N.

4 PROBLEMS
1. In order to make it worthwhile to purchase a piece of equipment, the annual depreciation costs for the equipment
cannot exceed P295,000 at any time. The original cost of the equipment is P3M and a salvage value of P50,000.
a. Determine the length of service life necessary if the equipment is depreciated by
Sum-of-the-years-digit method
a. 30 b. 19 c. 25 d. 23
b. Declining - balance method
a. 30 b. 40 c. 29 d. 31
c. Straight-line method
a. 8 b. 10 c. 14 d. 12

2. The original cost of a certain piece of equipment is P500,000 and is depreciated by a 12% sinking fund method.
Determine the annual depreciation charge if the book value of the equipment after 10 years is the same as if it had
been depreciated at P40,000 each year by straight line formula.
a. P22,793.67 b. P497,026 c. P683,113 d. P383,600
3. An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is P6M
and has an estimated book value of P1.2 M at the end of an estimated useful life of 14 years. Compute the book
value at the end of the fifth year of life by each of these methods.
a. The straight-line method
a. P4.29M b. P2.78M c. P5.5M d. P6.5M
b. The SYD method
a. P4.29M b. P2.78M c. P1.34M d. P3.26M
c. The 200% DB method with switchover to straight line
a. P4.29M b. P2.78M c. P1.34M d. P6.5M
d. The GDS (For petroleum, recovery period is 7 years;)
a. P4.29M b. P2.78M c. P1.34M d. P6.5M
e. The ADS
a. P4.29M b. P2.78M c. P4.0713M d. P6.5M

4. An optical scanning machine was purchased for P150,000 in the current tax year (year one) It is to be used for
reproducing blueprints of engineering drawings, and its MACRS class life is nine years. The estimated market
value of this machine at the end of 10 years is P30,000.
a. What is the GDS recovery period of the machine?
a. 4years b. 5 years c. 6 years d. 7 years
b. Based on your answer to the preceding question , what is the depreciation deduction in year four?
a. P 15, 500 b. P25, 920 c. P 16,500 d. P17, 280
c. What is the BV at the beginning of year 5?
a. P 15, 500 b. P25, 920 c. P 16,500 d. P17, 280
5. Your company has purchased a large new truck for over-the road use (asset class 00.26). It has a basic cost of P1.8M.
With additional option costing P150,000, the cost basis for depreciation purposes is P1.95M. Its market value at the
end of five years is estimated as P400,000. Assume it will be depreciated under GDS.
a. The cumulative depreciation through the end of year three is closest to: (Note: Recovery period is 3 years using
GDS)
a. P1.950 M b. P1.878 M c. P 1.800M d. P1.806 M

b. The MACRS depreciation in year four is most nearly.

c. The book value at the end of year 2 is most nearly

d. The depreciation deduction in year 3 when the equipment is disposed of prior to year 4.
 d. The depreciation deduction in year 3 when the equipment is disposed of prior to year 4.
a. P330,000 b. P360,000 c. P 420,000 d. P144,400
6. An old pump costs P25,000 a year to maintain. What expenditure for a new pump is justified if no maintenance will
be required for the first 2 years, P5,000 a year for the next 8 years and P25,000 a year thereafter. Assume cost of
money is 10% pa and no other costs are to be considered.
a. P126,940 b. P 131,569 c. P 126,825.03 d. P162,825.03

7. A firm purchased and placed in service a new piece of semi-conductor equipment The cost basis for the equipment is
P100,000.
a. Determine the depreciation charge permissible in the fourth year. Use Modified Accelerated Cost Recovery
System (MACRS). Class life is six years
a. P 10,126 b. P 12,131 c. P11,825 d. P11,520
b. What is the book value at the end of the fourth year (BV4)?
a. P 10,126 b. P 12,131 c. P11,825 d. P17,280

8. A company purchased a machine for P800,000, used it for 4 years and sold it for P300,000. If money is worth 10%
determine the capital recovery cost of operating the equipment.
a. P187,735.40 b. P47,026 c. P33,113 d. P23,600
9. A certain equipment costs P 250,000, lasts 10 years with a salvage value of P25,000. Money is worth 8%. If the
owner decides to sell it after using for 5 years, what should his price be so that he can recover his investment plus
interest?
a. P222,793.67 b. P247,026 c. P133,113 d. P276,214

10. A company purchased an equipment for P 110,000. It is estimated that it will have a useful life of 10 years, production of
100,000 units and working hours of 100,000. The scrap value of the equipment is P10,000,
The company uses the equipment for 7,000 hours and produces 8,000 units on its first year of operation and 8,000 hours
and 9,500 units on its second year of operation.
Compute the book value of the equipment at the beginning of the third year using.
a. Declining-balance method.
a. P 68,096 b. P70,400 c. P94,371 d. P 95,000
b. Double-declining-balance method
a. P 68,096 b. P70,400 c. P94,371 d. P 95,000
c. Sinking-fund method, i=6%
a. P 68,096 b. P70,400 c. P94,371 d. P 95,000
d. Working hours
a. P68,096 b. P70,400 c. P94,371 d. P 95,000
e. Output method
a. P 68,096 b. P70,400 c. P92,500 d. P 95,000

f. MACRS, assume recovery period of 5 years.

11. A machine costs P900,000 and will have a salvage value of P450,000 when retired at the end of 5 years. Using
sum-of-the-years digit method, what is the sum of the depreciation cost in the first two years?
a. P630,000 b. P270,00 c. P 730,000 d. P 230,000