Activity 2

DEPRECIATION

1. At the beginning of current year, Let company bought machinery under a contact
that required a down payment of P100,000, plus 24 monthly payment of P50,00o
each, for total cash payment of P130,000. The cash price of the machinery was
P1,100,000

The machinery has a useful life of 10 years and residual value of P50,000. The entity
used straight line depreciation.

What amount should be reported as depreciation for the current year?

2. Poe Company disclosed that the following depreciation policy on machinery:

 A Full year depreciation is taken in the year of acquisition.
 No depreciation is taken in the year of disposition.
 The estimated useful life is five years.
 The straight line method is used.

On June 30, 2020 the entity sold for P2,300,000 a machine acquiredin 2017 for P4,200,000.
The residual value was P600,000.

What amount of gain on the disposal should be recorded in 2020?

3. At the beginning current year, Diamond company acquired for P1,000,000 a new
year machinery with useful life of 10 years.

The machinery had drum costing P200,000 that must be replaced every
five years.

Continued of the machinery required an inspection every 4 years after purchased and
the inspection cost P80,000. The straight line methods of depreciation is used.

What amount should be recorded as depreciation for the current year?

4. On March 30,2019 Camia Company purchased a drilling machine for

P8,400,000. The estimated useful life of the machine is 10 years with no residual
value. An important component of the machine is the drill housing component
that will need to be replaced in five years.
The P2,000,000 cost of the drill housing component is included in the P8,400,000 cost
of the machine. The entity used the straight line depreciation. The fiscal year ends on
December 31.

What total amount of depreciation should be recorded in 2019?

5. Jade company acquired a new milling machine on April 1,2013. The machine has
special component that required replacement before the end of the useful life.
The asset was originally recorded in two accounts, one representing the main
unit and the other for the special component. Depreciation is recorded by the
straight line method and residual value is disregarded.

On April 1,2019, the special component is scrapped and is replaced with a similar
component. The new component is expected to have a residual value of approximately
20% of cost at the end of the useful life of the main unit, and because of materiality, the
residual value will be considered in calculating depreciation.

Main milling machine:

Purchased price in 2013 7,500,000

Residual value 100,000
Estimated useful life 10 years

First special component:

Purchased price 1,200,000

Residual value 60,000
Estimated useful life 6 years

Second special component:

Purchased price 2,000,000

Residual value (20% x 2,000,000) 400,000

What is the total depreciation for 2019?

6. Lester Company provided the following :

Total cost Residual Value Estimated life

Machine A 5,500,000 500,000 20

Machine B 2,000,000 200,000 15
Machine C 400,000 5
The entity computed depreciation on the straight line method.

1. What is the composite life of the assets?

2. What is the composite rate of depreciation?

7. Normine Company used the composite method of depreciation based on a

composite rate of 25%. At the beginning of current year, the total cost of
equipment was P5000,000 with a total residual value of P600,000 and
accumulated depreciation of P3,000,000.

In early part of the year, the entity purchased an equipment for P2,500,000 with no
residual value.

All the end of current year, the entity sold equipment with an original cost of P1,000,000
and a residual value of P2,000,000 for P350,000. This asset was acquired two years
ago.

1. What amount should be recorded as depreciation for the current year?

2. What amount should be recorded as gain or loss from the sale of

8. Canada Company purchased a machine at an invoice price of P4,500,000 with

term 2/10, n/30. The entity paid the required amount for the machine beyond the
discount period.

The entity paid P80,000 for the delivery of the machine and p310,000 for installment
and testing. The machine was ready for use on January 1, 2019

It was estimated that the machine would have an useful life for 5 years and a residual
value of 800,000.

Engineering estimate indicates that the useful life in product units was 200,000

Units actually produced in the first 2 years were 30,000 in 2019 and 48,000 in 2020.
The entity decided to use the output method depreciation.

What is the accumulated depreciation of the machine on December

 9. Tanya company purchased a boring machine on January 1, 2019 for 8,100,000.
The useful life of machine is estimated in 3 years with a residual value at the end
of this period of 600,000.

During the useful life, the expected units of production are 12,000 units in 2019, 7,000
unit in 2020, and 600,000 units in 2021.

What amount should be recorded as depreciation expense in 2020 using the

appropriate depreciation method?

10. Leonard company acquired a machine on July 1,20199 and paid 5,200,000
include freight 50,000 and installation 150,000. The estimated life of the machine
is 8 years or total of 100,000 working hours with no residual value.

The operating hours of the machine totaled 5,000 hours in 2019 and 12,000 hours in
2020. The entity followed the working hours method of depreciation.

On December 31,2020, what is the carrying amount of the machine?