Depreciation Concepts 2

Wednesday, May 18, 2022 5:57 PM

DECLINING BALANCE METHOD or MATHESON FORMULA

A machine costing P 720 000 is estimated to have a book value of P 40 545.73

when retired at the end of 10 years. Depreciation cost is computed using a
constant percentage of declining book value. What is the annual rate of
depreciation in%?

AYessa Macau Power Plant purchases a fire tube boiler for P 525 000. It is to
have a scrap value of P 30 000 after 12 years. Using the Matheson formula, find
a) the depreciation charge for the fourth year; b) the book value at the end of
seven years.

Quick Notes Page 1

DOUBLE DECLINING BALANCE METHOD

Quick Notes Page 2

Chelsea Mfg purchases a sealing machine for P 500 000.
If its estimated scrap value is P 54 994.35, determine using DDB a) its book value
after five years; b) the accumulated depreciation after nine years.

L=11 years

SUM-OF-YEARS-DIGITS METHOD

An asset is purchased for P9000. Its estimated life is 10

years, after which it will be sold for P1000. Find the book
value during the third year if SOYD depreciation is used.
y=55,
Quick Notes Page 3
y=55,

An asset is purchased six years ago for P 64 000. At that

time its life and salvage value were estimated to be 10 years and P1400,
respectively. If the asset is sold now for P 15 000, determine the profit or loss
made using
a)DDB;

15000-16777.22=-1777.22 (loss)

b)SOYD
y=55

15000-12781.82=2218.18 (profit)

Quick Notes Page 4

UNITS of PRODUCTION METHOD

A piece of manufacturing equipment was purchased for P 75 000. Shipping and

installation costs amounted to P 15 000. It is estimated that this machine will
have a salvage value of P 10 000 when replaced after 25 000 hours of use.
Determine a) the depreciation rate per hour; b) the book value after 15 000
hours of operation.

An air conditioning company purchased a P 260 000 stamping machine for

identification of its manufactured units. It is estimated that the machine will
have a salvage value of P 40 000 after 8000 hours of operation. The machine
Quick Notes Page 5
have a salvage value of P 40 000 after 8000 hours of operation. The machine
requires 6 minutes set up and stamp each unit, and the company produces 18
000 units per year.
Determine
a) the depreciation cost per unit;
POL=8000 hr*60 min/hr*1 unit/6 min=80000 units

b) the depreciation cost per year.

d=Php 2.75/unit*18000 unit/yr= Php 49 500/yr

Quick Notes Page 6