GABANO, JAYSON

TCPE 2-1

ENGINEERING ECONOMICS
Final Homework 04

1. An industrial plant bought a generator set for Php90,000. Other expenses including

installation amounted to Php10,000. The generator set is to have a life of 17 years with a

salvage value at the end of life at Php5,000. Determine the depreciation charge during the 13 th

year and the book value at the end of 13 years by:

(a) Declining balance method

(b) Double declining balance method

(c) Sum-of-Years’ digit method

Given:

𝑉 = 90 000 + 10 000 = 100 000

𝑛 = 17 𝑉 = 5000 𝑎 = 13
𝑠

Solution:

a. Declining balance method

𝑛 𝑉
𝑠
𝑘= 1 − 𝑉

17 5000
𝑘= 1 − 100 000

𝑘 = 0. 1616
 𝑎−1
𝑎
𝑑 = 𝑘𝑉(1 − 𝑘) 𝑉 = 𝑉(1 − 𝑘)
𝑎
𝑎

13−1 13
𝑑 = (0. 1616)(100 000)(1 − 0. 1616) 𝑉 = (100 000)(1 − 0. 1616)
13 13

𝑑 = 1949. 2
13 𝑉 = 10 112. 69
13

b. Double declining balance method

2
𝑘= 𝑛

2
𝑘= 17

𝑘 = 0. 1176

𝑎−1 𝑎
𝑑 = 𝑘𝑉(1 − 𝑘) 𝑉 = 𝑉(1 − 𝑘)
𝑎 𝑎

13−1 13
𝑑 = (0. 1176)(100 000)(1 − 0. 1176) 𝑉 = (100 000)(1 − 0. 1176)
13 13

𝑑 = 2620. 56 𝑉 = 19 663. 08
13 13

c. Sum-of-Years’ digit method

𝑛(𝑛+1
𝑆𝑌𝐷 = 17(17+1) 𝑆𝑌𝐷 = 153
2 𝑆𝑌𝐷 = 2

𝑑 = (𝑛+1−𝑎)
𝑆𝑌𝐷 (𝑉 − 𝑉 𝑉 = 𝑉 − 𝑎(𝑛− 2𝑎 + 12 )
(𝑉 − 𝑉 )
𝑎 𝑠 𝑆𝑌𝐷
𝑎 𝑠

(17+1−13)
𝑑 = (100 000 − 5 000)
13 13(17− 13 1
2 + 2)
153 𝑉 = 100 000 − (100 000 − 5000)
13 153
𝑑
13 = 3104. 58 𝑉13 = 11 209. 15
2. A telephone company purchased a radio equipment for 7 million pesos. Construction

charges amounted to 7% of the purchased price. If the equipment will depreciated over a

period of 7 years with a salvage value of 8%, determine the depreciation cost during the 7th year

used SYD.

Given:

𝑉 = 7 000 000 * 1. 07 = 7 490 000 𝑉 = 7 000 000 * 0. 08 = 560 000

𝑠

𝑛=7

Solution:

𝑛(𝑛+1 (𝑛+1−𝑎)
𝑆𝑌𝐷 = 2 𝑑𝑎 = 𝑆𝑌𝐷 (𝑉 − 𝑉 𝑠)

7(7+1) (7+1−7)
𝑆𝑌𝐷 = 𝑑 = (7 490 000 − 560 000)
2 7 28

𝑆𝑌𝐷 = 28 𝑑 = 247 500

13
3. Froyd Corporation makes it a policy for any equipment purchased, the annual

depreciation cost should not exceed 12% of the first cost at any time with no salvage

value. Determine the length of service life necessary if the depreciation used in SYD.

Given:

𝑑 = 0. 12𝑉

𝑉 =0
𝑠

Solution:

(𝑛+1−𝑎) 𝑛(𝑛+1)
𝑑 = 𝑆𝑌𝐷 (𝑉 − 𝑉 𝑠) 𝑆𝑌𝐷 = 2

𝑛
𝑑 = 𝑛(𝑛+1) (𝑉) 0. 12(𝑛 + 1) = 2 𝑛= 2−0.12
2 0.12

0. 12𝑛 + 0. 12 = 2
2 𝑛 = 15. 67 ≈ 16 𝑦𝑟𝑠
0. 12 𝑉
=
(𝑛+1) (𝑉)

4. A tool is purchased for P12,000 and the estimated life is 10 years after which it will

be sold for P920. Find the book value during the first year using SYD?

Given:

𝑉 = 12 000 𝑛 = 10 𝑉 = 920
𝑠

Solution

𝑆𝑌𝐷 = 𝑛(𝑛+1) 𝑎(𝑛− 2𝑎 + 12 )

2 𝑉 = 𝑉 − (𝑉 − 𝑉 )
𝑎 𝑆𝑌𝐷 𝑠

10(10+1)
𝑆𝑌𝐷 = 2
1(10− 21 + 12 )
𝑉 = 12 000 − (12 000 − 950)
1 55

𝑆𝑌𝐷 = 55
𝑉 = 9990. 91
1
5. A new structure costs P20,000. It is estimated to have a life of 8 years with a
salvage value at the end of life of P3,000. Determine the book value at the end of each year
of life.
Given:
𝑉 = 20 000 𝑛= 8 𝑉 = 3 000
𝑠

Solution:
𝑛(𝑛+1)
𝑆𝑌𝐷 = 8(8+1) 𝑆𝑌𝐷 = 36
2 𝑆𝑌𝐷 = 2

𝑎(𝑛− 2𝑎 + 12 )
𝑉 = 𝑉 − (𝑉 − 𝑉 )
𝑎 𝑆𝑌𝐷 𝑠

Year Book Value(Va)

1 1(8− 1 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 16 222. 22
1 36

2 2(8− 2 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 12 916. 67
2 36

3 3(8− 3 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 10 083. 33
3 36

4 4(8− 4 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 7722. 22
4 36

5 5(8− 5 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 5833. 33
5 36

6 6(8− 6 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 4416. 67
6 36

7 7(8− 7 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 3472. 22
7 36

8 8(8− 8 + 1
)
𝑉 = (20 000) − 2 2
(20 000 − 3000) = 3000
8 36