Property, Plant and Equi

Equipment
pment (Part 2)

Depreciation methods
Use the following information for the next four cases:
Fact pattern
On January 1, 20x1, SIMPLETON FOOL Co. acquired equipment with an estimated useful life of 4 years and a residual value of
₱80,000 for a total purchase cost of ₱400,000.

Straight line method

Case #1: Use the straight-line method for the next two questions.
1. How much is the depreciation expense in the 2nd year?
a. 100,000 b. 80,000 c. 200,000 d. 160,000

2. How much is the accumulated depreciation on December 31, 20x2?

a. 100,000 b. 80,000 c. 200,000 d. 160,000

Sum
Sum--of
of-the-
-the-years’ digits (SYD) method
-the-years’
Case #2: Use the sum-of-the-years’ digits (SYD) method for the next two questions.
3. How much is the depreciation expense in the 2nd year?
a. 120,000 b. 96,000 c. 128,000 d. 224,000

4. How much is the accumulated depreciation on December 31, 20x2?

a. 120,000 b. 96,000 c. 128,000 d. 224,000

Double declining balance method

Case #3: Use the double declining balance method for the next two questions.
5. How much is the depreciation expense in the 2nd year?
a. 120,000 b. 100,000 c. 128,000 d. 224,000

6. How much is the accumulated depreciation on December 31, 20x2?

a. 120,000 b. 96,000 c. 160,000 d. 300,000

Units of production method (Activity method or Variabl

Variable-charge
e-charge method)
Case #4: Use the units of production method for the next two questions:
The equipment has an expected total output of 160,000 units and an expected total input of 40,000 hours.

Information on actual operations is presented below:

Year Units produced Manufacturing hours
20x1 60,000 16,000
20x2 30,000 8,000
20x3 45,000 12,000
20x4 25,000 4,000
160,000 40,000

7. If SIMPLETON Co. uses the output method, how much is the depreciation expense in the 2nd year?
a. 128,000 b. 96,000 c. 60,000 d. 64,000

8. If SIMPLETON Co. uses the output method, how much is the accumulated depreciation on December 31, 20x2?
a. 120,000 b. 180,000 c. 192,000 d. 256,000

9. If SIMPLETON Co. uses the input method, how much is the depreciation expense in the 2nd year?
a. 64,000 b. 96,000 c. 60,000 d. 64,000

10. If SIMPLETON Co. uses the input method, how much is the accumulated depreciation on December 31, 20x2?
a. 120,000 b. 210,000 c. 192,000 d. 256,000
SOLUTIONS:
B (400,000 – 80,000) ÷ 4 = 80,000

D (80,000 x 2) = 160,000

B
Solution:
SYD denominator = Life x [(Life + 1) ÷ 2] = 4 x [(4 + 1) ÷ 2] = 10
Depreciation – 2nd yr. = (400,000 – 80,000) x 3/10 = 96,000

D (400,000 – 80,000) x [(4+3)/10] = 320,000 x 7/10 = 224,000

B
Solution:
Double declining balance rate = 2/Life = 2/4 = 50%
(400,000 x 50% x 50%) = 100,000

D
Solution:
Depreciation - 20x1 (400K x 50%) 200,000
Depreciation - 20x2 (400K - 200K) x 50% 100,000
Accumulated depreciation - Dec. 31, 20x2 300,000

C (400,000 – 80,000) x 30,000 / 160,000 = 60,000

B (400,000 – 80,000) x [(60,000 + 30,000) / 160,000] = 180,000

A (400,000 – 80,000) x 8,000 / 40,000 = 64,000

C (400,000 – 80,000) x [(16,000 + 8,000) / 40,000] = 192,000

Partial year depreciation

Use the following information for the next three questions:
DEPLORABLE BAD Co. acquired a machine on September 21, 20x1 for a total cost of ₱160,000. The machine was estimated to
have a useful life of 4 years and a salvage value of ₱10,000.

11. How much is the depreciation expense in 20x2 under the straight-line method?
a. 37,500 b. 93,750 c. 36,400 d. 35,000
12. How much is the depreciation expense in 20x2 under the sum-of-years’ digits method?
a. 45,000 b. 11,250 c. 56,250 d. 57,250

13. How much is the depreciation expense in 20x2 under the double declining balance method?
a. 70,000 b. 60,000 c. 10,000 d. 0

Solutions:
Depreciation for each full year of the asset’s life is calculated as follows:
Year Straight line SYD Double declining balance
1 (150K* / 4) = 37,500 4/10 x 150K* = 60,000 50% x 160,000 = 80,000
2 37,500 3/10 x 150K = 45,000 50% x 80,000 = 40,000
3 37,500 2/10 x 150K = 30,000 50% x 40,000 = 20,000
4 37,500 1/10 x 150K = 15,000 50% x 20,000 = 10,000

* (₱160,000 - ₱10,000) = ₱150,000

Since the first full year of the asset’s life does not coincide with the entity’s accounting period, the amounts shown above
are prorated as follows:
Double declining
Year Straight line SYD balance
20x2 37,500 60,000 x 9/12 = 45,000 80,000 x 9/12 = 60,000
45,000 x 3/12 = 11,250 40,000 x 3/12 = 10,000
37,500 56,250 70,000
*Since the asset was acquired on September 21, 20x1 (last half of the month), it is treated as if it has been
acquired on October 1, 20x1.

Composite method
Use the following information for the next four questions:
On January 1, 20x1, DEVIOUS CROOKED Co. purchased the following:
Cost Residual value Useful life
Machine tools 80,000 4,000 3 years
Meters costing 64,000 2,000 5 years Returnable containers 120,000
- 6 years

14. What is the composite life?

a. 5.40 b. 5 c. 4.50 d. 4.71

15. What is the composite rate?

a. 21.87% b. 22.21%c. 95.45% d. 4.50%

16. How much is the depreciation expense in 20x1?

a. 57,733 b. 56,000 c. 58,667 d. 59,8774

Solution:
Annual
Residual Depre-ciable
Cost depre-
value amt.
Useful life ciation
Machine tools 80,000 4,000 76,000 3 25,333
Meters costing 64,000 2,000 62,000 5 12,400
Returnable
containers 120,000 - 120,000 6 20,000
Totals 264,000 258,000 57,733

Composite life = Depreciable amt. ÷ Annual depreciation

(258,000 ÷ 57,773) = 4.5 (rounded-off)

(Refer to solution above)

Composite rate = Annual depreciation ÷ Total cost = (57,733 ÷ 264,000) = 21.87%

Retirement and Replacement methods

Use the following information for the next two questions:
The small tools account of ATROCIOUS CRUEL Co. has a balance of ₱600,000 as of January 1, 20x1. Movements in this account
during the year are as follows:

Feb. April Sept. Nov.

Cost of newly acquired small
tools 40,000 - 120,000 88,000
Cost of old small tools
retired 24,000 48,000 - 72,000
Proceeds from sale of old
small tools 2,000 3,200 - 4,000

17. Assuming ATROCIOUS Co. uses the retirement method, how much is the depreciation expense in 20x1?
a. 134,800 b. 166,800 c. 144,000 d. 118,800

18. Assuming ATROCIOUS Co. uses the replacement method, how much is the depreciation expense in 20x1?
a. 134,800 b. 166,800 c. 144,000 d. 118,800

Solution: for 17
Feb. April Sept. Nov. Total depreciation
Cost of old small tools
24,000 48,000 - 72,000
Retired 144,000
 Proceeds from sale (2,000) (3,200) - (4,000) (9,200)
Totals 22,000 44,800 - 68,000 134,800

Solution for 18
Feb. April Sept. Nov. Total depreciation
Cost of newly 40,000 - N/A 88,000 128,000
acquired small tools
Cost of old small 48,000 - 48,000
tools retired
Proceeds from sale (2,000) (3,200) - (4,000) (9,200)
of old small tools
Totals 38,000 44,800 - 84,000 166,800

Inventory method
19. The small tools account of AUGUST MAJESTIC Co. has a balance of ₱600,000 as of January 1, 20x1. Acquisitions of small
tools during the period totaled ₱240,000 and proceeds from sale of small tools retired and/or replaced totaled ₱100,000.
The annual asset count on December 31, 20x1 revealed a balance of small tools of ₱440,000. How much is the
depreciation expense under the inventory method?
a. 400,000 b. 300,000 c. 240,000 d. 140,000

Solution:
Small tools
Jan. 1, 20x1 bal. 600,000 100,000 Proceeds from retired/replaced tools
Additions 240,000 300,000 Depreciation for 20x1 (squeeze)
440,000 Dec. 31, 20x1 bal.

Change in depreciation method (from SYD to DDB)

20. On January 1, 20x1, KNAVE RASCAL Co. acquired machinery for a total cost of ₱80,000,000. The machinery is depreciated
using the SYD method over a period of 10 years. On January 1, 20x4, KNAVE Co. changed its depreciation method to
double declining balance method. How much is the depreciation expense in 20x4?
a. 40,727,272 b. 11,635,782 c. 12,556,780 d. 13,556,702

Solution:
➢ SYD denominator = 10 x [(10+1)/2)] = 55
➢ Accumulated depreciation on 1/1/x4 = 80M x [(10 + 9 + 8)/55] = 39,272,727
➢ Carrying amt. on 1/1/x4 = 80M – 39,272,727 = 40,727,273
➢ Double declining balance rate = 2/7 = 28.57%
➢ Dep’n. – 20x4 = 40,727,273 x 28.57% = 11,635,782

Change in useful life and residual value

21. On January 1, 20x1, SMUTTY OBSCENE Co. acquired machinery for a total cost of ₱80,000,000 and estimated residual
value of ₱8,000,000. The machinery is depreciated using the straight line method over a period of 10 years. On January
1, 20x4, SMUTTY Co. revised the total useful life of the asset to 15 years from acquisition date and the residual value to
₱10,400,000. How much is the depreciation expense in 20x4?
a. 4,000,000 b. 3,899,567 c. 4,010,250 d. 4,129,335

Solution:
➢ Carrying amt. on 1/1/x4 = (80M – 8M) x 7/10 + 8M = 58,400,000
➢ Dep’n. – 20x4 = (58.4M – 10.4M) ÷ (15yrs. – 3yrs.) = 4,000,000

Methods of recording revaluation surplus – Replacement cost

Use the following information for the next three questions:
On December 31, 20x1, the building of SUBTERFUGE DECEPTION Co. with a historical cost of ₱80,000,000, accumulated
depreciation of ₱20,000,000, and an estimated useful life of 20 years has been estimated to have a replacement cost of
₱140,000,000. Income tax rate is 30%.

22. How much is the revaluation surplus?

a. 31,500,000 b. 36,778,750 c. 45,000,000 d. 60,000,000
23. Assuming SUBTERFUGE Co. uses the proportional method, the entry to record the revaluation includes:
a. a debit to accumulated depreciation for ₱15,000,000
b. a debit to accumulated depreciation for ₱20,000,000
c. a debit to building for ₱25,000,000
d. a debit to building for ₱60,000,000

24. Assuming SUBTERFUGE Co. uses the elimination method, the entry to record the revaluation includes:
a. a credit to accumulated depreciation for ₱20,000,000
b. a debit to building for ₱25,000,000
c. a debit to accumulated depreciation for ₱15,000,000
d. a debit to deferred tax for ₱13,500,000

Solution:
The depreciated replacement cost is computed as follows:
Replacement cost 140,000,000
Less: Observed depreciation (35,000,000)a
Depreciated replacement cost 105,000,000

a Where:

Observed Accumulated depreciation Historical cost

= Replacement cost X
depreciation
35,000,000 = 140,000,000 x (20,000,000/80,000,000)

The revaluation surplus is computed as follows:

Depreciated replacement cost 105,000,000
Carrying amount (80,000,000 – 20,000,000) (60,000,000)
Revaluation surplus – gross of tax 45,000,000

The revaluation surplus gross of tax is allocated as follows:

Revaluation surplus after tax (45,000,000 x 70%a) 31,500,000

13,500,000
Deferred tax liability (45,000,000 x 30%)
a (70% = 100% - 30% tax rate)

Answer :D
Solution:
The movements in the accounts are determined as follows:
Historical Cost Replacement cost Increase
Building 80,000,000 140,000,000 60,000,000
Accum. depreciation (20,000,000) (35,000,000) (15,000,000)
CA/ DRC/ RSb 60,000,000 105,000,000 45,000,000
b Carrying amount/ Depreciated replacement cost/ Revaluation surplus

The entry under the proportional method is as follows:

Dec. 31, Building (see table) 60,000,000
20x1 Accumulated depreciation (see table) 15,000,000
Revaluation surplus 31,500,000
Deferred tax liability 13,500,000

Answer: B
Solution:
The entry under the elimination method is as follows:
Dec. 31, Accumulated depreciation 20,000,000
20x1 Building (balancing figure) 25,000,000
Revaluation surplus 31,500,000
Deferred tax liability 13,500,000

Methods of recording revaluation – Appraised value

Use the following information for the next two questions:
On December 31, 20x1, the building of ABC Co. with a historical cost of ₱320,000,000, accumulated depreciation of
₱160,000,000, and an estimated useful life of 20 years has been assessed by an external valuer to have an appraised value
of ₱200,000,000. Income tax rate is 30%

25. The entry under the proportional method to record the revaluation includes
a. a debit to accumulated depreciation for ₱40,000,000
b. a credit to accumulated depreciation for ₱20,000,000
c. a debit to building for ₱80,000,000
d. a credit to building for ₱80,000,000

26. The entry under the proportional method to record the revaluation includes
a. a debit to accumulated depreciation for ₱40,000,000
b. a debit to accumulated depreciation for ₱20,000,000
c. a debit to building for ₱80,000,000
d. a credit to building for ₱80,000,000

Answer : C
Solution:
The revaluation surplus is computed as follows:
Appraised value 200,000,000
Carrying amount (320M – 160M) (160,000,000)
Revaluation surplus – gross of tax 40,000,000
Less: Deferred tax liability (40M x 30%) (12,000,000)
Revaluation surplus after tax 28,000,000

The change in carrying amount is determined as follows:

Appraised value 200,000,000
Divide by: Carrying amount (320M – 160M) 160,000,000
Change in carrying amount 125%

The gross carrying amount after the revaluation is restated as follows:

Gross carrying amount before revaluation 320,000,000
Multiply by: Change in carrying amount 125%
Gross carrying amount after revaluation 400,000,000

The accumulated depreciation after the revaluation is computed as follows:

Gross carrying amount after revaluation 400,000,000
Accumulated depreciation after revaluation (squeeze) (200,000,000)
Carrying amount after revaluation (Appraised value) 200,000,000

The changes in the accounts are determined as follows:

Before revaluation After revaluation Increase
Building 320,000,000 400,000,000 80,000,000
Accumulated depreciation (160,000,000) (200,000,000) (40,000,000)
Carrying amount 160,000,000 200,000,000 40,000,000

The entry under the proportional method is as follows:

Dec. 31, Building 80,000,000
20x1 Accumulated depreciation 40,000,000
Deferred tax liability 12,000,000
Revaluation surplus 28,000,000

Answer: A
Solution:
The entry under the elimination method is as follows:
Dec. 31, Accumulated depreciation 40,000,000
20x1 Deferred tax liability 12,000,000
Revaluation surplus 28,000,000

The carrying amount after the revaluation is reconciled as follows:

Building (original balance) 80,000,000
 Accumulated depreciation (40M - 10M debit in entry) (30,000,000)
Carrying amount after revaluation (Appraised value) 50,000,000

Revaluation: Change in useful life

Use the following information for the next two questions:
On January 1, 20x1, the building of PRODIGIOUS EXTRAORDINARY Co. with a historical cost of ₱80,000,000 purchased 5 years
ago with an estimated useful life of 20 years has been estimated to have a replacement cost of ₱140,000,000. The building
is estimated to have a remaining useful life of 25 years as of January 1, 20x1. Depreciation is computed using the straight
line method. Income tax rate is 30%.

27. How much is the revaluation surplus?

a. 31,500,000 b. 45,000,000 c. 37,500,000 d. 36,788,366

28. How much is the depreciation expense in 20x1?

a. 2,940,000 b. 4,200,000 c. 3,200,000 d. 3,333,976

Answer :A
Solution:
The depreciated replacement cost is computed as follows:
Replacement cost 140,000,000
Less: Observed depreciation (35,000,000)a
Depreciated replacement cost 105,000,000

a Where:

Observed Accumulated depreciation Historical cost

= Replacement cost X
depreciation

➢ Accumulated depreciation = (80,000,000 x 5/20) = 20,000,000

➢ Observed depreciation = 140M x (20,000,000/ 80,000,000) = 35,000,000

The revaluation surplus is computed as follows:

Depreciated replacement cost 105,000,000
Carrying amount (80,000,000 – 20,000,000) (60,000,000)
Revaluation surplus before tax 45,000,000
Revaluation surplus after tax (45,000,000 x 70%b) 31,500,000

Answer : B
Solution:
The depreciation subsequent to date of revaluation is computed as follows:
Revalued amount (depreciated replacement cost) 105,000,000
Divide by: Revised remaining useful life 25
Revised annual depreciation expense 4,200,000

Revaluation: Change in residual value and useful life

Use the following information for the next two questions:
On December 31, 20x1, the building of COLLOQUY CONVERSATION Co. was revalued. Information on revaluation date is
shown below:
Cost Replacement cost
Building 72,000,000 144,000,000
Accumulated depreciation 16,000,000
Residual value 8,000,000 16,000,000
Remaining useful life 10 years 12 years

29. How much is the revaluation surplus?

a. 45,000,000 b. 31,500,000 c. 36,788,366 d. 51,428,571

30. How much is the depreciation expense in 20x2?

a. 3,333,976 b. 4,200,000 c. 7,619,048 d. 8,990,344
Answer : D
Solution:
The observed depreciation is computed as follows:

Depreciable amt. of replacement Accumulated depreciation Depreciable

Observed depreciation = X
cost amount

Where:
Replacement cost 144,000,000 Historical cost 72,000,000
Residual value (16,000,000) Residual value (16,000,000)
Depreciable amt. of replacement cost 128,000,000 Depreciable amount 56,000,000

16,000,000 (given)
Observed depreciation = 128,000,000 X
56,000,000
Observed depreciation = 36,571,429

The depreciated replacement cost is computed as follows:

Replacement cost 144,000,000
Less: Observed depreciation (36,571,429)
Depreciated replacement cost 107,428,571

The revaluation surplus is computed as follows:

Depreciated replacement cost 107,428,571
Carrying amount (72,000,000 – 16,000,000) (56,000,000)
Revaluation surplus 51,428,571

Answer : C
Solution:
Depreciation subsequent to date of revaluation is computed as follows:
Revalued amount (depreciated replacement cost) 107,428,571
New residual value (16,000,000)
Depreciable amount 91,428,571
Divide by: Revised remaining useful life 12
Revised annual depreciation expense 7,619,048
 PPE Part 2

EXERCISE 1:
1. Depreciation of noncurrent operating assets is an accounting process for the purpose of
a. reporting declining asset values on the balance sheet.
b. allocating asset costs over the periods benefitted by use of the assets.
c. accounting for costs to reflect the change in general price levels.
d. setting aside funds to replace assets when their economic usefulness expires.

2. Which of the following principles best describes the conceptual rationale for the methods
of matching depreciation expense with revenues?
a. Partial recognition
b. Immediate recognition
c. Systematic and rational allocation
d. Associating cause and effect

3. The composite depreciation method

a. is applied to a group of homogeneous assets.
b. is an accelerated method of depreciation.
c. does not recognize gain or loss on the retirement of specific assets in the group.
d. excludes salvage value from the base of the depreciation calculation.

4. The sum-of-the-years'-digits method of depreciation is being used for a machine with a

five-year estimated useful life. What would be the fraction applied to the cost to be
depreciated in the fourth year?
a. 4/5
b. 2/5
c. 4/15
d. 2/15

5. In order to calculate the third year's depreciation on an asset using the sum-of- the-years'-
digits method, which of the following must be known about the asset?
a. Its acquisition cost
b. Its estimated residual value
c. Its estimated useful life
d. All the above must be known.

6. Which of the following statements is the assumption on which straight-line depreciation is

based?
a. The operating efficiency of the asset decreases in later years.
b. Service value declines as a function of time rather than use.
c. Service value declines as a function of obsolescence rather than time.
d. Physical wear and tear are more important than economic obsolescence.

7. A method that ignores residual value in calculating periodic depreciation expenses in the
earlier part of an asset’s useful life is the
a. productive-output method.
b. group composite method.
c. sum-of-the-years'-digits method.
 d. double-declining-balance method.

8. Which of the following depreciation methods applies a uniform depreciation rate each
period to an asset's carrying amount?
a. Straight-line
b. Units-of-production
c. Declining-balance
d. Sum-of-the-years'-digits

9. When does the cost of land affect an entity’s profit or loss?

a. As the asset is used through periodic charges for cost allocation
b. When the asset is revalued upwards
c. When the related revaluation is recognized on a piecemeal basis as the asset is used
d. When the asset is impaired or when it is sold above or below its carrying amount

10. Which of the following reasons provides the best theoretical support for accelerated
depreciation?
a. Assets are more efficient in early years and initially generate more revenue.
b. Expenses should be allocated in a manner that "smooths" earnings.
c. Repairs and maintenance costs will probably increase in later periods, so depreciation
should decline.
d. Accelerated depreciation provides easier replacement because of the time value of
money.

11. When the estimate of an asset's useful life is changed,

a. depreciation expense for all past periods must be recalculated.
b. there is no change in the amount of depreciation expense recorded for future years.
c. only the depreciation expense in the remaining years is changed.
d. None of the above is true.
12. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale
were
a. less than the asset’s current market value.
b. greater than the asset’s cost.
c. greater than the asset’s carrying amount.
d. less than the asset’s carrying amount.
13. On January 1 Stockton Company acquired a machine with a four-year useful life. Stockton
estimates the residual value of the machine will be equal to ten percent of the acquisition
cost. The company is debating between using either the double-declining-balance method
or the sum-of-the-years'-digits method of depreciation. Comparing the depreciation
expense for the first two years computed using these methods, the depreciation expense for
the double-declining-balance method (compared to the sum-of-the-years'-digits method)
will match which of the patterns shown below?
First year Second year
a. Lower Lower
b. Lower Higher
c. Higher Lower
d. Higher Higher

14. Which of the following utilizes the straight-line depreciation method?

 Composite Depreciation Group Depreciation
a. Yes Yes
b. Yes No
c. No Yes
d. No No

15. A depreciable asset has an estimated 15 percent salvage value. At the end of its estimated
useful life, the accumulated depreciation would equal the original cost of the asset under
which of the following depreciation methods?
Productive-Output Sum-of-the-Years'-Digits Double-Declining-Bal.
a. Yes No No
b. No No No
c. No Yes No
d. Yes Yes Yes
EXERCISE 2:
1. On January 1, 20x1 Buckle Co. purchased a machine that had a list price of ₱46,320. Buckle
Co. paid cash of ₱18,000 and executed a one-year non-interest-bearing note for the balance.
The going rate of interest was 18%. The machine has a 6-year life and no residual value.
Depreciation expense on the SYD basis at the end of 20x1 is:
a. 8,092
b. 12,000
c. 13,234
d. 14,690

The next four items are based on the following information:

Dirt Corporation schedule of depreciable assets at December 31, 20X7 was as follows:
Accum.
Asset Cost Depreciation Acquisition date Residual value
A 100,000 64,000 20X6 20,000
B 55,000 36,000 20X5 10,000
C 70,000 33,600 20X5 14,000

Dirt takes a full year’s depreciation expense in the year of an asset’s acquisition, and no
depreciation expense in the year of an asset’s disposition. The estimated useful life of each
depreciable asset is 5 years.

2. Dirt depreciates asset A on the double-declining-balance method. How much depreciation

expense should Dirt record in 20X8 for asset A?
a. ₱32,000
b. ₱25,600
c. ₱14,400
d. ₱ 6,400

3. Dirt depreciates asset A on the double-declining-balance method. How much depreciation

expense should Dirt record in 20X9 for asset A?
a. ₱ 2,000
b. ₱ 5,600
c. ₱ 1,600
d. ₱ 8,640

4. Using the same depreciation method as used in 20X5, 20X6, and 20X7, how much
depreciation expense should Dirt record in 20X8 for asset B?
a. ₱ 6,000
b. ₱ 9,000
c. ₱11,000
d. ₱12,000

5. Dirt depreciates asset C by the straight-line method. On June 30, 20X8, Dirt sold asset C
for ₱28,000 cash. How much gain (loss) should Dirt record in 2008 on the disposal of asset
C?
a. ₱ 2,800 c. ₱(5,600)
b. ₱(2,800) d. ₱(8,400)
6. Enter Sandman Co. purchased manufacturing equipment from Sad But True Co. on January
1, 20x8 at a total cost of ₱9,000,000. Enter Sandman uses the straight-line method of
depreciation and estimates that the equipment has a useful life of 10 years. On July 1, 20x8
and July 1, 20x9 Enter Sandman performed major regular inspections on the equipment
costing ₱380,000 and ₱425,000, respectively. The costs of inspection satisfied the
recognition criteria for capitalization. How much is the carrying amount of the equipment
on December 31, 2009?
a. 7,920,000
b. 7,875,000
c. 7,529,412
d. 7,600,000

7. Tonyo Company uses the composite method of depreciation and has a composite rate of
25%. During 20x1, it sold assets with an original cost of ₱100,000 (residual value of
₱20,000) for ₱80,000 and acquired ₱60,000 worth of new assets (residual value of
₱10,000). The original group of assets had the following characteristics:
Total Cost ₱250,000
Total Residual Value 30,000

The above original group includes the assets sold in 20x8 but not the assets purchased in
20x8. How much is the depreciation in 20x8?
a. ₱62,500
b. ₱52,500
c. ₱47,500
d. ₱46,500

Use the following information for the next four items:

Light Company bought a machine for ₱300,000 on January 1, 20x8. The machine's useful life
is 10 years and it is estimated to have a zero residual value and is depreciated using the
straight-line method.

The revalued amount of the machine is as follows:

December 31 Fair values of the machine
20x8 ₱ 360,000
20x9 335,000
2x10 320,000

The enacted tax rate was 30% for each year

8. The revaluation surplus in the equity section of Light Company’s December 31, 20x8
statement of financial position is
a. 60,000
b. 90,000
c. 39,000
d. 63,000

9. The amount of depreciation expense to be recognized in 20x9 is

a. 32,500
b. 36,000
 c. 40,000
d. 42,500

10. The amount of revaluation surplus transferred to retained earnings in 20x9 is

a. 6,667
b. 7,000
c. 4,333
d. 10,000

11. The revaluation surplus in the equity section of Light Company's December 31, 2x10
statement of financial position is
a. 77,000
b. 110,000
c. 123,443
d. 109,500

Use the following information for the next four items:

Information on Mix Co.’s equipment on June 30, 20x8 is shown below:

Equipment (at cost) ₱ 500,000

Accumulated depreciation 150,000
₱ 350,000

The equipment consists of two machines, Machine A and Machine B. Machine A has a cost
of ₱300,000 and a carrying amount of ₱180,000. Machine B has a cost of ₱200,000 and a
carrying amount of ₱170,000. Both machines are measured using the cost model and
depreciated on a straight line basis over a ten-year period.

On December 31, 20x8, Mix Co. decided to change from the cost model to the revaluation
model. Information on this date follows:
Fair values Remaining useful life
Machine A ₱180,000 6 years
Machine B ₱155,000 5 years

On June 30, 20x9, Machine A and Machine B have fair values of ₱163,000 and ₱136,500,
respectively, and remaining useful lives of 5 years and 4 years, respectively. The tax rate is
30%.

12. How much is the depreciation expense for the fiscal year ended June 30, 20x9?
a. 59,900
b. 55,500
c. 50,000
d. 67,000

13. How much is the revaluation surplus on December 31, 20x8?

a. 10,500
b. (15,000)
c. (10,500)
d. 7,000
14. How much is the carrying amount of the equipment on June 30, 20x9?
a. 163,000
b. 335,000
c. 300,000
d. 299,500

15. Entity A has identified indications that its plant is impaired. The plant has a carrying
amount of ₱56,000,000. An independent valuer determined the following:
• Replacement cost of the plant ₱90,000,000
• Actual life 15 years
• Effective life 25 years
• Remaining economic life 20 years

Entity A’s tax rate is 30%.

How much is the revaluation surplus, net of tax?

a. 16,000,000
b. 11,200,000
c. 18,250,000
d. 12,775,000