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.
t, handling and set-up charges

ervice.
venue.

of an asset of each year in its

 Henzz Corporation purchases a machine worth P
freight cost is P5,000 and the set up charges a
Straight-line Method P15,000. The machine is expected to last for 5 ye
salvage value of P25,000. If Henzz Corp. chose
straight line method, find the total cost, total
𝑇𝐷=𝑇𝐶−𝑆𝑉 annual depreciation, depreciation rate, and the boo
𝐴𝐷=𝑇𝐷/ years. Prepare a depreciation schedule for its useful
𝑛 𝑇𝐶=250,000+5,000+15,000=270000
𝑇𝐷=270000−25,000=245,000
𝐵𝑉=𝑂𝐶−𝐴𝑑 𝐴𝐷=245000/5=49,000
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
OC = original cost
n = useful life of an asset in years
BV = book value
Dr = depreciation rate
 a machine worth P250,000, the Year Annual Dep. Accumulated Dep.
he set up charges amounting to
cted to last for 5 years and has a
Henzz Corp. chose to utilize the 1 ₱49,000.00 ₱49,000.00
e total cost, total depreciation, 2 ₱49,000.00 ₱98,000.00
on rate, and the book value after 3 3 ₱49,000.00 ₱147,000.00
chedule for its useful life.
=270000 4 ₱49,000.00 ₱196,000.00
0 5 ₱49,000.00 ₱245,000.00
20%
00
Book Value
₱270,000.00
₱221,000.00
₱172,000.00
₱123,000.00
₱74,000.00
₱25,000.00
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
Sum of the Years' Digits Method
RG Corp. purchases a machine worth P250,000, the freight cost is
P5,000 and the set up charges amounting to P15,000. The machine
is expected to last for 5 years and has a salvage value of P25,000. If
RG Corp. choose to utilize the sum-of-the-years' digit method, find
the total cost, total depreciation, 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 + 49,000)
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. Book Value
₱270,000.00
1 ₱245,000.00 1/3 ₱81,666.67 ₱81,666.67 ₱188,333.33
2 ₱245,000.00 1/4 ₱65,333.33 ₱147,000.00 ₱123,000.00
3 ₱245,000.00 1/5 ₱49,000.00 ₱196,000.00 ₱74,000.00
4 ₱245,000.00 1/8 ₱32,666.67 ₱228,666.67 ₱41,333.33
5 ₱245,000.00 1/9 ₱16,333.33 ₱245,000.00 ₱25,000.00

+ 65,333.33 + 49,000)
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.

50,000. The 1 ₱350,000.00 25% ₱87,500.00

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

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 P200,000 with an estimated trade-in value of
P16,000 after 5 years. Find the annual depreiation using the 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. Accumulated Dep.

1 ₱200,000.00 40% ₱80,000.00 ₱80,000.00

2 ₱200,000.00 40% ₱48,000.00 ₱128,000.00
3 ₱200,000.00 40% ₱28,800.00 ₱156,800.00
4 ₱200,000.00 40% ₱17,280.00 ₱174,080.00
5 ₱200,000.00 40% ₱9,920.00 ₱184,000.00
Book Value
₱200,000.00
₱120,000.00
₱72,000.00
₱43,200.00
₱25,920.00
₱16,000.00