CHAPTER 56

DEPRECIATION
Sum of years' digits and declining balance

Problem 50-1 (AICPA Adapted)

Frey Company purchased a machine for P4,500,000 on January 1, 2018. The machine has an
estimated useful life of four years and a residual value of P500,000. The machine is being
depreciated using the sum of the years' digits method.

1. What is the accumulated depreciation on December 31, 2019?

a. 1,600.000
b. 2.800,000
c .1.200.000
d. 3,150,000

2. What is the carrying amount on December 31, 2019?

a. 2.900.000
b. 2.700,000
c. 1,700,000
d. 1,350,000

Solution 56-1
Question 1 Answer b
Question 2 Answer c
SYD = 1+ 2+ 3+ 4 = 10
Acquisition cost 4,500,000
Accumulated depreciation
2018 (4/10 x 4,000,000) 1,600,000
2019 (3710 x 4,000,000) 1,200,000 2,800,000
Carrying amount December 31, 2019 1,722,500

Problem 56-2 (AICPA Adapted)

On January 1, 2016, Mogul Company acquired equipment to be used in the manufacturing
operations.

The equipment had 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 2018 computed under the sum
of years' digits method.

What was the acquisition cost of the equipment?

a. 1,650,000
b. 1,700,000
c. 2,400,000
d. 2,450,000

Solution 56-2 Answer b

SYD= 1+2+3+4+5+6+ 7+ 8+ 9+ 10 = 55

The first three fractions are 10/55 for 2016, 9/55 for 2017, and 8/55 for 2018.

Thus, the 2018 depreciation of P240,000 is equal to 8/55.

Depreciation for 2018 240,000

Divide by equivalent fraction 8/55
Depreciable amount 1,650,000
Residual value 50,000
Acquisition cost 1,700,000

Problem 56-3 (AICPA Adapted)

On April 1, 2018, Kew Company purchased new machinery for P3,300,000. The machinery had an
estimated useful life of live years with residual value of P300,000. Depreciation is computed by
the sum of the years' digits method.

1. What is the depreciation for 2018?

a. 500,000
b. 750,000
c. 900,000
d. 800,000

2. What is the depreciation for 2019?

a. 1,600,000
b. 1,800,000
c. 850,000
d. 600,000
Solution 56-3
Question 1 Answer b

SYD = 1 + 2 + 3+ 4+ 5
SYD = 15

April 1, 2018 to March 31, 2019 (5/15 x 3,000,000) 1,000,000

April 1, 2019 to March 31, 2020 (4/15 x 3,000,000) 800,000

Accumulated depreciation - March 31, 2020 1,800,000

April 1, 2018 - December 31, 2018 (1,000,000 x 9/12) 750,000

Question 2 Answer c
January 1, 2019-March 31, 2019(1,000,000 x 3/12) 250,000
April 1, 2019 - December 31, 2019 (800,000 x 9/12) 600,000
Total 2019 depreciation 850,000

Accumulated depreciation - December 31, 2019 1,600,000

(750,000+ 850,000)

Problem 56-4 (AICPA Adapted)

Rago Company takes a full year depreciation expense in the year of acquisition and no
depreciation expense in the year of disposition.

Data relating to a depreciable asset on December 31, 2017:

Acquisition year 2015
Cost 1,100,000
Residual value 200,000
Accumulated depreciation 720,000
Estimated useful life 5 years

Using the same depreciation method in 2015, 2016 and 2017, what amount of depreciation
should be recorded in 2018?
a.120,000
b. 180,000
c. 220,000
d. 240,000
Solution 56-4 Answer a
The accumulated depreciation on December 31, 2017 is recomputed following a certain method.

The same is arrived at using the SYD.

SYD = 1 + 2+ 3+ 4+ 5 = 15

2015 (5/15 x 900,000) 300,000

2016 (4/15 x 900,000) 240,000
2017 (3/15 x 900,000) 180,000
Accumulated depreciation -- December 31, 2017 720,000

Accordingly, the SYD is followed for 2018.

Depreciation for 2018 (2/15 x 900,000) 120,000

Problem 56-5 (AICPA Adapted)

Bergen Company purchased factory equipment which was installed and put into service January
1, 2018 at a total cost of P1,280,000.

The equipment is depreciated over eight years by the double declining balance method with
residual value of P80,000.

What amount of depreciation expense should be recorded on the equipment for 2019?
a. 225,000
b. 240,000
c. 300,000
d. 320,000

Solution 56-5 Answer b

Straight line rate (100% / 8 years) 12.5%
Fixed rate (12,5 x 2) 25%
2018 depreciation (1,280,000 x 25%) 320,000
2019 depreciation (1,280,000-320,000 x 25%) 240,000

Under double declining balance, the residual value is ignored in the meanwhile.
Problem 56-6 (AICPA Adapted)
On July 1, 2018, Mundo Company purchased an equipment for P5,000,000. Residual value was
estimated at P200,000.

The equipment is depreciated over ten years using the double declining balance method.

What is the depreciation expense for 2019?

a.1,000,000
b.900,000
c.768,000
d.960,000

Solution 56-6 Answer b

Straight line rate (100% / 10 years) 10%
Fixed rate (10 x 2) 20%

2018 depreciation (5,000,000 x 20% x 6/12). 500,000

2019 depreciation (5,000,000 - 500,000 x 20%) 900,000

Problem 56-7 (AICPA Adapted)

Rapp Company purchased a machine on July 1, 2018 for P6,000,000. The machine has an
estimated useful life of five years and a residual value of P800,000. The machine is being
depreciated by the 150% declining balance method.

For the year ended December 31, 2019, what amount should be recorded as depreciation
expense on the machine?

a. 1,530,000
b. 1,326,000
c. 1,040,000
d. 1,800,000

Solution 56-7 Answer a

Straight line rate (100%/5) 20%
Fixed rate (20% x 150%) 30%

Depreciation from July 1 to December 31, 2018

(6,000,000 x 30% x 6/12) 900,000
Depreciation for 2019 (6,000,000 - 900,000 x 30%) 1,530,000

Problem 56-8 (IAA)

On January 1, 2018, Tania Company acquired an equipment with useful life of 8 years and
residual value of P300,000.

The depreciation applicable to this equipment was P900,000 for 2019 using the double declining
balance method.

What was the acquisition cost of the equipment?

a. 3,600,000
b. 4,500,000
c. 4,800,000
d. 5,100,000

Solution 56-8 Answer c

Fixed rate (100% / 8 years equals 12.5% x 2) 25%

Carrying amount - 1/1/2019 ( 900,000 / 25%) 3,600,000

Carrying amount - 1/1/2018 (3,600,000 / 75%) 4,800,000

Problem 56-9 (AICPA Adapted)

Patterson Company provided the following information on January 1, 2018:

Vehicle cost 5,000,000

Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000

Actual miles driven

2018 30,000
2019 20,000
2020 15,000
1. What is the depreciation for 2020 using the SYD method?
a. 1,000,000
b. 1,333,000
c. 800,000
d. 600,000

2. What is the accumulated depreciation on December 31, 2019 using the double declining
balance method?
a. 1,200,000
b. 1,600,000
c. 2,560,000
d. 3,200,000

3. What is the accumulated depreciation on December 31, 2020 using the miles driven?
a. 2,000,000
b. 2,600,000
c. 800,000
d. 600,000

Solution 56-9
Question 1 Answer C
Vehicle cost 5,000,000
Residual value (1,000,000)
Depreciable amount 4,000,000

SYD = 1 +2 +3 +4 +5 = 15

Depreciation for 2020 (3/15 x 4,000,000) 800,000

Question 2 Answer d
Straight line rate (100% / 5 years) 20%
Fixed rate (20% x 2) 40%

Depreciation for 2018 (40% x 5,000,000) 2,000,000

Depreciation for 2019 (40% x 3,000,000) 1,200,000
Accumulated depreciation - December 31, 2019 3,200,000
Question 3 Answer b
Rate per mile (4,000,000/ 100,000 miles) 40

Depreciation for 2018 (30,000 x 40) 1,200,000

Depreciation for 2019 (20,000 x. 40) 8,000,000
Depreciation for 2020 (15,000 x 40) 6,000,000
Accumulated depreciation + December 31, 2020 2,600,000

Problem 56-10 (AICPA Adapted)

Weir Company used straight line depreciation for property, plant and equipment which consisted
of the following:
2019 2018
Land 250,000 250,000
Buildings 1,950,000 1,950,000
Machinery and equipment 6,950,000 6,500,000
Total 9,150,000 8,700,000
Less: Accumulated depreciation 4,000,000 3,700,000
5,150,000 5,000,000

The depreciation for 2019 and 2018 was P550,000 and P500,000, respectively.

What amount was debited to accumulated depreciation during 2019 because of property, plant,
and equipment retirement?
a. 400,000
b. 250,000
c. 200,000
d. 100,000

Solution 56-10 Answer b

Accumulated depreciation - December 31, 2018 3,700,000
Depreciation for 2019 550,000
Total 4,250,000
Accumulated depreciation - December 31, 2019 (4,000,000)
Accumulated depreciation on property retirement 250,000