Illustration 1

ABC Company imported a piece of factory equipment for P200,000. ABC

incurred the following additional costs:
Non-refundable purchase taxes
Broker's commission
Freight and handling costs
Import duties
Installation (including cost of P1,000 cost of platform for
the equipment
Testing and trial runs
General and administrative costs
Advertisement for the related new product
Purchase price
The samples generated from the trial runs were sold for P1,000. The cost of the sampl
is P800.

Required: Compute for the initial cost of the equipment

Factory equipment
Cash

Cash
Samples
Gain on sale of samples

General and administrative expense

Advertising expense
Cash

Illustration 2
On January 1, 2021, ABC Company purchased a piece of furniture with an installment
price of P130,000 and a cash price equivalent of P100,000 by paying P10,000 down
payment and issuing a one-year noninterest-bearing note of P120,000 payable in equa
semi-annual installments on July 1 and December 31, 2021.

Required: Compute for the initial cost of the furniture

Furniture & fixtures

Discount on notes payable
Cash
Notes payable

Illustration 3
On January 1 2021, ABC Company purchased fixtures with an installment price of
P130,000 by paying P10,000 down payment and issuing a three-year noninterest
bearing note of P120,000 payable in three equal annual installments starting
December, 31, 2021. The prevailing rate for the note on January 1, 2021 is 12%.
PV of ordinary annuity of P1 @ 12%, n=3 is 2.401825.

Required: Compute for the initial cost of the fixtures

Cash downpayment
PV of note (40,000 x 2.401825)
Initial cost of fixtures

Furniture and fixture

Discount on notes payable
Cash
Notes payable
200,000. ABC

20,000 20,000
10,000 10,000
2,000 2,000
50,000 50,000

4,000 4,000
3,000 3,000
8,400 -
5,600 -
200,000
,000. The cost of the samples

289,000

289,000
289,000

1,000
800
200

8,400
5,600
14,000

rniture with an installment

by paying P10,000 down
of P120,000 payable in equal

100,000

100,000
30,000
10,000
120,000

an installment price of
hree-year noninterest
tallments starting
nuary 1, 2021 is 12%.

10,000
96,073
106,073

106,073
23,927
10,000
120,000
Illustration 1: Straight-line method (SLM)
On January 1, 2021, an entity acquired a piece of equipment for P100,000.
The equipment is estimated to have a useful life of 5 years and a residual
value of P20,000.

Initial cost (historical cost) of equipment

Residual value
Depreciable amount
Divide: Estimated useful life
Annual depreciation

Depreciation table
Accumulated Carrying
Date Depreciation Depreciation Amount
Jan. 1, 2021 100,000
Dec. 31, 2021 16,000 16,000 84,000
Dec. 31, 2022 16,000 32,000 68,000
Dec. 31, 2023 16,000 48,000 52,000
Dec. 31, 2024 16,000 64,000 36,000
Dec. 31, 2025 16,000 80,000 20,000
80,000

Journal entry every year

Depreciation expense 16,000
Accumulated depreciation
Illustration 2:
Spin Co. acquired a machine on January 1, 2021 for P500,000. The machine was
estimated to have a useful life of 4 years and a residual value equial to 10% of the cost.

Required: Prepare depreciation table using straight line method

00,000.

100,000
(20,000)
80,000
5
16,000

16,000.00
machine was
l to 10% of the cost.
 Illustration: Sum-of-the-years' digit (SYD)
On January 1, 2021, an entity acquired a piece of equipment for P100,000.
The equipment is estimated to have a useful life of 5 years and a residual
value of P20,000

Initial cost (historical cost) of equipment

Residual value
Depreciable amount

SYD denominator = Life x [(Life + 1) ÷ 2]

= 5 x [(5 + 1) ÷ 2]
= 15

Depreciation table

Depreciable SYD
Date Amount Factor Depreciation
Jan. 1, 2021
Dec. 31, 2021 80,000 5/15 26,667
Dec. 31, 2022 80,000 4/15 21,333
Dec. 31, 2023 80,000 3/15 16,000
Dec. 31, 2024 80,000 2/15 10,667
Dec. 31, 2025 80,000 1/15 5,333
80,000

Illustration 2:
Spin Co. acquired a machine on January 1, 2021 for P500,000. The machine was
estimated to have a useful life of 4 years and a residual value equial to 10% of the cost.

Required: Prepare depreciation table using sum-of-the-years' digit method

r P100,000.
a residual

100,000
(20,000)
80,000

Accumulated Carrying
Depreciation Amount
100,000
26,667 73,333
48,000 52,000
64,000 36,000
74,667 25,333
80,000 20,000

machine was
to 10% of the cost.

method
Illustration: Double declining balance method
On January 1, 2021, an entity acquired a piece of equipment for P100,000. The eq
is estimated to have a useful life of 5 years and a residual value of P20,000.

Double declining rate = 2 ÷ Life

= 2 ÷ 5 = 40%

Depreciation charges are computed as follows

2021 (100,000 x 40%)
2022 (100,000 - 40,000) x 40%
2023 (100,000 - 40,000 - 24,000) x 40%
2024 (100,000 - 40,000 - 24,000 - 14,400) x 40%

Carrying amount in 2024 is computed as follows:

2024 (100,000 - 40,000 - 24,000 - 14,400 - 8,640)

Carrying amount in 2023 (100,000 - 40,000 - 24,000 - 14,400)

Residual value
Depreciation in 2024

Depreciation table
Accumulated
Date Depreciation Depreciation
Jan. 1, 2021
Dec. 31, 2021 40,000 40,000
Dec. 31, 2022 24,000 64,000
Dec. 31, 2023 14,400 78,400
Dec. 31, 2024 1,600 80,000
Dec. 31, 2025 80,000
80,000
Illustration 2:
Spin Co. acquired a machine on January 1, 2021 for P500,000. The machine was
estimated to have a useful life of 4 years and a residual value equial to 10% of the cost.

Required: Prepare depreciation table using double declining method method

r P100,000. The equipment
of P20,000.

40,000
24,000
14,400
8,640

12,960

21,600
20,000
1,600

Carrying
Amount
100,000
60,000
36,000
21,600
20,000
20,000
machine was
to 10% of the cost.

od method
Illustration: Units of production method
On January 1, 2021, an entity acquired a piece of factory equipment for P100,000. The
equipment is estimated to have a total service life of 40,000 hours (input), or a total
productive capacity of 200,000 units (output). The estimated residual value is P20,000
Information on actual usage and production is as follows:
Manufacturing Units
Year hours produced
2021 20,000 120,000
2022 12,000 56,000
2023 6,000 20,000
2024 - -
2025 2,000 4,000

Case 1: Input method (based on hours)

Depreciation rate = Depreciable amount ÷ Estimated total hours
= 80,000 ÷ 40,000
= 2 per hour of input

Actual hrs x
Year Dep rate/hour Depreciation
Jan. 1, 2021
Dec. 31, 2021 20,000 x 2 40,000
Dec. 31, 2022 12,000 x 2 24,000
Dec. 31, 2023 6,000 x 2 12,000
Dec. 31, 2024 0 0
Dec. 31, 2025 2,000 x 2 4,000
80,000

Case 2: Output method (based on units producted)

Depreciation rate = Depreciable amount ÷ Estimated total units
= 80,000 ÷ 200,000
= 0.40 per unit of output
 Actual hrs x
Year Dep rate/hour Depreciation
Jan. 1, 2021
Dec. 31, 2021 120,000 x 0.40 48,000
Dec. 31, 2022 56,000 x 0.40 22,400
Dec. 31, 2023 20,000 x 0.40 8,000
Dec. 31, 2024 0 0
Dec. 31, 2025 4,000 x 0.40 1,600
80,000

Illustration 2:
DEF Company acquired a piece of factory equipment on January 1, 2021 for
P1,000,000. The equipment has a residual value of P100,000. The machine is
estimated to have a total service life of 12,000 hours and a total productive
capacity of P720,000 units of a product. Information on actual usage and
production in the first two years are as follows:
Manufacturing
Year hours Units produced
2021 3,600 240,000
2022 3,000 200,000

Required: Prepare journal entries on December 31, 2021 and 2022

using the units of production method wherein depreciation rate is determined:
a. Based on input
b. Based on output
 ipment for P100,000. The
hours (input), or a total
d residual value is P20,000.

t ÷ Estimated total hours

Accumulated Carrying
Depreciation Amount
100,000
40,000 60,000
64,000 36,000
76,000 24,000
76,000 24,000
80,000 20,000

t ÷ Estimated total units

 Accumulated Carrying
Depreciation Amount
100,000
48,000 52,000
70,400 29,600
78,400 21,600
78,400 21,600
80,000 20,000

ary 1, 2021 for

. The machine is
otal productive
al usage and

ate is determined:
Illustration: Fair value
On December 31 ,2021, an entity's building with a historical cost
of P20,000,000 and accumulated depreciation of P5,000,000 is
determined to have a fair value of P25,000,000. The building has
a remaining useful life of 20 years.

Required:
a. Compute for the revaluation surplus
b. Compute for the annual depreciation after the
revaluation surplus. (Use straight line method)

a. Fair value 25,000,000

Carrying amount (20M - 5M) (15,000,000)
Revaluation surplus 10,000,000

b. Depreciation after surplus

Fair value 25,000,000
Divided by remaining useful life 20 yrs.
Annual depreciation 1,250,000

Illustration 1: Revaluation surplus

On December 31, 2021, an entity's building with historical cost of P20,000,000 and
accumulated depreciation of P10,000,000 was assessed to have a replacement cost
of P42,000,000. Additional information follows:
Actual life 25 years
 Effective life 20 years
Remaining economic life 40 years
Income tax rate 30%

Required: Prepare the entry to record the revaluation surplus under each of the
following methods:
a. Proportional method
b. Elimination method
Solution:
Replacement cost
Less: Depreciation (42M x 20/60)
Fair value
Carrying amount (20M - 10M)
Revaluation surplus - gross of tax
Less: Deferred tax (18M x 30%)
Revaluation surplus - net of tax

Historical Replacement
Cost Cost
Building 20,000,000 42,000,000
Accumulated Depreciatio (10,000,000) (14,000,000)
10,000,000 28,000,000

Journal entry
Proportional method
Building 22,000,000
Accumulated depreciation
Revaluation surplus
Deferred tax liability

Elimination method
 Accumulated depreciation 10,000,000
Building 8,000,000
Revaluation surplus
Deferred tax liability

Carrying amount after revaluation

Proportional
Building 42,000,000
Accumulated depreciation (14,000,000)
28,000,000

Illustration 2
An entity revalued its building on December 31, 2021. The
following information was determined:
Historical cost
Accumulated depreciation
Actual life
Replacement cost
Effective life
Remaining economic life
Income tax rate

Required:
a. Compute for the revaluation surplus, net of tax
b. Provide the journal entry to record revaluation surplus
using (1) proportional method and (2) elimination
method
c. Determine the revised annual depreciation after the
revaluation.

a. Replacement cost
Less: Depreciation (21M x 20/60)
 Fair value
Carrying amount (10M - 5M)
Revaluation surplus - gross of tax
Less: Deferred tax (9M x 30%)
Revaluation surplus - net of tax

b. Historical Replacement
Cost Cost
Building 10,000,000 21,000,000
Accumulated Depreciatio (5,000,000) (7,000,000)
5,000,000 14,000,000

Proportional method
Building 11,000,000
Accumulated depreciation
Revaluation surplus
Deferred tax liability

Elimination method
Accumulated depreciation 5,000,000
Building 4,000,000
Revaluation surplus
Deferred tax liability

Carrying amount of building

Proportional
Building 21,000,000
Accumulated depreciation (7,000,000)
Carrying value 14,000,000

c. Fair value
Divided by
Revised depreciation
t of P20,000,000 and
ve a replacement cost
us under each of the

42,000,000
(14,000,000)
28,000,000
(10,000,000)
18,000,000
(5,400,000)
12,600,000

Increase
22,000,000
(4,000,000)
18,000,000

4,000,000
12,600,000
5,400,000
 12,600,000
5,400,000

Elimination
28,000,000

28,000,000

10,000,000
5,000,000
25 years
21,000,000
20 years
40 years
0

21,000,000
(7,000,000)
 14,000,000
(5,000,000)
9,000,000
(2,700,000)
6,300,000

Increase
11,000,000
(2,000,000)
9,000,000

2,000,000
6,300,000
2,700,000

6,300,000
2,700,000

Elimination
14,000,000
-
14,000,000

14,000,000
40 years
350,000
Illustration: Revaluation surplus
Fair value 25,000,000
Less: Carrying amount (20M - 5M) (15,000,000)
Revaluation surplus 10,000,000

Depreciation after revaluation surplus

Fair value 25,000,000
Divide by remaining useful life 20 yrs
Annual depreciation 1,250,000