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    Andiam: January 2, 2019

    Uploaded by

    Avox Everdeen
    This document contains 5 problems related to accounting for property, plant, and equipment using different depreciation methods. Problem 1 involves calculating annual depreciation expense for years 2019 and 2020 using straight-line, service hours, and productive output methods. Problem 2 calculates depreciation expense for 2019-2020 using sum-of-years digits and double declining balance methods. Problem 3 determines the composite useful life and depreciation rate of various machinery assets. Problem 4 provides journal entries related to asset overhaul. Problem 5 involves calculating depreciation expense using declining balance and sum-of-years digits methods, and determining gain or loss on disposal of assets.

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    Andiam: January 2, 2019

    Uploaded by

    Avox Everdeen
    418 views5 pages
    This document contains 5 problems related to accounting for property, plant, and equipment using different depreciation methods. Problem 1 involves calculating annual depreciation expense for years 2019 and 2020 using straight-line, service hours, and productive output methods. Problem 2 calculates depreciation expense for 2019-2020 using sum-of-years digits and double declining balance methods. Problem 3 determines the composite useful life and depreciation rate of various machinery assets. Problem 4 provides journal entries related to asset overhaul. Problem 5 involves calculating depreciation expense using declining balance and sum-of-years digits methods, and determining gain or loss on disposal of assets.

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    This document contains 5 problems related to accounting for property, plant, and equipment using different depreciation methods. Problem 1 involves calculating annual depreciation expense for years 2019 and 2020 using straight-line, service hours, and productive output methods. Problem 2 calculates depreciation expense for 2019-2020 using sum-of-years digits and double declining balance methods. Problem 3 determines the composite useful life and depreciation rate of various machinery assets. Problem 4 provides journal entries related to asset overhaul. Problem 5 involves calculating depreciation expense using declining balance and sum-of-years digits methods, and determining gain or loss on disposal of assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    418 views5 pages

    Andiam: January 2, 2019

    Uploaded by

    Avox Everdeen
    This document contains 5 problems related to accounting for property, plant, and equipment using different depreciation methods. Problem 1 involves calculating annual depreciation expense for years 2019 and 2020 using straight-line, service hours, and productive output methods. Problem 2 calculates depreciation expense for 2019-2020 using sum-of-years digits and double declining balance methods. Problem 3 determines the composite useful life and depreciation rate of various machinery assets. Problem 4 provides journal entries related to asset overhaul. Problem 5 involves calculating depreciation expense using declining balance and sum-of-years digits methods, and determining gain or loss on disposal of assets.

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    © All Rights Reserved
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    of 5

    And I am

    PROPERTY, PLANT AND EQUIPEMENT


    ( SUBSEQUENT MEASUREMENT )

    PROBLEM 1
    Hearsa Manufacturing Inc. purchased a new machine on January 2, 2019, that was built to perform
    one function on its assembly line. Data pertaining to this machine are:

    Acquisition cost P330,000


    Residual value P30,000
    Estimated service life:
    Years 5
    Service hours 250,000
    Production output 300,000

    Required: Using each of the following methods, compute the annual depreciation rate and charge
    for the years ended December 31, 2019 and 2020:
    (1) Straight-line
    (2) Service hours (assume 32,000 hours for 2019 and 36,000 hours for 2020).
    (3) Productive-output (assume 31,000 units for 2019 and 37,000 units for 2020).

    ANS:

    Cost of Asset
    Less: Residual Value
    Depreciable Cost

    (1)
    Straight-line:
    2019: (P330,000 - P30,000)/5 = P60,000
    2020: P60,000

    (2)
    Service hours: (P330,000 - P30,000)/250,000 = P1.20 per hour
    depreciation rate
    2019: P1.20  32,000 = P38,400
    2020: P1.20  36,000 = P43,200

    (3)
    Productive-output: (P330,000 - P30,000)/300,000 = P1.00 per unit
    depreciation rate
    2019: P1.00  31,000 = P31,000
    2020: P1.00  37,000 = P37,000

    PROBLEM 2
    On July 1, 2019, Sparks Company purchased for P2,160,000 snow-making equipment having an
    estimated useful life of 5 years with an estimated salvage value of P90,000. Depreciation is taken for
    the portion of the year the asset is used.

    Instructions
    (a) Complete the form below by determining the depreciation expense and year-end book values for
    2019 and 2020 using the
    1. sum-of-the-years'-digits method.
    2. double-declining balance method.

    (b) Assume the company had used straight-line depreciation during 2019 and 2020. During 2021,
    the company determined that the equipment would be useful to the company for only one
    more year beyond 2021. Salvage value is estimated at P120,000. Compute the amount of
    depreciation expense for the 2021 income statement.

    (a) Sum-of-the-Years'-Digits 2019 2020


    Accumulated Depreciation P 345,000 P 966,000
    Book Value 1,815,000 1,194,000
    Depreciation Expense 345,000 621,000

    Y1 5/15 (July 1, 2019 to June 30, 2020)


    Y2 4/15 (July 1, 2020 to June 30, 2021)
    Y3 3/15
    Y4 2/15
    Y5 1/15

    Depreciable Amount = 2,160,000 – 90,000 = 2,070,000


    2019: (2,070,000 x 5/15) x 6/12 = 345,000

    Cost 2,160,000
    Less: A.D. 345,000
    BV of equip. 1,815,00

    2020: Jan. 1, 2020 – June 30, 2020 = 345,000


    July 1, 2020 – Dec. 31, 2020 = (2,070,000 x 4/15) x 6/12 = 276,000
    Depreciation expense = 345,000 + 276,000 = 621,000

    Cost 2,160,000
    Less: A.D. 966,000
    BV of equip. 1,1194,00

    Double-Declining Balance
    Accumulated Depreciation P 432,000 P1,123,200
    Book Value 1,728,000 1,036,800
    Depreciation Expense 432,000 691,200

    Double declining rate = 2/life = 2/5 = 40%


    Y1 (July1, 2019 – Dec. 31, 2019) 2,160,000 x 40 % x 6/12 = 432,000

    Cost 2,160,000
    Less: A.D 432,000
    BV of equip 1,728,000

    Y2 (Jan. 1, 2020 – June 30, 2020) 864,000 x 6/12 = 432,000


    (July 1, 2020 – Dec. 31, 2020) 518,400 x 6/12 =259,200
    Depreciation expense (2020) = 432,000 + 259,200 = 691,200

    Cost 2,160,000
    Less: A.D 1,123,200
    BV of equip 1,036,800

    Double Declining
    Y1: (July 1, 2019 – June 30, 2020) 2160,000 x 40% = 864,000
    Y2: (July 1, 2020 – June 30, 2021) 1,296,000 x 40% = 518,400

    (b) Cost P2,160,000


    Accum. Depreciation (621,000)
    Salvage (120,000)
    P1,419,000 × 1/2 = P709,500, 2021 depreciation
    Depreciable Amount = (2,160,000-90,000) = 2,070,000

    Annual Depreciation = 2,070,000/5 = 414,000

    Accum. Dep. = (414,000 x 6/12) + 414,000 = 621,000

    Cost 2,160,000
    Less: A.D. 621,000
    BV of Equip 1,539,000
    Less: SV 120,000
    New D. A. 1,419,000
    Divided by 2
    Annual Dep. 709,500

    PROBLEM 3
    The following is a schedule of machinery owned by Martin Manufacturing Company.

    Estimated Estimated
    Total Salvage Life in
    Cost Value Years
    Machine A P 600,000 P110,000 20
    Machine B 315,000 30,000 10
    Machine C 84,000 0 15
    Machine D 107,000 7,000 5
    P1,106,000

    Martin computes depreciation on the straight-line basis. Based on the information presented,
    compute the:

    (1) Composite life of these assets (in years).


    (2) Composite depreciation rate.

    ANS:

    Salvage Depreciable Estimated Annual


    Asset Cost Value Cost Life Depreciation
    A P 600,000 P110,000 P490,000 20 P24,500
    B 315,000 30,000 285,000 10 28,500
    C 84,000 0 84,000 15 5,600
    D 107,000 7,000 100,000 5 20,000
    P1,106,000 P147,000 P959,000 P78,600

    (1) P959,000/P78,600 = 12.20 years

    (2) P78,600/P1,106,000 = 7.11%

    PROBLEM 4
    A truck was acquired on July 1, 2018, at a cost of P216,000. The truck had a six-year useful life and
    an estimated salvage value of P24,000. The straight-line method of depreciation was used. On
    January 1, 2021, the truck was overhauled at a cost of P20,000, which extended the useful life of the
    truck for an additional two years beyond that originally estimated (salvage value is still estimated at
    P24,000). In computing depreciation for annual adjustment purposes, expense is calculated for each
    month the asset is owned.

    Instructions
    Prepare the appropriate entries for January 1, 2021 and December 31, 2021.
    Cost P216,000
    Less salvage value 24,000
    Depreciable base, July 1, 2018 192,000
    Less depreciation to date [(P192,000 ÷ 6) × 2 1/2] 80,000
    CV, Jan. 1, 2021 (unadjusted) 112,000
    Overhaul 20,000
    Depreciable base, Jan. 1, 2021 (adjusted) P132,000

    January 1, 2021
    Accumulated Depreciation 20,000
    Cash 20,000

    Cost xx
    Less: A.D. xx
    BV xx

    December 31, 2021


    Depreciation Expense 24,000
    Accumulated Depreciation (P132,000 ÷ 5.5 yrs) 24,000

    PROBLEM 5
    1. A plant asset purchased for P150,000 has an estimated life of 10 years and a residual value of
    P12,000. Depreciation for the second year of use, determined by the declining-balance method
    at twice the straight-line rate is P_____________.
    24,0000

    2. A plant asset purchased for P200,000 at the beginning of the year has an estimated life of 5 years
    and a residual value of P20,000. Depreciation for the second year, determined by the sum-of-
    the-years'-digits method is P______________.
    48,000

    3. A plant asset with a cost of P160,000 and accumulated depreciation of P45,000, is given together
    with cash of P60,000 in exchange for a similar asset worth P165,000. The gain or loss recognized
    on the disposal (indicate by "G" or "L") is P______________.
    10,000 LOSS

    Cost 160,000
    Less: A.D 45,000
    CV 115,000
    Add: Cash paid/given 60,000
    Total asset given 175,000
    Asset received 165,000
    LOSS 10,000

    PPE (new) 165,000


    Accum. Dep. 45,000
    Loss on Exchange 10,000
    PPE 160,000
    Cash 60,000

    1. A plant asset with a cost of P216,000, estimated life of 5 years, and residual value of P36,000,
    is depreciated by the straight-line method. This asset is sold for P160,000 at the end of the
    second year of use. The gain or loss on the disposal (indicate by "G" or "L") is
    P___________.
    16,000 GAIN

    Depreciable amount = 216,000 – 36,000 = 180,000

    Annual Depreciation = 180,00/5= 36,000


    Proceeds 160,000
    Less: BV of asset* 144,000
    Gain on sale 16,000

    Cost 216,000
    Less: A.D. (36,000 x 2 years) 72,000
    BV of asset 144,000

    Cash 160,000
    Accum. Dep. 72,000
    PPE 216,000
    Gain on Sale 16,000

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