Problem 27 5

INTERMEDIATE ACCOUNTING 2
CJEZEREI D. VERDADERO BSA 2

DEPRECIATION
(CHAPTER 27)
PROBLEM 27-5 (AICPA ADAPTED)
Silent Company provided the following schedule of machinery
Total cost Estimated Residual Value Useful

Life in Years
Machine A 550,000 50,000 20
Machine B 200,000 20,000 15
Machine C 40,000 5
What is the composite life of the assets?

a. 13.3
b. 16.0
c. 18.0
d. 19.8
SOLUTION:
Asset Cost Residual Depreciable Useful Annual
Value Amount Life Depreciation
Machine 550,000 50,000 500,000 20 25,000
A
Machine 200,000 20,000 180,000 15 12,000
B
Machine 40,000 40,000 5 8,000
C
790,000 70,000 720,000 45,000
= Total depreciable amount / total annual depreciation
= 720,000 / 45,000
= 16
PROBLEM 27-6 (IAA)
Norraine Company used the composite method of depreciation based on a composite rate of
25%.
At the beginning of 2020, the total cost of equipment was P5,000,000 with a total residual value
of P600,000. The accumulated depreciation was P3,000,000 at that time.
In January 2020, the entity purchased an equipment for P2,500,000 with no residual value.
At the end of 2020, the entity sold an equipment with an original cost of P1,000,000 and a
residual value of P200,000 for P350,000. This asset was acquired on January 1, 2018.
1. What is the depreciation for 2020?
a. 1,625,000
b. 1,875,000
c. 1,125,000
d. 975,000
SOLUTION:
Total cost, Jan 1, 2020 5,000,000
Cost of new assets acquired 2,500,0000
Cost of asset sol (1,000,000)
Remaining cost, Dec 31, 2020 6,500,000
Depreciation for 2020 (6,500,000 x .25) 1,625,000
2. What is the gain or loss from the derecognition of the
asset on December 31, 2020?
a. 100,000 gain
b.150,000 loss
c.50,000 loss
d. 0
SOLUTION:
Because the composite method is used, no gain or loss will be recognized.
Problem 27-7 (AICPA Adapted)
Parable Company revealed the following depreciation policy on machinery:

 A full year depreciation is taken in the year of acquisition
 No depreciation is taken in the year of disposition
 The estimated useful life is five years.
 The straight line method is used
On June 30, 2020, the entity sold for P2,300,000 a machine acquired in 2017 for P4,200,000.
The estimated residual value was P600,000
What amount of gain on disposal should be recorded in 2020
a. 140,000
b. 260,000
c. 620,000
d. 980,000
SOLUTION
Sales price 2,300,000
Carrying amount of machine:
Cost - 2017 4,200,000
Accumulated depreciation, Dec 31, 2019
[4,200,000 - 600,000)/5 x 3 years] 2,160,000 2,040,000
Gain on disposal 260,000
Wishful Company used straight line depreciation for the property, plant and equipment which
consisted of the following at the end of each year:
2020 2021
Land 250,000
250,000
Building 1,950,000
1,950,000
Machinery and equipment 6,500,000

6,950,000
Accumulated depreciation 3,700,000

4,000,000
The depreciation expense for 2020 and 2021 was P500,000 and P550,000, respectively.
What amount was debited to accumulated depreciation during 2021 because of property, plant
and equipment retirement?
a. 400,000
b. 250,000
C. 200,000
d. 100,000
SOLUTION:
Accumulated depreciation - Dec 31, 2020 3,700,000
Depreciation for 2021 550,000
Total: 4,250,000
Less: Accumulated depreciation on retirement of PPE 250,000
Accumulated depreciation - December 31, 2021 4,000,000
Problem 27-9 (ACP)
Bitter Company acquired a machinery on April 1, 2020

Cost 1,200,000
Residual value 120,000
Estimated useful life 8 years
1. What is the depreciation for 2020 using sum of years
digits?
a. 180,000
b. 240,000
c. 120,000
d. 160,000
SOLUTION:
Depreciable amount (1,200,000 – 120,000) = 1,080,000

8+7+6+5+4+3+2+1 = 36
Apr 1, 2020 – Mar 31, 2021 = 1,080,000 x 8/36 240,000
Apr 1, 2021 – Mar 31, 2022 = 1,080,000 x 7/36 210,000
Depreciation for 2020 (240,000 x 9/12) 180,000
2. What is the depreciation for 2021 using sum of years
digits?
a. 157,500
b. 217,500
c. 210,000
d. 105,000
SOLUTION:
240,000 x 3/12 60,000

210,000 x 9/12 157,500
3. What is the depreciation for 2020 using double
declining balance?
a. 300,000
b. 150,000
c. 225,000
d. 202,500
SOLUTION:
100% / 8 years 12.5%

Double Declining (x2) 25.0%
Depreciation for 2020 [(1,200,000 x .25) x 9/12] 225,000
4. What the depreciation for 2021 using double declining
balance?
a. 270,000
b. 135,000
c. 243,750
d. 150,000
SOLUTION:
[(1,200,000 x . 25) x 3/12] 75,000

[(1,200,000 – 300,000) x .25] x 9/12 168,750
On January 1, 2020, Domino Company purchased a new machine
for P4,000,000. The new machine has an estimated useful life
eight years and the residual value was estimated to be P400,000
Depreciation was computed on the sum of the years digits
method
What is the carrying amount of the machine on December
31, 2021?
a. 2,100,000
b. 2,500/000
c. 1.150,000
d. 3,300,000
SOLUTION:
Cost 4,000,000
Accumulated depreciation:
2020(3,600,000 x 8/36) 800,000
2021(3,600,000 x 7/36) 700,000 1,500,000
Carrying amount - Dec 31, 2021 2,500,000
m 27-11 (AICPA Adapted)
On January 1, 2018, Mogul Company acquired equipment to be
used in the manufacturing operations.
The equipment has an estimated useful life of 10 years and an
estimated residual value of P50,000.
The depreciation applicable to this equipment was P240,000

for 2020 computed under the sum of years' digits method.
What was the acquisition cost of the equipment?
a. 1,650,000
b. 1,700,000
C. 2,400,000
d. 2,450,000
SOLUTION:
Sum of years fraction applicable to 2020 – 8/55
Divide by fraction 8/55
Depreciable Amount 1,650,000
Residual Value 50,000
Acquisition cost 1,700,000
On April 1, 2020, Kingdom Company purchased new machinery
for P3,000,000. The machinery has an estimated useful life of
five years and depreciation is computed by the sum of years
digits method.
What is the accumulated depreciation of the machinery on
March 31, 2022?
a. 1,920,000
b. 1,800,000
c. 1,200,000
d. 1,000,000
SOLUTION:
Depreciation for Apr 1, 2020 to Mar 31, 2021 (3,000,000 x 5/15)
1,000,000
Depreciation for Apr 1, 2021 to Mar 31, 2022 (3,000,000 x 4/15)
800,000
Accumulated Depreciation
1,800,000
Sahaya Company taken a full depreciation expenne in the year of acquisition, and no
deprecintion expense in the year of disposition. An asset was acquired in 2017
Cost 1,100,000
Accumulated depreciation - January 1, 2020 720,000
Estimated useful life 5 years
Using the same method in 2017, 2018 and 2019, what depreciation should be recorded in
2020?
a. 120,000
b. 180,000
c. 220,000
d. 240,000
SOLUTION:
SYD = 15
Depreciation from 2017 - 2019
2017 (900,000 x 5/15) 300,000

2018 (900,000 x 4/15) 240,000
2019 (900,000 x 3/15) 180,000
Accumulated Depreciaion, Jan 1 2020 720,000
2020 (900,000 x 2/15) 120,000
Iceberg Company purchased equipment which was installed and put into service January 1,
2020 at a total cost of P1,280,000.Residual value was estimated at P80,000.
The equipment is being depreciated over eight years by the double declining balance method.
What amount of depreciation should be recorded for 2021?
a. 225,000
b. 240,000
C. 300,000
d. 320,000

SOLUTION:
100% / 8 years 12.5%

2020 (1,280,000 x 25%) 320,000

2021 [(1,280,000 - 320,000) x 25%] 240,000
Problem 27-15 (IAA)
On January 1, 2020, Contour Company acquired an equipment to be used in operations. The

equipment had a useful life of 8 years and residual value of P300,000,
The depreciation applicable to the equipment was P900,000 for 2021 computed under the
double declining balance method.
What was the acquisition cost of the equipment?

a. 3,600,000
b. 4,500,000
c. 4,800,000
d.5,100,000
SOLUTION:
100% / 8 years 12.5%
Carrying amount - January 1, 2021 (900,000/25%) 3,600,000
Acquisition cost - January 1, 2020 (3,600,00075%) 4,800,000
Ambitious Company showed the following schedule depreciable assets on January 1, 2020.
Asset accumulated depreciation acquisition date
А .4,000,000 2,560,000 2018
B. 2,000,000 1,440,000 2017
С. 2,800,000 1,344,000 2017
The useful life of each asset is 5 years. The entity takes a full
depreciation in the year of acquisition and no depreciation
in the year of disposition.

Asset C was sold for P1,700,000 on June 30, 2020.
Asset A is depreciated under the double declining method.
1. What is the depreciation of Asset A for 2020?
a.1,600,000
b.1,440,000
c.416,000
d.576,000
SOLUTION:
100% / 5 years 20.0%
Depreciation for 2020 [(4,000,000 - 2,560,000) x 40%] 576,000
2. What is the depreciation of Asset B for 2020 assuming same
method in prior years?
a. 240,000
b. 480,000
C. 360,000
d. 400,000
SOLUTION:
Method used: Sum of years
SYD = 15
2017 (1,800,000 x 5/15) 600,000
2018 (1,800,000 x 4/15) 480,000
2019 (1,800,000 x 3/15) 360,000
Accumulated Depreciation 1,440,000
Depreciation for 2020 ( 1,800,000 x 2/15) 240,000
3. What is the gain on sale of Asset C?
a. 244,000
b. 464,000
c. 356,000
d. 804,000
SOLUTION:
Sales price 1,700,000
Carrying amount of machine:
Cost - 2017 2,800,000
Accumulated depreciation - December 31, 2019 1,344,000 1,456,000
Gain on sale 244,000
Roar PS000,000. The equipment liad an estimated yearful Tarninh Company purchased
equipment January 1, 2020 ht. The accounting policy for your assist the 2017 double declining
balance method for the first two years of the asset's life and then switch to straight line
depreciation On December 31, 2022,
what amount should be reported accumulated depreciation?
3,000,000
b. 3.800.000
c. 3,920,000
d. 4,200,000
SOLUTION:
100% / 5 years 20.0%
2020 (5,000,000 x 40%)

2,000,000
2021 (3,000,000 x 40%)
1,200,000
Accumulated depreciation - December 31, 2021
3,200,000
Depreciation for 2022 - straight line [(5,000,000 - 3,200,000)/3 years]
600,000
Accumulated depreciation - Dec 31, 2022
3,800,000
Problem 27-18 (IAA)
Saga Company purchased a machinery on January 1, 2017 for P7,200.000 The machinery had
welul life of 10 years with no residual value and was depreciated using the straight line method
In 2020, a decision was made to change the depreciation method from straight line to sum of
years' digits. The estimate of useful life and residual value remained unchanged.
What is the depreciation for 2020?
a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000
SOLUTION:
Cost - Jan 1, 2017 7,200,000

Accumulated depreciation - Dec 31, 2019 (7,200,000/10 x 3 years) 2,160,000
Carrying amount - Dec 31, 2019 5,040,000
SYD for remaining years = 1+2+3+4+5+6+7 = 28
Depreciation for 2020 (5,040,000 x 7/28) 1,260,000

On January 1, 2017, Bride Company purchased for P2,400,000 a machine with a useful life of
ten years and no residual value. The machine was depreciated by the double declining balance
method. The entity changed to the straight line method on January 1, 2020.
What is the depreciation for 2020?
a. 153,600
b. 192,000
C. 240,000
d. 307,200
SOLUTION:
100% / 10 years 10.0%
Year Particular Depreciation Accumulated Depreciation Carrying Amount

2,400,000
201 20% x 2,400,000 480,000 480,000 1,920,000
8
201 20% x 1,920,000 384,000 864,000 1,536,000
9
Straight line depreciation for 2020 (1,536,000/8) 192,000
Problem 27-20 (IAA)
On January 1, 2020, Layman Company purchased computers for P6,000,000. The management
estimated that computers would last approximately 4 years with value of P600,000. The entity
used the double declining, balance method.
During January 2021, the management realized that technological advancement had made the
computers virtually obsolete and proposed changing the remaining useful life to 2 years
What amount of depreciation should be recognized for 2021?
a. 3,000,000
b. 2.400,000
c. 1,500,000
d. 1.200,000
SOLUTION:
100% / 4 years 25.0%
Cost 6,000,000
Depreciation for 2020 (50% x 6,000,000 3,000,000
Carrying amount - Jan 1, 2021 3,000,000
Maximum depreciation in 2021 2,400,000
Problem 27-21 (IAA)
for P3,760,000. The machine was estimated to have a useful Spiderman Company purchased a
machine on January 1, 2011 life of five years and a residual value of P240,000. The used the
sum of years' digits method of depreciation
On January 1, 2020, the entity determined that the total useful life of the machine should have
been four years and the residual value is P352,000.
What amount should be recorded as depreciation for 20269
a 192.000
b. 444,000
c. 592,000
d. 704,000
SOLUTION:
SYD = 1+2+3+4+5 = 15
Accumulated fraction from 2017 to 2019 (5/15 + 4/15 + 3/15) 12/15
Cost - Jan 1, 2017 3,760,000
Accumulated depreciation - [(3,760,000 - 600,0000) x 12/15] 2,816,000
Carrying amount - Jan 1, 2020 944,000
Remaining depreciable amount 592,000
Problem 27-22 (IAA)
Superman Company acquired a machine on January 1, 2018 fix P10,000,000. The machine had
an 8-year useful life with a P1,000,000 residual value and was depreciated using the sum of
years' digits method.
In January 2020, the entity estimated that the asset's useful life from the date of acquisition
should have been 6 years and the residual value is P400,000.
What is the accumulated depreciation on December 31, 2020?
a. 5,212,500
b. 6,090,000
c. 4,400,360
d. 6,250,000
SOLUTION:
SYD = 1+2+3+4+5+6+7+8 = 36
Cost - Jan 1, 2018 10,000,000

Accumulated depreciation:
2020(9,000,000 x 8/36) 2,000,000
2019(9,000,000 x 7/36) 1,750,000 3,750,000
Carrying amount - Jan 1, 2020 6,250,000
Remaining life (6 years - 2 years) 4 years
SYD = 1+2+3+4 = 10
Accumulated depreciation - Jan 1, 2020 3,750,000

Depreciation for 2020 [(6,250,000 - 400,000) x 4/10] 2,340,000
Accumulated depreciation - Dec 31, 2020 6,090,000
Patterson Company provided the following information on January 1, 2020
Vehicle cost 5,000,000
Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000
Actual miles driven
2020 30,000
2021 20,000
2022 15,000
1. What is the depreciation for 2022 using the SYD method?
a. 1,000,000
b. 1,333,000
c.800,000
d. 600,000
SOLUTION:
SYD = 1+2+3+4+5 = 15
Depreciation:
2020[(5,000,000 - 1,000,000) x 5/15] 1,333,333.33
2021(4,000,000 x 4/15) 1,066,666.67
2022(4,000,000 x 3/15) 800,000.00
2. What is the accumulated depreciation on December 31, 2021 using the double declining
balance method?
a. 1,200,000
b. 1,600,000
c. 2,560,000
d. 3,200,000
SOLUTION:
100% / 5 years 20.0%
Cost 5,000,000
Depreciation for 2020 (40% x 5,000,000) 2,000,000
Depreciation for 2021 (40% x 3,000,000) 1,200,000
Accumulated Depreciation 3,200,00
3. What is the accumulated depreciation on December 31, 2022 using the miles driven?
a. 2,000,000
b. 2,600,000
c.800,000
d.600,000
SOLUTION:
Year Particular Depreciation Accumulated Depreciation Carrying Amount
4,000,000
2020 30,000 x 1,200,000 1,200,000 2,800,000
40
2021 20,000 x 800,000 2,000,000 2,000,000
40
2022 15,000 x 600,000 2,600,000 1,400,000
40
Accumulated Depreciation, 2021 2,600,000

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INTERMEDIATE ACCOUNTING 2

CJEZEREI D. VERDADERO BSA 2

PROBLEM 27-5 (AICPA ADAPTED)

Silent Company provided the following schedule of machinery

Total cost Estimated Residual Value Useful

Machine A 550,000 50,000 20

Machine B 200,000 20,000 15

What is the composite life of the assets?

= Total depreciable amount / total annual depreciation

1. What is the depreciation for 2020?

Depreciation for 2020 (6,500,000 x .25) 1,625,000

2. What is the gain or loss from the derecognition of the

asset on December 31, 2020?

Because the composite method is used, no gain or loss will be recognized.

Problem 27-7 (AICPA Adapted)

Parable Company revealed the following depreciation policy on machinery:

What amount of gain on disposal should be recorded in 2020

Gain on disposal 260,000

Problem 27-8 (AICPA Adapted)

Machinery and equipment 6,500,000

Accumulated depreciation 3,700,000

Problem 27-9 (ACP)

Bitter Company acquired a machinery on April 1, 2020

Residual value 120,000

Estimated useful life 8 years

1. What is the depreciation for 2020 using sum of years

Depreciable amount (1,200,000 – 120,000) = 1,080,000

Depreciation for 2020 (240,000 x 9/12) 180,000

2. What is the depreciation for 2021 using sum of years

240,000 x 3/12 60,000

Depreciation for 2021 217,500

3. What is the depreciation for 2020 using double

100% / 8 years 12.5%

Depreciation for 2020 [(1,200,000 x .25) x 9/12] 225,000

4. What the depreciation for 2021 using double declining

[(1,200,000 x . 25) x 3/12] 75,000

On January 1, 2020, Domino Company purchased a new machine

for P4,000,000. The new machine has an estimated useful life

eight years and the residual value was estimated to be P400,000

Depreciation was computed on the sum of the years digits

What is the carrying amount of the machine on December

m 27-11 (AICPA Adapted)

On January 1, 2018, Mogul Company acquired equipment to be

used in the manufacturing operations.

The equipment has an estimated useful life of 10 years and an

estimated residual value of P50,000.

The depreciation applicable to this equipment was P240,000

What was the acquisition cost of the equipment?

Acquisition cost 1,700,000

Problem 27-12 (AICPA Adapted)

On April 1, 2020, Kingdom Company purchased new machinery

for P3,000,000. The machinery has an estimated useful life of

five years and depreciation is computed by the sum of years

What is the accumulated depreciation of the machinery on

March 31, 2022?

Problem 27-13 (AICPA Adapted)

Residual value 200,000

Accumulated depreciation - January 1, 2020 720,000

Estimated useful life 5 years

2017 (900,000 x 5/15) 300,000