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BES 221 (PART I - Prefinal Module)

This document discusses depreciation and depletion methods. It covers straight line, sum-of-years digits (SYD), and sinking fund depreciation methods. It provides 10 sample problems demonstrating calculations using these various methods to determine asset values and depreciation costs over time. Examples include calculating asset values and depreciation costs for machines, equipment, and oil wells using costs, salvage values, useful lives, and depletion percentages.

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Kristy Salmingo
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456 views9 pages

BES 221 (PART I - Prefinal Module)

This document discusses depreciation and depletion methods. It covers straight line, sum-of-years digits (SYD), and sinking fund depreciation methods. It provides 10 sample problems demonstrating calculations using these various methods to determine asset values and depreciation costs over time. Examples include calculating asset values and depreciation costs for machines, equipment, and oil wells using costs, salvage values, useful lives, and depletion percentages.

Uploaded by

Kristy Salmingo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BES 221- Engineering Economics

TOPIC 7: DEPRECIATION AND DEPLETION

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D. Using SYD method

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SAMPLE PROBLEMS:

Problem No. 1
A VOM has a selling price of P 400. If its selling price is expected to decline at a rate of 10% per
annum due to obsolescence, what will be its selling price after 5 years?

Problem No. 2
A machine costs P 8,000 and an estimated life of 10 years with a salvage value of P 500. What is
its book value after 8 years using straight line method?

Problem No. 3
A telephone company purchased a microwave radio equipment for P 6 million, freight and installation
charges amounted to 4% of the purchased price. If the equipment will be depreciated over a period of 10
years with a salvage value of 8%, determine the depreciation cost during the 5 th year using SYD.

Problem No. 4
ABC Corporation makes it a policy that for any new equipment purchased, the annual depreciation
cost should not exceed 20% of the first cost at any time with no salvage value. Determine the length of
service life necessary if the depreciation used is the SYD method.

Problem No. 5
A machine has an initial cost of P 50,000.00 and a salvage value of P 10,000.00 after 10 years. What
is the straight line method depreciation rate as a percentage of the initial cost?

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Problem No. 6
A machine costing P 45,000 is estimated to have a book value of P 4,350 when retired at the end
of 6 years. Depreciation cost is computed using a constant percentage of the declining book value. What
is the annual rate of depreciation in %?

Problem No. 7
An engineer bought an equipment for P 500,000. He spent an additional amount of P 30,000 for
installation and other expenses. The estimated useful life of the equipment is 10 years. The salvage value
is x% of the first cost. Using the straight line method of depreciation, the book value at the end of 5
years will be P 291,500. What is the value of x?

Problem No. 8
An equipment costs P 10,000 with a salvage value of P 500 at the end of 10 years. Calculate the
annual depreciation cost by sinking fund method at 4% interest.

Problem No. 9
Shell Philippines, a multinational company, has a total gross income for a particular year of P
50,000,000.00. The table income after taking all deductions except for depletion is P 18,500,000.00. What
is the allowable depletion allowance for that particular year? Take percentage of gross income for oil as
22%.

Problem No. 10
The Saudi Arabian Oil Refinery developed an oil well which is estimated to contain 5,000,000
barrels of oil at an initial cost of P 50,000,000. What is the depletion charge during the year where it
produces half million barrels of oil? Use Unit or Factor method in computing depletion.

EXERCISE SET
1. A company purchases an asset for P 10,000.00 and plans to keep it for 20 years. If the salvage
value is zero at the end of the 20th year, wat is the depreciation in the third year? Use SYD method.
(Ans. P 857.14)
2. An asset is purchased for P 500,000.00. The salvage value in 25 years is P 100,000.00. What is the
total depreciation in the first three years using straight-line method? (Ans. P 48,000)
3. A machine initially worth P50,000 depreciates in value each year by 20% of its value beginning of
that year. Find its book value when it is 9 years old. (Ans. P 6,710.89)
4. An asset is purchased for P 9,000.00. Its estimated economic life is 10 years after which it will be
sold for P 1,000.00. Find the depreciation in the first three years using sum-of-the-years digit
method. (Ans. P 3,927.27)
5. A tax and duty free importation of a 30 hp sandmill for paint manufacturing cost P 360,000.00.
Bank charges arrester and brokerage cost P 5,000.00. Foundation and installation costs were P
25,000.00. Other incidental expenses amount to P 20,000.00. Salvage value of the mill is estimated
to be P 60,000.00 after 20 years. Find the appraisal value of the mill using straight line depreciation
at the end of 10 years.

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