Assignment PPE Part 2

Depreciation methods
Use the following information for the next four cases:

Fact pattern
On January 1, 2021, 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?
2. How much is the accumulated depreciation on December 31, 2022?

Sum-of-the-years’ digits (SYD) method

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?
4. How much is the accumulated depreciation on December 31, 2022?

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?
6. How much is the accumulated depreciation on December 31, 2022?

Units of production method (Activity method or Variable-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
2021 60,000 16,000
2022 30,000 8,000
2023 45,000 12,000
2024 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?
8. If SIMPLETON Co. uses the output method, how much is the accumulated depreciation on
December 31, 2022?
9. If SIMPLETON Co. uses the input method, how much is the depreciation expense in the 2nd
year?
10. If SIMPLETON Co. uses the input method, how much is the accumulated depreciation on
December 31, 2022?

Increasing depreciation charge under double declining balance method

11. The following information pertains to an equipment owned by RABBLE MOB Co.:
Cost 800,000
Useful life 5 years
Double declining rate (2/ 5 year life) 40%
Residual value None

How much is the depreciation in 2025?

Partial year depreciation

Use the following information for the next three questions:
DEPLORABLE BAD Co. acquired a machine on September 21, 2021 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.

12. How much is the depreciation expense in 2022 under the straight-line method?
13. How much is the depreciation expense in 2022 under the sum-of-years’ digits method?
14. How much is the depreciation expense in 2022 under the double declining balance method?

Composite method
Use the following information for the next four questions:
On January 1, 2021, 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

15. What is the composite life?

16. What is the composite rate?
17. How much is the depreciation expense in 2021?
18. During 2023, machine tools with original cost of ₱20,000 and residual value of ₱2,000 were
sold for ₱6,000. How much is the gain (loss) on the sale?

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, 2021.
Movements in this account during the year are as follows:

Feb. April Sept. Nov.

Cost of newly acquired small 40,000 - 120,000 88,000
 tools
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

19. Assuming ATROCIOUS Co. uses the retirement method, how much is the depreciation expense
in 2021?
20. Assuming ATROCIOUS Co. uses the replacement method, how much is the depreciation
expense in 2021?

Inventory method
21. The small tools account of AUGUST MAJESTIC Co. has a balance of ₱600,000 as of January 1,
2021. 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, 2021 revealed a balance of small tools of ₱440,000. How much is the depreciation expense
under the inventory method?

Revenue method
22. On January 1, 2021, COCKY ARROGANT Co. acquired an equipment costing ₱4,000,000. The
equipment will be used to reproduce a gaming software which is expected to be marketed for
3 years. The equipment is expected to be used in producing products over the next two years,
after which, the equipment will be disposed of at a negligible amount.

Estimated revenues from the software are as follows:

Year Estimated revenues
2021 120,000,000
2022 80,000,000
2023 40,000,000
Total 240,000,000

The actual revenue earned in 2021 is ₱180,000,000. Depreciation expense in 2021 is most likely
equal to

Leasehold improvements
Use the following information for the next two questions:
On January 1, 2021, DIMINUTIVE SMALL Co. signed a ten-year lease for office space. DIMINUTIVE
has the option to renew the lease for an additional five-year period on or before January 1, 2030.
During the first half of January 2022, DIMINUTIVE Co. incurred the following costs:
- ₱3,600,000 for general improvements to the leased premises with an estimated useful life of
ten years.
- ₱400,000 for office furniture and equipment with an estimated useful life of ten years.
- ₱800,000 for movable assembly line equipment with useful life of 5 years.

23. At the time the leasehold improvement were finished, DIMINUTIVE Co. is uncertain as to the
exercise of the renewal option. How much is the 2022 depreciation expense on the leasehold
improvements?
24. Assume that in DIMINUTIVE Co. is certain that it will exercise the renewal option. How much
is the 2022 depreciation expense on the leasehold improvements?

Change in depreciation method (from DDB to SL)

25. On January 1, 2021, DISCORDANT DISAGREEING Co. acquired machinery for a total cost of
₱80,000,000. The machinery is depreciated using the double declining balance method over a
period of 10 years. On January 1, 2024, DISCORDANT Co. changed its depreciation method to
straight line method. How much is the depreciation expense in 2024?

Change in depreciation method (from SYD to DDB)

26. On January 1, 2021, 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,
2024, KNAVE Co. changed its depreciation method to double declining balance method. How
much is the depreciation expense in 2024?

Change in useful life and residual value

27. On January 1, 2021, 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, 2024, 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 2024?

Improvements and Replacements

Use the following information for the next two questions:
ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 2021 for a total cost of ₱24,000,000.
The aircraft is estimated to have a useful life of 10 years. ENTREAT Co. uses the straight line
method of depreciation. On January 1, 2025, a major part of the equipment was replaced for a
total cost of ₱3,200,000.

28. Assuming ENTREAT Co. determined that the cost of the replaced part is ₱2,000,000, how much
is the loss on replacement?
29. Assuming it is impracticable to determine the cost of the replaced part, how much is the loss
on replacement?

Revaluation: Appraised value

30. On December 31, 2021, the building of HISTRIONAL THEATRICAL 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 assessed by an external valuer to have an appraised value of ₱100,000,000.
How much is the revaluation surplus?
Depreciated replacement cost (without residual value)
31. On December 31, 2021, the building of SWIMMY UNSTEADY 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. How much is the
revaluation surplus?

Depreciated replacement cost (with residual value)

32. On December 31, 2021, the building of LITHE FLEXIBLE 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 8,000,000
Remaining useful life 10 years 12 years

How much is the revaluation surplus?

Methods of recording revaluation surplus – Replacement cost

Use the following information for the next three questions:
On December 31, 2021, 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%.

33. How much is the revaluation surplus?

34. Assuming SUBTERFUGE Co. uses the proportional method, the entry to record the revaluation
is
35. Assuming SUBTERFUGE Co. uses the elimination method, the entry to record the revaluation
is

Methods of recording revaluation – Appraised value

Use the following information for the next two questions:
On December 31, 2021, 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%

36. The entry under the proportional method to record the revaluation is
37. The entry under the proportional method to record the revaluation is

Revaluation: Change in useful life

Use the following information for the next two questions:
On January 1, 2021, 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, 2021. Depreciation is computed using the straight line method.
Income tax rate is 30%.

38. How much is the revaluation surplus?

39. How much is the depreciation expense in 2021?

Revaluation: Change in residual value and useful life

Use the following information for the next two questions:
On December 31, 2021, 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

40. How much is the revaluation surplus?

41. How much is the depreciation expense in 2022?

Revaluation of non-depreciable asset

42. On December 31, 2021, the land of FARCICAL ABSURD Co. with a historical cost of ₱80,000,000
has been appraised at ₱140,000,000. Income tax rate applicable to profits is 30% and the tax
rate applicable to profits made on the sale of property is 6%. How much is the revaluation
surplus?

Revaluation decrease representing impairment loss

43. On December 31, 2021, the land of ATTAINDER DISHONOR Co. with an original cost of
₱32,000,000 was appraised at ₱48,000,000. On December 2024, the land was appraised at
₱28,000,000. How much is the impairment loss in 2024?

Revaluation increase representing reversal of impairment loss

44. On December 31, 2021, the land of CONJUNCTION UNION Co. with an original cost of
₱40,000,000 was revalued at ₱28,000,000. This was the first revaluation made on the land
since it was purchased 2 years ago. On December 2024, the building was appraised at
₱48,000,000. Ignore income taxes. How much is the gain on impairment reversal in 2024?

Sale of item of PPE measured under cost model

45. FORTITUDE ENDURANCE Co. purchased equipment on August 14, 2021 for a total cost of
₱400,000. The equipment has an estimated useful life of 10 years and residual value of
₱80,000. It is the policy of FORTITUDE Co. to provide full-year depreciation in the year of
acquisition and none in the year of disposal. On May 12, 2024, the equipment was sold for
₱120,000. Additional costs incurred on the sale amounted to ₱8,000. How much is the gain
(loss) on the sale?
Sale of item of PPE measured under revaluation model
46. OBDURATE STUBBORN Co. disposed of a machinery on December 31, 2021 for a total net
disposal proceeds of ₱6,800,000. Information of the machinery as of December 31, 2021 is as
follows:
Cost at revalued amount ₱ 9,200,000
Accumulated depreciation 3,200,000
Revaluation surplus (presented in equity) 4,800,000

How much is the gain (loss) on the sale?