Depreciation

Refers to decrease or loss in value of an asset

from the original cost of a long-term asset
distributed accordingly to its useful life.

Basic concepts
Total cost or Original cost – cost of an asset plus the freight cost, handling and set-u
when shouldered by the buyer.
Salvage Value – value of an asset at the time it is taken out of service.
Useful Life – length of time an asset is expected to generate revenue.
Book Value – value of an asset at any given time.
Depreciation Schedule – chart showing the depreciation activity of an asset of each
useful life.
handling and set-up charges

vice.
nue.

an asset of each year in its

 Henzz Corporation purchases a machine worth
Straight-line Method amounting to P15,000. The machine is expected
Corp. chose to utilize the straight line method
𝑇𝐷=𝑇𝐶−𝑆𝑉 depreciation rate, and the book value after 3 years
𝐴𝐷=𝑇𝐷/𝑛 𝑇𝐶=250,000+5,000+15,000=270000
𝑇𝐷=270000−25,000=245,000
𝐴𝐷=245000/5=49,000
𝐵𝑉=𝑂𝐶−𝐴𝑑 𝐷𝑟=49,000/245,000=0.2 𝑂𝑅 20%
𝐷𝑟=𝐴𝐷/ 𝐵𝑉=270000−147,000=123,000
𝑇𝐷

Where:
TD = total depreciation
TC = total cost of an asset
SV = salvage value
AD = annual depreciation
Ad = accumulated depreciation at a point of time Year
OC = original cost
n = useful life of an asset in years
BV = book value 1
Dr = depreciation rate 2
3
4
5

Year

1
2
3
4
5
6
tion purchases a machine worth P250,000, the freight cost is P5,000 and the set up charges
15,000. The machine is expected to last for 5 years and has a salvage value of P25,000. If Henzz
utilize the straight line method, find the total cost, total depreciation, annual depreciation,
te, and the book value after 3 years. Prepare a depreciation schedule for its useful life.
5,000+15,000=270000
25,000=245,000
=49,000
45,000=0.2 𝑂𝑅 20%
147,000=123,000

Annual Dep. Accumulated Dep. Book Value

₱270,000.00
₱49,000.00 ₱49,000.00 ₱221,000.00
₱49,000.00 ₱98,000.00 ₱172,000.00
₱49,000.00 ₱147,000.00 ₱123,000.00
₱49,000.00 ₱196,000.00 ₱74,000.00
₱49,000.00 ₱245,000.00 ₱25,000.00

Annual Dep. Accumulated Dep. Book Value

₱50,000.00
₱6,666.67 ₱6,666.67 ₱43,333.33
₱6,666.67 ₱13,333.33 ₱36,666.67
₱6,666.67 ₱20,000.00 ₱30,000.00
₱6,666.67 ₱26,666.67 ₱23,333.33
₱6,666.67 ₱33,333.33 ₱16,666.67
₱6,666.67 ₱40,000.00 ₱3,333.33

0.166666666666667
e set up charges
P25,000. If Henzz
ual depreciation,
fe.
Units-of-Production Method
AV Company purchases a mchine for developing a new product that will costs P10,000
and has an estimated salvage value of P1,000 when the machine can produce 12,000
units. The distribution of the number of units produce are as follows: 3,000 units for the
first year, 2,500 for the second year, 4,000 units for its third year of operation, 1,500
units and 1,000 units for the fourth year and fifth respectively. Find the annual
depreciation and construct a depreciation schedule.

Given: TC = 10,000 SV = 1,000 n = 12,000 units

(Solve for depreciation per unit)
dep. per unit = 9000/12000 = 0.75
depreciation per unit is P0.75

1 3000*0.75 2250
2 2500*0.75 1875
3 4000*0.75 3000
4 1500*0.75 1125
5 1000*0.75 750
Year Annual Dep.
Accumulated Dep.
Book Value
₱10,000.00
1 ₱2,250.00 ₱2,250.00 ₱7,750.00
2 ₱1,875.00 ₱4,125.00 ₱5,875.00
3 ₱3,000.00 ₱7,125.00 ₱2,875.00
4 ₱1,125.00 ₱8,250.00 ₱1,750.00
5 ₱750.00 ₱9,000.00 ₱1,000.00
t will costs P10,000
an produce 12,000
3,000 units for the
of operation, 1,500
. Find the annual
Sum of the Years' Digits Method
RG Corp. purchases a machine worth P250,000, the freight cost is P5,000 and the set up
amounting to P15,000. The machine is expected to last for 5 years and has a salvage value of P
If RG Corp. choose to utilize the sum-of-the-years' digit method, find the total cost, total depre
annual depreciation, and the book value after3 years. Prepare a depreciation table.

TC = 250,000 + 5,000 + 15,000 = 270,000

TD = 270,000 - 25,000 = 245,000
sum of the digits = 5 + 4 + 3 + 2 + 1 = 15

1 245000*5/15 81,666.67 BV at the end of 3 years

2 245000*4/15 65,333.33 BV = 270000 - (81,666.67 + 65,333.33 + 49,00
3 245000*3/15 49,000.00 BV = 74,000
4 245000*2/15 32,666.67
5 245000*1/15 16,333.33

Year Total Dep. Dep. Rate Annual Dep. Accumulated Dep.

1 ₱245,000.00 1/3 ₱81,666.67 ₱81,666.67

2 ₱245,000.00 1/4 ₱65,333.33 ₱147,000.00
3 ₱245,000.00 1/5 ₱49,000.00 ₱196,000.00
4 ₱245,000.00 1/8 ₱32,666.67 ₱228,666.67
5 ₱245,000.00 1/9 ₱16,333.33 ₱245,000.00

Year Total Dep. Dep. Rate Annual Dep. Accumulated Dep.

1 ₱700,000.00 2/9 ₱155,555.56 ₱155,555.56

2 ₱700,000.00 1/5 ₱136,111.11 ₱291,666.67
3 ₱700,000.00 1/6 ₱116,666.67 ₱408,333.33
4 ₱700,000.00 1/7 ₱97,222.22 ₱505,555.56
5 ₱700,000.00 1/9 ₱77,777.78 ₱583,333.33
6 ₱700,000.00 0.08 ₱58,333.33 ₱641,666.67
7 ₱700,000.00 0.06 ₱38,888.89 ₱680,555.56
8 ₱700,000.00 0.03 ₱19,444.44 ₱700,000.00

TC = 750,000
TD = 750,000 - 50,000 = 700,000
sum of the digits = 36

1 155555.56 BV at the end of 3 years

2 136111.11 BV = 750000 - (81,666.67 + 65,333.33 + 49,00
3 116666.67 BV = 74,000
4 97222.22
5 77777.78
6 58333.33
7 38888.89
8 19444.44

Year Total Dep. Dep. Rate Annual Dep. Accumulated Dep.

1 ₱700,000.00 2/9 ₱155,555.56 ₱155,555.56

2 ₱700,000.00 1/5 ₱136,111.11 ₱291,666.67
3 ₱700,000.00 1/6 ₱116,666.67 ₱408,333.33
4 ₱700,000.00 1/7 ₱97,222.22 ₱505,555.56
5 ₱700,000.00 1/9 ₱77,777.78 ₱583,333.33
6 ₱700,000.00 1/9
7 ₱700,000.00 1/9
8 ₱700,000.00 0
cost is P5,000 and the set up charges
ars and has a salvage value of P25,000.
, find the total cost, total depreciation,
depreciation table.

nd of 3 years
0 - (81,666.67 + 65,333.33 + 49,000)

Book Value
₱270,000.00
₱188,333.33
₱123,000.00
₱74,000.00
₱41,333.33
₱25,000.00

Book Value
₱750,000.00
₱594,444.44
₱458,333.33
₱341,666.67
₱244,444.44
₱166,666.67
₱108,333.33
₱69,444.44
₱50,000.00
 Apr-36
1/9
Mar-36
nd of 3 years
0 - (81,666.67 + 65,333.33 + 49,000)

Book Value
₱270,000.00
₱114,444.44
-₱21,666.67
-₱138,333.33
-₱235,555.56
-₱313,333.33
Declining Balance Method
CAB Company purchases 10 computer units at a total of P350,000. The
expected lifetime of the computer units is 4 years. The residual value is
P100,000. Using the straight-line declining balance method, find the annual
depreciation and construct depreciation table.

Given: TC = 350,000 SV = 100,000 n = 4 years

SLR = 1/n = 1/4 or 25%

1 350,000*0.25 87,500 350000 - 875000

2 262500*0.25 65625 26500 - 65625
3 196875*0.25 49218.75 196875 - 49218.75
4 147656.25*0.25 36914.06 1476565.25 - 36914.06

Year Total Cost SLR Annual Dep.

1 ₱350,000.00 25% ₱87,500.00

2 ₱350,000.00 25% ₱65,625.00
3 ₱350,000.00 25% ₱49,218.75
4 ₱350,000.00 25% ₱36,914.06
50,000. The
ual value is
the annual

262500
196875
147656.25
110742.19

Accumulated Dep. Book Value

₱350,000.00
₱87,500.00 ₱262,500.00
₱153,125.00 ₱196,875.00
₱202,343.75 ₱147,656.25
₱239,257.81 ₱110,742.19
Double Declining Balance Method
JR Mechandising purchases a secondhand jeep for delivering their merchandise worth P200,
with an estimated trade-in value of P16,000 after 5 years. Find the annual depreiation using
double declining balance method and construct a depreciation schedule.

Given: TC = 200000 SV = 16000 n = 5 years

SLR = 1/5 = 20%
DBR = 20%*2 = 40%

Year Total Cost SLR Annual Dep.

1 ₱200,000.00
2 ₱200,000.00
3 ₱200,000.00
4 ₱200,000.00
5 ₱200,000.00
Accumulated Dep.Book Value
₱200,000.00
40% ₱80,000.00 ₱80,000.00 ₱120,000.00
40% ₱48,000.00 ₱128,000.00 ₱72,000.00
40% ₱28,800.00 ₱156,800.00 ₱43,200.00
40% ₱17,280.00 ₱174,080.00 ₱25,920.00
40% ₱9,920.00 ₱184,000.00 ₱16,000.00
rchandise worth P200,000
nual depreiation using the