Practice Problem No.

1
The machinery and accumulated depreciation accounts of ABC’s machineries are as
follows:
Machinery
01/01/12 Balance 500,000 09/01/12 Sale of machine No. 3 10,000
06/01/12 Machine No. 23 150,000 12/31/12 Balance 644,000
09/01/12 Dismantling of machine 4,000 654,000
3
654,000

Accumulated depreciation
12/31/12 Balance 344,400 01/01/12 Balance 280,000
344,400 12/31/12 Depreciation 64,400
344,400

a. ABC has depreciated all items of machinery at 10% per annum. The oldest item
owned is 7 years old as of December 31, 2012.
b. It is the ABC’s policy to take full year’s depreciation in the year of acquisition and
none in the year of disposition.
c. Machine No. 3, which was purchased on March 1, 2008, at a cost of P80,000, was
sold on September 1, 2012 for P10,000 cash.
d. Included in charges to repairs and maintenance account was an invoice for
installation of machine no. 23, in the amount of P35,000.

1. How much is the loss on sale of Machine No. 3? 42,000

2. What should be the entry made to record the sale of Machine No. 3?
3. How much should be the balance of Machinery as of December 31, 2012?
605,000
4. How much should be the total depreciation expense on machinery on 2012?
60,500
5. How much should be the balance of accumulated depreciation as of December 31,
2012? 308,500
Practice Problem No. 2

DEF Company’s property, plant and equipment, accumulated depreciation, and amortization balances at December 31,
2011 are:

Cost Accum depr’n Depr’n method Useful life

Land 275,000
Buildings 2,800,000 672,900 150% declining balance 25 years
Machinery and equipment 1,380,000 367,500 Straight line 10 years
Automobile and trucks (all acquired after 2009) 210,000 114,326 150% declining balance 5 years
Leasehold improvements 432,000 108,000 Straight line
5,097,000 1,262,726

Depreciation is computed to the nearest month. Salvage values of depreciable assets are immaterial except for
automobiles and trucks which have estimated salvage values of 15% of cost.

Other additional information:

a. DEF entered into a 12-year operating lease starting January 1, 2009. The leasehold improvements were completed on
December 31, 2008 and the facility was occupied on January 1, 2009.

b. On January 6, 2012, DEF completed its self-construction of a building on its own land. Direct costs of construction
were P1,095,000. Construction of the building required 15,000 direct labor hours. DEF’s construction department has
an overhead allocation system for outside jobs based on an activity denominator of 100,000 direct labor hours,
budgeted fixed costs of P2,500,000 and budgeted variable costs of P27 per direct labor hour.

c. On July 1, 2012, machinery and equipment were purchased at a total invoice cost of P325,000. Additional costs of
P23,000 to rectify damage on delivery and P18,000 for concrete embedding of machinery were incurred. A wall had
to be demolished to enable a large machine to be moved into the plant. The wall demolition cost is P7,000 and the
rebuilding cost is P19,000.

d. On August 30, 2012, DEF purchased a new automobile costing P25,000.

e. On September 30, 2012, a truck with a cost of P48,000 and a carrying amount of P30,000 on December 31, 2011
was sold for P23,500.

f. On November 4, 2012, DEF purchased a tract of land for investment purposes for P700,000. DEF thinks that it might
use the land as a potential future building site.

g. On December 20, 2012, a machine with a cost of P17,000, a carrying amount of P2,975 on date of disposition, and a
market value of P4,000 was sold to a corporate officer.

Compute for the following as of and for the year ended December 31, 2012:

Total depreciation 461,528

Carrying amount of buildings 3,761,974
Carrying amount of machinery and equipment 1,222,075
Carrying amount of automobiles and trucks 68,472
Carrying amount of property, plant and equipment 5,615,521