1.

The San Fernando Manufacturing Company owns four different production machine with data
tabulated below :

Machine NumberNumberOwned First Cost Salvage ValueExpected Life

1 8 P40, 000 P12, 000 12
2 6 32, 000 8, 000 10
3 4 18, 000 4, 000 10
4 4 24, 000 6, 000 8

One-half of the machines of the kind will be replaced after 8 years and the rest will be sold after
12 years. Compute the total annual straight-line depreciation charges by (a) the group
depreciation method, and (b) the composite depreciation method.

SOLUTION:
a.) Group Depreciation Method

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DEPRECIATION FOR EACH YEAR IS SHOWN IN THE TABLE BELOW.

YEAR NUMBER IN SERVICE ANNUAL DEPRECIATION ACCOMULATED
1 2 3 4 DEPRECIATION
1 8 8 6 4 4 P49, 600 P396, 400
9 12 4 3 2 2 P24, 000.05 P198, 400.40
P595, 200.05
DEPRECIATION FOR YEARS 9 12 = P2254.55(4 + 3 + 2 + 2) = P24, 800.05


b.) Composite Depreciation Method:
The annual depreciation amounts for each machine are:

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Composite Depreciation amounts:
Years 1 8:
P18, 600.67 + P14, 400 + P5, 600 + P9, 000 = P47, 666.67
Accumulated Depreciation after 8 years = 8(47, 666.67) = P381, 333.36
Years 9 10:
18, 666.67 + P14, 400 + P5,600 = P38, 666.67
Accumulated Depreciation after 10 years = P381, 333.36 + 2(38, 666.67) = P458, 666.70
Years 11 12: (Machine 1 only)
Accumulated Depreciation after 12 years = P450, 666.70 + 2(P18, 666.67) = P496, 000.00
The total accumulated depreciation by either method after 12 years = P496, 000.00
a

2. (ECE Board, August 1975) A broadcasting corporation purchased equipment worth P53,000 and
paid P1, 500 for freight and deliviery charges to the site. The equipment has a normal life of 10
years with a trade-in value of P5,000agianst the purchase of new equipment at the end of life.

(a) Determine the annual depreciation cost by the straight-line method.
(b) Determine the annual depreciation cost by the sinking fund method. Assume
interest is 6% compounded annually.
GIVEN:

Delivery Change = P1, 800
N = 10 years

SOLUTION:
a.) Straight line Formula

b.) Sinking Fund Formula
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