P11.7 (LO1, 2) (Depreciation for Partial Periods—SL, Act.

, SYD, and DDB) On January 1, 2017, a

machine was purchased for $90,000. The machine has an estimated residual value of $6,000 and an
estimated useful life of 5 years. The machine can operate for 100,000 hours before it needs to be replaced.
The company closed its books on December 31 and operates the machine as follows: 2017, 20,000 hours;
2018, 25,000 hours; 2019, 15,000 hours; 2020, 30,000 hours; and 2021, 10,000 hours.

Instructions

a. Compute the annual depreciation charges over the machine's life assuming a December 31 year-
end for each of the following depreciation methods.
1. Straight-line method.
2. Activity method.
3. Sum-of-the-years'-digits method.
4. Double-declining-balance method.
b. Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the
asset's life applying each of the following methods.
1. Straight-line method.
2. Sum-of-the-years'-digits method.
3. Double-declining-balance method.

Answer :

a. Depreciation methods
1. Straight Line Method

Date Depn. Amt. Carrying/Book value

1 2=(90000-6000)/5=16800 3=Prev.3-Current 2

Jan 1 2017 90000

31-Dec-17 16800 73200

31-Dec-18 16800 56400

31-Dec-19 16800 39600

31-Dec-20 16800 22800

31-Dec-21 16800 6000

Total 84000

2. Activity Method

Date Depn. Amt. Carrying/Book value

1 2 3 4=prev.4-curr.3

Jan 1 2017 90000

 Date Depn. Amt. Carrying/Book value

31-Dec-17 20000/100000*84000= 16800 73200

31-Dec-18 25000/100000*84000= 21000 52200

31-Dec-19 15000/100000*84000= 12600 39600

31-Dec-20 30000/100000*84000= 25200 14400

31-Dec-21 10000/100000*84000= 8400 6000

84000

3. Sum of Digits Method

Date Depn. Amt.

1 2 3 4=prev.4-curr.3

Jan 1 2017 90000

31-Dec-17 5/15*84000= 28000 62000

31-Dec-18 4/15*84000= 22400 39600

31-Dec-19 3/15*84000= 16800 22800

31-Dec-20 2/15*84000= 11200 11600

31-Dec-21 1/15*84000= 5600 6000

84000

4. Double Declining Balance Method

Depreciable amount 90.000 – 6.000 = 84.000

Life = 5 years
Depreciation/year 84000/5 16800
Rate of Depreciation 16800/84000 20%
Double declining rate 20%*2 40%
 Date Depn. Amt.

1 2=Prev 3*40% 3=prev.3-current 2

Jan 1 2017 90000

31-Dec-17 36000 54000

31-Dec-18 21600 32400

31-Dec-19 12960 19440

31-Dec-20 7776 11664

31-Dec-21 4666 6998

Total 83002

b. Assume a fiscal year-end of September 30

1. Straight-line method

Date Depn. Amt. Carrying/Book value

2=(90000-
1 3=Prev.3-Current 2
6000)/5=16800

Jan 1 2017 90000

30-Sep-17 12600 77400 16800/12*9=

30-Sep-18 16800 60600

30-Sep-19 16800 43800

30-Sep-20 16800 27000

30-Sep-21 16800 10200

31-Dec-21 4200 6000 16800/12*3=

Total 84000
2. Sum-of-the-years-digits method

Date Depn. Amt.

4=prev.4-
1 2 3
curr.3

Jan 1 2017 90000

30-Sep-17 5/15*84000*9/12= 21000 69000

30-Sep-18 (5/15*84000*3/12)+(4/15*84000*9/12)= 23800 45200

30-Sep-19 (4/15*84000*3/12)+(3/15*84000*9/12)= 18200 27000

30-Sep-20 (3/15*84000*3/12)+(2/15*84000*9/12)= 12600 14400

30-Sep-21 (2/15*84000*3/12)+(1/15*84000*9/12)= 7000 7400

31-Dec-21 1/15*84000*3/12= 1400 6000

Total 84000

3. Double-declining-balance method

Date Depn. Amt.

1 2=Prev 3*40% 3=prev.3-current 2

Jan 1 2017 90000

30-Sep-17 27000 63000 90000*40%*9/12

30-Sep-18 25200 37800

30-Sep-19 15120 22680

30-Sep-20 9072 13608

30-Sep-21 5443 8165

31-Dec-21 817 7348 8165*40%*3/12

Total 82652
P11.10 (LO3) (Impairment) At the end of 2019, Sapporo Group tests a machine for impairment. The
machine is carried at depreciated historical cost, and its carrying amount is ¥150,000. It has an estimated
remaining useful life of 10 years. The machine's recoverable amount is determined on the basis of a
value-in-use calculation, using a pretax discount rate of 15%. Management-approved budgets reflect
estimated costs necessary to maintain the level of economic benefit expected to arise from the machine in
its current condition. The following information related to future cash flows is available at the end of
2019 (amounts in thousands).

Year Year Future Cash Flow Year Year Future Cash Flow

2020 ¥22,165 2025 ¥24,825

2021 21,450 2026 24,123

2022 20,550 2027 25,533

2023 24,725 2028 24,234

2024 25,325 2029 22,850

Instructions

Part I

a. Compute the amount of the impairment loss at December 31, 2019.

b. Prepare the journal entry to record the impairment loss, if any, at December 31, 2019.

Part II In the years 2020–2022, no event occurs that requires the machine's recoverable amount to be re-
estimated. At the end of 2023, costs of ¥25,000 are incurred to enhance the machine's performance.
Revised estimated cash flows in management's most recent budget are as follows.

Year Year Future Cash Flow Year Year Future Cash Flow

2024 ¥30,321 2027 ¥31,950

2025 32,750 2028 33,100

2026 31,721 2029 27,999

c. Prepare the journal entry for an impairment or reversal of an impairment at December 31, 2023.
Answer :
 Year Future Cash inflow PV @15% PV

1 22165 0.870 19284

2 21450 0.756 16.216

3 20550 0.658 13.522

4 24725 0.572 14.143

5 25325 0.497 12.587

6 24825 0.432 10.724

7 24123 0.376 9.070

8 25533 0.327 8.349

9 24234 0.284 6.882

10 22850 0.247 5.644

Value in use 235780 116.421

Carryng Value = ¥150.000

Recoverable Amount (Value in Use) = (¥116.421)
Impairment Loss = ¥ 33.581

Account Name Debit Credit

Impairment Loss 33.581

Accumulated Depreciation—Machine 33.581

Year Future Cash inflow PV @15% PV

2024 30321 0.870 26366

2025 32750 0.756 34764

2026 31721 0.658 20857

2027 31950 0.572 18267

2028 33100 0.497 16457

2029 27999 0.432 12105

Value in use 187.841 118816

Calculation :
Carrying Amount at the end of 2019 (Part I) $116.419
Depreciation charge 2020 to 2023
($116,419/10) x 4 ($46.568)
Costs to enhance the asset’s performance $25.000
Carrying amount before reversal $94.851
A—Recoverable amount (Value-in-use) $118.814
B—Carrying amount based on depreciated historical cost $115.000
*calculation
Original cost $150.000
Accumulated depreciation based on historical cost
($15,000 X 4) ($60.000)
Costs to enhance $25.000
Carrying amount after reversal—lower of A, B $115.000
Reversal of the impairment loss $20,149 ($115,000 – $94,851) is recordedas follows.

Account Name Debit Credit

Accumulated Depreciation—Machine 20.149

Recovery of Impairment Loss 20.149