Depreciation

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A machine is purchased on May 1, 2017 costing 1,000,000 with useful life of 5 years
and a residual value of 100,000. The company uses the straight line method.
Annual depreciation (1,000,000-100,000)/5 = 180,000
Year Depreciation Expense Accumulated Depreciation Carrying Amount

1/5/2017 1,000,000
12/31/17 180,000*8/12= 120,000 120,000 880,000
12/31/18 180,000 300,000 700,000
12/31/19 180,000 480,000 520,000
12/31/20 180,000 660,000 340,000
12/31/21 180,000 840,000 160,000
12/31/22 60,000 900,000 100,000
Year 4/12- Jan1- April 31 8/12- May 1- Dec 31 Depreciation Expense
2017 120,000 120,000

2018 60,000 120,000 180,000
2019 60,000 120,000 180,000
2022 60,000 120,000 180,000
2021 60,000 120,000 180,000
2022 60,000 60,000
On April 1, 2017, a machine costing 6,000,000 was purchased and the SYD method
is used. The useful life of the machine was 10 years with a residual value of 500,000.
SYD = ((10+1)*10)/2
SYD = 55
Depreciable amount= 6,000,000- 500,000 = 5,500,000
Date Depreciation Expense Accumulated Depreciation Carrying amount

April 1, 2017 6,000,000
end of 2017 750000 750000 5,250,000
2018 925000 1675000 4,325,000
2019 825000 2500000 3,500,000
2020 725000 3225000 2,775,000
2021 625000 3850000 2,150,000
Depreciable 5,500,000
at 10/55 1,000,000
at 9/55 900,000
at 8/55 800,000
at 7/55 700,000
at 6/55 600,000
at 5/55 500,000
at 4/55 400,000
at 3/55 300,000
at 2/55 200,000
at 1/55 100,000
Year Jan 1- Mar 31 3/12 Apr 1- dec 31 9/12 Depreciation Expense
1 750,000 750,000
2 250,000 675,000 925,000
3 225,000 600,000 825,000
4 200,000 525,000 725,000
5 175,000 450,000 625,000
6 150,000 375,000 525,000
c. On January 1, 2017, purchased a machine for 1,600,000 used in a factory with a
useful life of 5 years and a residual value of 80,000. The machine was depreciated
by the double declining balance method.
useful life 5
cost 1,600,000
residual value 80,000
Annual Depreciation Accumulated Depreciation

Jan 1, 2017
Dec 31, 2017 640000 640000
2018 384000 1024000
2019 230400 1254400
2020 138240 1392640
2021 127,360 1,520,000
d. A machine purchased on March 1, 2017 for P8,000,000 has a production capacity

over its economic life of 4,000,000 in terms of units of products capacity to produce
and 3,040,000 in terms of service hours available for production. The residual value
amounted to 400,000. Units produced per year in terms of units and service hours
worked are shown below:
Units Produced Service Hours Worked
Year 1 800,000 650,000
Year 2 850,000 690,000
Year 3 750,000 660,000
Year 4 750,000 635,000
500,000. Year 5 650,000 345,000
Year 6 200,000 60,000
4,000,000 3,040,000
Cost of asset 8,000,000

residual value 400,000
Depreciable cost 7,600,000

Depreciation rate
units 1.9
hours 2.5
Date (hours) Depreciation expense accumulated depreciation

March 1, 2017
December 31, 2017 1,625,000 1,625,000
2018 1,725,000 3,350,000
2019 1,650,000 5,000,000
2020 1,587,500 6,587,500
2021 862,500 7,450,000
2022 150,000 7,600,000
Date (Units) Depreciation expense accumulated depreciation

March 1, 2p17
December 31, 2017 1,520,000 1,520,000
2018 1,615,000 3,135,000
2019 1,425,000 4,560,000
2020 1,425,000 5,985,000
2021 1,235,000 7,220,000
2022 380,000 7,600,000
0 used in a factory with a
machine was depreciated
Straight Line Rate 0.2

Double Declining Rate 0.4
Annual Depreciation 640000
Carrying Amount
1,600,000
960,000
576,000
345,600
207,360
80,000
has a production capacity

ducts capacity to produce
uction. The residual value
units and service hours
carrying amount
8,000,000
6,375,000
4,650,000
3,000,000
1,412,500
550,000
400,000
carrying amount
8,000,000
6,480,000
4,865,000
3,440,000
2,015,000
780,000
400,000
Cost Residual Value Depreciable Cost Useful life in years
Building 3,510,000 270,000 3,240,000 15
Machinery 1,188,000 108,000 1,080,000 8
Equipment 702,000 162,000 540,000 4
5,400,000 540,000 4,860,000
a. Compute the composite rate. 0.09

b. Compute the composite life 10.00
c. Prepare journal entry to record the depreciation for the current year following the
composite method.
Depreciation Expense 486,000

Accumulated Depreciation 486,000
d. Prepare journal entry to record the retirement of the machinery at the end of the 5th year
assuming the proceeds from retirement amount to 110,000.
Cash 110,000
Accumulated Depreciation 1,078,000
Machinery 1,188,000
e. Prepare journal entry to record the depreciation for the 6th year following the composite
method.
Depreciation Expense 216,000
Accumulated Depreciation 216,000
Grateful Company used a hand tool in the manufacturing activities. On January 1, year 1,
there are 320 of such tools on hand at cost of 200 each.
Acquisition and retirement during year 1 and year 2 are:
Acquisition Cos Retirement and retirement proceeds Estimated value at year end
Year 1 160@300 120 @ 50 80,000
Year 2 360@400 280 @ 70 140,000
Retirement may be assumed to be on a first-in, first-out basis.

Prepare journal entries for year 1 and year 2 under
1. Retirement method
2. Replacement method
Depreciation
216,000.00
135,000.00
135,000.00
486,000.00
486,000

Depreciation

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Annual depreciation (1,000,000-100,000)/5 = 180,000

Year Depreciation Expense Accumulated Depreciation Carrying Amount

Year 4/12- Jan1- April 31 8/12- May 1- Dec 31 Depreciation Expense

2017 120,000 120,000

Date Depreciation Expense Accumulated Depreciation Carrying amount

Year Jan 1- Mar 31 3/12 Apr 1- dec 31 9/12 Depreciation Expense

Annual Depreciation Accumulated Depreciation

d. A machine purchased on March 1, 2017 for P8,000,000 has a production capacity

Cost of asset 8,000,000

Depreciable cost 7,600,000

Date (hours) Depreciation expense accumulated depreciation

Date (Units) Depreciation expense accumulated depreciation

Straight Line Rate 0.2

has a production capacity

a. Compute the composite rate. 0.09

Depreciation Expense 486,000

Retirement may be assumed to be on a first-in, first-out basis.

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