CHAPTER 17

Problem 17-1 Problem

17-2

1. A 1. C 223
2. D 2. A
3. B 3. D Depreciation Table Production Method
4. D 4. D
5. D 5. D
6. D 6. B
7. D 7. C
Accumulated
8. C 8. B
Year Particular Depreciation
9. C 9. A
Depreciation Book value
10. B 10. A
Acquisition cost
635,000
2008 34,000 x 4 136,000
136,000 499,000
Problem 17-3 2009 32,000 x 4 128,000
264,000 371,000
Depreciation Table Straight Line 2010 25,000 x 4 100,000
364,000 271,000
2011 29,000 x 4 116,000
Accum 480,000 155,000
ulated 2012 30,000 x 4 120,000
Year Particular Depreciation 600,000 35,000
depreciation Book value 600,000
Acquisition cost
635,000 Depreciation rate per unit of output = 600,000 /
2008 120,000 150,000 = 4
120,000 515,000
2009 120,000
240,000 395,000 Depreciation Table Sum of Years Digits
2010 120,000
360,000 275,000
2011 120,000 Accumulated
480,000 155,000 Year Particular Depreciation
2012 120,000 depreciation Book value
600,000 35,000 Acquisition cost
600,000 635,000
2008 5/15 x 600,000 200,000
200,000 435,000
Depreciation Table Service Hours Method 2009 4/15 x 600,000 160,000
360,000 275,000
2010 3/15 x 600,000 120,000
480,000 155,000
2011 2/15 x 600,000 80,000
Accumulated 560,000 75,000
Year Particular Depreciation 2012 1/15 x 600,000 40,000
depreciation Book value 600,000 35,000
Acquisition cost 600,000
635,000
2008 14,000 x 10 140,000
SYD = 1 + 2 + 3 + 4 + 5 = 15
140,000 495,000
2009 13,000 x 10 130,000
270,000 365,000
2010 10,000 x 10 100,000
370,000 265,000
2011 11,000 x 10 110,000
480,000 155,000
2012 12,000 x 10 120,000
600,000 35,000
600,000

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

 Depreciation Table Double
Declining Balance

200,000 units
Accumulated
Year Particular Depreciation 2008 (18,000 units x 2.75)
depreciation Book value 49,500
Acquisition cost 2009 (22,000 units x 2.75)
635,000 60,500
2008 40% x 635,000 254,000
254,000 381,000 d. Sum of years digits:
2009 40% x 381,000 152,400
406,400 228,600
2010 40% x 228,600 91,440 10 + 1
497,840 137,160 SYD = 10
2011 40% x 137,160 54,864 (------------) = 55
552,704 82,296
2012 82,296 35,000 47,296 2
600,000 35,000
600,000
2008 (10/55 x 550,000 x 6/12)
Fixed rate = 100% / 5 = 20% x 2 = 40% 50,000

Problem 17-4 2009 Jan. 1-June 30

50,000
a. Straight line method: July 1-Dec. 31 (9/55 x 550,000 x 6/12)
45,000
2008
27,500
2009 95,000
55,000
e. Double declining balance:

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

57,000
2009 (570,000 57,000 x 20%)
224 102,600
b. Working hours method:
Problem 17-5

550,000 Fixed rate = 1.00 - .5623 or .4377

Rate per hour =
2008 (500,000 x .4377)
------------------- = 11
218,850
2009 (500,000 218,850 x .4377)
50,000 hours 123,059
2010 (500,000 - 341,909 x .4377)
69,196
2008 (3,000 hours x 11) 2011 (500,000 411,105 50,000)
33,000 38,895
2009 (5,000 hours x 11)
55,000 450,000

c. Output method: Problem 17-6

a. Sum of years digit

55
April 1, 2008 March 31, 2009 (1,080,000 x 8/36)
0,000
240,000
April 1, 2009 March 31, 2010 (1,080,000 x 7/36)
210,000

Rate per unit =

----------- 225
---------
= 2.75
 Depreciation from April 1 to December 31, 2008
(240,000 x 9/12) 180,000 2008 (920,000 x 25% x 6/12)
115,000
Depreciation for 2009: 2009 (920,000 115,000 x 25%)
201,250
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%
January 1 June 30, 2009 (900,000 x 8/36 x 6/12)
2008 (1,200,000 x 25% x 9/12) 100,000
225,000 July 1 December 31, 2009 (900,000 x 7/36 x 6/12)
2009 (1,200,000 225,000 x 25%) 87,500
243,750 Depreciation for 2009
187,500

Problem 17-7
Problem 17-9
a. Service hours method:
Depreciable Life in Annual
Assets Cost Salvage
cost years depreciation
960,000 60,000
Machinery 310,000 10,000
Depreciation rate per hour = ---------------------------- =
300,000 5 60,000
112.50
Office equipment 110,000 10,000
100,000 10 10,000
8,000 hours
Building 1,600,000 100,000
1,500,000 15 100,000
Delivery equipment 430,000 30,000
2008 (1,000 hours x 112.50) 400,000 4 100,000
112,500 2,450,000
2009 (2,000 hours x 112.50) 2,300,000 270,000
225,000

b. Sum of years digits:

a. Composite rate = 270,000 / 2,450,000 =
11.02%
Sum of half years = 45
b. Composite life = 2,300,000 / 270,000 = 8.52
2008 (9/45 x 900,000 x 3/6)
years
90,000
c. Depreciation
2009 January 1 March 31 (9/45 x 900,000 x 3/6)
270,000
90,000
Accumulated depreciation
April 1 September 30 (8/45 x 900,000)
270,000
160,000
October 1 December 31 (7/45 x 900,000 x
3/6) 70,000
Problem 17-10
320,000
Problem 17-8

a. Rate per unit (900,000 / 180,000) Depreciable Life in Annual

5.00 Assets Cost Salvage
cost years depreciation
Building 6,100,000 100,000
2008 (5,000 x 5)
6,000,000 20 300,000
25,000
Machinery 2,550,000 50,000
2009 (20,000 x 5)
2,500,000 5 500,000
100,000
Equipment 1,030,000 30,000
1,000,000 10 100,000
b. Double declining balance:
9,680,000
9,500,000 900,000
Fixed rate (100% / 8 x 2)
25%
a. Composite depreciation rate = 900,000 / 9,680,000 Accumulated depreciation
= 9.3% 144,000

b. Average life = 9,500,000 / 900,000 = 10.56 years Cash

15,000
c. Depreciation Accumulated depreciation
900,000 615,000
Accumulated depreciation Machinery (14 x 45,000)
900,000 630,000

d. Cash
40,000 2008
Accumulated depreciation Dec. 31 Depreciation
2,510,000 9,000
Machinery Accumulated depreciation
2,550,000 9,000

e. Depreciation Remaining cost

663,090 90,000
Accumulated depreciation (9,680,000 Less: Balance of accumulated depreciation
2,550,000 x 9.3%) 663,090 79,000
Book value
11,000
Less: Salvage proceeds
2,000
227 Maximum depreciation
Problem 17-11 9,000

2003 Cash
Jan. 1 Machinery 2,000
900,000 Accumulated depreciation
Cash 88,000
900,000 Machinery (4 x 45,000)
90,000
Dec. 31 Depreciation (20% x 900,000)
180,000
Accumulated depreciation
180,000

2004
Dec. 31 Depreciation 228
180,000 Problem 17-12
Accumulated depreciation
180,000 1. Old machinery overhauled (240,000 + 60,000)
300,000
Accumulated depreciation
2005 2005 (240,000 / 8)
Dec. 31 Depreciation 30,000
180,000 2006
Accumulated depreciation 30,000
180,000 2007
30,000
2006 Total
Dec. 31 Depreciation 90,000
180,000 Book value January 1, 2008
Accumulated depreciation 210,000
180,000

Cash Old machinery overhauled (210,000 / 7 years)

10,000 30,000
Accumulated depreciation Remaining cost of old machinery (1,152,000
170,000 240,000 / 8) 114,000
Machinery (4 x 45,000) New machinery (460,800 / 8 x 5/12)
180,000 24,000
Total depreciation
2007 168,000
Dec. 31 Depreciation (720,000 x 20%)
144,000
2. Old machinery March 1 Electric meters
1,152,000 250,000
New machinery Cash
460,800 250,000
Cost of overhaul
60,000 1 Cash
Total cost 20,000
1,672,800 Depreciation
Accumulated depreciation: 160,000
Balance January 1 Electric meters
432,000 180,000
Depreciation for 2008
168,000 600,000 July 1 Electric meters
Book value December 31, 2008 400,000
1,072,800 Cash
400,000
Problem 17-13

Main machine (7,500,000 / 10) December 1 Electric meters

750,000 200,000
First component from January 1 to April 1, 2008 Cash
(1,200,000 / 6 x 3/12) 50,000 200,000
Second component from April 1 to December 31,
2009 1 Cash
(2,000,000 400,000 / 4 x 9/12) 15,000
300,000 Depreciation
Total depreciation for 2008 135,000
1,100,000 Electric meters
The second component is depreciated over the 150,000
remaining life of the main machine. The original life is
10 years and 6 years already expired. Thus, the Replacement method
remaining life is 4 years.

Problem 17-14 March 1 Depreciation (250,000 20,000)

230,000
1. Tools Cash
40,000 230,000
Cash
40,000 July 1 Electric meters
400,000
Cash
2. Tools
400,000
20,000 Cash
December 1 Depreciation (200,000 15,000)
20,000 185,000
3. Cash Cash
4,000 185,000
Tools
4,000 Problem 17-16
Retirement method
4. Depreciation
46,000 2008 Tools
Tools 120,000
46,000 Cash
120,000
Balance of tools account
196,000
Cash (300 x 50)
Less: Estimated cost on December 31
15,000
150,000
Depreciation
Depreciation
45,000
46,000
Tools (300 x 200)
60,000
229
2009 Tools
Problem 17-15
360,000
Cash
Retirement method 360,000
 Cash (700 x 70) Tools
49,000 49,000
Depreciation
111,000 Depreciation (511,000 - 350,000)
Tools 161,000
160,000 Tools
161,000

Problem 17-17

230

500 x 200
1. Land (350,000 + 450,000)
100,000
800,000
200 x 300
60,000
Cost of tools retired
160,000 Land acquired (380,000 + 25,000 + 45,000)
450,000
Replacement method 2. Depreciation of land improvements (180,000 / 15)
12,000
2008 Tools (100 x 300) 3. Depreciation of building (4,500,000 1,050,000 x
30,000 7.5%) 258,750
Depreciation (300 x 30)
90,000
Cash
120,000 231
4. Depreciation of machinery and equipment
Cash (1,160,000 60,000 / 10)
15,000 110,000
Depreciation (300,000 / 10)
15,000 30,000
(60,000 / 10 x 6/12)
2009 Tools (200 x 400) 3,000
80,000
Depreciation (700 x 400) 143,000
280,000
Cash 5. Fixed rate (100% / 3 x 1.5)
360,000 50%

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

49,000 228,000
Depreciation
49,000
Inventory method Problem 17-18

2008 Tools 1. Beginning balance

120,000 875,000
Cash Acquisition (150,000 / 750,000 x 1,250,000)
120,000 250,000
Cash Total cost of land
15,000 1,125,000
Tools
15,000 Technically, the land for undetermined use is an
investment property.
Depreciation (265,000 200,000)
65,000 2. Old (7,500,000 1,644,500 x 8%)
Tools 468,440
65,000 New (600,000/750,000 x 1,250,000 = 1,000,000 x
8%) 80,000
2009 Tools Depreciation building
360,000 548,440
Cash
360,000 3. 2,250,000 / 10
225,000
Cash 400,000 / 10 x 6/12
49,000 20,000
 Depreciation machinery Depreciable cost
245,000 1,050,000

4. Depreciation leasehold improvements (216,000 Straight line depreciation (1,050,000 / 10)

108,000 / 5 years) 21,600 105,000

5. Depreciation land improvements 192,000 / 12 x

9/12) 12,000 Problem 17-21 Answer B

Sales price
Problem 17-19 2,300,000
Book value:
1. Old building (4,672,200 x 10%) Cost
467,220 4,200,000
New building Accumulated depreciation (3,600,000 / 5 x 3)
Direct cost 2,160,000 2,040,000
2,220,000 Gain
Fixed (15,000 x 25) 260,000
375,000
Variable (15,000 x 27)
405,000 Problem 17-22 Answer B
Total cost
3,000,000 Accumulated depreciation 12/31/2007
3,000,000 x 10% 3,700,000
300,000 Add: Depreciation for 2008
Total depreciation 550,000
767,220 Total
4,250,000
Fixed rate (100 / 20 x 2) Less: Accumulated depreciation on property, plant and
10% equipment retirements (squeeze)
250,000
Accumulated depreciation 12/31/2008
4,000,000

Problem 17-23 Answer B

Depreciable Annual
Cost Salvage
232 cost Life depreciation
A 550,000 50,000
2. Old machinery (1,380,000 / 10) 500,000 20 25,000
138,000 B 200,000 20,000
New machinery 180,000 15 12,000
Invoice cost C 40,000
356,000 40,000 5 8,000
Concrete embedding 790,000
18,000 720,000 45,000
Wall demolition
7,000 Composite life = 720,000 / 45,000
Rebuilding of wall 16 years
19,000
Total cost
400,000
400,000 / 10 x 6/12
20,000 233
Total depreciation
158,000 Problem 17-24 Answer D

Invoice price
Problem 17-20 Answer A 4,500,000
Cash discount (2% x 4,500,000)
( 90,000)
Delivery cost
Cost of machinery (cash price) 80,000
1,100,000 Installation and testing
Less: Residual value 310,000
50,000
Total cost 2006 (4/15 x 900,000)
4,800,000 240,000
Salvage value 2007 (3/15 x 900,000)
800,000 180,000
Depreciable cost Accumulated depreciation 12/31/2007
4,000,000 720,000

Rate per unit (4,000,000 / 200,000) Accordingly, the SYD is followed for 2008.
20
2008 depreciation (2/15 x 900,000)
Depreciation for 2008 (30,000 x 20) 120,000
600,000
Problem 17-29 Answer B
Problem 17-25 Answer B
Straight line rate (100% / 8 years)
Cost 12.5%
4,000,000 Fixed rate (12.5 x 2)
Accumulated depreciation 25%
2007 (8/36 x 3,600,000) 2007 depreciation (1,280,000 x 25%)
800,000 320,000
2008 (7/36 x 3,600,000) 2008 depreciation (1,280,000 320,000 x 25%)
700,000 1,500,000 240,000
Book value, 12/31/2008
2,500,000 Problem 17-30

Problem 17-26 Answer B 1. 4,000,000 2,560,000 x 40%

(Answer D) 576,000
The first three fractions are:
2. 1,800,000 x 2/15 (SYD)
2006 10/55 (Answer A)
2007 9/55 240,000
2008 8/55
3. Sales price
Thus, the 2008 depreciation of P240,000 is equal to 1,700,000
8/55. Book value (2,800,000 1,344,000)
1,456,000
Depreciable cost (240,000 / 8/55) Gain (Answer A)
1,650,000 244,000
Salvage
50,000 Problem 17-31 Answer B
Total cost
1,700,000 Straight line rate (100% / 5 years)
20%
Problem 17-27 Answer B Fixed rate (20% x 2)
40%
April 1, 2006 to March 31, 2007 (5/15 x 3,000,000)
1,000,000 2006 depreciation (5,000,000 x 40%)
April 1, 2007 to March 31, 2008 (4/15 x 3,000,000) 2,000,000
800,000 2007 depreciation (3,000,000 x 40%)
Accumulated depreciation, March 31, 2008 1,200,000
1,800,000 Accumulated depreciation, December 31, 2007
3,200,000
Problem 17-28 Answer A Depreciation for 2008 straight line (5,000,000
3,200,000 / 3) 600,000
The accumulated depreciation on December 31, 2007 Accumulated depreciation, December 31, 2008
is recomputed following a certain method. The same is 3,800,000
arrived at following the SYD as follows:
Problem 17-32 Answer A
SYD = 1 + 2 + 3 + 4 + 5 =
15 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
234 5,040,000

2005 (5/15 x 900,000) SYD for the remaining life of 7 years (1 + 2 + 3 + 4 + 5

300,000 + 6 + 7) 28
 Depreciation for 2007 (50% x 6,000,000)
Depreciation for 2008 (5,040,000 x 7/28) 3,000,000
1,260,000 Book value 1/1/2008
3,000,000
Problem 17-33 Answer B Residual value
( 600,000)
Annual depreciation (1,536,000 / 8) Maximum depreciation in 2008
192,000 2,400,000

Fixed rate in 2008 (100% / 2 x 2)

235 100%

Problem 17-34 Answer B 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
Fixed rate (100% / 4 x 2) to the book value of P3,000,000 minus the residual
50% value of P600,000 or P2,400,000.

Cost
6,000,000