Practical Accounting 1 SMC 😊

6. The Vientiane Company purchased a machine on 1 January 2015 for P81,000. The useful life of the
P1.004_ Property, Plant and Equipment – Depreciation and Derecognition
1. The Shemay Company purchased an office equipment with a useful life of 10 years on 1 January 2016
for P6,500,000.
At its year end of 31 December 2016, the amount the company would receive from the disposal of the
asset if it was already of the age and in the condition expected at the end of its useful life was
estimated at P700,000. Inclusive of inflation the actual amount expected to be received on disposal
was estimated at P900,000.
What should be the depreciation charge for the year ended 31 December 2016?
2. On January 1, 2014, Paete Company signed a 12-year lease for a building. Paete has an option to
renew the lease for an additional 8-year period on or before January 1, 2018. During January 2016,
Paete made substantial improvements to the building. The cost of the improvements was P3,600,000,
with an estimated useful life of 15 years. At December 31, 2016, Paete intended to exercise the
renewal option. Paete has taken a full year’s amortization on this improvement. What should be the
depreciation charge for the year ended 31 December 2016?
machine is estimated at 3 years with a residual value at the end of this period of P6,000. During its useful
life, the expected units of production from the machine are:
2015 12,000 units
2016 7,000 units
2017 5,000 units
What should be the depreciation expense for the year ended 31 December 2016, using the most
appropriate depreciation method permitted by PAS16 Property, plant and equipment?
7. Blessing Corp. uses the sum-of-the-years’ digits method to depreciate equipment purchased in
January 2014 for P20,000. The estimated residual value of the equipment is P2,000 and the estimated
useful is four years. What should be the depreciation charge for the year ended December 31, 2016?
8. Cuyapo Company purchased a machine in January 2, 2016, for P500,000. The machine has an
estimated useful life of eight years and a salvage value of P50,000. Depreciation was computed by
the 200% declining-balance method. What should be the depreciation charge for the year ended 31
December 2019?

3. Holdaway, Inc., a small furniture manufacturer, purchased the following assets at the end of 2016. 9. Kuya Company uses hand tools in its manufacturing activities. On January 1, 2016, there are 800 of
Asset # Cost R,V. D.A. Life such tools on hand at a cost of P200 each. Acquisition and retirement in the year 2016 are:
1 P24,000 P5,000 P19,000 5 years Estimated value
2 900 130 770 7 years Acquisition Retirement at year end
3 320 - 320 8 years 400 @ P300 300 @ P50 P200,000
4 9,000 500 8,500 5 years Assuming that retirements are on a first-in, first-out basis, which of the following statements is true?
P34,220 P5,630 P28,590 a. The depreciation using the retirement method is P60,000.
b. The depreciation using the replacement method is P90,000.
The group depreciation rate is
c. The depreciation using the inventory method is P75,000.
d. The retirement method yields the lowest amount of depreciation compared to replacement and
4. Takatak, Inc., uses the group depreciation method for its furniture account. The depreciation rate
inventory methods.
used for furniture is 21%. The balance in the furniture account on December 31, 2015, was P125,000,
and the balance in Accumulated Depreciation - Furniture was P61,000. The following purchases and
10. Pantabangan Company takes a full year’s depreciation in the year of an assets acquisition, and no
dispositions of furniture occurred in 2016 (assume that all purchases and disposals occurred at the
depreciation in the year of disposition. Data relating to one depreciable asset acquired in 2014, with
beginning of each year).
residual value of P900,000 and estimated useful life of 8 years, at December 31, 2015 are:
Assets Sold
Cost P9,900,000
Assets Purchased Cost Selling Price Accumulated depreciation 3,750,000
P35,000 P27,000 P8,000
Using the same depreciation method in 2014 and 2015, how much depreciation should
The carrying amount of furniture at December 31, 2016 is Pantabangan record in 2016 for this asset?

5. Bongabon Corporation acquired a machine at a total cost of P5,200,000. The estimated life of the 11. Roxanne Co. purchased equipment for P500,000. The equipment had an estimated 10-year service
machine is 8 years or a total of 100,000 working hours with no salvage value. The operating hours of life. Roxanne’s policy for 10-year assets is to use the 150% declining balance depreciation method for
the machine totaled: 2015, 5,000 hours; 2016, 12,000 hours. The company follows the working hours the first five years of the asset’s life and then switch to the straight-line depreciation method. What
method of depreciation. On December 31, 2016, the carrying amount of the machine is
 amount should Roxanne report as accumulated depreciation for equipment at the end of the sixth 13. Assuming that the original cost of the power train is P3 million, the total depreciation expense in 2016
year? is

12. Entity A acquired an asset that had a cost of P130,000. The asset is being depreciated over a 5-year 14. Assuming that the original cost of the power train is not separately identifiable and the appropriate
period using the sum-of-the-years’ digit method. It has a salvage value estimated at P10,000. The discount rate is 5% (the present value of 1 at 5% for 6 years is 0.7462), the total depreciation expense
loss/gain if the asset is sold for P38,000 at the end of the third year is in 2016 is

15. Bugis Corp. acquired a machine on January 1, 2004. Details of the machine at December 31, 2015
Use the following information for the next two questions. are given below:
Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2006 at a cost of P10 million. The Depreciation
estimated useful life is 10 years. On January 1, 2016, the power train requires replacement, as further Component Cost basis
maintenance is uneconomical due to the off-road time required. The remainder of the vehicle is Engine P170,000,000 Useful life of
perfectly roadworthy and is expected to last for the next four years. The cost of the new power train is 40,000 hours
P4.5 million. Outer casings 510,000,000 25 years straight
line
Other 12 years straight
components 255,000,000 line
P765,000,000
During the year 2016, the following events took place:
a) Engine, which had run for 30,000 hours till date developed serious snags. It was replaced by a
better engine with a cost of P238 million and estimated life of 50,000 hours. The new engine was
used for 5,000 hours during the year.
b) Polishing and painting was done to the outer casings at a cost of P1.3 million.
c) Other components were upgraded at a cost of P102 million. The remaining life of the other
components is 5 years.
Compute the total depreciation for the year 2016, assume that all the work mentioned above was
completed at the beginning of 2016.

-done-