No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

PROPERTY, PLANT AND EQUIPMENT – Depreciation

PROBLEM NO. 1

Lee Land Company purchased equipment on March 31, 2021 for P800,000. The equipment has the
following data:

Estimated service life: - 8 years

- 100,000 hours
- 900,000 units of output
Estimated residual value: - P80,000

During 2021 and 2022, the company used the machine for 5,000 hours and 6,000 hours, respectively, and
produced 45,000 units and 64,000 units, respectively.

Required
1. Determine the depreciation expenses for 2021 and 2020 under each of the following methods:
a. Straight-line
b. Hours worked
c. Units of production
d. Sum-of-the-years’ digit
e. Double declining balance
f. 150% declining balance
2. Compute the carrying value of the asset at the end of 2022 under each of the above methods.

PROBLEM NO. 2

Gray Company acquired a machine on December 31, 2018 for P2,500,000, with an estimated residual value
of P100,000. The estimated useful life of the machine is 10 years, and the company uses the double
declining balance method.

On January 1, 2021, Gray decided to use the straight-line method of depreciating the machine. The total
estimated useful life from the date of acquisition of the machine was reduced by two years with the same
residual value.

What is the accumulated depreciation of the machine on December 31, 2021?

PROBLEM NO. 3

Golden Photos Company purchased a machinery for P250,000 on July 1, 2019. Freight and installation
costs incurred by Golden Photos amounted to P18,000. The asset is estimated to have a useful life of 5
years and estimated salvage value of P20,000. It is the company’s policy to depreciate this machinery to
the nearest month using double declining balance method.

On January 1, 2021, the company spent P79,360 for the upgrade of this machinery that improved its
condition beyond its original assessed standard of performance that led to a significant improvement in the
quality of its output. At this time, the machinery’s estimated residual value has changed to P40,000 and
the company decides to change to straight-line method.

How much is the revised depreciation expense for this machinery for the year ended December 31, 2021?

1 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

PROBLEM NO. 4

The December 31, 2021 and 2020 comparative financial statements of World Gallery Company showed
equipment with an original cost P379,000 and P344,000 with accumulated depreciation of P153,000 and
P128,000, respectively. During 2021, the company purchased equipment costing P50,000, and sold
equipment with a carrying value of P9,000.
What amount should the company report as depreciation expense for 2021?

PROBLEM NO. 5

Henry Company purchased for cash on January 1, 2017, three machines which cost a total of P1,800,000.
Estimated selling prices were:
Machine 1 P 600,000
Machine 2 750,000
Machine 3 900,000

The machines were believed to have a useful life of 10 years without residual value. The company records
depreciation annually on a monthly basis. On January 01, 2020, Machine 1 was sold for P375,000 cash.
The proceeds were credited to the Machinery account.
On July 01, 2021, Machine 3 was traded in for a new machine (No. 4) which had a cash price of P750,000,
Henry paying P300,000 for the difference with the trade in value of the old machine.
What should be the balance of the Accumulated depreciation – Machinery on December 31, 2021 after
adjustment of the books?

PROBLEM NO. 6

Survivor Company purchased an equipment for P340,000 at the beginning of the year. The equipment has
expected residual value of P20,000. The depreciation expense for the first two years of the asset are shown
below using three alternative methods:

Year Method 1 Method 2 Method 3

1 80,000 128,000 127,500
2 80,000 96,000 79,688

Required
1. Identify the three methods of depreciation above.
2. Compute the depreciation expense for year 3 under the three methods.

PROBLEM NO. 7

Forever Company acquired a plant asset at the beginning of 2021. The asset has n estimated life of 5 years.
Comparative figures for depreciation expense under the three methods was given below:

Year SL SYD DDB

1 12,000 20,000 127,500
2 12,000 16,000 79,688
3 12,000 12,000 9,504
4 12,000 8,000 5,702
5 12,000 4,000 ?

Required
1. How much is the cost of the machine?

2 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

2. How much is the salvage value?

3. How much is the depreciation expense in year 5 under the DDB method?

PROBLEM NO. 8

On January 1, 2015, Forgiveness Company purchased equipment for P1,970,000 with estimated useful life
of 12 years and residual value of P90,000. The company is using the SYD method of depreciation.

On January 1, 2021, the company assessed that the useful life of the equipment was revised to a total life
of 14 years and residual value was increased to P100,000. Accordingly, the depreciation method was also
changed to straight line.

How much is the carrying value of the asset as of December 31, 2021?

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