Module 3 Depreciation and Depletion 1

Chapter 3.
DEPRECIATION
AND
DEPLETION
©1320017Batangas State
University
Introduction
Depreciation is an allowable expenses in general accounting purposes and

income tax accounting purposes. But it differ categorically from other
conventional expenses because depreciation charge does not occur any outflow
of business fund.
Depreciation allows for the companies to recover cost of an asset when it was
purchased. It allows the companies to cover the total cost of an asset over it’s
lifespan. This is important aspect in analyzing cost because it represents a
significant portion of expenses.
131 ©2017 Batangas State University

Introduction
This chapter deals with the different methods of

depreciation .The periodical amount of depreciation is
affected by the following factors;
1 . the cost of the asset;
2 . the life of the asset;
3. the expected residual value of the asset;
4. and, by the method of depreciation selected for
amortization of the
asset which must be systematic and rational.

Learning Objectives
Understand basic terms of asset depreciation
Determine the purpose of depreciation
Apply methods of depreciation.
Explain depletion and apply cost

depletion & percentage depletion methods.
Definitions
Depreciation - the decrease in the value of a physical

property with the passage of time.
Types of Depreciation
1.Physical depreciation – this is due to the reduction of
the physical ability of an equipment or asset to produce
results.
2.Functional depreciation – this is due to the lessening
in the demand for the function which the property was
designed to render.

Purpose of Depreciation
1. To enable the cost of depreciation to be included as a

cost in the production of goods and services.
2.Annual costs of depreciation are being put up in a fund

called depreciation reserve for replacement of the
property.
3. To recover capital invested in the property.
4.Provide as an additional capital termed as depreciation

reserve.
Properties Depreciable Assets
1. It must have a determinable life and the life must be

greater than 1 year.
2.It must be something used in business or held to

produce income.
3.It must be something that gets used up, wears out

decays, become obsolete, or loses its value due to natural
causes.
4.It must not be an inventory stock in trade or investment

property.
Depreciation Terminology
Initial Investment/First Cost (FC) – the cost of

acquiring an asset, including transportation expenses and
other normal costs of making the asset serviceable for its
intended use.
Book Value (BV)– worth of property or an asset as
shown on the accounting records of the company. It is the
original cost of the property less all allowable
depreciation deductions.
Salvage Value (SV)- the amount that will be paid by a
willing buyer to a willing seller for a property after
depreciation is competed.
Depreciation Terminology
Useful life (L)– the expected period that a property will

be used in trade or business to produce income.
Physical life – the length of time during which the
property is capable of performing the function
Economic life – length of time during which the property
may be operated at a profit.
Recovery period (n)– the number of years over which
the basis of property is recovered through the accounting
process.
Recovery rate (i)- a percentage for each year of the
recovery period that utilized to compute an annual
depreciation deduction.
Methods of Depreciation Symbols
d = annual cost of depreciation
L = useful life
n = any year during the life of the property
dn = depreciation cost during year n
Dn = total cost of depreciation after n years
FC = initial investment, original cost, first cost
SV = salvage value/scrap value
BV = book value at the end of n years

Methods of Depreciation
1. Straight Line Method (SLM) –The simplest

depreciation method. this method assumes that the
loss in the value is directly proportional to the age of
the equipment or asset.
a. Annual cost of depreciation
𝐹𝐶 − 𝑆𝑉
𝑑=
𝐿
b. Total depreciation after n years
Dn = nd
c. Book value at the end of n years
BVn = FC – Dn
Example 1. An electric balance costs P90,000 and has an

estimated salvage value of P8,000 at the end of its 10 years’
life time. What would be the book value after three years,
using SLM.
Given:
Fc = P90,000
SV = P8,000
L =10 years
n=3 years
Required: BV3
Solution: Find the annual deprecation (d)

𝐹𝐶 − 𝑆𝑉 𝑃90,000 − 𝑃8,000
𝑑= = = 𝑃8,200
𝐿 10
Get the total depreciation after 3 years
D3 = nd = 3(P8,200) = P24,600
Find the book value after 3 years by subtracting the total

depreciation after 3 years to original cost.
BV3 = FC – D3 = P90,000 – P24,600 = P65,400

Example 2. A new electric saw for cutting small piece of
lumber in a furniture manufacturing plant has a cost basis of
$4,000 and a 10 –year depreciable life. Determine the annual
depreciation amounts and tabulate the annual depreciation
amounts and the book value of the saw at the end of each year.
Given: Fc = $4,000 SV = 0 L =10 years
Required: d
Solution: Find the annual deprecation d

𝐹𝐶 − 𝑆𝑉 $4,000 − 0
𝑑= = = $400
𝐿 10
Using Tabulated form;
End of Year (n) Depreciation ($) Book Value ($)
0 - 4,000
1 400 3,600
2 400 3,200
3 400 2,800
4 400 2,400
5 400 2,000
6 400 1,600
7 400 1,200
8 400 800
9 400 400
10 400 0
2. Sinking Fund Method (SFM) - This method assumes that
a sinking fund is established in which funds will accumulate
for replacement. The total depreciation that has taken place up
to any given times is assumed to be equal to the accumulated
amount in the sinking fund at that time.
a. Annual cost of depreciation
𝑖
𝑑 = (𝐹𝐶 − 𝑆𝑉)
(1 + 𝑖)𝐿−1
b. Total depreciation after n years
(1+𝑖)𝑛−1
𝐷𝑛 = 𝑑
𝑖
c. Book value at the end of n years
145
BVn = FC – Dn
©2017 Batangas State University
Example 3: A broadcasting corporation purchased an equipment for
P53,000 and paid P1,500 for freight and delivery to the job site. The
equipment has a normal life of 10 years with a trade-in-value of P5,000
against the purchase of a new equipment at the end of life. Determine the
annual depreciation and the book value the end of 5 years if interest is
6.5% compounded annually.
Given: FC = P54,500 (Original cost + freight and delivery)
SV = P5,000
L = 10
n=5
i=6.5%
Required: d and BV5
𝑖
𝑑 = (𝐹𝐶 − 𝑆𝑉)
(1 + 𝑖)𝐿−1
0.065
𝑑 = 𝑃54,500 − 𝑃5,000 = 𝑷𝟑, 𝟔𝟔𝟖. 𝟏
1 + 0.065 10 − 1
𝟖
(1 + 𝑖)𝑛 − 1
𝐷𝑛 = 𝑑
𝑖
(1 + 0.065)5 − 1
𝐷 5 = 𝑃3,668.18 = 𝑃20,885.30
0.065
Find the book value after 5 years by subtracting the total depreciation after 5 years to original cost.
BV5 = FC – D5 = P54,500– P20,885.30 = P33,614.70

Example 4. A firm bought an equipment for P56,000. Other expenses
including installation amounted to P4,000. the equipment is expected to
have a life of 16 years with a salvage value of 10% of the original cost.
Determine the book value at the end of 12 years by SFM at 12% interest.
Given:
FC = 60,000 from (P56,000+P4,000)
SV = P6,000 from (P60,000x0.10)
L = 16 years
n = 12
i=12%
Required: BV12
𝑖
𝑑 = (𝐹𝐶 − 𝑆𝑉)
(1 + 𝑖)𝐿−1
0.12
𝑑 = 60,000 − 𝑃6,000 = 𝑃1,263.06
1 + 0.12 − 1
16
(1 + 𝑖)𝑛 − 1
𝐷𝑛 = 𝑑
𝑖
(1 + 0.12)12 − 1
𝐷12 = 𝑃1,263.06 = 𝑃30,481.60
0.12
Find the book value after 12 years by subtracting the total depreciation after 5 years to
original cost.
BV12 = FC – D12 = P60,000– P30,481.60= P29,518.40
3. Declining Balance Method. In this method, sometimes
called the constant percentage method or the Matheson
Formula, it is assumed that the annual cost of depreciation
is a fixed percentage of the salvage value at the beginning
of the year. The ratio of the depreciation in any year to the
book value at the beginning of that year is constant
throughout the life of the property and is designated by k,
the rate of depreciation.
𝑛 𝐵𝑉 𝐿 𝑆
𝑘 = 1− 𝑉 𝑜𝑟 1 −
𝐹𝐶 𝐹
𝐶
a. Annual depreciation d
𝑑𝑛 = 𝐹𝑐 𝑘 (1 − 𝑘) 𝑛−1
b. Salvage value
𝑆𝑉 = 𝐹𝑐(1 − 𝑘) 𝐿
c. Total depreciation Dn
𝐷𝑛 = 𝐹𝑐(1 − 1 − 𝑘 𝑛 )
d. Book value at the end of n years

BVn = FC – Dn

Example 5. Determine the rate of depreciation, the total
depreciation up to the end of the 8th year and the book
value at the end of 8th years for an asset that costs
P15,000 new and has an estimated scrap value of P2,000
at the end of 10 years by DBM.
Given: FC = P15,000
SV= P2,000
L = 10 years
n = 8 years
Required: k, D8 and BV8

Solution: Find the value of rate of depreciation k
𝐿 𝑆𝑉 10 2,000
𝑘 = 1− =1− = 𝟎. 𝟏𝟖𝟐𝟓 𝒐𝒓 𝟏𝟖. 𝟐𝟓
𝐹𝐶 15,000
%
Total depreciation D8
𝐷𝑛 = 𝐹𝑐(1 − 1 − 𝑘 𝑛 )
𝐷8 = 15,000 1 − 1 − 0.1825 8 = 𝑷𝟏𝟐, 𝟎𝟎𝟕. 𝟕
𝟖
Book value at the end of 8 years
BV8 = FC – D8 = P15,000-P12,007.18 = P2,992.22

Example 6. A certain type of machine loses 10% of its
value each year. The machine costs P2,000 originally.
Make out a schedule showing the yearly depreciation, the
total depreciation and the book value at the end of each
year for 5 years.

4.Double Declining Balance Method (DDBM) - This method is
very similar to the DBM except that the rate of depreciation k is
replaced by 2/L
a. Annual depreciation d
2 2 𝑛−1
𝑑𝑛 = 𝐹 𝑐 (1 − )
𝐿 𝑙
b. Salvage value
2𝐿
𝑆𝑉 = 𝐹 𝑐(1 − )
𝐿
c. Total depreciation Dn
𝑛
2
𝐷𝑛 = 𝐹𝑐(1 − 1 − )
𝐿
d. Book value at the end of n years
BVn = FC – Dn
Example 7. Determine the rate of depreciation, the total
depreciation up to the end of the 8th year and the book
value at the end of 8th years for an asset that costs
P15,000 new and has an estimated scrap value of P2,000
at the end of 10 years by DDBM.
Given: FC = P15,000
SV = P2,000
L = 10 years
n = 8 years
Required: k, D8 and BV8

Solution: Find the value of rate of depreciation k
2 2
𝑘= = = 0.20 𝑜𝑟 20%
𝐿 10
Total depreciation D8
𝑛
2
𝐷𝑛 = 𝐹𝑐(1 − 1− )
𝐿
8
2
𝐷8 = 15,000 1 − 1 − = 𝑷𝟏𝟐, 𝟒𝟖𝟑. 𝟒
10
𝟐
Book value at the end of 8 years
BV8 = FC – D8 = P15,000-P12,483.42 = P2,516.58

Example 8. A plant bought a calciner for P220,000 and
used it for 10 years, the life span of the equipment. What
is the book value of the calciner after 5 years of use?
Assume a scrap value P22,000 for DBM and P20,000 for
DDBM.
Given: FC = P220,000
SV (DBM)= P22,000
SV (DDBM)= P20,000
L = 10
n=5
Required: BV after 5 years using DBM and DDBM

Solution: For DBM

𝑺𝑽 𝟐𝟐, 𝟎𝟎 𝟓
𝑩 𝑽 = 𝑭𝑪 𝒏 ) 𝑳 = 𝟐𝟐𝟎, 𝟎𝟎𝟎 𝟎 ) 𝟏𝟎 = 𝑷𝟔𝟗, 𝟓𝟕𝟎. 𝟏
𝑭 𝟐𝟐𝟎, 𝟎𝟎 𝟏
( (
𝑪 𝟎
For DDBM
𝟐 𝒏 𝟐 𝟓
𝑩 𝑽 = 𝑭 𝑪 (𝟏 − ) = 𝟐𝟐𝟎, 𝟎𝟎𝟎(𝟏 − ) = 𝑷𝟕𝟐, 𝟎𝟖𝟗. 𝟔
𝑳 𝟏
𝟎
𝟎

5. Sum of the year digit method (SOYDM) - It is a method

of evaluating depreciation where the depreciation changes
from year to year.
a. annual depreciation
2 𝐿 − 𝑛 +1
𝑑𝑛 = (𝐹𝐶 − 𝑆𝑉)
𝐿 𝐿 +1
b. Total depreciation
𝑛 2𝐿 − 𝑛 + 1
𝐷𝑛 = (𝐹𝐶 − 𝑆𝑉 )
𝐿 𝐿 +1
c. Book value
BVn = FC – Dn
Example 9. A structure costs of P12,000 now. It is estimated

to have a life of 5 years with a salvage value at the end of
life of P1,000. Determine the book value at the end of each
year of life.

Example 10. A machine costs P70,000 and an estimated life

of 10 years with a salvage value of P5,000. What is the
depreciation at 7th year and the book value after 5 years
using the SOYD method?
Given:
FC = P70,000
SV= P5,000
L = 10
n = 7,5
Required: d7, BV5

Solution:
2 𝐿 − 𝑛 +1
𝑑𝑛 = (𝐹𝐶 − 𝑆𝑉)
𝐿 𝐿 +1
2 10 − 7 + 1
𝑑7 = 70,000 − 5,000 = 𝑷𝟒, 𝟕𝟐𝟕. 𝟐
10 10 + 1
𝟕
In getting the book value after 5 years, we need to determine the total
depreciation after 5 years.
𝑛 2𝐿 − 𝑛 + 1
𝐷𝑛 = (𝐹𝐶 − 𝑆𝑉 )
𝐿 𝐿 +1
5 2 10 − 5 + 1
𝐷5 = 70,000 − 5,000 = 𝑃47,272.73
10 10 + 1
Determine book value using
BVn = FC – Dn = 70,000 – 47,272.73 = P22,727.27
6. Service-Output Method (SOM) - This method assumes

that the total depreciation that has taken place is directly
proportional to the quantity of output of the property up to
that time. This method has the advantage of making the unit
cost of depreciation constant and giving low depreciation
expense during periods of low production.

6.1 Service Method (Number of hours used)
Let H= total units of hours used and within the useful life
Hn = total number of hours used at nth year.
𝑑 𝐹𝐶 − 𝑆𝑉 𝑑
= and 𝑑𝑛 = (𝐻 𝑛
ℎ𝑟 𝐻 ℎ𝑟
)
6.2 Output Method (Number of units produced)
Let T= total number of units produced w/in the useful life.
Tn = number of units produced at the nth year
𝑑 𝐹𝐶 − 𝑆𝑉 𝑑
= and 𝑑𝑛 = (𝑇𝑛
𝑢𝑛𝑖𝑡 𝑢𝑛𝑖𝑡
)
165
𝑇
©2017 Batangas State University
Example 11. A television Company purchased machinery for
P100,000 and it has an estimated useful life of 10 years, scrap value
of P4,000, production of 400,000 units and working hours of
120,000.
The company uses the machinery for 18,000 hr during its 1st year and
produces 44,000 units. Compute the annual depreciation using:
A. SLM
B. Working hours
C. Output method
Given: Fc = P100,000 Sv = P4,000 L= 10 years
H = 120,000 hrs Hn = 18,000 hrs T = 400,000 units Tn =
44,000 units
Required: dn
Example 11. A television Company purchased machinery for
P100,000 and it has an estimated useful life of 10 years, scrap value
of P4,000, production of 400,000 units and working hours of
120,000.
The company uses the machinery for 18,000 hr during its 1st year and
produces 44,000 units. Compute the annual depreciation using:
A. SLM
B. Working hours
C. Output method
Given: Fc = P100,000 Sv = P4,000 L= 10 years
H = 120,000 hrs Hn = 18,000 hrs T = 400,000 units Tn =
44,000 units
Required: dn
Solution:
A. Straight Line Method
𝐹𝐶 − 𝑆𝑉 100,000 − 4,000
𝑑= = = 𝑷𝟗, 𝟔𝟎𝟎. 𝟎
𝐿 10
B. Working hours or service method 𝟎
𝑑 100,000 − 4,000
= = 0.8
ℎ𝑟 120,000
𝑑𝑛 = 0.8 18,000 = 𝑷𝟏𝟒, 𝟒𝟎𝟎. 𝟎
𝟎
C. Output𝑑Method𝐹𝐶 − 𝑆𝑉 100,000 − 4,000
= = = 0.24
𝑢𝑛𝑖𝑡 𝑇 400,000
𝑑𝑛 = 0.24 44,000 = 𝑷𝟏𝟎, 𝟓𝟔𝟎. 𝟎
168 ©2017 Batangas State University𝟎
Depletion
This method is generally applied in case of wasting assets

e,g, mines, quarries and natural resources. Here the rate of
production is measured by the rate of exhaustion of the asset.
Under this method the total reserve of asset is measured by
an expert valuer. After that the cost per unit of reserve asset
is ascertained by dividing the cost of acquisition of the asset
by the total reserve of that asset. Periodic depreciation is
calculated by multiplying the reserve of assets exhausted
during the period by the cost per unit of reserve asset. The
asset reduced to zero at ends of the total exhaustion, so the
method is known as depletion method.
Depletion
Cost Depletion
The capitalized costs that generally go into the cost depletion basis for
petroleum and mining projects
are for mineral rights acquisition and/or lease bonuses or their
equivalent ascertained costs:

Depletion
Example 12. You own an oil property for which you paid
$150,000 in mineral rights acquisition costs last year.
Recoverable oil reserves are estimated at $1,000,000 barrels.
50,000 barrels of oil are produced this year and are sold for
$29.00 per barrel. Your operating and overhead expenses are
$180,000 this year and allowable depreciation is $120,000.
You expect the same production rate, operating costs, and
selling price next year. Calculate cost depletion for this year
and also next year assuming we do not use percent depletion
this year.

Depletion
Solution;

Depletion
There are three steps involved in computation of depreciation under depletion method.
Step 1: Determination of the depletion base: The depletion base comprises of cost
incurred to acquire or lease the asset, exploration cost, development cost and any cost
incurred to restore the property to its original condition after the assets or resources have
been fully depleted.
Step 2: Computation of depletion rate per unit: The depletion rate per unit of a
natural resource or asset depends upon the total number of units expected to be
extracted. This is calculated by dividing the depletion base less salvage value (if any) by
the number of units expected to be extracted.
Depletion rate = (Depletion base – Salvage value)/Total units expected to be extracted
Step 3: Computation of depletion/depreciation charge: Finally, the units extracted

during the period are multiplied by the depletion rate per unit to compute the depletion
or depreciation charge for the period.
Depletion charge for the period = Units extracted during the period × Depletion rate

Depletion
The above three steps can be combined together to make the
following formula for computing depletion or depreciation
charge for a particular period.

Depletion
Example 13: ABC Corporation extracts methane gas. It is expected

that the valley is rich in methane reserves and feasibility shows its of
high quality.
A piece of land is already decided and it will cost $1 million. The

survey and identification of drilling point is outsourced to a local
company for a price of $250,000. Site preparation will cost 100,000
and entity is under an obligation to restore the place to its natural state
once extraction concludes. It is estimated that plantation will cost
200,000 twenty years from now. (Ignore the time value effect)
With no salvage value, resource is estimated to hold 10 million cubic

feet of gas. In current period, ABC extracted 200,000 mcf of gas.
Depletion
Calculate depletion charge for the period
First lets calculate the cost
. As there is no scrap value therefore,
depreciable value is 1.55 million. In this
period, 200,000 mcf is extracted out of 10
(000) million. Therefore depletion charge can be
calculated as follows:
Land 1,000
Survey fee 250

Site preparation 100
Plantation 200
Total cost 1,550

Depletion
Example 14.
Considering the same example as above. Suppose, the next year latest survey
report tells that recoverable gas is lesser than previous estimate. It is found to be
only 8 million. In second year, entity extracted 500,000 mcf of gas.
If estimates change, then their adjustment is made prospectively by adjusting the
depletion rate and not retrospectively just like methods of depreciation in which
change of estimate is dealt prospectively.
The net book value for second year is 1,519,000 (1,550,000 – 31,000). With 8
million now in total and 500,000 mcf of gas extracted in second year, the
depletion charge will be calculated as following:

Chapter Test
Direction: Solve the following problems. Show your complete solution.
1.Zach’s Corporation purchased a Jacquard machine for P6M, freight and installation
charges amounted to 3% of the purchase price. If the machine will be depreciated over a
period of 10 years with a salvage value of 6%, determine the depreciation cost during the
5th year using the SLM method.
2.An asset for drilling was purchased and place in service by a petroleum production
company. Its initial investment is P60,000 and it has an estimated salvage value of P12,000
at the end of an estimated useful life of 14 years. Compute the depreciation amount in the
third year and the book value at the end of the 5th year of life using SLM.
3.An electric sewing machine costs P10,000 with a salvage value of P500 at the end of 10
years. Calculate the annual depreciation cost by the sinking fund method at 5% interest.
4.CMM Company was constructed at a first cost of P8M and with estimated salvage value
of X at the end of 25 years. Find the value of X using sinking fund if the book value
amounted to P5,480,093.88 at the end of 15 years with an interest rate of 10% annually.
Chapter Test
5.A set of Wire Bond machine costs $500,000. This amount includes freight and installation charges
estimated at 10% of the original price. If the machine shall be depreciated over a period of 10 years with a
salvage value of $5,000, and money is worth 6% per year, what is the annual depreciation charge and the
book value at the end of 7 years?
6.An asset for drilling was purchased and place in service by a petroleum production company. Its initial
investment is P50,000 and it has an estimated salvage value of P15,000 at the end of an estimated useful life
of 10 years. Compute the book value at the end of the 5th year of life using SFM at 10% interest, using DBM
and DDBM.
7.The large profitable corporation has purchased a jet plane for use by its executives. The cost of the plane is
P76M. It has a useful life of 5 years. The estimate resale of the plane is P6M. Determine its book value at the
end of 3 years. Using DBM and DDBM
8.Julie’s Bakeshop bought a loaf bread machine for P500,000 on June 1, 2010. It is estimated that it will
have a useful life of 10 years, a scrap value of P10,000, production of 400,000 loaves of bread and working
hours of 150,000. The company uses the machine for 15,000 hours in 2010 and 20,000 hours in 2011. The
machine produces 40,000 loaves in 2010 and 50,000 loaves in 2011. Compute the depreciation in 2011 using
(a) output method (b) working hours/service method.

Chapter Test
9.The Michigan Mining Company has acquired a coal mine for a cost of $4,500,000. No other costs are
involved. The total coal expected to be extracted from the mine is 35,000 tons. During the year 2018, the
total extraction of coal is 5,700 tons. There is no salvage value.
Required: Using the above information compute:
the depletion rate per tone of coal extracted.
the depletion charge of the coal extracted during the year 2018.
10.A furniture company buys a forest to obtain wood for manufacturing furniture. The related costs to the
forest are:
Cost of buying the forest = $730,000,000
Wood expected to be extracted = 400,000 ton
Cost of restoration of the forest = $120,000,000
Residual/salvage value = $233,000,000
Trees cut in year 1 = 107,000 tons
Trees cut in year 2 = 89,000 tons
Compute the depletion rate and depletion charge for the first 2 years.

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Chapter 3.

Depreciation is an allowable expenses in general accounting purposes and

131 ©2017 Batangas State University

This chapter deals with the different methods of

132 ©2017 Batangas State University

Understand basic terms of asset depreciation

Determine the purpose of depreciation

Apply methods of depreciation.

Explain depletion and apply cost

Depreciation - the decrease in the value of a physical

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1. To enable the cost of depreciation to be included as a

2.Annual costs of depreciation are being put up in a fund

3. To recover capital invested in the property.

4.Provide as an additional capital termed as depreciation

1. It must have a determinable life and the life must be

2.It must be something used in business or held to

3.It must be something that gets used up, wears out

4.It must not be an inventory stock in trade or investment

Initial Investment/First Cost (FC) – the cost of

Useful life (L)– the expected period that a property will

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1. Straight Line Method (SLM) –The simplest

Example 1. An electric balance costs P90,000 and has an

Solution: Find the annual deprecation (d)

Find the book value after 3 years by subtracting the total

BV3 = FC – D3 = P90,000 – P24,600 = P65,400

Solution: Find the annual deprecation d

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d. Book value at the end of n years

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Required: k, D8 and BV8

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BV8 = FC – D8 = P15,000-P12,007.18 = P2,992.22

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154 ©2017 Batangas State University

Required: k, D8 and BV8

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BV8 = FC – D8 = P15,000-P12,483.42 = P2,516.58

Required: BV after 5 years using DBM and DDBM

Solution: For DBM

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5. Sum of the year digit method (SOYDM) - It is a method

Example 9. A structure costs of P12,000 now. It is estimated

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Example 10. A machine costs P70,000 and an estimated life

Required: d7, BV5

6. Service-Output Method (SOM) - This method assumes

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This method is generally applied in case of wasting assets

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171 ©2017 Batangas State University

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Step 3: Computation of depletion/depreciation charge: Finally, the units extracted

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174 ©2017 Batangas State University

Example 13: ABC Corporation extracts methane gas. It is expected

A piece of land is already decided and it will cost $1 million. The

With no salvage value, resource is estimated to hold 10 million cubic

Survey fee 250

Total cost 1,550

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177 ©2017 Batangas State University