Problem 8-1

Blue Company purchased a machine on January 1, 2017 for P6,000,000. At the date of acquisition, the
machine had a life of six years with no residual value. The machine is being depreciated on a straight-line
basis.
On January 1, 2020, the entity determined that the machine had a useful life of eight years from the date of
acquisition with no residual value.
What is the depreciation of the machine for 2020?
a. 750,000
b. 600,000
c. 375,000
d. 500,000

Answer: ₱600,000 is the amount for depreciation of the machine for 2020.
Solution:
Cost - January 1, 2017 ₱6,000,000
Accumulated Depreciation
(6,000,000 / 6 x 3) 3,000,000
Carrying Amount - December 31, 2020 ₱3,000,000
Remaining Useful Life (8 years - 3 years) 5 years
Depreciation for 2020 ₱600,000

Problem 8 - 2
Acute company was incorporated on January 1, 2017. In preparing the financial statements for the year
ended December 31, 2019, the entity used the following original cost and useful life for the property, plant
and equipment:
Original cost Useful life
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years

On January 1, 2020, the entity determined that the remaining useful life is 10 years for the building, 7 years
for the machinery and 5 years for the furniture. The entity used the straight line method of depreciation with
no residual value.
What is the total depreciation for 2020?
a. 2,650,000
b. 3,700,000
c. 2,550,000
d. 3,500,000

Answer: ₱2,650,000 is the total depreciation for 2020.

Solution:
Building:
Cost - January 1, 2017 ₱15,000,000
Accumulated Depreciation
(15,000,000 / 15 x 3) 3,000,000
Carrying Amount - January 1, 2020 ₱12,000,000
Remaining Useful Life 10 years
Depreciation for 2020 - Building ₱1,200,000

Machinery:
Cost - January 1, 2017 ₱10,500,000
Accumulated Depreciation
(10,500,000 / 10 x 3) 3,1500,000
Carrying Amount - January 1, 2020 ₱7,350,000
Remaining Useful Life 7 years
Depreciation for 2020 - Machinery ₱1,050,000
 Furniture:
Cost - January 1, 2017 ₱3,500,000
Accumulated Depreciation
(3,500,000 / 7 x 3) 1,500,000
Carrying Amount - January 1, 2020 ₱2,000,000
Remaining Useful Life 5 years
Depreciation for 2020 - Furniture ₱400,000

Depreciation - Building ₱1,200,000

Depreciation - Machinery 1,050,000
Depreciation - Furniture 400,000
Total Depreciation for 2020 ₱2,650,000

Problem 8-3 (AICPA Adapted)

On January 1, 2017, Flair company purchased a machine for P2,640,000 and depreciated it by the straight
line using an estimated life of 8 years with no residual value.
On January 1, 2020, the entity determined that the machine had a useful life of 6 years from the date of
acquisition with a residual value of P240,000.
What is the accumulated depreciation on December 31, 2020?
a. 1,460,000
b. 1,540,000
c. 1,600,000
d. 1,760,000

Answer: The accumulated depreciation on December 31, 2020 is ₱1,460,000.

Solution:
Cost ₱2,640,000
Accumulated Depreciation (2,640,000 / 8 x 3) (990,000)
Carrying Amount, Jan. 1, 2020 ₱1,650,000

Accumulated Depreciation - Jan. 1, 2020 ₱990,000

Depreciation for 2020 (1,650,000 - 240,000 / 3) 470,000
Accumulated Depreciation - Dec. 31, 2020 ₱1,460,000

Problem 8-4 (IFRS)

On January 1, 2016, Roma Company purchased equipment for P4,000,000. The equipment has a useful
life of 10 years and a residual value of P400,000.
On January 1, 2020, the entity determined that the useful life of the equipment was 12 years from the date
of acquisition and the residual value was P480,000.

1. What is the carrying amount of the equipment on January 1, 2020?

a. 2,560,000
b. 2,920,000
c. 2,400,000
d. 2,800,000

Answer: ₱2,560,000 is the carrying amount of the equipment on January 1, 2020.

Solution:
Cost - January 1, 2016 ₱4,000,000
Accumulated Depreciation
[(4,000,000 - 400,000) / 10 x 4] 1,440,000
Carrying Amount - January 1, 2020 ₱2,560,000
2. What is the depreciation of the equipment for 2020?
a. 175,000
b. 260,000
c. 360,000
d. 300,000

Answer: The depreciation of the equipment for 2020 is ₱260,000.

Solution:
Carrying Amount - January 1, 2020 ₱2,560,000
Residual Value 480,000
Depreciable Amount ₱2,080,000
Remaining Useful Life (12 years - 4 years) 8 years
Depreciation for 2020 ₱260,000

Problem 8-5 (AICPA Adapted)

Dawn company purchased a machine on January 1, 2017 for P3,000,000. At the date of acquisition, the
machine had a life of six years with no residual value. The machine is being depreciated on a straight line
basis.
On January 1, 2020, the entity determined that the machine had a useful life of five years from the date of
acquisition with residual value of P100,000.

What is the depreciation for 2020?

a. 700,000
b. 500,000
c. 750,000
d. 600,000

Answer: ₱700,000 is the depreciation for 2020.

Solution:
Cost - January 1, 2017 ₱3,000,000
Accumulated Depreciation
(3,000,000 / 6 x 3) 1,500,000
Carrying Amount - December 31, 2020 ₱1,500,000
Residual Value 100,000
Depreciable Amount ₱1,400,000
Remaining Useful Life (5 years - 3 years) 2 years
Depreciation for 2020 ₱700,000

Problem 8-6 (AICPA Adapted)

On January 1, 2018, Zee Company purchased for P2,400,000 a machine with a useful of ten years and no
residual year. The machine was depreciated by the double declining balance method and the carrying
amount of the machine was P1,536,000 on December 31, 2019. The entity changed to the straight line
method on January 1, 2020.

What is the depreciation for 2020?

a. 153,600
b. 307,200
c. 240,000
d. 192,000

Answer: The amount for depreciation for 2020 is ₱192,000.

Solution:
Double Declining Balance Method Formula:
1
Depreciation Expense = 2 x Estimated Life x Book Value at the beginning of the year

Depreciation Expense = 2 x (1/10) x ₱2,400,000 = ₱480,000

 Carrying Amount - December 31, 2019 ₱1,536,000
Remaining Useful Life (10 years - 2 years) 8 years
Depreciation for 2020 ₱192,000

Problem 8-7 (AICPA Adapted)

On January 1, 2019, Kevin Company purchased a machine for P2,750,000. The machine was depreciated
using the sum of years’ digits method based on a useful life of 10 years with no residual value.
On January 1, 2020, the entity changed to the straight line method of depreciation.

What is the depreciation for 2020?

a. 180,000
b. 220,000
c. 250,000
d. 275,000

Answer: The depreciation for 2020 is amounting to ₱250,000.

Solution:
Sum of years/ digit method:
Cost - January 1, 2019 ₱2,750,000
Accumulated Depreciation
2019 (10/55 x 2,750,000) 500,000
Carrying Amount - January 1, 2020 ₱2,250,000

Straight Line Method

Carrying Amount - January 1, 2020 ₱2,250,000
Remaining Useful Life (10 years - 1 year) 9 years
Depreciation for 2020 ₱250,000

Problem 8-8 (AICPA Adapted)

Turtle Company purchased equipment on January 1, 2018 for P5,000,000. The equipment had an
estimated 5-year service life. The policy for 5-year assets is to use the 200% double declining balance
method for the first two years and then switch to the straight line depreciation method.

What amount should be reported as accumulated depreciation on December 31, 2020?

a. 3,000,000
b. 3,800,000
c. 3,920,000
d. 4,200,000

Answer: ₱3,800,000 is the amount that should be reported as accumulated depreciation on

December 31, 2020.
Solution:
Cost - January 1, 2018 ₱5,000,000
Accumulated Depreciation
2018 ₱2,000,000
2019 1,200,000 3,200,000
Carrying Amount - 2020 ₱1,800,000
Remaining Useful Life (5 years - 2 years) 3 years
Depreciation for 2020 ₱600,000
Accumulated Depreciation 3,200,000
Total ₱3,800,000

1
Double Declining Balance Method Formula = 2 x Estimated Life x Book Value at the beginning of the year
Accumulated Depreciation, 2018 = 2 x (1/5) x ₱5,000,000
= ₱2,000,000

(5,000,000 - 2,000,000 = 3,000,000)

Accumulated Depreciation, 2019 = 2 x (1/5) x ₱3,000,000
= ₱1,200,000

Problem 8-9 (IAA)

Xavier Company purchased a machinery on January 1, 2017 for P7,200,000. The machinery has a useful
life of 10 years with no residual value and was depreciated using the straight line method.
In 2020, a decision was made to change the depreciation method from straight line to sum of years' digits.
The estimate of useful life and residual value remained unchanged.

What is the depreciation for 2020?

a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000

Answer: The amount ₱1,260,000 is the depreciation for 2020.

Solution:
Cost - January 1, 2017 ₱7,200,000
Accumulated Depreciation
(7,200,000 / 10 x 3) 2,160,000
Carrying Amount - 2020 ₱5,040,000
Sum of years’ digit (10 years - 3 years) 7 / 28
Depreciation for 2020 ₱1,260,000

Problem 8-10 (AICPA Adapted)

On January 1, 2018, Brazilia Company purchased for P4,800,000 a machine with a useful life of ten years
and a residual value of P200,000. The machine was depreciated by the double declining balance.
The entity changed to the straight line method on January 1, 2020. The residual value did not change.

What is the accumulated depreciation on December 31, 2020?

a. 1,728,000
b. 2,087,000
c. 1,380,000
d. 2,112,000

Answer: ₱2,087,000 is the accumulated depreciation on December 31, 2020.

Solution:
Cost - January 1, 2018 ₱4,800,000
Accumulated Depreciation
2018 ₱960,000
2019 768,000 1,728,000
Carrying Amount - January 1, 2020 ₱3,072,000
Residual Value 200,000
Depreciable Amount ₱2,872,000
Remaining Useful Life (10 years - 2 years) 8 years
Depreciation - December 31, 2020 ₱359,000
Accumulated Depreciation ₱1,728,000
Accumulated Depreciation - Dec. 31, 2020 ₱2,087,000

1
Double Declining Balance Method Formula = 2 x Estimated Life x Book Value at the beginning of the year

Accumulated Depreciation, 2018 = 2 x (1/10) x ₱4,800,000

= ₱960,000

(4,800,000 - 960,000 = 3,840,000)

Accumulated Depreciation, 2019 = 2 x (1/10) x ₱3,840,000)
= ₱768,000

Problem 8-11 (IAA)

On January 1, 2019, London Company purchased a large quantity of personal computers. The cost of
these computers was P6,000,000.
On the date of purchase, the management estimated that the computers would last approximately four
years and would have a residual value at that time of P600,000. The entity used the double declining
balance method.
During January 2020, the entity realized that technological advancements had made the computers virtually
obsolete and that they would have to be replaced. The management changed the remaining useful life of
the computers to two years.

What is the depreciation expense for 2020?

a. 3,000,000
b. 2,400,000
c. 1,500,000
d. 1,200,000

Answer: The depreciation expense for 2020 is ₱2,400,000.

Solution:
Double Declining Balance Method Formula:
1
Depreciation Expense = 2 x Estimated Life x Book Value at the beginning of the year

= 2 x (1/4) x ₱6,000,000
= ₱3,000,000

Cost - January 1, 2019 ₱6,000,000

Accumulated Depreciation 3,000,000
Carrying Amount - January 2020 ₱3,000,000
Residual Value 600,000
Depreciable Amount ₱2,400,000
Remaining Useful Life (2 years - 1 years) 1 year
Depreciation for 2020 ₱2,400,000

Problem 8-12 (IAA)

Canyon Company decided at the beginning of 2020 to decrease the estimated useful life of the patent from
10 years to 8 years.
The patent was purchased on January 1, 2015 for P3,000,000 with estimated residual value of zero.
The entity decided on January 1, 2020 to change the depreciation method from accelerated method to
straight line.
On January 1, 2019, the cost of the equipment is P8,000,000 and the accumulated depreciation is
P3,400,000.
The remaining useful life of the equipment on January 1, 2020 is 10 years and the residual value is
P200,000.

What is the total charge against 2020 income as a result of the accounting changes?
a. 940,000
b. 960,000
c. 627,500
d. 647,500
Answer: ₱940,000 is the total charge against 2020 income as a result of the accounting changes.
Solution:
Patent:
Cost ₱3,000,000
Accumulated Depreciation
(3M / 10yrs x 5yrs) 1,500,000
Carrying Amount ₱1,500,000
Remaining Useful Life (8yrs – 5yrs) 3 years
Amortization Expense ₱500,000

Equipment:
Cost ₱8,000,000
Accumulated Depreciation 3,400,000
Carrying Amount ₱4,600,000
Residual Value 200,000
Depreciable Amount ₱4,400,000
Remaining Useful Life 10 years
Depreciation Expense ₱440,000
Total Expenses ₱940,000