Question

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186 p7-06 N. A dump ap 15 years was replaced The equip sold now tion met a) DEPRECIATION AND DEPLETION 7-20 SUPPLEMENTARY PROBLEMS 27-01 (RCE Board, August 1975) You are planning to sell your electronic manufact originally costing P250,000 when it was put 1 Some equipment originally costing F10,000 was e years ago with new equipment Couting 715,000. installed 10 years ago has now depreciated by 27.5 depreciation of the remaining portion of the plant installed 15 years ago is now 740,000. Determine book value of your plant. originally cost originally at costing 1 87.500. years ago aining pop ,000. Deter nt origi in the te P7-07 0 A telev 1979. I years, yorth 53. working 14.000 produce ith a trade- y equipment putet P7-02 (RC Board, August 1975) a broadcasting corporation purchased equipment worth and paid P1,500 for freight and delivery charges to The equipment has a normal life of 10 years with a te value of 25.000 against the purchase of new equipment end of life. (a) Determine the annual depreciation cost by the line method. (b) Determine the annual depreciation cost by the stew fund method. Assume interest is 6% compounded P7-03 (ECE Board, February 1976) Asachine which costs P10,000 was sold as scrap after bels used for 10 years. If the scrap value was 500, determine die total depreciation at the end of the fifth year. On Ja bough corp usef vale cost thel mat P7-04 (ECE Board, September 1982) the cost of a certain asset is P3,000; its life is 5 years and scrap value is P500. Find the annual rate of depreciate under constant percentage method, and construct a deprecat table. adio equipment ounted to 3 depreciated on P7-05 (ECE Board, September 1987) ' telephone company purchased a microwave radio equipam 76,000,000. Freight and installation charges amounted of the purchase price. IE the equipment is depreciated an eight-year period with salvage value of 5%, deter following: (a) Annual depreciation charge using the straight method. (b) Depreciation charge during the fifth year usin, SYD method. etermine the straight-line Par using the

complete solution

Answer 1

1)

Cost of original asset	2,50,000
Less: Cost of old item replaced	(10,000)
Add:New item replaced	15,000
Gross value	2,55,000
Less: Depreication
Old asset	40,000
Depreciation on replaced item	7,500
Total depreciation	47,500
Present book value of plant	2,07,500

2)

Cost of Equipment	53,000
Add: Freight charges paid	1,500
The total value of the asset	54,500
Depreciation SML
Cost	54,500
Less: Trade-in value	(5,000)
Depreciable amount	49,500
Depreciation (49500/10)	4,950

Using the Sinking fund method

S / (1+ i) ^ n

Where:

S is the salvage value
i is the interest rate per period
n is the number of periods.

= 5000/(1.06)^10

= 2792 (round off)

Depreciation
Cost	54,500
Less: Trade-in value	(2,792)
Depreciable amount	51,708
Depreciation (51708/10)	5,171

3)

Since no salvage value information at the beginning of the use of the asset, the asset would depreciate 100%.

Depreciation at the end of 5th year
Cost	10,000
useful life	10 years
Depreciation (10000/10)	1,000

4)

S = C (1 - d)^n

Where

C = original cost of the asset

D = depreciation rate

n = number of years

S = book value at the end of n years

500 = 3000(1-d)^6

500/3000 = (1-d)^6

0.167 = (1-d)^6

1-d = (0.167)^1/6

D    = 1-(0.167)^1/6

D =   1-0.742

D = 25.8 %

Year	Depreciation	Accumulated depreciation	Book value
0			3,000
1	774.00	774.00	2,226.00
2	574.31	1,348.31	1,651.69
3	426.14	1,774.44	1,225.56
4	316.19	2,090.64	909.36
5	234.62	2,325.25	674.75
6	174.08	2,499.34	500.66

5)

Cost of Equipment	60,00,000
Add: Freight charges paid	1,80,000
The total value of asset	61,80,000
Depreciation
Cost	61,80,000
Less: Salvage value (6000000*5%0	(3,00,000)
Depreciable amount	58,80,000
Useful life	8 years
Depreciation using SLM (5880000/8)	7,35,000

Depreciation using SYD method

Sum of the years' digits method
Year	Depreciation base	Remaining life	Depreciation fraction	Depreciation rate		Depreciation expense
1	58,80,000	8	8/36	22.22%		13,06,667
2	58,80,000	7	7/36	19.44%		11,43,333
3	58,80,000	6	6/36	16.67%		9,80,000
4	58,80,000	5	5/36	13.89%		8,16,667
5	58,80,000	4	4/36	11.11%		6,53,333
6	58,80,000	3	3/36	8.33%		4,90,000
7	58,80,000	2	2/36	5.56%		3,26,667
8	58,80,000	1	1/36	2.78%		1,63,333

Depreciation of year 5 is 653,333.