1. Spacek Company purchased a machine at a cost of P635,000 on January 1, 2020.

It was
estimated that the machine would have a residual value of P35,000. The estimated useful life is
5 years, 60,000 service hours and 150,000 production units.
Actual operations Service hours Unit produced
2020 14,000 34,000
2021 13,000 32,000
2022 10,000 25,000
2023 11,000 29,000
2024 12,000 30,000

Prepare a depreciation table for the following methods:

a. Straight line

Annual depreciation : 635,000 – 35,000 / 5 yrs

= 120,000

Year Depreciation Cost Accumulated Carrying

Depreciation Amount
2020 120,000 635,000 120,000 515,000
2021 120,000 635,000 240,000 395,000
2022 120,000 635,000 360,000 275,000
2023 120,000 635,000 480,000 155,000
2024 120,000 635,000 600,000 35,000

b. Service hours

Depreciation rate : 635,000 – 35,000 / 60,000 hrs

= 10 / hr
Year Depreciation Cost Accumulated Carrying
Depreciation Amount
2020 10 x 14,000 140,000 635,000 140,000 495,000
2021 10 x 13,000 130,000 635,000 270,000 365,000
2022 10 x 10,000 100,000 635,000 370,000 265,000
2023 10 x 11,000 110,000 635,000 480,000 155,000
2024 10 x 12,000 120,000 635,000 600,000 35,000
c. Production method

Depreciation rate : 635,000 – 35,000 / 150,000 units

= 4 / unit
Year Depreciation Cost Accumulated Carrying
Depreciation Amount
2020 4 x 34,000 136,000 635,000 136,000 499,000
2021 4 x 32,000 128,000 635,000 264,000 371,000
2022 4 x 25,000 100,000 635,000 364,000 271,000
2023 4 x 29,000 116,000 635,000 480,000 155,000
2024 4 x 30,000 120,000 635,000 600,000 35,000
b. Working hours
Depreciation rate : 570,000 – 20,000 / 50,000 = 11 / hr

2020 : 11 x 3,000 = 33,000

2021 : 11 x 5,000 = 55,000

c. Output method
Depreciation rate : 570,000 – 20,000 / 200,000 = 2.75 / unit

2020 : 2.75 x 18,000 = 49,500

2021 : 2.75 x 22,000 = 60,500
3. At the beginning of current year, Streep Company acquired the following assets:

Cost Residual value Useful life in years

Machinery 310,000 10,000 5
Office equipment 110,000 10,000 10
Building 1,600,000 100,000 15
Delivery equipment 430,000 30,000 4

a. Compute the composite depreciation rate.

Cost Residual Depreciable Life in years Annual
value Amount depreciation
Machinery 310,000 10,000 300,000 5 60,000
Office eqpt 110,000 10,000 100,000 10 10,000
Building 1,600,000 100,000 1,500,000 15 100,000
Delivery eqpt 430,000 30,000 400,000 4 100,000
Total 2,450,000 2,300,000 270,000

Composite rate : Total Annual depreciation / Total cost

270,000 / 2,450,000
= 11.02 %
b. Compute the composite life.

Composite life = Total Depreciable Amount / Total Annual depreciation

= 2,300,000 / 270,000
= 8.52 yrs

c. Prepare journal entry to record the depreciation for the current year.

Depreciation 270,000
Accumulated depreciation 270,000

4. MacLaine Company owned a power plant which consisted of the following assets all
acquired at the beginning of current year.
Cost Residual value Useful life in years
Building 6,100,000 100,000 20
Machinery 2,550,000 50,000 5
Equipment 1,030,000 30,000 10

a. Compute the composite rate.

Cost Residual Depreciable Life in years Annual
value Amount depreciation
Building 6,100,000 100,000 6,000,000 20 300,000
Machinery 2,550,000 50,000 2,500,000 5 500,000
Equipment 1,030,000 30,000 1,000,000 10 100,000
Total 9,680,000 9,500,000 900,000

Composite rate : 900,000 / 9,680,000

= 9.30 %
b. Compute the composite life.

Composite life : 9,500,000 / 900,000

= 10.56 years

c. Prepare journal entry to record the depreciation for the current year following the composite
method.

Depreciation 900,000
Accumulated depreciation 900,000

d. Prepare journal entry to record the retirement of the machinery at the end of the fifth year
assuming the proceeds from retirement amounts to P40,000.
*When an asset in the group is retired, no gain or loss is recognized.

Cash 40,000
Accumulated depreciation 2,510,000  cost minus salvage proceeds
Machinery 2,550,000
e. Prepare journal entry to record the depreciation for the sixth year following the composite
method.

9,680,000 – 2,550,000 = 7,130,000

X 9.3 %
= 663,090

Depreciation 663,090
Accumulated depreciation 663,090

5. Field Company provided the following schedule of machinery:

Total Cost Estimated Useful Life

Residual value in years
Machine A 550,000 50,000 20
Machine B 200,000 20,000 15
Machine C 40,000 none 5

What is the composite life of the assets?

Cost RV Dep Amount Life Annual Depn
Machine A 550,000 50,000 500,000 20 25,000
Machine B 200,000 20,000 180,000 15 12,000
Machine C 40,000 0 40,000 5 8,000
Total 790,000 720,000 45,000

Composite life = 720,000 / 45,000 = 16 yrs

6. Page Company used the composite method of depreciation based on a composite rate of 25%.
At the beginning of 2020, the total cost of equipment was P5,000,000 with a total residual value
of P600,000. The accumulated depreciation was P3,000,000 at that time. In January 2020, the
entity purchased an equipment for P2,500,000 with no residual value. At the end of 2020, the
entity sold an equipment with an original cost of P1,000,000 and a residual value of P200,000
for P350,000. This asset was acquired on January 1, 2018.
1. What is the depreciation for 2020?

Equipment
___________________________________
Beg 5,000,000
2,500,000 1,000,000  Cash 350,000
Accumulated depn 650,000
End 6,500,000 Equipment 1,000,000
6,500,000 x 25% = 1,625,000
 2. What is the gain or loss from the derecognition of the asset on December 31,2020?

Under the composite method, no gain or loss is recognized on the derecognition of asset.

Accumulated depreciation, 12/31/2020 : 3,000,000 – 650,000 + 1,625,000 = 3,975,000

Cost 6,500,000
-AD 3,975,000
CA 2,525,000

7. Matlin Company revealed 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 acquired in 2017 for P4,200,000. The
estimated residual value was P600,000.

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

Cost 4,200,000 SP 2,300,000

Accumulated depn CA 2,040,000
4.2 M – 600 T Gain 260,000
5 x 3 2,160,000
Carrying amount 2,040,000

*3 yrs is for 2017, 2018, 2019. No depreciation in the year of disposal (2020).

8. Cher Company used straight line depreciation for the property plant equipment which
consisted of the following at the end of each year:

2020 2021
Land 250,000 250,000
Building 1,950,000 1,950,000
Machinery and equipment 6,500,000 6,950,000
Accumulated depreciation 3,700,000 4,000,000

The depreciation expense for 2020 and 2021 was P500,000 and P550,000, respectively.

What amount was debited to accumulated depreciation during 2021 because of property, plant
and equipment retirement?
 Accumulated depreciation
______________________________________
Beg 3,700,000
250,000 Depn 2021 550,000

End 4,000,000

9. Foster Company acquired a machinery on April 1,2020.

Cost 1,200,000
Residual value 120,000
Estimated useful life 8 years

1. What is the depreciation for 2020 using sum of years’ digits?

2. What is the depreciation for 2021 using sum of years’ digits?

SYD = 8 (8+1) = 8 (4.5) = 36
2

1,200,000-120,000
2020 : 8/36 x 1,080,000 x 9/12 = 180,000

2021 : 8/36 x 1,080,000 x 3/12 = 60,000

7/36 x 1,080,000 x 9/12 = 157,500
217,500

3. What is the depreciation for 2020 using double declining balance?

4. What is the depreciation for 2021 using double declining balance?

Under double declining balance method, RV is ignored.

100% / 8 = 12.5 %  straight line rate

x2
25 %  double declining rate

2020 : 25 % x 1,200,000 x 9/12 = 225,000

( 225,000 )
2021 : 25% x 975,000 = 243,750
10. On January 1, 2020 Tandy Company purchased a new machine for P4,000,000. The new
machine has an estimated useful life of eight years and the residual value was estimated to be
P400,000. Depreciation was computed on the sum of the years’ digits method.

What is the carrying amount of the machine on December 31, 2021?

SYD = 8 (8 + 1) = 8 (4.5) = 36
2

4 M – 400 T 4,000,000 Cost

2020 : 8/36 x 3,600,000 = 800,000
2021 : 7/36 x 3,600,000 = 700,000 1,500,000 AD
2,500,000 CA

Accumulated depreciation can also be computed this way :

15/36 x 3,600,000 = 1,500,000

11. On January 1, 2018, Bates Company acquired equipment to be used in the manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated residual
value of P50,000. The depreciation applicable to this equipment was P240,000 for 2020
computed under the sum of years’ digits method.

What was the acquisition cost of the equipment?

SYD = 10 (10 + 1) = 10 (5.5) = 55

2

2018 : 10/55
2019 : 9/55
2020 : 8/55 x 1,650,000 = 240,000

This is the depreciable amount.

Therefore,
Cost = Depreciable amount + RV
= 1,650,000 + 50,000
= 1,700,000

What is the carrying amount of the equipment on 12/31/2020?

10/55
9/55
8/55

27/55 x 1,650,000 = 810,000  accumulated depreciation

Cost 1,700,000
-AD 810,000
CA 890,000
12. On April 1, 2020, Thompson Company purchased new machinery for P3,000,000. The
machinery has an estimated useful life of five years and depreciation is computed by the sum of
years’ digits method.

What is the accumulated depreciation of the machinery on March 31, 2022?

SYD = 5 (5+1) = 5 (3) = 15

2
3M - 0
2020 : 5/15 x 3,000,000 x 9/12 = 750,000

2021 : 5/15 x 3,000,000 x 3/12 = 250,000

4/15 x 3,000,000 x 9/12 = 600,000
850,000

2022 : 4/15 x 3,000,000 x 3/12 = 200,000

1,800,000

Or
4.1.2020 to 3.31.2021 : 5/15 x 3,000,000 = 1,000,000
4.1.2021 to 3.31.2022 : 4/15 x 3,000,000 = 800,000
1,800,000

13. Hunter Company takes a full depreciation expense in the year of acquisition, and no
depreciation expense in the year of disposition. An asset was acquired in 2017.

Cost 1,100,000
Residual value 200,000
Accumulated depreciation – January 1, 2020 720,000
Estimated useful life 5 years

Using the same method in 2017, 2018 and 2019, what depreciation should be recorded in 2020?
 Using straight line :
1,100,000 – 200,000
5 x 3 = 540,000  not equal to 720,000
(2017-2019) STRAIGHT LINE is NOT USED.

Using SYD
SYD = 5 (5 +1) = 5 (3) = 15
2

1.1 M – 200 T
2017 : 5/15
2018 : 4/15
2019 : 3/15
12/15 x 900,000 = 720,000  equal to 720,000 Accum Depn given ;
Thus, SYD is USED.
2020 : 2/15 x 900,000 = 120,000

What is the depreciation expense in 2021 ?

2021 : 1/15 x 900,000 = 60,000

What is the carrying amount on 12/31/2021?

Cost 1,100,000
-AD 900,000
CA 200,000  equal to the RV

14. Lange Company purchased equipment which was installed and put into service January 1,
2020 at a total cost P1,280,000. Residual value was estimated at P80,000. The equipment is being
depreciated over eight years by the double declining balance method. What amount of
depreciation should be recorded for 2021?
Under double declining balance method, RV is ignored.

100 % / 8 = 12.5 %  straight line rate

X2
25 %  double declining rate

2020 : 25 % x 1,280,000 = 320,000

( 320,000)
2021 : 25% x 960,000 = 240,000

15. On January 1, 2020, Sarandon Company acquired an equipment to be used in operations.

The equipment had a useful life of 8 years and residual value of P300,000. The depreciation
applicable to the equipment was P900,000 for 2021 computed under the double declining
balance method. What was the acquisition cost of the equipment?
 Under DDB method, RV is ignored.

100 % / 8 = 12.5 %  straight line rate

X 2
25 %  double declining rate

2020 : 25 % x =
( )
2021 : 25 % x 3,600,000 = 900,000

This is the declining balance after deducting 25 % of cost ;

Therefore, 3.6 million represents 75%

Cost is 3,600,000 / 75% = 4,800,000

To check
2020 : 25 % x 4,800,000 = 1,200,000
( 1,200,000)
2021 : 25 % x 3,600,000 = 900,000

16. McDormand Company showed the following schedule of depreciable assets on January 1,
2020.

Assets Cost Accumulated Acquisition

Depreciation date RV
A 4,000,000 2,560,000 2018 400,000
B 2,000,000 1,440,000 2017 200,000
C 2,800,000 1,344,000 2017 560,000

The useful life of each asset is 5 years. The entity takes full depreciation in the year of acquisition
and no depreciation in the year of disposition.

Asset C was sold for P1,700,000 on June 30, 2020. Asset A is depreciated under the double
declining method.
1. What is the depreciation of Asset A for 2020?

100% / 5 = 20%
X2
40 %
1. What is the depreciation of Asset A for 2020?
2018 : 40 % x 4,000,000 = 1,600,000
100% / 5 = 20%
(1,600,000) X2
2019 : 40% x 2,400,000 = 960,000 40 %
( 960,000) 2018 : 40 % x 4,000,000 = 1,600,000
2020 : 40 % x 1,440,000 = 576,000 (1,600,000)
2019 : 40% x 2,400,000 = 960,000
( 960,000)
2020 : 40 % x 1,440,000 = 576,000
Or
Or
4,000,000
4,000,000
( 2,560,000 ) ( 2,560,000 )
2020 : 40% x 1,440,000 = 576,000 2020 : 40% x 1,440,000 = 576,000
2. What is the depreciation of Asset B for 2020 assuming same method in prior years?

If straight line is used, accumulated depreciation is

2,000,000 – 200,000
5 x 3 = 1,080,000  not equal to 1,440,000 ;
(2017-2019) straight line is NOT used

If SYD is used,
SYD = 5 (5 + 1) = 5 (3) = 15
2

2017 : 5/15
2018 : 4/15
2019 : 3/15
12/15 x 1,800,000 = 1,440,000 OK SYD is used for Asset B
2020 : 2/15 x 1,800,000 = 240,000

3. What is the gain on sale of Asset C?

If straight line is used, accumulated depreciation is

2,800,000 – 560,000
5 x 3 = 1,344,000 OK straight line is used
(2017 to 2019)

Cost 2,800,000 SP 1,700,000

-Accum depn 1,344,000 * -CA 1,456,000
Carrying amount 1,456,000 Gain 244,000

*no depreciation is recognized in 2020, the year of disposition

17. Hunt Company purchased equipment on January 1, 2020 for P5,000,000. The equipment had
an estimated 5-year useful life. The accounting policy for 5-year assets is to use the 200% double
declining balance method for the first two years of the asset’s life and then switch to straight
line deprecation.

On December 31, 2022, what amount should be reported as accumulated depreciation?

 100% / 5 = 20 %  straight line rate
X2
40 %  double declining rate

DDB for 1st 2 years : 5,000,000 Cost

2020 : 40 % x 5,000,000 = 2,000,000
(2,000,000)
2021 : 40% x 3,000,000 = 1,200,000 3,200,000 AD
1,800,000 CA

2022 (3rd year) use straight line

1,800,000 – 0
3 = 600,000

Accumulated depreciation :
2020 & 2021 3,200,000
2022 600,000
3,800,000

18. Paltrow Company purchased a machinery on January 1, 2017 for P7,200,000. The machinery
had useful life of 10 years with no residual value and was depreciated using the straight line
method. In 2020, a decision was made to change the depreciation method from straight line to
sum of years’ digits. The estimate of useful life and residual value remained unchanged.

What is the depreciation for 2020?

Straight line in 2017 to 2019 ; SYD starting 2020

7,200,000 – 0
10 x 3 = 2,160,000 Cost 7,200,000
AD 2,160,000
CA 5,040,000

10 – 3 = 7

SYD = 7 (7+1) = 7 (4) = 28

2
5.04 M - 0
2020 : 7/28 x 5,040,000 = 1,260,000

19. On January 1, 2018, Swank Company purchased for P2,400,000 a machine with a useful life
of ten years and no residual value. The machine was depreciated by the double declining balance
method. The entity changed to the straight line method on January 1, 2020.

What is the depreciation for 2020?

 DDB from 2018 to 2019

100% / 10 = 10%  straight line rate

X2
20%  double declining rate

2,400,000 Cost
2018 : 20 % x 2,400,000 = 480,000
( 480,000)
2019 : 20 % x 1,920,000 = 384,000 864,000 AD
1,536,000 CA

Use straight line starting 2020

10 – 2 = 8 yrs remaining life

1,536,000 – 0
8 = 192,000

20. On January 1, 2020, Roberts Company purchased personal computers for P6,000,000. The
management estimated that the computers would last approximately 4 years with residual value
of P600,000. The entity used the double declining balance method. During January 2021, the
management realized that technological advancement had made the computers virtually
obsolete and proposed changing the remaining useful life to 2 years.

What amount of depreciation should be recognized for 2021?

100% / 4 = 25%  straight line rate
X2
50 %  double declining rate

2020 : 50 % x 6,000,000 = 3,000,000

(3,000,000)
3,000,000

4
(1)
3  2

100 % / 2 = 50%
X2
100 %

2021 : 100 % x 3,000,000 = 3,000,000

If 3,000,000 is deducted from the carrying amount of 3,000,000 as of 12/31/2020, the

Carrying amount on 12/31/2021 would have been 0. However, the CA should not fall below
the residual value of P600,000. Thus, depreciation in 2021 is limited to
3,000,000 – 600,000 RV = 2,400,000