Homework 2 ENS 191

1. A machine shop purchased 10 years ago a milling machine for P60,000. A straight-line
depreciation reserve had been provided based on a 20-year life of the machine. The
owner of the machine shop desires to replace the old milling machine with a modern unit
having many advantages costing P100,000. It can sell the old unit for P20, 000. How
much new capital will be required for the purchase?
Given:
L = 20 Co = P60,000

𝑛(𝐶𝑂 − 𝐶𝐿)
𝐷𝑛 =
𝐿
10(60,000 − 0)
𝐷10 =
20
𝐷10 = 𝑃30,000

𝑁𝑒𝑤 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 = 100,000 − (30,000 + 20,000)

𝑁𝑒𝑤 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 = 𝑃50,000.00

2. A tax and duty free importation of a 30-horsepower sand mill for paint manufacturing
costs P360,000, CIF Manila. Bank charges, arrester and brokerage cost P5,000.
Foundation and installation costs were P25,000. Other incidental expenses amount to
P20,000. Salvage value of the mill is estimated to be P60,000 after 20 years. Find the
appraisal value of the mill using straight-line depreciation at the end of
a) 10 years
b) 15 years Given:
L = 20 Co = P410,000
CL = P60,000 n1 = 10

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Homework 2 ENS 191

n2 = 15

𝐶𝑂 = 360,000 + 5,000 + 25,000 + 20,000

𝐶𝑂 = P410,000
a)
10(410,000 − 60,000)
𝐷10 =
20
𝐷10 = 𝑃175,000

𝐶𝑛 = 𝐶𝑂 − 𝐷𝑛

𝐶10 = P410,000 − 𝑃175,000

𝐶 10 = P235,000.00
b)
15(410,000 − 60,000)
𝐷15 =
20
𝐷10 = 𝑃262,500

𝐶𝑛 = 𝐶𝑂 − 𝐷𝑛

𝐶10 = P410,000 − 𝑃262,500

𝐶10 = P147,50.00
3. On January 1, 1978, the purchasing engineer of a Cement Co. purchased a new
machine at a cost of 140,000. Depreciation has been computed by the straight-line
method based on an estimated useful life of five years and residual scrap value of
12,800. On January 2, 1981, extraordinary repairs (which were almost equivalent to a
rebuilding of machinery) were performed at a cost of 30,400. Because of the
thorough going nature of these repairs, the normal life of the machinery was
extended materially. The revised estimate of useful life was four years from January

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Homework 2 ENS 191

1, 1981. Determine the annual provision for depreciation for the years 1978 to 1980
and the adjusted provision for depreciation on December 31, 1981. Assume payment
in cash for the machine and extraordinary repairs.
Given:
L=5 Co = P140,000
CL = P12,800 n1 = 5

𝐶𝑂 − 𝐶𝐿
𝑑=
𝐿
140,000 − 12,800
𝑑=
5
𝑑 = 𝑃25,440.00

𝐶𝑂 = 140,000 + 30,400

𝐶𝑂 = P170,400

𝐶𝐿 = 𝑃25,440(3) + 12,800

𝐶𝐿 = 𝑃89,120
170,400 − 89,120
𝑑=
4
𝑑 = 𝑃20,320.00

4. Power to a remote transmitting station is provided by a Diesel-generator unit. The

original cost of the unit is P65,000. It costs P2,000 to ship the unit to the job site. An
additional cost of P3,000 was incurred for installation.
a) Determine the annual depreciation cost by the straight line method, if the unit has
an expected life of 10 years. The salvage value at the end of its life was estimated
at P5,000

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Homework 2 ENS 191

b) Determine the annual depreciation cost by the sinking fund method. Assume that
the annual charge for depreciation was deposited in a fund drawing compound
interest at the rate of 5%.
Given:
L = 10 Co = P70,000
CL = P5,000 i = 0.05
a)

𝐶𝑂 − 𝐶𝐿
𝑑=
𝐿
70,000 − 5,000
𝑑=
10 𝑑

= 𝑃6,500.00

b)

𝐶𝑂 − 𝐶𝐿
𝑑=
F
, i%, L
A
70,000 − 5,000
𝑑= 10
(1 + 0.05) −1
. 05

𝑑 = 𝑃5,167.80

5. An industrial plant bought a generator set for 90,000. Other expenses including
installation amounted to 10,000. The generator set is to have a life of 17 years with a
salvage value at the end of life of 5,000. Determine the depreciation charge during
the 13th year and the book value at the end of 13 years by the (a) declining balance

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Homework 2 ENS 191

method, (b) double declining balance method, (c) sinking fund method at 12% and
(d) SYD method.
Given:
L = 17 Co = P100,000
CL = P5,000 n = 13
i = 0.12
a) Declining Balance
𝑛
𝑐𝐿 𝐿
𝐶𝑛 = 𝐶𝑂 [ ]
𝐶𝑂
13
5,000 17
𝐶13 = 100,000 [ ]
100,000

𝐶 𝑛 = 𝑃10,118 𝑑𝑛

= 𝐶𝑂(1 − 𝑘)𝑛−1𝑘
𝑛−1

𝐿 𝑐𝐿 𝐿 𝑐𝐿

𝑑𝑛 = 𝐶𝑂 [1 − (1 − √ )] (1 − √ )
𝐶𝑂 𝐶𝑂
13−1

17 5,000 17 5,000
𝑑13 = 100,000 [1 − (1 − √ )] (1 − √ ) 100,000
100,000

𝑑 = 𝑃1,949.74

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Homework 2 ENS 191

b) Double Declining Balance

2 13−1 2
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Homework 2 ENS 191

𝑑13 = 100,000 (1 − )
17 17
𝑑 13 = 𝑃2,619.93 𝐶𝑛

= 𝐶𝑂(1 − 𝑘)𝑛

2 13

𝐶13 = 100,000 (1 − )
17 𝐶13 =
𝑃19,649.44

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Homework 2 ENS 191

c) Sinking Fund

𝐶𝑂 − 𝐶𝐿
𝑑=
F
, i%, L
A
100,000 − 5,000
𝑑= 17
(1 + 0.12) −1
. 12

𝑑 = 𝑃1,943.39
F
𝐷𝑛 = 𝑑 [ , i%, L]
A

(1 + 0.12)13 − 1
𝐷13 = (1,943.39) [ ]
. 12

𝐷13 = 𝑃54,471.50

𝐶𝑛 = 𝐶𝑂 − 𝐷𝑛

𝐶13 = 100,000 − 54,471.50

𝐶 𝑛 = 𝑃45,528.5

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Homework 2 ENS 191

d) SYD Method

𝐷13 = 88,790.85

𝐶𝑛 = 100,000 − 88,790.85

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Homework 2 ENS 191

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Homework 2 ENS 191

6. A telephone company purchased a microwave radio equipment for P6,000,000.00.

Freight and installation charges amounted to 3% of the purchased price. If the
equipment shall be depreciated over a period of 8 years with a salvage value of 5%,
determine the following: a.) Annual depreciation charge using the straight line
method.
b.) Depreciation charge during the 5th year using the sum-of-the year’s digits method.
Given:
L=8 Co = P6,180,000
CL = P309,000 n=5

a) Straight Line Method

b) SYD Method

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