CHAPTER 17

Depreciation rate per hour = 600,000 / 60,000 = 10

Problem 17-1
2

Problem 17-

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

A
D
B
D
D
D
D
C
C
B

C
A
D
D
D
B
C
B
A
A

223
Depreciation Table Production Method

Accumulated
Year
Particular
Depreciation
Book value
Acquisition cost
2008
136,000
2009

Problem 17-3
Depreciation Table Straight Line

264,000
2010
364,000

Year
Particular
depreciation
Book value
Acquisition cost

Accum
ulated
Depreciation

120,000
120,000

515,000

240,000

395,000

2009

480,000
2012
600,000

635,000
34,000 x 4
499,000
32,000 x 4
371,000
25,000 x 4
271,000
29,000 x 4
155,000
30,000 x 4
35,000

136,000
128,000
100,000
116,000
120,000
600,000

635,000
2008

2011

Depreciation

Depreciation rate per unit of output = 600,000 / 150,000 =

4

120,000

2010
360,000
2011
480,000
2012

Depreciation Table Sum of Years Digits

120,000
275,000
120,000
155,000
120,000
600,000

35,000
600,000

Accumulated
Year
Particular
depreciation
Book value
Acquisition cost

Depreciation
635,000

2008
Depreciation Table Service Hours Method

Accumulated
Year
Particular
depreciation
Book value
Acquisition cost
2008
140,000
2009
270,000
2010
370,000
2011
480,000
2012
600,000

14,000 x 10
495,000
13,000 x 10
365,000
10,000 x 10
265,000
11,000 x 10
155,000
12,000 x 10
35,000

Depreciation
635,000
140,000
130,000
100,000
110,000
120,000
600,000

5/15 x 600,000
200,000
435,000
2009
4/15 x 600,000
360,000
275,000
2010
3/15 x 600,000
480,000
155,000
2011
2/15 x 600,000
560,000
75,000
2012
1/15 x 600,000
600,000
35,000

200,000
160,000
120,000
80,000
40,000
600,000

SYD = 1 + 2 + 3 + 4 + 5 = 15

Depreciation Table Double

Declining Balance

Year
Particular
depreciation
Book value
Acquisition cost

Accumulated
Depreciation

2008 (18,000 units x 2.75)

49,500

10
+1
635,000

2008
254,000
2009
406,400
2010
497,840
2011
552,704
2012
600,000

2009

(22,000 units x 2.75)

60,500
d. Sum of years digits:

40% x 635,000
381,000
40% x 381,000
228,600
40% x 228,600
137,160
40% x 137,160
82,296
82,296 35,000
35,000

SYD = 10 (------254,000

-----) = 55

152,400

91,440
54,864

2008
(10/55 x 550,000 x 6/12)
50,000

47,296

2009 Jan. 1-June 30

50,000
July 1-Dec. 31 (9/55 x 550,000 x 6/12)
45,000

600,000
Fixed rate = 100% / 5 = 20% x 2 = 40%
95,000
Problem 17-4

e. Double declining balance:

a. Straight line method:
2008
27,500 2009

2008 (570,000 x 20% x 6/12)

57,000
2009 (570,000 57,000 x 20%)
102,600

55,000
Problem 17-5
Fixed rate = 1.00 - .5623 or .4377
2008 (500,000 x .4377)
224
b. Working hours method:
550,000
Rate per hour = ------------------ = 11

218,850
2009 (500,000 218,850 x .4377)
123,059
2010 (500,000 - 341,909 x .4377)
69,196
2011 (500,000 411,105 50,000)
38,895

50,000 hours

450,000
Problem 17-6

2008 (3,000 hours x 11)

33,000 2009 (5,000 hours x 11)
55,000

a. Sum of years digit

April 1, 2008 March 31, 2009 (1,080,000 x 8/36)
240,000
April 1, 2009 March 31, 2010 (1,080,000 x 7/36)
210,000

c. Output method:

550,000
Rate per unit = ------------------- =
2.75

225
Depreciation from April 1 to December 31, 2008
(240,000 x 9/12)
180,000
Depreciation for 2009:

200,000 units

January 1 March 31 (240,000 x 3/12)

60,000

April 1 December 31 (210,000 x 9/12)

157,500

226
c. Sum of years digits:

217,500
b. Double declining balance

July 1 December 31, 2008 (900,000 x 8/36 x 6/12)

100,000

Fixed rate = 100 / 8 = 12.5 x 2 = 25%

2008 (1,200,000 x 25% x 9/12)
225,000
2009 (1,200,000 225,000 x 25%)
243,750

January 1 June 30, 2009 (900,000 x 8/36 x 6/12)

100,000
July 1 December 31, 2009 (900,000 x 7/36 x 6/12)
87,500
Depreciation for 2009
187,500

Problem 17-7
Problem 17-9
a. Service hours method:
960,000 60,000
Depreciation rate per hour = ---------------------------- = 112.50
8,000 hours
2008 (1,000 hours x 112.50)
112,500
2009 (2,000 hours x 112.50)
225,000

Depreciable
Life in
Annual
Assets
Cost
Salvage
cost
years
depreciation
Machinery
310,000
10,000 300,000
5
60,000
Office equipment
110,000
10,000
100,000
10
10,000
Building
1,600,000
100,000
1,500,000
15
100,000
Delivery equipment
430,000
30,000
400,000
4
100,000
2,450,000
2,300,000
270,000

b. Sum of years digits:

Sum of half years

45

a. Composite rate = 270,000 / 2,450,000 = 11.02%

2008 (9/45 x 900,000 x 3/6)

b. Composite life

= 2,300,000 / 270,000 =

8.52 years

90,000
2009 January 1 March 31 (9/45 x 900,000 x 3/6)
90,000
April 1 September 30 (8/45 x 900,000)
160,000
October 1 December 31 (7/45 x 900,000 x 3/6)
70,000

c. Depreciation
270,000
Accumulated depreciation
270,000
Problem 17-10

320,000
Problem 17-8

Depreciable Life in

a. Rate per unit (900,000 / 180,000)

5.00
2008 (5,000 x 5)
25,000
2009 (20,000 x 5)
100,000
b. Double declining balance:

Annual
Assets
cost
Building
20
Machinery
5
Equipment
10

Fixed rate (100% / 8 x 2)

25%
2008 (920,000 x 25% x 6/12)
115,000
2009 (920,000 115,000 x 25%)
201,250

Cost
Salvage
depreciation
100,000
6,000,000
300,000
2,550,000 50,000
2,500,000
500,000
1,030,000 30,000
1,000,000
100,000
9,680,000
9,500,000
900,000

years
6,100,000

a. Composite depreciation rate = 900,000 / 9,680,000 =

9.3%
b. Average life = 9,500,000 / 900,000 = 10.56 years
c. Depreciation
900,000

Accumulated depreciation
900,000
d. Cash
40,000
Accumulated depreciation
2,510,000
Machinery
2,550,000
e. Depreciation
663,090
Accumulated depreciation (9,680,000 2,550,000
x 9.3%)
663,090

Cash
15,000
Accumulated depreciation
615,000
Machinery (14 x 45,000)
630,000
2008
Dec. 31 Depreciation
9,000
Accumulated depreciation
9,000
Remaining cost

227
Problem 17-11
2003
Jan. 1 Machinery
900,000
Cash
900,000
Dec. 31 Depreciation (20% x 900,000)
180,000
Accumulated depreciation
180,000

90,000
Less: Balance of accumulated depreciation
79,000
Book value
11,000
Less: Salvage proceeds
2,000
Maximum depreciation
9,000
Cash
2,000
Accumulated depreciation
88,000
Machinery (4 x 45,000)
90,000

2004
Dec. 31 Depreciation
180,000
Accumulated depreciation
180,000
228
Problem 17-12
2005
Dec. 31 Depreciation
180,000
Accumulated depreciation
180,000
2006
Dec. 31 Depreciation
180,000
Accumulated depreciation
180,000
Cash
10,000
Accumulated depreciation
170,000
Machinery (4 x 45,000)
180,000
2007
Dec. 31 Depreciation (720,000 x 20%)
144,000
Accumulated depreciation
144,000

1. Old machinery overhauled (240,000 + 60,000)

300,000
Accumulated depreciation
2005 (240,000 / 8)
30,000
2006
30,000
2007
30,000
Total
90,000
Book value January 1, 2008
210,000
Old machinery overhauled (210,000 / 7 years)
30,000
Remaining cost of old machinery (1,152,000 240,000 /
8)
114,000
New machinery (460,800 / 8 x 5/12)
24,000
Total depreciation
168,000

2. Old machinery
1,152,000

March

New machinery
460,800

1 Electric meters
250,000
Cash

Cost of overhaul

250,000
60,000

Total cost
1,672,800
Accumulated depreciation:
Balance January 1
432,000
Depreciation for 2008
168,000
600,000
Book value December 31, 2008
1,072,800

1 Cash
20,000
Depreciation
160,000
Electric meters
180,000
July

1 Electric meters
400,000
Cash

Problem 17-13

400,000

Main machine (7,500,000 / 10)

750,000
First component from January 1 to April 1, 2008
(1,200,000 / 6 x 3/12)
50,000
Second component from April 1 to December 31, 2009
(2,000,000 400,000 / 4 x 9/12)
300,000
Total depreciation for 2008
1,100,000
The second component is depreciated over the
remaining life of the main machine. The original life is 10
years and 6 years already expired. Thus, the remaining life
is 4 years.

December 1 Electric meters

200,000
Cash
200,000
1 Cash
15,000
Depreciation
135,000
Electric meters
150,000
Replacement method

Problem 17-14
March

1. Tools
40,000
Cash
40,000
2. Tools
20,000

Cash

1 Depreciation (250,000 20,000)

230,000
Cash
230,000

July

1 Electric meters
400,000
Cash

20,000
3. Cash

400,000
4,000
Tools

December 1 Depreciation (200,000 15,000)

185,000
Cash
185,000

4,000
4. Depreciation
46,000
Tools

Problem 17-16
Retirement method

46,000
Balance of tools account
196,000
Less: Estimated cost on December 31
150,000
Depreciation
46,000
229

2008 Tools
120,000
Cash
120,000
Cash (300 x 50)
15,000
Depreciation
45,000
Tools (300 x 200)
60,000

Problem 17-15
Retirement method

2009 Tools
360,000

Cash
360,000

Cash
49,000

Cash (700 x 70)

49,000
Depreciation
111,000
Tools

Tools
49,000
Depreciation (511,000 - 350,000)
161,000
Tools
161,000

160,000

Problem 17-17
230
1. Land (350,000 + 450,000)
500 x 200

800,000
100,000

200 x 300
60,000

Land acquired (380,000 + 25,000 + 45,000)

450,000
2. Depreciation of land improvements (180,000 / 15)
12,000
3. Depreciation of building (4,500,000 1,050,000 x 7.5%)
258,750

Cost of tools retired

160,000
Replacement method
2008 Tools (100 x 300)
30,000
Depreciation (300 x 30)
90,000

Cash
120,000

Cash
15,000

Depreciation

15,000
2009 Tools (200 x 400)
80,000
Depreciation (700 x 400)
280,000
Cash
360,000

231
4. Depreciation of machinery and equipment
(1,160,000 60,000 / 10)
110,000
(300,000 / 10)
30,000
/ 10 x 6/12)
3,000

(60,000

143,000
5. Fixed rate (100% / 3 x 1.5)
50%

Cash

(1,800,000 1,344,000 x 50%)

49,000
Depreciation

228,000

49,000
Inventory method

Problem 17-18

2008 Tools

1. Beginning balance
120,000
Cash
120,000

Cash
15,000

Tools

15,000

Technically, the land for undetermined use is an

investment property.

Depreciation (265,000 200,000)

65,000
Tools
65,000
2009 Tools
Cash

875,000
Acquisition (150,000 / 750,000 x 1,250,000)
250,000
Total cost of land
1,125,000

360,000
360,000

2. Old (7,500,000 1,644,500 x 8%)

468,440
New (600,000/750,000 x 1,250,000 = 1,000,000 x 8%)
80,000
Depreciation building
548,440

3. 2,250,000 / 10

Problem 17-20 Answer A

225,000

400,000 / 10 x 6/12
20,000
Depreciation machinery
245,000

Cost of machinery (cash price)

1,100,000
Less: Residual value
50,000

4. Depreciation leasehold improvements (216,000

108,000 / 5 years)
21,600

Depreciable cost

5. Depreciation land improvements 192,000 / 12 x 9/12)

12,000

Straight line depreciation (1,050,000 / 10)

105,000

Problem 17-19

Problem 17-21 Answer B

1. Old building (4,672,200 x 10%)

467,220
New building
Direct cost
2,220,000
Fixed (15,000 x 25)
375,000
Variable (15,000 x 27)
405,000
Total cost
3,000,000
3,000,000 x 10%

Sales price

1,050,000

2,300,000
Book value:
Cost
4,200,000
Accumulated depreciation (3,600,000 / 5 x 3)
2,160,000
2,040,000
Gain
260,000

300,000
Total depreciation
767,220
Fixed rate (100 / 20 x 2)
10%

232

Problem 17-22 Answer B

Accumulated depreciation 12/31/2007
3,700,000
Add: Depreciation for 2008
550,000
Total
4,250,000
Less: Accumulated depreciation on property, plant and
equipment retirements (squeeze)
250,000
Accumulated depreciation 12/31/2008
4,000,000
Problem 17-23 Answer B
Depreciable

2. Old machinery (1,380,000 / 10)

138,000
New machinery
Invoice cost
356,000
Concrete embedding
18,000
Wall demolition
7,000
Rebuilding of wall
19,000
Total cost
400,000
400,000 / 10 x 6/12

Life
A
20
B
15
C
5

Annual
Cost
Salvage
cost
depreciation
550,000 50,000
500,000
25,000
200,000 20,000
180,000
12,000
40,000
40,000
8,000
790,000
720,000
45,000

Composite life = 720,000 / 45,000

16 years
20,000

Total depreciation
158,000

233

The accumulated depreciation on December 31, 2007 is

recomputed following a certain method. The same is
arrived at following the SYD as follows:

Problem 17-24 Answer D

Invoice price
4,500,000
Cash discount (2% x 4,500,000)
( 90,000)
Delivery cost
80,000
Installation and testing
310,000
Total cost
4,800,000
Salvage value
800,000
Depreciable cost
4,000,000
Rate per unit (4,000,000 / 200,000)

SYD = 1 + 2 + 3 + 4 + 5 = 15

234
2005 (5/15 x 900,000)

300,000

2006 (4/15 x 900,000)

240,000
2007 (3/15 x 900,000)
180,000
Accumulated depreciation 12/31/2007
720,000

20
Accordingly, the SYD is followed for 2008.
Depreciation for 2008 (30,000 x 20)
600,000

2008 depreciation (2/15 x 900,000)

120,000

Problem 17-25 Answer B

Problem 17-29 Answer B
Cost
4,000,000
Accumulated depreciation
2007 (8/36 x 3,600,000)
800,000
2008 (7/36 x 3,600,000)
700,000
1,500,000
Book value, 12/31/2008
2,500,000

Straight line rate (100% / 8 years)

12.5%
Fixed rate (12.5 x 2)

Problem 17-26 Answer B

Problem 17-30

The first three fractions are:

1. 4,000,000 2,560,000 x 40%

576,000

(Answer D)

2. 1,800,000 x 2/15 (SYD)

(Answer A)

2006
2007
2008

10/55
9/55
8/55

Thus, the 2008 depreciation of P240,000 is equal to 8/55.

Depreciable cost (240,000 / 8/55)
1,650,000
Salvage
50,000
Total cost
1,700,000
Problem 17-27 Answer B
April 1, 2006 to March 31, 2007 (5/15 x 3,000,000)
1,000,000
April 1, 2007 to March 31, 2008 (4/15 x 3,000,000)
800,000
Accumulated depreciation, March 31, 2008
1,800,000
Problem 17-28 Answer A

25%
2007 depreciation (1,280,000 x 25%)
320,000
2008 depreciation (1,280,000 320,000 x 25%)
240,000

240,000
3. Sales price
1,700,000
Book value (2,800,000 1,344,000)
1,456,000
Gain
244,000

(Answer A)

Problem 17-31 Answer B

Straight line rate (100% / 5 years)
20%
Fixed rate (20% x 2)
40%
2006 depreciation (5,000,000 x 40%)
2,000,000
2007 depreciation (3,000,000 x 40%)
1,200,000
Accumulated depreciation, December 31, 2007
3,200,000

Depreciation for 2008 straight line (5,000,000 3,200,000

/ 3)
600,000
Accumulated depreciation, December 31, 2008
3,800,000
Problem 17-32 Answer A
Cost 1/1/2005
7,200,000
Accumulated depreciation 12/31/2007 (7,200,000 / 10 x
3)
2,160,000
Book value 12/31/2007
5,040,000
SYD for the remaining life of 7 years (1 + 2 + 3 + 4 + 5 + 6 +
7)
28
Depreciation for 2008 (5,040,000 x 7/28)
1,260,000
Problem 17-33 Answer B
Annual depreciation (1,536,000 / 8)
192,000
235
Problem 17-34 Answer B
Fixed rate (100% / 4 x 2)
50%
Cost
6,000,000
Depreciation for 2007 (50% x 6,000,000)
3,000,000
Book value 1/1/2008
3,000,000
Residual value
( 600,000)
Maximum depreciation in 2008
2,400,000
Fixed rate in 2008 (100% / 2 x 2)
100%
This means that the computers should be fully
depreciated in 2008. Since there is a residual value of
P600,000, the maximum depreciation for 2008 is equal to
the book value of P3,000,000 minus the residual value of
P600,000 or P2,400,000.