Answer Keys

ANSWER KEYS
Module 2 Seatwork
PROBLEM 1: TRUE OR FALSE

1. FALSE
2. FALSE – cost
3. TRUE
4. FALSE – expensed
5. FALSE – direct costs are capitalized in full and not a portion of the cost is recognized in profit or
loss
6. TRUE – The cost of abnormal amounts of wasted material, labor, or other resources due to
inefficiencies is recognized as expense.
7. FALSE – not adjusted
8. FALSE – not necessarily
9. FALSE
10. FALSE
PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. D
3. D
4. B – see “not assumed”
5. D
6. C
7. A
8. D
9. D
10. C
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
Solution:
Land used as plant site 5,000,000
Building under construction to be used as new office 12,000,000
Equipment held for rental under various operating leases 1,200,000
Fixtures used in rendering services 500,000
Bearer plants 100,000
Total PPE 18,800,000

2. D
Solution:
Purchase price inclusive of VAT 224,000
Divide by: 112%
Purchase price exclusive of VAT 200,000
Cash/ prompt discount (4,480)
Cost of equipment 195,520
The training and relocation costs are expensed.
3. A
Solution:
Purchase price 12,000,000
Freight 250,000
Transit insurance 20,000
Special foundation for the machine 50,000
Assembling and installation 280,000
Testing 30,000
Salvaged materials from trial runs

(3,000)
Cost of new machine 12,627,000
The cost of dismantling and removing old equipment prior to the installation of new equipment is
recognized as expense except when the cost was previously recognized as liability (in which case, the
cost is treated as settlement of the liability; the entry would be debit liability and credit cash).
4. C
Solution:
Land Old bldg. New bldg. Others
Lump-sum price 4,875,00
[5.85M x (5/6); (1/6)] 0 975,000
Appraisal fee expensed*
Renovation costs 500,000
Plans and specs. 2,900,000
Construction
mats. 11,000,000
Labor 6,500,000
Excavation 1,000,000
Structural works 1,200,000
Supervision 100,000
expense
Injury claims d
Subcontracted 5,000,000
Savings ignored
Imputed interest ignored
4,875,00
Allocated costs 0 1,475,000 27,700,000
* Appraisal fees do not normally meet the asset recognition criteria under the PFRS. It should be
noted though that the Internal Revenue Service (IRS) in the U.S. requires the capitalization of
appraisal fees as cost of the appraised property for taxation purposes. (source:
https://keitercpa.com/wp-content/uploads/2012/02/Capitalization-Rules-Acquisition-of-Real-Property.pdf)
This, however, does not mean that appraisal fees should also be capitalized as cost of PPE for
financial reporting purposes. (source: https://www.tbr.edu/business/procedures-capitalizing-fixed-assets)
5. A
Solution:
Old New
Land bldg. bldg. Others
Lump-sum price 3,600,00
(3.6M); (4M - 3.6M) 0 400,000
Legal fees 180,000
Demolition 50,000
Survey 25,000
Architectural 260,000
Bldg. permit 120,000
Price of new bldg. 9,000,000
Elec. & water 80,000
Real property tax expensed
Utilities expensed
Wi-Fi connection expensed
Internet fees expensed
Salvaged
materials (10,000)
3,805,00
Allocated costs 0 400,000 9,500,000
The allocated cost of the old building is charged as loss.
6. B (2.5M x 97%) + 50K + (200K x PV of 1 @12%, n=10) = 2,539,395
7. C
Solution:
Liempo:
1) Equipment received: (1,875,000 – 700,000) = 1,175,000
2) Gain (loss) on exchange: (1,875,000 – 3,500,000) = (1,625,000)
Monggo:
1) Equipment received: (1,000,000 + 700,000) = 1,700,000
2) Gain (loss) on exchange: (1,000,000 – 1,200,000) = (200,000)
8. A
Solution:
Liempo:
1) Equipment received: (3,500,000 – 700,000) = 2,800,000
2) Gain (loss) on exchange: 0
Monggo:
1) Equipment received: (1,200,000 + 700,000) = 1,900,000
2) Gain (loss) on exchange: 0
9. A
Solution:
1) Equipment received: 40,000, the fair value of the asset received
2) Gain (loss) on exchange:
Date Equipment – new (FV of asset received) 40,000
Accumulated depreciation 70,000
Equipment - old 100,000
Cash 8,000
Gain on exchange (squeeze) 2,000
10. A
Solution:
(a) Land = 3,000,000

Land improvement = 600,000
(b) Transportation equipment (SUV):
Cash purchase price, including the car accessories 2,910,000

Vehicle registration 12,000
Total cost - SUV 2,922,000
● In practice, the cost of car accessories installed when the vehicle was purchased, and for which a
single CDV was prepared for the vehicle and the car accessories, is included in cost of the
vehicle. Accountants do this mainly for convenience in recording. Subsequent expenditures on
car accessories are charged as expenses. Thus, the cost in (d) is charged as expense.
● The cost of a vehicle’s initial registration is capitalized because this is necessary for the entity to
obtain the future economic benefits of the vehicle. It is illegal to use an unregistered vehicle.
However, the costs of subsequent annual registrations are expensed.
● The insurance is recognized as expense (or initially recorded under the “Prepaid insurance”
account and subsequently charged as expense).
(c) Transportation equipment (Pickup truck):

Cash price equivalent 1,800,000
Modification for off-road driving 280,000
Total cost - Pickup truck 2,080,000
● The modification is capitalized because it is necessary in bringing the vehicle to its intended use.
Total cost - SUV 2,922,000

Total cost - Pickup truck 2,080,000
Total Transportation equipment 5,002,000
(d) See (b) above
(e) Machine: 160,000 – cash price equivalent
Module 2 Quiz
Athena Company and Anna Company are fuel oil distributors. To facilitate the delivery of oil to
customers, the two entities exchanged ownership of barrels of oil without physically moving the
oil. Athena paid Anna P1,500,000 to compensate for a difference in the grade of oil, it was
reliably determined that the configuration of the cash flows of asset received does not differ from
the configuration of the cash flows of the asset transferred.
On the date of exchange, the oil inventory of Athena has a carrying amount of P5,000,000 and
fair value of P7,000,000. The oil inventory of Anna has a carrying amount of P6,000,000 and fair
value of P8,500,000.
1. What amount should Athena record as cost of the oil inventory received in exchange?
a. 4,500,000
b. 6,500,000
c. 7,000,000
d. 8,500,000
2. What amount should Anna record as cost of oil inventory received in exchange?
a. 4,500,000
b. 6,000,000
c. 7,500,000
d. 8,500,000
3. Which is not a characteristic of property plant and equipment?
a. Tangible asset
b. Used in production for rental or for administrative purposes
c. Expected to be used over period of more than one year
d. Subject to depreciation
4. The cost of an item of property pant end equipment comprises all of the following except
a. Purchase price
b. Nonrefundable purchase taxes
c. Cost directly attributable in bringing the asset to the location and condition for the
intended use
d. Initial estimate of the cost of dismantling and removing the item and restoring the
site, the obligation for which the entity does not incur when the item was acquired
5. Which of the following nonmonetary exchange transactions has commercial substance?
a. Exchange of asset with no difference in future cash flows
b. Exchange of assets by entities in the same line of business
c. Exchange of assets with difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets that causes the entities
involved to remain in essentially the same economic position.
6. If the present value of the note issued in exchange for an asset is less than face amount,
the difference is
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the life of the note
7. When accounting for property, plant and equipment, an entity
a. Must use the cost model for presenting the asset
b. May elect to use the cost model or the revaluation model on any individual asset.
c. May elect to use the cost model or the revaluation model on any asset class.
d. Must use the cost model for land.
8. Which statement is true about depreciation accounting?
a. Depreciation is not a matter of valuation
b. Depreciation is part of matching of expense and revenue
c. Depreciation retains funds by reducing income tax and dividend
d. All of the statements are true
Josey Company entered into a contract to acquire a new machine which had a cash price
of P2,000,000.
Down Payment 400,000

Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of P25 and fair value of P40 per share
800,000
2,400,000
Prior to use, installation cost of P50,000,000 was incurred. The machine has an estimated
residual value of P100,000.
What is the initial cost of the machine?
a. 2,000,000
b. 2,400,000
c. 2,050,000
d. 2,450,000
9. At the beginning of the current year, Winn Company traded in an old machine having
carrying amount of P1,680,000 and paid a cash difference of P600,000 for a new machine
having a cash price of P2,050,000. What amount of loss should be recognized on the
exchange?
a. 600,000
b. 230,000
c. 370,000
d. 0
Rolex Company incurred the following expenditures related to land and building
Cash Paid for land and dilapidated building 1,000,000
Removal of old building to make room for construction of new building 50,000
Payment to tenants for vacating the old building 15,000
Architect fee of new building 200,000
Building permit for new construction 30,000
Fee for title search 10,000
Survey before construction of the new building 20,000
Excavation before new construction 100,000
New building constructed 6,000,000
Assessment by city for drainage project 5,000
Cost of grading, levelling and landfill 45,000
Driveway and walk to the new building from street(part of building plan) 40,000
Temporary quarters of a construction crew 80,000
Temporary building to house tools and materials 60,000
Cost of changes during construction to make building more efficient 50,000
Cost of windows broken by vandals 25,000
10. What is the cost of the land?
a. 1,145,000
b. 1,215,000
c. 1,130,000
d. 1,080,000
11. What is the cost of the new building?
a. 6,625,000
b. 6,560,000
c. 6,650,000
d. 6,645,000
Basilan Company acquired a machine at the beginning of the current year.
Cash paid for machine, including the VAT of P96,000 896,000
Cost of transporting machine 30,000
Labor costs of installation by expert filter 50,000
Labor cost of testing machine 40,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000
Cost of safety rails and platform surrounding the machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred as required by contract 65,000
12. What amount should be capitalized as cost of the machine?
a. 1,135,000
b. 1,231,000
c. 1,200,000
d. 1,150,000
13. Directly attributable costs in bringing asset to the location and condition for the intended
use include all of the following, except
a. Cost of relocating or reorganizing part or all of an entity’s operations.
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation, assembly and testing cost, including professional fee
14. Cabiao Company purchased a new printing machine on December 2, 2018 at an invoice
price of P4,000,000 with terms 2/10, n/30. On December 10, 2018, Cabiao paid the
required amount for the machine. The installation costs were P50,000 and the employees
received training on how to use the machine at a cost of P20,000. Before using the
machine to print customer’s orders a test was undertaken and the paper and ink cost
P5,000. What amount should be capitalized a cost. What amount should be capitalized as
cost of the machine?
a. 4,075,000
b. 3,995,000
c. 3,975,000
d. 3,970,000
15. Seller Co. sold a used asset to Buyer Co. for P800,000 accepting a five year 6% note for
the entire amount. Buyer’s incremental borrowing rate was 14%. The annual payment of
principal and interest on the note was to be P189,930. The asset could have been sold at
an established cash price of P651,460. The present value of an ordinary annuity of P1 at
8% for five periods is 3.99. The asset should be capitalized on buyer’s books at
a. 949,650
b. 800,000
c. 757,820
d. 651,460
16. Sunflower Company acquired some new equipment.

List Price of the equipment 14,000
Cash discount available but not taken on the purchase 200
Freight paid on the new equipment 250
Costs of removing the old equipment 170
Installation costs of the new equipment 430
Testing costs before the equipment was put to regular operation (including 295
P120 in wages of the regular equipment operator)
Loss on premature retirement of the old equipment 120
Estimated cost of manufacturing similar equipment in the company’s own 13,800
plant, including overhead
What amount should be capitalized as the cost of the new equipment?
a. 14,775
b. 28,865
c. 14,975
d. 15,065
17. A used delivery truck was traded in for a new truck.

Used truck:
Cost 1,600,000
Accumulated Depreciation 1,200,000
Estimated Fair Value 320,000
New Truck:
List Price 2,000,000
Cash Price without trade in 1,900,000
Cash Price with trade in 1,560,000
The amount that should be capitalized as the cost of the new truck is:
a. 1,560,000
b. 1,900,000
c. 1,880,000
d. 1,960,000
18. LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment overseas on cash basis
for ₱400,000. Additional costs incurred include the following: commission paid to broker for the
purchase of the equipment, ₱20,000; import duties of ₱100,000; non-refundable purchase taxes of
₱40,000; freight cost of transferring the equipment to LOQUACIOUS’ premises, ₱4,000; costs of
assembling and installing the equipment, ₱8,000; costs of testing the equipment, ₱6,000;
administration and other general overhead costs, ₱16,800; and advertisement and promotion costs of
the new product to be produced by the equipment, ₱15,200. The samples generated from testing the
equipment were sold at ₱2,000. How much is the initial cost of the equipment?
a. 576,000 c. 592,800
b. 578,000 d. 594,800
19. Nail Bite Co. acquired land with fair value of ₱4,000,000 in exchange for Nail Bite’s 10,000 shares
with par value of ₱40 per share and quoted price of ₱360 per share. How much gain (loss) should
Nail Bite Co. recognize on the exchange?
a. 3,200,000 c. (400,000)
b. 400,000 d. 0
20. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures at an installment price of ₱520,000.
REEDY paid ₱40,000 cash down payment and issued a three-year noninterest bearing note of
₱480,000 payable in three equal annual installments starting December 31, 20x1 for the balance. The
prevailing rate for the note as of January 1, 20x1 is 12%. How much is the initial cost of the fixtures?
a. 360,000 c. 480,000
b. 424,293 d. 520,000
Module 3 Seatwork
PROBLEM 1: TRUE OR FALSE
1. FALSE – PAS 16 defines depreciation as the “systematic allocation of the depreciable amount of
an asset over its estimated useful life.”
2. FALSE – revaluation model
3. TRUE = (120K – 20K) ÷ 10 years = 10K annual depreciation;

10K annual depreciation ÷ 100K depreciable amount =10%
4. FALSE – 800K
5. TRUE
6. FALSE
7. TRUE
8. TRUE
9. FALSE – recognized in OCI and accumulated in equity
10. FALSE – (180K – 10K) – 200K = 30K loss
PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. B
3. A
☞ Depreciation starts when the asset is available for use in the manner intended by management.
☞ Costs incurred while an item capable of operating in the manner intended by management has
yet to be brought into use are recognized as expenses.
4. D – see the word “not” in the problem

5. D
6. D
7. D - PAS 16 encourages the note disclosure of the gross carrying amounts of fully depreciated
assets. If the fully depreciated assets were removed from the ledger, information on the gross
carrying amounts to be disclosed in the notes would not be readily available.
8. B
9. D
10. D
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. D
⮚ SLM = (1M x 95%) ÷ 10 = 95,000
⮚ SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55
SYD depreciation in 20x2 = 950,000 x 9/55 = 155,455
⮚ DDB rate = 2 ÷ 10 = 20%
DDB depreciation in 20x2 = 1M x 80% x 20% = 160,000
⮚ UOPM (input) depreciation in 20x2 = 950,000 x (2,800/28,000) = 95,000
⮚ UOPM (output) depreciation in 20x2 = 950,000 x (9,800/84,000) = 110,833
2. C
Purchase price 480,000
Commission 20,000
Freight 22,000
Installation and testing 18,000
Total cost 540,000
Residual value (40,000)
Depreciable amount 500,000
⮚ SLM = 500,000 x 8/10 + 40,000 = 440,000

⮚ SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55
SYD accumulated depreciation on Dec. 31, 20x2 = 500,000 x [(10 + 9) ÷ 55] = 172,727
SYD carrying amount on Dec. 31, 20x2 = 540,000 - 172,727 = 367,273
⮚ DDB rate = 2 ÷ 10 = 20%
DDB carrying amount on Dec. 31, 20x2 = 540M x 80% x 80% = 345,600
⮚ UOPM (input) Accumulated depreciation on Dec. 31, 20x2 = 500,000 x [(2,000 + 2,700 ) ÷ 25,000] =
94,000
Carrying amount on Dec. 31, 20x2 = 540,000 – 94,000 = 446,000
⮚ UOPM (output) Accumulated depreciation on Dec. 31, 20x2 = 500,000 x [(8,000 + 10,000 ) ÷
100,000] = 90,000
Carrying amount on Dec. 31, 20x2 = 540,000 – 90,000 = 450,000
3. C
Solution:
SYD denominator = Life x [(Life + 1) / 2] = 4 x [(4+1) / 2] = 10
Historical cost 20,000
Estimated residual value (2,000)

Depreciation - 20x1 (18,000 x 4/10) 7,200
Depreciation - 20x2 (18,000 x 3/10) 5,400
Depreciation - 20x2 (18,000 x 2/10) 3,600
Accumulated depreciation - 12/31/20x3 16,200
Accumulated depreciation - 12/31/20x3 (16,200)

Carrying amount - 12/31/20x3 3,800
4. B
Yr. Straight line SYD

1 (100,000 – 10,000) ÷ 5 = 18,000 90,000 x 5/15 = 30,000
2 18,000 90,000 x 4/15 = 24,000
3 18,000 90,000 x 3/15 = 18,000
4 18,000 90,000 x 2/15 = 12,000
5 18,000 90,000 x 1/15 = 6,000
5. A (110,000 – 5,000) ÷ 10 yrs. = 10,500
6. A
Solution:
150% declining balance rate = 1.5/Life = 1.5/5 = 30%
Depreciation - 20x1 (200,000 x 30%) 60,000
Depreciation - 20x2 (200,000 - 60,000) x 30% 42,000
Accumulated depreciation - 12/31/x2 102,000

7. D
Solution:
⮚ Composite life = Depreciable amount ÷ Annual depreciation
Composite life = 280,000 ÷ 70,000 = 4 years
⮚ Composite rate = Annual depreciation ÷ Total cost

Composite rate = 70,000 ÷ 290,000 = 24.14%
⮚ Depreciation in current year:

Total depreciable amount 280,000
Depreciable amount of old tools (8,000)
Depreciable amount of new tools 12,000
Revised depreciable amount 284,000
Divide by: Original composite life 4
Revised annual depreciation 71,000
Total cost 290,000

Cost of old tools (8,000)
Cost of new tools 12,000
Revised total cost 294,000
Multiply by: Original composite rate 24.14%
Revised annual depreciation 70,972*
* Answer rounded-off to 71,000.
8. C
Solutions:
⮚ Retirement method:
Cost of disposals (12,000 + 24,000 + 36,000) 72,000
Net disposal proceeds (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 67,400
⮚ Replacement method:
Cost of additions as replacements (20,000 + 44,000) 64,000
Cost of disposals but not replaced 24,000
Proceeds from sale of old tools (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 83,400
⮚ Inventory method:
Tools
beg. bal. 300,000 4,600 Proceeds from asset disposals
Additions 124,000 67,400 Depreciation (squeeze)
352,000 end. bal. (per physical count)
9. C
⮚ Useful life = 20 years
⮚ Remaining lease term as of 12/31/01 = (9* + 5 renewal) = 14
* Dec. 31, 2001 completion date of improvements to Dec. 31, 2010 end of original lease term = 9 yrs.
⮚ Shorter = 14 years
⮚ 480,000 x 13/14 = 445,714
10. C
Solution:
Step 1: Carrying amount as at the beg. of the period of change
▪ Double declining balance rate (2 ÷ Life) or (2 ÷ 20 yrs.) 10%
▪ Carrying amt. on Jan. 1, 20x8
(5M x 90% x 90% x 90% x 90% x 90% x 90% x 90%) 2,391,485
Step 2: Apply the changes

▪ Remaining life = 20 yrs. – 7 yrs. = 13 years
▪ SYD denominator = {13 x [(13 + 1) ÷ 2]} = 91
▪ Carrying amount on Jan. 1, 20x8 2,391,485
Revised residual value (200,000 – 20,000) (180,000)
Depreciable amount 2,211,485
Multiply by: 13/91
SYD depreciation in 20x8 315,926
11. D

Original estimated useful life 8
Original depreciation per year 33,000
Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) (99,000)

Carrying amount - 1/1/x3 165,000
Revised residual value (24,000)

Revised depreciable amount 141,000
Divide by: Revised useful life (6 yrs. - 3 yrs.) 3
Depreciation - 20x3 47,000
Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) 99,000

Depreciation - 20x3 47,000
Accumulated depreciation - 12/31/x3 146,000
12. C
Solutions:
(1)
Jan. 1, Cash 100,000
20x7
Accumulated depreciation (1.8M x 5/15) 600,000
Loss on replacement (squeeze) 1,100,000
Equipment (old part) 1,800,000
to derecognize the old part
Jan. 1, Equipment (new part) 2,100,000
20x7
Cash 2,100,000
to recognize the new replacement part
On derecognition, the difference between the carrying amount of the derecognized PPE and the net
disposal proceeds, if any, is recognized as gain or loss in profit or loss.
(2)
Jan. 1, Cash 100,000
20x7
Accumulated depreciation (2.1M x 5/15) 700,000

20x7
Cash 2,100,000
13. A
Solution:
(1)
Replacement cost 50,000,000
Less: Depreciation (50M x 8(a)/32(b)) (12,500,000)
Fair value (Depreciated replacement cost) 37,500,000
Less: Carrying amount (40,000,000 – 16,000,000) (24,000,000)
Revaluation surplus, gross of tax 13,500,000
Less: Deferred tax consequence (13.5M x 30%) (4,050,000)
Revaluation surplus, net of tax 9,450,000
(a)
Effective life (Effective age)
(b)
Total economic life = Effective life + Remaining economic life = (8 + 24) = 32

Divide by: Remaining economic life 24
Revised annual depreciation 1,562,500
14. B
Solutions:
Less: Depreciation (30M – 3M) x 7(a)/28 (6,750,000)
Fair value 23,250,000
Carrying amount (22M – 2M) x 19/25 + 2M (17,200,000)
Revaluation surplus, gross of tax 6,050,000
Less: Deferred tax consequence (6.050M x 30%) (1,815,000)
Revaluation surplus, net of tax – 12/31/x6 4,235,000
(a)
28 yrs. total economic life – 21 yrs. remaining economic life = 7 yrs. effective life
(1) Carrying amount of building on 12/31/x7:

Fair value on 12/31/x6 23,250,000
Revised residual value (3,000,000)
Revised depreciable amount 20,250,000
Revised annual depreciation 964,286
Fair value on 12/31/x6 23,250,000

Less: Depreciation in 20x7 (964,286)
Carrying amount of building on 12/31/x7 22,285,714
(2) Carrying amount of revaluation surplus on 12/31/x7:

Annual transfer to retained earnings 201,667

Less: Amount transferred to R/E in 20x7 (201,667)
15. A
Solution:
⮚ Building:
Less: Depreciation (12M x 10/40*) (3,000,000)
Carrying amount [8M - (8M x 15**/25)] (3,200,000)
Revaluation surplus – gross of tax 5,800,000
Multiply by: 70%
Revaluation surplus – net of tax (Building) 4,060,000
* 10 yrs. effective life + 30 yrs. remaining life = 40 total economic life
**Actual life
⮚ Patio:
Less: Depreciation (4.2M x 10/25*) (1,680,000)
Carrying amount [3M – (3M x 10**/20)] (1,500,000)
Multiply by: 70%
Revaluation surplus – net of tax (Patio) 714,000
* 10 yrs. effective life + 15 yrs. remaining life = 25 total economic life

**Actual life
Total Revaluation Surplus, net of tax: (4.06M + 714K) = 4,774,000
16. D
Solution:
17. D
Solution:
⮚ Changes in accounting estimates in 20x4:
▪ Carrying amt. on Jan. 1, 20x4 (20M – 1M) x 7/10 + 1M R.V. 14,300,000

▪ Revised estimate of remaining useful life 5 years
▪ SYD denominator {5 x [(5 + 1) ÷ 2]} 15
▪ Carrying amount on Jan. 1, 20x4

14,300,000
Revised residual value (800,000)
Revised depreciable amount 13,500,000
Revised depreciation table:

Date Depreciable amount SYD rate Depreciation
12/31/x4 13,500,000 5/15 4,500,000
12/31/x5 13,500,000 4/15 3,600,000
12/31/x6 13,500,000 3/15 2,700,000
12/31/x7 13,500,000 2/15 1,800,000
12/31/x8 13,500,000 1/15 900,000S
13,500,000
⮚ Sale on July 21, 20x6:

Carrying amount on Jan. 1, 20x4
14,300,000
Depreciation in 20x4 (4,500,000)
Depreciation in 20x5 (3,600,000)
Depreciation from Jan. 1 to July 31, 20x6 (2.7M x 7/12) (1,575,000)
Carrying amount on date of sale 4,625,000
Net disposal proceeds (4,500,000 – 50,000) 4,450,000

Carrying amount on date of sale (4,625,000)
Loss on sale (175,000)
18. B
Solution:
⮚ Gain (loss) in P/L:
Fair value on 1/1/x6 15,000,000

Multiply by: 10/15
Carrying amount on 1/1/11 10,000,000
Net disposal proceeds (12M - .6M) 11,400,000

Carrying amount on 1/1/11 (10,000,000)
Gain on sale - P/L 1,400,000
⮚ Direct transfer within equity:
Fair value on 1/1/x6 15,000,000

Carrying amount on 1/1/x6 (12M x 20/25) (9,600,000)
Revaluation surplus 5,400,000
Divide by: Remaining useful life 15
Annual transfer to retained earnings 360,000
Revaluation surplus - 1/1/x6 5,400,000

Annual transfers (360K x 5 yrs.) (1,800,000)
Revaluation surplus - 1/1/11 3,600,000
19. B
Accumulated depreciation
971,065 12/31/x1
Depreciation -
Disposal (squeeze) 715,998 599,035 20x2
12/31/x2 854,102
20. B
Solution:
⮚ Cost of acquisitions:
Building
Building, beginning 1,000,000
Acquisitions (squeeze) 2,300,000 800,000 Disposals
2,500,000 Building, end
⮚ Depreciation expense:
The journal entry to record the sale of the old building is re-provided below:
20x2 Cash 260,000
Accumulated depreciation (squeeze) 500,000
Loss on sale of building 40,000
Building 800,000
Accumulated depreciation
200,000 beg.
Accumulated
depreciation of Depreciation expense
building sold 500,000 500,000 (squeeze)
end 200,000
PROBLEM 5: CLASSROOM ACTIVITY
Solutions:
Requirement (a):
Aug. 1, 20x1
Building – Construction in progress 2,916,619.26
Cash 2,916,619.26
to record the down payment for the contracted construction of a building
Aug. 22, 20x1

Building – Construction in progress 22,000.00
Cash 22,000.00
to record the payment for the building permit
The cost of building permit is capitalized because it is necessary in bringing the asset to its
intended condition, i.e., it is illegal to construct a building without a permit.
Oct. 1, 20x1
Retention payable (1,296,275.22 x 10%) 129,627.52
Cash (1,296,275.22 x 90%) 1,166,647.70
to record the payment for the first progress billing
Dec. 22, 20x1

Retention payable (3,456,733.93 x 10%) 345,673.39
Cash (3,456,733.93 x 90%) 3,111,060.54
to record the payment for the second progress billing
Dec. 22, 20x1

Charitable contributions 13,000.00
Cash 13,000.00
to record donation for Christmas party of construction workers
Feb. 27, 20x2

Retention payable (1,620,344.03 x 10%) 162,034.40 Cash (1,620,344.03 x 90%)
1,458,309.63
to record the payment for the third progress billing
Apr. 30, 20x2
Retention payable (432,091.76 x 10%) 43,209.18
Cash (432,091.76 x 90%) 388,882.58
to record the payment for the final progress billing
June 30, 20x2

Cash 12,000.00
to record the cost of occupancy permit
The cost of occupancy permit is capitalized because it is necessary for the entity to enjoy the
economic benefits of the asset, i.e., it is illegal to occupy a building without a permit.
June 30, 20x2

Retention payable* 680,544.49
Cash 680,544.49
to record the settlement of the 10% retentions on payments for progress billings
*129,627.52 + 345,673.39 + 162,034.40 + 43,209.18 = 680,544.49
June 30, 20x2

Building (a) 9,756,064.20
Building – Construction in progress (a) 9,756,064.20
to close the “Building – Construction in progress” to the “Building” account
(a)
Building - Construction in progress

8/1/x1 2,916,619.26
8/22/x1 22,000.00
10/1/x1 1,296,275.22
12/22/x1 3,456,733.93
2/27/x2 1,620,344.03
4/30/x2 432,091.76
6/30/x2 12,000.00
9,756,064.20
July 18, 20x2

Taxes and licenses 18,000.00
Cash 18,000.00
to record the tax on the building
Taxes are generally expensed. The only exception is when the taxes have accrued before an existing
building is purchased and the payment thereof is assumed by the buyer.
July 24, 20x2
Relocation expense 230,000.00
Cash 230,000.00
to record the relocation costs as expense
Aug. 1, 20x2
Opening costs 50,000.00
Cash 50,000.00
to record the opening costs as expense
Opening costs and similar start-up costs are expensed.
Dec. 31, 20x2

Depreciation expense – Bldg. 195,121.29
Accumulated depreciation – Bldg. 195,121.29
to record the depreciation expense for 20x2
* 9,756,064.20 ÷ 25 yrs. = 390,242.57 annual depreciation x 6/12 = 195,121.29
Depreciation begins when the asset is available for use, and not when it is actually used. The
receipt of the occupancy permit on June 30, 20x2 signifies that the building is available for use starting
from this date.
In practice, taxes on the building start to accrue also from the date of the occupancy permit.
Requirement (b):
20x1 20x2
Building 7,619,628.41 9,756,064.20
Accumulated depreciation - (195,121.29)
Carrying amount - Dec. 31 7,619,628.41 9,560,942.91

PROBLEM 6: FOR CLASSROOM DISCUSSION
1. Solutions:
Requirement (a): Straight line method
Initial cost (Historical cost) of machine 500,000
Residual value (500,000 x 10%) (50,000)
Divide by: Estimated useful life 4
Annual depreciation 112,500
⮚ Depreciation table:
Accumulated Carrying
Date Depreciation depreciation amount
Jan. 1, 20x1 500,000
Dec. 31, 20x1 112,500 112,500 387,500
Dec. 31, 20x2 112,500 225,000 275,000
Dec. 31, 20x3 112,500 337,500 162,500
Dec. 31, 20x4 112,500 450,000 50,000
450,000
⮚ Journal entries:
Dec. 31, Depreciation expense 112,500
20x1
20x2
Requirement (b): Sum-of-the-years’ digits method

SYD denominator = Life x [(Life + 1) ÷ 2]
SYD denominator = 4 x [(4 + 1) ÷ 2] = 10
Depreciabl SYD Depreciatio Accumulated Carrying
Date e amount rate n depreciation amount
1/1/x1 500,000
12/31/x
450,000 4/10 180,000 180,000 320,000
1
12/31/x
450,000 3/10 135,000 315,000 185,000
2
12/31/x
450,000 2/10 90,000 405,000 95,000
3
12/31/x
450,000 1/10 45,000 450,000 50,000
4
450,000
20x1
20x2
Requirement (c): Double declining balance method
Double declining rate = 2 ÷ Life
Double declining rate = 2 ÷ 4 = 50%
Depreciatio
Year
n
20x1 (500,000 x 50%) 250,000
20x2 (500,000 - 250,000) x 50% 125,000
20x3 (500,000 - 250,000 - 125,000) x 50% 62,500
(500,000 - 250,000 - 125,000 – 62,500 – 50,000
20x4
RV) 12,500
Date Depreciation Accumulated Carrying amount
depreciation
Jan. 1, 20x1 500,000
Dec. 31, 20x1 250,000 250,000 250,000
Dec. 31, 20x2 125,000 375,000 125,000
Dec. 31, 20x3 62,500 437,500 62,500
Dec. 31, 20x4 12,500 450,000 50,000
450,000
20x1
20x2
2. Solutions:
Requirement (a): Based on Input
Depreciation rate = Depreciable amount ÷ Estimated total hours
Depreciation rate = 450,000 ÷ 12,000
Depreciation rate = 37.5 per hour of input
Dec. 31, Depreciation expense (3,600 x 37.5) 135,000

20x1
Dec. 31, Depreciation expense (3,000 x 37.5) 112,500
20x2
Requirement (a): Based on Output

Depreciation rate = Depreciable amount ÷ Estimated total units
Depreciation rate = (450,000 ÷ 360,000)
Depreciation rate = 1.25 per unit of output
Dec. 31, Depreciation expense (120K x 1.25) 150,000

20x1
Dec. 31, Depreciation expense (100K x 1.25) 125,000
20x2
3. Solution: (450,000 ÷ 5 yrs. remaining lease term) = 90,000
The lease renewal option is ignored because the exercise is not reasonably certain.
4. Solution:
▪ Carrying amt. on Jan. 1, 20x8 (9M – 600K) x 8/15 + 600K 5,080,000

▪ Revised remaining useful life (20 yrs. – 7 yrs.) 13 yrs.
▪ SYD denominator = Life x [(Life + 1) ÷ 2] = 13 x [(13 + 1) ÷ 2] = 91
Carrying amount on Jan. 1, 20x8 5,080,000

Less: Revised residual value (800,000)
Revised depreciable amount

4,280,000
Multiply by: SYD rate in 20x8 13/91
SYD depreciation in 20x8 611,429
Journal entry:
20x8
5. Solutions:
Requirement (a):
Jan. 1, Accumulated depreciation (2.5M x 6/10) 1,500,000
20x7
20x7
Cash 3,000,000
Requirement (b):
Jan. 1, Accumulated depreciation (3M x 6/10) 1,800,000
20x7

20x7
Cash 3,000,000
6. Solutions:
Requirement (a):
Less: Carrying amount (30M – 9M) (21,000,000)
Revaluation surplus - gross of tax 4,200,000
Less: Deferred tax (4.2M x 30%) (1,260,000)
Revaluation surplus - net of tax 2,940,000
Requirement (b):
⮚ Proportional method
Historical Cost Fair value % change
Building 30,000,000
Accum. depreciation (9,000,000)
Carrying amount 21,000,000 25,200,000 120%*
* (25,200,000 ÷ 21,000,000) = 120% increase
Historical Cost % change Revalued amounts

Building 30,000,000 120% 36,000,000
Accum. depreciation (9,000,000) 120% (10,800,000)
Carrying amount 21,000,000 25,200,000
Date Building (36M – 30M) 6,000,000

Accum. depreciation (10.8M – 9M) 1,800,000
Deferred tax liability 1,260,000
⮚ Elimination method
Date Accumulated depreciation (elimination) 9,000,000
Building (balancing figure) 4,800,000
The building’s carrying amount after the revaluation is analyzed as follows:

Proportional Elimination
Building (30M + 6M); (30M – 4.8M) 36,000,000 25,200,000
Accum. Depreciation (9M + 1.8M); (9M -
(10,800,000) -
9M)
Carrying amount (equal to fair value) 25,200,000 25,200,000
Requirement (c):
Residual value (1,200,000)
Divide by: 8
7. Solutions:
Requirement (a):
Less: Depreciation (32M x 5/25(a)) (6,400,000)
Carrying amount (24M – 7.68M) (16,320,000)

Less: Deferred tax (9.28M x 30%) (2,784,000)
Revaluation surplus – net of tax 6,496,000
(a)
Total economic life = Effective life + Remaining economic life (5 + 20 = 25)
Requirement (b):
⮚ Proportional method
Historical Cost Replacement cost Change
Building 24,000,000 32,000,000 8,000,000
Accum.
depreciation (7,680,000) (6,400,000) 1,280,000
CA/ DRC/ RS (b) 16,320,000 25,600,000 9,280,000
(b)
Carrying amount/ Depreciated replacement cost/ Revaluation surplus – gross of tax
Date Building (see table above) 8,000,000

Accumulated depreciation 1,280,000
⮚ Elimination method
Date Accumulated depreciation (elimination) 7,680,000
Building (balancing figure) 1,600,000
The building’s carrying amount after the revaluation is analyzed as follows:

Proportional Elimination
Building (24M + 8M); (24M + 1.6M) 32,000,000 25,600,000
A/D (7.68M - 1.28M); (7.68M - 7.68M) (6,400,000) -
Carrying amount (equal to fair value) 25,600,000 25,600,000
Requirement (c):
Residual value -
Divide by: 20
8. Solution:
Land Building
Fair value 8,000,000 16,000,000
Carrying amount (6,000,000) (12,000,000)
Revaluation surplus 2,000,000 4,000,000
Divide by: Remaining economic life N/A 10
Annual transfer to retained earnings - 400,000
The revaluation surplus on the land remains in equity and transferred to retained earnings
only when the land is derecognized.
9. Solution:
⮚ Dec. 31, 20x4:
Dec. 31, Impairment loss 1,200,000

20x4
Land 1,200,000
⮚ Dec. 31, 20x7:

Dec. 31, Land 3,200,000
20x7
Impairment gain 1,200,000
⮚ Dec. 31, 20x9:
Dec. 31, Revaluation surplus 2,000,000

20x9
Impairment loss 100,000
Land 2,100,000
10. Solution:
SYD denominator = Life x [(Life + 1) ÷ 2]
SYD denominator = 4 x [(4 + 1) ÷ 2] = 10
⮚ Full-year depreciation charges (partial):

Date Depreciable amount SYD rate Depreciation
Year 1 3,200,000 4/10 1,280,000
Year 2 3,200,000 3/10 960,000
Year 3 3,200,000 2/10 640,000
Year 4 3,200,000 1/10 320,000
⮚ Depreciation table (partial):

Date Depreciation
Feb. 1 – Dec. 31,
(1.28M x 11/12) 1,173,333
20x1
Jan. 1 – Dec. 31,
(1.28M x 1/12) + (960K x 11/12) 986,667
20x2
Jan. 1 – July 31, 20x3 (960K x 1/12) + (640K x 6/12) 400,000
Accumulated depreciation as of date of sale 2,560,000
⮚ Journal entry:
July 20, Cash (1.8M – 40K) 1,760,000
20x3
Accumulated depreciation 2,560,000
Machine 4,000,000
Gain on sale (squeeze) 320,000
Alternative solution for gain (loss) computation:

Net disposal proceeds 1,760,000
Carrying amount on date of sale (4M - 2,560,000) (1,440,000)
Gain (loss) on sale 320,000
Module 3 Quiz
Rona Company provided the following charges to the “repair and maintenance account”.
Service contract on office equipment 100,000
Initial design fee for proposed extension of office building 150,000
New condenser for central air conditioning unit 10,000
Purchase of executive the chair and desks 200,000
Purchase of storm windows and screens and their
Installation on all office windows 500,000
Sealing of roof leaks in production area 80,000
Replacement of door to production area 50,000
Installation of automatic door-opening system 200,000
Overhead crane for assembly department to speed up production 350,000
Replacement of broken gear on machine 60,000
What total amount of expenditure should be capitalized?
a. 1,400,000
b. 1,200,000
c. 1,500,000
d. 1,410,000
Under PAS 16, which of the following costs relating to non-current assets should be capitalized?
I. Replacement of a building’s roof every 15 years.
II. Maintenance of an asset on a three monthly basis.
III. Installation and assembly costs
IV. Replacement of small parts
a. I and III
b. II and iV
c. III and IV
d. I and II
Depreciation of an asset ceases

(a) At the date that the asset is derecognized
(b) At the date that the asset is classified as held for sale in accordance with PFRS 5
At the earlier of (a) or (b)
At the later of (a) or (b)
On April 1, 2018 the new machinery was ordered at a quoted price of P56,000. On July 1, 2018, it arrived
at Dodik’s Corp. plant with an actual invoice price of P58,000 which it paid immediately. During July
2018, a new concrete platform was constructed at a cost of P4,000 to properly install the machine. In
August 2018, testing was performed at a cost of P7,000 to ensure the machine was operating properly.
On August 31, 2018, the machine was entered into service. Minor repairs and maintenance costs on the
new machine amounted to P3,000 in September 2018. No other costs were incurred prior to December
31, 2018. Similar machinery is depreciated on a straight-line basis over 10 years and typically has no
residual value. What should be the depreciation expense for the year-ended December 31, 2018
2,300
2,233
2,875
3,350
JiSaMi Inc. uses the group depreciation method for its furniture. The depreciation rate used for its
furniture account is 21%. 8The depreciation rate used furniture is 21%. The balance in the furniture
account on December 31, 2019 was P125,000 and the balance in Accumulated Depreciation, Furniture
was P61,000. The following purchases and dispositions of furniture occurred in 2020 (assume that all
purchases and disposals occurred at the beginning of each year)
Assets Sold
Assets Purchased
Cost Selling Price
35,000 27,000 8,000
The carrying amount of furniture at December 31, 2020 is

71,070
64,750
63,070
44,070
In which of the following situations is the units of production method of depreciation most appropriate?
An asset’s service potential declines with the passage of time.
An asset is subject to rapid obsolescence.
An asset incurs increasing repairs and maintenance with use.
An asset’s service potential declines with use.
Pantabangan Company takes a full year’s depreciation in the year of an assets acquisition, and no
depreciation in the year of disposition. Data relating to one depreciable asset asset acquired in 2016,
with residual value of P900,000 and estimated useful life of 8 years at December 31, 2017 are:
Cost P9,900,000
Accumulated Depreciation 3,750,000
Using the same depreciation method in 2016 and 2017, how much depreciation should Pantabangan
record in 2018 for this asset?
1,125,000
1,250,000
1,650,000
1,500,000
Bangtan Company acquired an asset that had a cost of P130,000. The asset is being depreciated over a
5-year period using the Sum-of-the-Years’digit method. It has a salvage value estimated at P10,000. The
loss/gain if the asset is sold for P38,000 at the end of the third year is
4,000 gain
20,000 loss
68,000 loss
92,000 loss
On January 2, 2018, Lem Corp. bought machinery under a contract that required a down payment of
P10,000 plus twenty-four monthly payments of P5,000 each, for total payments of P130,000. The cash
price equivalent is P110,000 and an estimated useful life of 10 years and estimated residual value of
P5,000. Lem uses straight line depreciation. In its 2018 income statement, what amount should Lem
report as depreciation for this machinery?
10,500
11,000
12,500
13,000
On July 1, 2018, Baifern Corporation purchased equipment at a cost of P340,000. The equipment has an
estimated salvage value of P30,000 and is being depreciated over an estimated life of 8 years and is
being depreciated over an estimated life of 8 years under the double-declining-balance method of
depreciation. The depreciation to be recognized in 2018 is
77,500
42,500
38,750
85,000
On January 2, 2015, Union Co. purchased a machine for P264,000 and depreciated it by the straight-line
method using an estimated useful life of eight years with no salvage value. On January 2, 2018, Union
determined that the machine had a useful life of six years from the date of the acquisition and will have
a salvage value of P24,000. An accounting change was made in 2018 to reflect the additional data. The
accumulated depreciation for this machine should have a balance at December 31, 2018
176,000
160,000
154,000
146,000
XYZ Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and thus
has significant other property, plant and equipment that it carries in its books. It decided to revalue its
property, plant and equipment. The company’s accountant has suggested the alternatives that follow.
Which one of the options should XYZ Inc. select in order to be in line with the provisions of PAS 16?
Revalue only one-half of each class of PPE, as that method is less cumbersome and easy compared to the
revaluing all assets together.
Revalue one ship at a time, as it is easier than revaluing all ships together
Revalue an entire class of PPE.
Since the assets are being revalued regularly, there is no need to depreciate.
Tycoon Corporation acquired a building on January 1, 2014 at a cost of P50,000,000. The building has an
estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2018
and the revaluation revealed replacement cost of P80,000,000, residual value of P2,000,000 and revised
a total life of 12 years. The revaluation surplus as of December 31, 2018 isThe carrying amount of the
building as of December 31, 2018 is
28,250,000
42,700,000
48,800,000
42,950,000
The revaluation surplus as of December 31, 2018 is

P14 Million
P15.4 Million
P14.7 Million
P16.8 Million
On December 31, 2017, the statement of financial position of Twitter Corporation showed the following
property and equipment after changing depreciation:
Building 3,000,000
Accumulated Depreciation (1,000,000) P2,000,000
Equipment 1,200,000
Accumulated Depreciation (400,000) 800,000
The company has adopted the revaluation model for the valuation of property, plant and equipment.
This has resulted in the recognition of prior periods of an asset revaluation surplus for the building of
P140,000. The company does not make a transfer to retained earnings in respect of realized revaluation
surplus
On December 31, 2017, an independent valued assessed the fair value of the building to be P1,600,000
and the equipment to be P900,000. The building and equipment had remaining useful lives of 25 years
and 4 years respectively, as of that date.
The amount to be recognized in profit or loss for 2017 related to the revenue of property and equipment
is
100,000
(160,000)
(260,000)
(300,000)
The revaluation surplus as of December 31, 2018 is

140,000
100,000
75,000
0
The carrying amount of PPE as of December 31, 2018 is

2,500,000
2,400,000
2,080,000
2,211,000
Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended 5
years beyond the original estimate of 10 years. If the asset recognition criteria are met, the cost of
rebuilding the drill press should be charged to the appropriate:
a. expense account c. asset account
b. accumulated depreciation account d. liability account
On December 31, 20x1, the building of Borong Co. with a historical cost of ₱320,000,000,
accumulated depreciation of ₱160,000,000, and an estimated useful life of 20 years was determined
to have a fair value of ₱200,000,000. Borong Co. is subject to an income tax rate of 30%. Under the
elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for ₱160,000,000.
b. a debit to accumulated depreciation for ₱40,000,000.
c. a debit to building for ₱120,000,000.
d. a credit to building for ₱160,000,000.
ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for a total cost of ₱24,000,000.
The aircraft was estimated to have a useful life of 10 years. ENTREAT Co. uses the straight line
method of depreciation. On January 1, 20x5, a major part of the aircraft was replaced for a total cost
of ₱3,200,000. ENTREAT Co. cannot determine the cost of the replaced part. How much is the loss on
replacement?
a. 1,920,000 c. 1,200,000
b. 1,280,000 b. 0
Module 5 Seatwork
PROBLEM 5: MULTIPLE CHOICE - THEORY
1 6. A
E
.
2 7. C
E
.
3 8. B
C
.
4 9. C
D
.
5 10. D
A
.
PROBLEM 6: MULTIPLE CHOICE: COMPUTATIONAL

1. D
2. A (150,000 x 2/4) = 75,000; (13,500 x 2/4) = 6,750
3. D (360,000 – 50,000 – 5,000) ÷ 8 = 38,125
4. C (135,000 – 13,500) = 121,500 net historical cost;

121,500 x 80%* x 20% = 19,440
* 100% - 20% double declining balance rate = 80%

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PROBLEM 1: TRUE OR FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

Total PPE 18,800,000

The training and relocation costs are expensed.

Salvaged materials from trial runs

The allocated cost of the old building is charged as loss.

6. B (2.5M x 97%) + 50K + (200K x PV of 1 @12%, n=10) = 2,539,395

(a) Land = 3,000,000

(b) Transportation equipment (SUV):

Cash purchase price, including the car accessories 2,910,000

(c) Transportation equipment (Pickup truck):

Total cost - SUV 2,922,000

(d) See (b) above

(e) Machine: 160,000 – cash price equivalent

Down Payment 400,000

16. Sunflower Company acquired some new equipment.

17. A used delivery truck was traded in for a new truck.

2. FALSE – revaluation model

3. TRUE = (120K – 20K) ÷ 10 years = 10K annual depreciation;

PROBLEM 2: MULTIPLE CHOICE – THEORY

4. D – see the word “not” in the problem

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

⮚ SLM = 500,000 x 8/10 + 40,000 = 440,000

Estimated residual value (2,000)

Depreciation - 20x1 (18,000 x 4/10) 7,200

Depreciation - 20x2 (18,000 x 3/10) 5,400

Depreciation - 20x2 (18,000 x 2/10) 3,600

Accumulated depreciation - 12/31/20x3 16,200

Historical cost 20,000

Accumulated depreciation - 12/31/20x3 (16,200)

Yr. Straight line SYD

5. A (110,000 – 5,000) ÷ 10 yrs. = 10,500

Depreciation - 20x1 (200,000 x 30%) 60,000

Depreciation - 20x2 (200,000 - 60,000) x 30% 42,000

Accumulated depreciation - 12/31/x2 102,000

⮚ Composite rate = Annual depreciation ÷ Total cost

⮚ Depreciation in current year:

Total cost 290,000

Step 2: Apply the changes

Historical cost 264,000

Historical cost 264,000

Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) (99,000)

Revised residual value (24,000)

Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) 99,000

Accumulated depreciation - 12/31/x3 146,000

Jan. 1, Equipment (new part) 2,100,000

Fair value (Depreciated replacement cost) 37,500,000

(1) Carrying amount of building on 12/31/x7:

Fair value on 12/31/x6 23,250,000

(2) Carrying amount of revaluation surplus on 12/31/x7:

Revaluation surplus, net of tax – 12/31/x6 4,235,000

* 10 yrs. effective life + 15 yrs. remaining life = 25 total economic life

Total Revaluation Surplus, net of tax: (4.06M + 714K) = 4,774,000

Step 2: Apply the changes

▪ Carrying amount on Jan. 1, 20x4

Revised depreciation table:

⮚ Sale on July 21, 20x6:

Net disposal proceeds (4,500,000 – 50,000) 4,450,000

Fair value on 1/1/x6 15,000,000

Net disposal proceeds (12M - .6M) 11,400,000

⮚ Direct transfer within equity: