
Depreciation Amount
2020 4 x 34,000 136,000 635,000 136,000 499,000
2021 4 x 32,000 128,000 635,000 264,000 371,000
2022 4 x 25,000 100,000 635,000 364,000 271,000
2023 4 x 29,000 116,000 635,000 480,000 155,000
2024 4 x 30,000 120,000 635,000 600,000 35,000
b. Working hours
Depreciation rate : 570,000 – 20,000 / 50,000 = 11 / hr

2020 : 11 x 3,000 = 33,000

2021 : 11 x 5,000 = 55,000

c. Output method
Depreciation rate : 570,000 – 20,000 / 200,000 = 2.75 / unit

2020 : 2.75 x 18,000 = 49,500

2021 : 2.75 x 22,000 = 60,500
3. At the beginning of current year, Streep Company acquired the following assets:

Cost Residual value Useful life in years

Machinery 310,000 10,000 5
Office equipment 110,000 10,000 10
Building 1,600,000 100,000 15
Delivery equipment 430,000 30,000 4

a. Compute the composite depreciation rate.

Cost Residual Depreciable Life in years Annual
value Amount depreciation
Machinery 310,000 10,000 300,000 5 60,000
Office eqpt 110,000 10,000 100,000 10 10,000
Building 1,600,000 100,000 1,500,000 15 100,000
Delivery eqpt 430,000 30,000 400,000 4 100,000
Total 2,450,000 2,300,000 270,000

Composite rate : Total Annual depreciation / Total cost

270,000 / 2,450,000
= 11.02 %
b. Compute the composite life.

Composite life = Total Depreciable Amount / Total Annual depreciation

= 2,300,000 / 270,000
= 8.52 yrs

c. Prepare journal entry to record the depreciation for the current year.

Depreciation 270,000
Accumulated depreciation 270,000

4. MacLaine 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 6,100,000 100,000 20
Machinery 2,550,000 50,000 5
Equipment 1,030,000 30,000 10

a. Compute the composite rate.

Cost Residual Depreciable Life in years Annual
value Amount depreciation
Building 6,100,000 100,000 6,000,000 20 300,000
Machinery 2,550,000 50,000 2,500,000 5 500,000
Equipment 1,030,000 30,000 1,000,000 10 100,000
Total 9,680,000 9,500,000 900,000

Composite rate : 900,000 / 9,680,000

= 9.30 %
b. Compute the composite life.

Composite life : 9,500,000 / 900,000

= 10.56 years

c. Prepare journal entry to record the depreciation for the current year following the composite
method.

Depreciation 900,000
Accumulated depreciation 900,000

d. Prepare journal entry to record the retirement of the machinery at the end of the fifth year
assuming the proceeds from retirement amounts to P40,000.
*When an asset in the group is retired, no gain or loss is recognized.

Cash 40,000
Accumulated depreciation 2,510,000  cost minus salvage proceeds
Machinery 2,550,000
e. Prepare journal entry to record the depreciation for the sixth year following the composite
method.

9,680,000 – 2,550,000 = 7,130,000

X 9.3 %
= 663,090

Depreciation 663,090
Accumulated depreciation 663,090

5. Field Company provided the following schedule of machinery:

Total Cost Estimated Useful Life

Residual value in years
Machine A 550,000 50,000 20
Machine B 200,000 20,000 15
Machine C 40,000 none 5

What is the composite life of the assets?

Cost RV Dep Amount Life Annual Depn
Machine A 550,000 50,000 500,000 20 25,000
Machine B 200,000 20,000 180,000 15 12,000
Machine C 40,000 0 40,000 5 8,000
Total 790,000 720,000 45,000

Composite life = 720,000 / 45,000 = 16 yrs

6. Page Company used the composite method of depreciation based on a composite rate of 25%.
At the beginning of 2020, the total cost of equipment was P5,000,000 with a total residual value
of P600,000. The accumulated depreciation was P3,000,000 at that time. In January 2020, the
entity purchased an equipment for P2,500,000 with no residual value. At the end of 2020, the
entity sold an equipment with an original cost of P1,000,000 and a residual value of P200,000
for P350,000. This asset was acquired on January 1, 2018.
1. What is the depreciation for 2020?

Equipment
___________________________________
Beg 5,000,000
2,500,000 1,000,000  Cash 350,000
Accumulated depn 650,000
End 6,500,000 Equipment 1,000,000
6,500,000 x 25% = 1,625,000
 2. What is the gain or loss from the derecognition of the asset on December 31,2020?

Under the composite method, no gain or loss is recognized on the derecognition of asset.

Accumulated depreciation, 12/31/2020 : 3,000,000 – 650,000 + 1,625,000 = 3,975,000

Cost 6,500,000
-AD 3,975,000
CA 2,525,000

7. Matlin Company revealed the following depreciation policy on machinery.

 A full year depreciation is taken in the year of acquisition

 No depreciation is taken in the year of disposition
 The estimated useful life is five years.
 The straight line method is used.

On June 30, 2020, the entity sold for P2,300,000 a machine acquired in 2017 for P4,200,000. The
estimated residual value was P600,000.

What amount of gain on disposal should be recorded in 2020?

Cost 4,200,000 SP 2,300,000

Accumulated depn CA 2,040,000
4.2 M – 600 T Gain 260,000
5 x 3 2,160,000
Carrying amount 2,040,000

*3 yrs is for 2017, 2018, 2019. No depreciation in the year of disposal (2020).

8. Cher Company used straight line depreciation for the property plant equipment which
consisted of the following at the end of each year:

2020 2021
Land 250,000 250,000
Building 1,950,000 1,950,000
Machinery and equipment 6,500,000 6,950,000
Accumulated depreciation 3,700,000 4,000,000

The depreciation expense for 2020 and 2021 was P500,000 and P550,000, respectively.

What amount was debited to accumulated depreciation during 2021 because of property, plant
and equipment retirement?
 Accumulated depreciation
______________________________________
Beg 3,700,000
250,000 Depn 2021 550,000

End 4,000,000

9. Foster Company acquired a machinery on April 1,2020.

Cost 1,200,000
Residual value 120,000
Estimated useful life 8 years

1. What is the depreciation for 2020 using sum of years’ digits?

2. What is the depreciation for 2021 using sum of years’ digits?

SYD = 8 (8+1) = 8 (4.5) = 36
2

1,200,000-120,000
2020 : 8/36 x 1,080,000 x 9/12 = 180,000

2021 : 8/36 x 1,080,000 x 3/12 = 60,000

7/36 x 1,080,000 x 9/12 = 157,500
217,500

3. What is the depreciation for 2020 using double declining balance?

4. What is the depreciation for 2021 using double declining balance?

Under double declining balance method, RV is ignored.

100% / 8 = 12.5 %  straight line rate

x2
25 %  double declining rate

2020 : 25 % x 1,200,000 x 9/12 = 225,000

( 225,000 )
2021 : 25% x 975,000 = 243,750
10. On January 1, 2020 Tandy Company purchased a new machine for P4,000,000. The new
machine has an estimated useful life of eight years and the residual value was estimated to be
P400,000. Depreciation was computed on the sum of the years’ digits method.

What is the carrying amount of the machine on December 31, 2021?

SYD = 8 (8 + 1) = 8 (4.5) = 36
2

4 M – 400 T 4,000,000 Cost

2020 : 8/36 x 3,600,000 = 800,000
2021 : 7/36 x 3,600,000 = 700,000 1,500,000 AD
2,500,000 CA

Accumulated depreciation can also be computed this way :

15/36 x 3,600,000 = 1,500,000

11. On January 1, 2018, Bates Company acquired equipment to be used in the manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated residual
value of P50,000. The depreciation applicable to this equipment was P240,000 for 2020
computed under the sum of years’ digits method.

What was the acquisition cost of the equipment?

SYD = 10 (10 + 1) = 10 (5.5) = 55

2

2018 : 10/55
2019 : 9/55
2020 : 8/55 x 1,650,000 = 240,000

This is the depreciable amount.

Therefore,
Cost = Depreciable amount + RV
= 1,650,000 + 50,000
= 1,700,000

What is the carrying amount of the equipment on 12/31/2020?

10/55
9/55
8/55

27/55 x 1,650,000 = 810,000  accumulated depreciation

Cost 1,700,000
-AD 810,000
CA 890,000
12. On April 1, 2020, Thompson Company purchased new machinery for P3,000,000. The
machinery has an estimated useful life of five years and depreciation is computed by the sum of
years’ digits method.

What is the accumulated depreciation of the machinery on March 31, 2022?

SYD = 5 (5+1) = 5 (3) = 15

2
3M - 0
2020 : 5/15 x 3,000,000 x 9/12 = 750,000

2021 : 5/15 x 3,000,000 x 3/12 = 250,000

4/15 x 3,000,000 x 9/12 = 600,000
850,000

2022 : 4/15 x 3,000,000 x 3/12 = 200,000

1,800,000

Or
4.1.2020 to 3.31.2021 : 5/15 x 3,000,000 = 1,000,000
4.1.2021 to 3.31.2022 : 4/15 x 3,000,000 = 800,000
1,800,000

13. Hunter Company takes a full depreciation expense in the year of acquisition, and no
depreciation expense in the year of disposition. An asset was acquired in 2017.

Cost 1,100,000
Residual value 200,000
Accumulated depreciation – January 1, 2020 720,000
Estimated useful life 5 years

Using the same method in 2017, 2018 and 2019, what depreciation should be recorded in 2020?
 Using straight line :
1,100,000 – 200,000
5 x 3 = 540,000  not equal to 720,000
(2017-2019) STRAIGHT LINE is NOT USED.

Using SYD
SYD = 5 (5 +1) = 5 (3) = 15
2

1.1 M – 200 T
2017 : 5/15
2018 : 4/15
2019 : 3/15
12/15 x 900,000 = 720,000  equal to 720,000 Accum Depn given ;
Thus, SYD is USED.
2020 : 2/15 x 900,000 = 120,000

What is the depreciation expense in 2021 ?

2021 : 1/15 x 900,000 = 60,000

What is the carrying amount on 12/31/2021?

Cost 1,100,000
-AD 900,000
CA 200,000  equal to the RV

14. Lange Company purchased equipment which was installed and put into service January 1,
2020 at a total cost P1,280,000. Residual value was estimated at P80,000. The equipment is being
depreciated over eight years by the double declining balance method. What amount of
depreciation should be recorded for 2021?
Under double declining balance method, RV is ignored.

100 % / 8 = 12.5 %  straight line rate

X2
25 %  double declining rate

2020 : 25 % x 1,280,000 = 320,000

( 320,000)
2021 : 25% x 960,000 = 240,000

15. On January 1, 2020, Sarandon Company acquired an equipment to be used in operations.

The equipment had a useful life of 8 years and residual value of P300,000. The depreciation
applicable to the equipment was P900,000 for 2021 computed under the double declining
balance method. What was the acquisition cost of the equipment?
 Under DDB method, RV is ignored.

100 % / 8 = 12.5 %  straight line rate

X 2
25 %  double declining rate

2020 : 25 % x =
( )
2021 : 25 % x 3,600,000 = 900,000

This is the declining balance after deducting 25 % of cost ;

Therefore, 3.6 million represents 75%

Cost is 3,600,000 / 75% = 4,800,000

To check
2020 : 25 % x 4,800,000 = 1,200,000
( 1,200,000)
2021 : 25 % x 3,600,000 = 900,000

16. McDormand Company showed the following schedule of depreciable assets on January 1,
2020.

Assets Cost Accumulated Acquisition

Depreciation date RV
A 4,000,000 2,560,000 2018 400,000
B 2,000,000 1,440,000 2017 200,000
C 2,800,000 1,344,000 2017 560,000

The useful life of each asset is 5 years. The entity takes full depreciation in the year of acquisition
and no depreciation in the year of disposition.

Asset C was sold for P1,700,000 on June 30, 2020. Asset A is depreciated under the double
declining method.
1. What is the depreciation of Asset A for 2020?

100% / 5 = 20%
X2
40 %
1. What is the depreciation of Asset A for 2020?
2018 : 40 % x 4,000,000 = 1,600,000
100% / 5 = 20%
(1,600,000) X2
2019 : 40% x 2,400,000 = 960,000 40 %
( 960,000) 2018 : 40 % x 4,000,000 = 1,600,000
2020 : 40 % x 1,440,000 = 576,000 (1,600,000)
2019 : 40% x 2,400,000 = 960,000
( 960,000)
2020 : 40 % x 1,440,000 = 576,000
Or
Or
4,000,000
4,000,000
( 2,560,000 ) ( 2,560,000 )
2020 : 40% x 1,440,000 = 576,000 2020 : 40% x 1,440,000 = 576,000
2. What is the depreciation of Asset B for 2020 assuming same method in prior years?

If straight line is used, accumulated depreciation is

2,000,000 – 200,000
5 x 3 = 1,080,000  not equal to 1,440,000 ;
(2017-2019) straight line is NOT used

If SYD is used,
SYD = 5 (5 + 1) = 5 (3) = 15
2

2017 : 5/15
2018 : 4/15
2019 : 3/15
12/15 x 1,800,000 = 1,440,000 OK SYD is used for Asset B
2020 : 2/15 x 1,800,000 = 240,000

3. What is the gain on sale of Asset C?

If straight line is used, accumulated depreciation is

2,800,000 – 560,000
5 x 3 = 1,344,000 OK straight line is used
(2017 to 2019)

Cost 2,800,000 SP 1,700,000

-Accum depn 1,344,000 * -CA 1,456,000
Carrying amount 1,456,000 Gain 244,000

*no depreciation is recognized in 2020, the year of disposition

17. Hunt Company purchased equipment on January 1, 2020 for P5,000,000. The equipment had
an estimated 5-year useful life. The accounting policy for 5-year assets is to use the 200% double
declining balance method for the first two years of the asset’s life and then switch to straight
line deprecation.

On December 31, 2022, what amount should be reported as accumulated depreciation?

 100% / 5 = 20 %  straight line rate
X2
40 %  double declining rate

DDB for 1st 2 years : 5,000,000 Cost

2020 : 40 % x 5,000,000 = 2,000,000
(2,000,000)
2021 : 40% x 3,000,000 = 1,200,000 3,200,000 AD
1,800,000 CA

2022 (3rd year) use straight line

1,800,000 – 0
3 = 600,000

Accumulated depreciation :
2020 & 2021 3,200,000
2022 600,000
3,800,000

18. Paltrow Company purchased a machinery on January 1, 2017 for P7,200,000. The machinery
had useful life of 10 years with no residual value and was depreciated using the straight line
method. In 2020, a decision was made to change the depreciation method from straight line to
sum of years’ digits. The estimate of useful life and residual value remained unchanged.

What is the depreciation for 2020?

Straight line in 2017 to 2019 ; SYD starting 2020

7,200,000 – 0
10 x 3 = 2,160,000 Cost 7,200,000
AD 2,160,000
CA 5,040,000

10 – 3 = 7

SYD = 7 (7+1) = 7 (4) = 28

2
5.04 M - 0
2020 : 7/28 x 5,040,000 = 1,260,000

19. On January 1, 2018, Swank Company purchased for P2,400,000 a machine with a useful life
of ten years and no residual value. The machine was depreciated by the double declining balance
method. The entity changed to the straight line method on January 1, 2020.

What is the depreciation for 2020?

 DDB from 2018 to 2019

100% / 10 = 10%  straight line rate

X2
20%  double declining rate

2,400,000 Cost
2018 : 20 % x 2,400,000 = 480,000
( 480,000)
2019 : 20 % x 1,920,000 = 384,000 864,000 AD
1,536,000 CA

Use straight line starting 2020

10 – 2 = 8 yrs remaining life

1,536,000 – 0
8 = 192,000

20. On January 1, 2020, Roberts Company purchased personal computers for P6,000,000. The
management estimated that the computers would last approximately 4 years with residual value
of P600,000. The entity used the double declining balance method. During January 2021, the
management realized that technological advancement had made the computers virtually
obsolete and proposed changing the remaining useful life to 2 years.

What amount of depreciation should be recognized for 2021?

100% / 4 = 25%  straight line rate
X2
50 %  double declining rate

2020 : 50 % x 6,000,000 = 3,000,000

(3,000,000)
3,000,000

4
(1)
3  2

100 % / 2 = 50%
X2
100 %

2021 : 100 % x 3,000,000 = 3,000,000

If 3,000,000 is deducted from the carrying amount of 3,000,000 as of 12/31/2020, the

Carrying amount on 12/31/2021 would have been 0. However, the CA should not fall below
the residual value of P600,000. Thus, depreciation in 2021 is limited to
3,000,000 – 600,000 RV = 2,400,000
21. Berry Company purchased a machine on January 1, 2017 for P3,760,000. The machine was
estimated to have a useful life of five years and a residual value of P240,000. The entity used the
sum of years’ digits method of depreciation. At the beginning of 2020, the entity determined
that the total useful life of machine should have been four years and the residual value is
P352,000.

What amount should be recorded as depreciation for 2020?

SYD = 5 (5+1) = 5 (3) = 15
2
3,760,000 – 240,000
2017 : 5/15
2018 : 4/15
2019 : 3/15
12/15 x 3,520,000 = 2,816,000  accumulated depn as of 12/31/19

Cost 3,760,000
-AD 2,816,000
CA 12/31/19 944,000

5  4
(3) (3)
2 1  revised remaining life

Revised SYD : 1 (1+1) = 1(1) = 1

2

944,000 – 352,000
2020 : 1/1 x 592,000 = 592,000
22. Kidman Company acquired a machine on January 1, 2018 for P10,000,000. The machine had
an 8-year useful life with a P1,000,000 residual value and was depreciated using the sum of years’
digits method. In January 2020, the entity estimated that the asset’s useful life from the date of
acquisition should have been 6 years and the residual value is P400,000.

What is the accumulated depreciation on December 31, 2020?

SYD = 8 (8+1) = 8 (4.5) = 36

2
10 M – 1 M 10,000,000 Cost
2018 : 8/36
2019 : 7/36
15/36 x 9,000,000 = 3,750,000  AD as of 12/31/19
6,250,000 CA

8  6
(2) (2)
6 4  revised remaining life

Revised SYD : 4 (4+1) = 4 (2.5) = 10

2
6,250,000 – 400,000
2020 : 4/10 x 5,850,000 = 2,340,000

AD as of 12/31/2019 3,750,000
+ Depn 2020 2,340,000
AD as of 12/31/2020 6,090,000
23. Theron Company provided the following information on January 1, 2020:

Vehicle cost 5,000,000

Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000

Actual miles driven

2020 30,000
2021 20,000
2022 15,000
1. What is the depreciation for 2022 using the SYD method?

SYD : 5 (5+1) = 5 (3) = 15

2
5M–1M
2020 : 5/15
2021 : 4/15
2022 : 3/15 x 4 M = 800,000

2. What is the accumulated depreciation on December 31, 2021 using the double declining
balance method?

100 % / 5 = 20 %  straight line rate

x 2
40 %  double declining rate

2020 : 40 % x 5,000,000 = 2,000,000

(2,000,000)
2021 : 40% x 3,000,000 = 1,200,000
3,200,000  Accum Depn as of 12/31/21

3. What is the accumulated depreciation on December 31, 2022 using the miles driven?

Depreciation rate : 5M – 1 M
100 T = 40 / mile

Miles driven
2020 : 30,000
2021 : 20,000
2022 : 15,000
65,000 x 40 = 2,600,000  Accum Depn 12/31/22
24. Witherspoon Company used the inventory method to account for numerous small tools. At
the beginning of current year, balance of the tools account was P140,000. The following
transactions occurred with respect to the small tools during the current year.

Acquisitions at cost
March 31 40,000
July 31 20,000

Sale of used tools at salvage value on December 31 4,000

Inventory of small tools on December 31, at cost 150,000

Prepare journal entries to record the transactions related to the tools account.

2020
3/1 Tools 40,000
Cash 40,000

7/31 Tools 20,000

Cash 20,000

12/31 Cash 4,000

Tools 4,000

Tools
________________________________
Beg 140,000
40,000
20,000 4,000
______________________
196,000

46,000 Depreciation 46,000

________________________ Tools 46,000
End 150,000

25. Mirren Company used a hand tool in the manufacturing activities. On January 1, 2020, there
are 800 of such tools on hand at a cost of P200 each. 160,000

Acquisition and retirement during 2020 and 2021 are:

Retirement and Estimated value

Acquisition and cost retirement proceeds of tools at year end
2020 400 @ P300 120,000 300 @ P50 15,000 P 200,000
2021 900 @ P400 360,000 700 @ P70 49,000 P 300,000

Retirement may be assumed to be on a first-in, first-out basis.

Prepare journal entries for 2020 and 2021 using retirement method, replacement method and
inventory method of depreciation.
Retirement method
2020
Tools 120,000
Cash 120,000
400 x P300

Cash (300 x P50) 15,000

Depreciation 45,000
Tools (300 x P200) 60,000  300 units from beginning balance were
retired

Ending balance of tools : 160,000 + 120,000 – 60,000 = 220,000

2021
Tools 360,000
Cash 360,000
900 x P400

Cash (700 x P70) 49,000

Depreciation 111,000
Tools * 160,000

From 2020 beg. balance 500 x P200 100,000

From 2020 acquisition 200 x P300 60,000
160,000  cost of tools retired

Ending balance of tools : 220,000 + 360,000 – 160,000 = 420,000

Replacement method
2020
Tools (100* x P300) 30,000  *400-300 = 100
Depreciation (300 x P300) 90,000
Cash (400 x P300) 120,000

Cash (300 x P50) 15,000

Depreciation 15,000

Therefore, Depreciation in 2020 is 75,000  90,000 less 15,000

Balance of Tools at year end : 160,000 + 30,000 = 190,000

2021
Tools (200* x P400) 80,000  *900-700 = 200
Depreciation (700 x P400) 280,000
Cash (900 x P400) 360,000

Cash (700 x P70) 49,000

Depreciation 49,000

Therefore, Depreciation in 2021 is 231,000  280,000 less 49,000

Balance of Tools at year-end : 190,000 + 80,000 = 270,000

 Inventory method
2020
Tools (400 x P300) 120,000
Cash 120,000

Cash (300 x P50) 15,000

Tools 15,000

Beginning 800 x P200 160,000

Acquired 120,000
Retirement proceeds ( 15,000)
265,000
vs Est value at year end 200,000
Depreciation 65,000

Depreciation 65,000
Tools 65,000

2021
Tools (900 x P400) 360,000
Cash 360,000
Cash (700 x P70) 49,000
Tools 49,000

Beginning 200,000
Acquisition 360,000
Retirement proceeds (49,000)
511,000
vs Est value at year end 350,000
Depreciation 161,000

Depreciation 161,000
Tools 161,000

26. At the beginning of current year, Cotillard Company reported the following property, plant
and equipment and accumulated depreciation:
Accumulated
Cost depreciation
Land 350,000 -
Land improvement 180,000 45,000
Building 4,500,000 1,050,000
Machinery and equipment 1,160,000 405,000
Automobile 1,800,000 1,344,000

Land improvements – Straight line, 15 years.

Building – 150% declining balance, 20 years.
Machinery and equipment – Straight line, ten years.
Automobiles – 150 % declining balance, three years.

 On January 1, machinery and equipment were purchased at a total invoice cost

P260,000, which included a P 10,000 charge for freight. Installation cost of P 40,000 was
incurred.

 On June 30, a machine purchased for P60,000 two years ago was sold for P36,000.

 On December 31, the entity purchased a new automobile for P460,000 cash and trade -
in of an automobile purchased for P540,000 three years ago. The new automobile has a
cash price of P570,000.
Determine the following for the current year:
1. Depreciation of land improvements
180,000 – 0
15 = 12,000

2. Depreciation of building
100% / 20 = 5 %  straight line rate
X 1.5
7.5 %  150% declining rate

Cost 4,500,000
AD 1,050,000
CA 3,450,000

7.5 % x 3,450,000 = 258,750

3. Depreciation of machinery and equipment

I. 1,160,000
( 60,000)  cost of machine sold on June 30
1,100,000

1,100,000 - 0
10 = 110,000

II. Depn of machine sold (Jan 1 to June 30)

60,000 – 0
10 x 6/12 = 3,000

III. Depn of machine acquired this year

300,000 - 0
10 = 30,000

Total depreciation of machinery and eqpt 143,000

4. Depreciation of automobiles
100% / 3 = 33.33 %
X 1.5
50 %

Cost 1,800,000
-AD 1,344,000
CA 456,000

50 % x 456,000 = 228,000

Note : there is no depreciation expense yet for automobile acquired via trade in on December
31.
27. At the beginning of current year, Winslet Company provided the following;
Accumulated
Cost depreciation
Land 875,000
Building 7,500,000 1,644,500
Machinery and equipment 2,250,000 635,000

Building – double declining balance , 25 years

Machinery and equipment – Straight line, 10 years
Land improvements – Straight line

 On January 1, a plant facility consisting of land and building was acquired from another
entity in exchange for 25,000 shares of DiCaprio Company. On this date, the share had a
market price of P50. Current zonal values of land and building for property tax purposes
are P150,000 and P600,000, respectively.

 On March 31, new parking lot, street and sidewalk at the acquired plant facility were
completed at a total cost of P192,000. These expenditures had an estimated useful life
of 12 years.

 On July 1, machinery and equipment were purchased at a total invoice cost of P340,000.
Additional cost of P10,000 for delivery and P50,000 for installation were incurred.

 On December 20, a machine with a cost of P170,000 and a carrying amount of P29,750
at date of disposition was scrapped without cash recovery.
Determine the depreciation of the building, machinery and equipment, and land improvements
for the current year.
Depreciation of the building

I. old building

100% / 25 = 4 %
x2
8%

Cost 7,500,000
-AD 1,644,500
CA 5,855,500 x 8 % = 468,440

II. building acquired on Jan 1

25,000 x 50 = 1,250,000
x 600T / 750T
1,000,000 x 8% = 80,000
548,440
 Depreciation of machinery and equipment

I. old machine (which includes machine disposed on Dec 20)

2,250,000 – 0
10 = 225,000

II. machine acquired on Jul 1

400,000 – 0
10 x 6/12 = 20,000
245,000

Depreciation of land improvement

Acquired on March 31
192,000 – 0
12 x 9/12 = 12,000

28. At the beginning of the current year, Bullock Company reported the following property,
plant, and equipment and accumulated depreciation.
Cost Accumulated
depreciation
Land 550,000 -
Building 6,000,000 1,327,800
Machinery 1,380,000 367,500

Building Double declining balance, 20 years, residual value is 10% of cost

Machinery Straight line ,10 years
 On January 1, the entity completed the self -construction of a building.
Direct costs of construction were P2,220,000. Construction of the building required 15,000
direct labor hours. The construction department has an overhead allocation system for
outside jobs based on an activity denominator of 100,000 direct labor hours, budgeted
fixed cost of P2,500,000, and budgeted variable cost of P27 per direct labor hour.
Direct costs 2,220,000
Fixed overhead
2,500,000
100,000 = 25/hr
x 15,000 375,000
Variable overhead
27 x 15,000 405,000
Total cost 3,000,000

 On July 1, machinery was purchased at a total invoice cost of P356,000. Additional costs of
P23,000 to rectify damage on delivery and P18,000 for concrete embedding of machinery
were incurred.
A wall had to be demolished to enable a large machine to be moved into the plant. The wall
demolition cost was P7,000, and rebuilding of the wall amounted to P19,000.

 This is capitalizable because this is a cost directly attributable to bringing the asset
to the location and condition necessary for it to be capable of operating in the manner
intended by management.

Cost of the machine : 356,000 + 18,000 + 7,000 + 19,000 = 400,000

1. Determine the depreciation of building for the current year.

100 % / 20 = 5 %
x2
10%

6,000,000
(1,327,800)
I. Old : 10 % x 4,672,200 = 467,220

II. New : 10% x 3,000,000 = 300,000

767,220

2. Determine depreciation of machinery for the current year.

I. old
1,380,000 – 0
10 = 138,000

II. new
400,000 – 0
10 x 6/12 = 20,000
158,000