ACN001 - Finals

Answer for Problem 28-4 Cost of Land Purchase Price Add: Directly Attributable Cost Legal fees for title investigation Total Cost of Land Cost of Building Construction cost of new building Architect fee Demolition of Old Building Less: Salvaged materials (50,000) Total Cost of Building

1,000,000 25,000 1,025,000

5,450,000 175,000 100,000 resulting 5,675,000

Answer: Letter A. Note: The borrowing cost would be considered also in construction cost. Answer for Problem 28-5 Cost of Land Acquisition Cost Add: Directly Attributable Cost Survey before construction Title Insurance and Legal fees Total Cost of Land

Cost of Land Improvements Cost of Lightning & Signage 100,000 Driveway, parking bay and safety light 550,000 Cost of trees, shrubs and landscaping 300,000 Total Cost of Land Improvements 950,000

4,500,000 Answer: Letter A. 100,000 200,000 4,800,000

Answer: Letter B. Note: Hindi nagdedepreciated ang lupa kaya yun ang pinagkaiba sa land improvements. Kasi ito ay ang mga accessories para sa pagpapaganda sa lupa na nadedepreciated. The survey is the assessment the characteristics ng lupa kung pwede tayuan ang lupa. Cost of Building Construction cost of new building 8,000,000 Architect fee 950,000 Demolition of Old Building-Net 300,000 Building permit for approval of building 150,000 Excavation before new construction 200,000 New fence surrounding the new building 100,000 Liability Insurance during construction 100,000 Total Cost of Building 9,800,000 Answer: Letter C.

Note: Building permit ay kailangan para makapagconstruct ng lupa. Excavation ay para sa pundasyon ng building. Those incurred na part of the plan during the construction ay kasama. Kapag ang new fence ay kasama sa blue print then kasama yan sa part ng building. If yung fence ay hindi kasama sa blueprint then it is land improvements. Kapag ang fence ay tsaka mo palang ginawa after several years then it is classified as land improvements. When the problem is silent kasama sya sa part ng building ang permanent fence. Nakadepende sa intention.

Note: By nature kapag halaman sa mga paso na hindi kasama sa mismong land then it is land improvements. Hindi nadatnan. Sa driveway pwedeng maging parte ng building pag part ng plan. Pag nagkaroon ka ng land para tayuan ng parking lot then it is land improvements. When the problem is silent for problem solving nasa part ng land improvements kapag driveways. Answer for Problem 28-6 Cost of Land Cash paid for Land & Building Add: Directly Attributable Cost Survey before construction Assessment by city for drainage Cost of grading, leveling & landfill Fee for title search Total Cost of Land

1,000,000 20,000 5,000 45,000 10,000 1,080,000

Answer: Letter D. Note: if demolish yung building then yung buong value ay sa land. Yung title ay normally sa lupa. Yumg grading kapag hindi patag ang lupa it is making sure na magagamit yung lupa Ito ay gagamit ng truck .

Cost of paving driveway & parking lot Cost of trees, shrubs and landscaping Cost of installing lights in parking lot Total Cost of Land Improvements

40,000 55,000 5,000 100,000

Answer: Letter C. Cost of Building Construction cost of new building 6,000,000 Architect fee for new building 200,000 Removal of Old Building 50,000 Payment to tenants for vacating old 15,000 Building permit for approval of building 30,000 Excavation before new construction 100,000 Driveways and walks - part of building 40,000 Temporary quarters for construction crew 80,000 Temporary building to house tools 60,000 Cost of changes during construction 50,000 Total Cost of Building 6,625,000 Answer: Letter A.

Note: Ang payment for medical bills of employees and cost of open house to celebrate ay classified as outright expenses. Answer for Problem 28-8 Cost of Land Purchase Price Less: FV of Office Building Acquisition Cost of Land Add: Directly attributable cost Legal cost of conveying land Total Cost of Land

2,000,000 (700,000) 1,300,000 10,000 1,310,000

Answer: Letter A. Cost of Office Building Fair Value of Office Building Cost of remodeling old office Total Cost of Building

Note: The cost of window broken by vandals is classified as outright expense tsaka wala sa plano kaya inexpense.

Answer: Letter B.

Answer for Problem 28-7 Cost of Land Fair Value of Land Add: Directly attributable cost Legal fees including fee for title Payment of land mortgage Payment of property taxes Grading and drainage on land site Total Cost of Land

Cost of Factory Building Materials and supplies 3,000,000 Less: Cash Discounts 2,940,000 Excavation Labor on construction Supervision by management- During Compensation Insurance premiums Clerical & other expenses- During Plans and Specifications Total Cost of Factory Building

1,800,000 10,000 50,000 20,000 15,000 1,895,000

700,000 200,000 900,000

(60,000) 100,000 2,500,000 70,000 20,000 30,000 140,000 5,800,000

Answer: Letter C. Answer: Letter B. Cost of Building Cost of razing the apartment building Architect Fee on new building Payment to Building Contractor Interest Cost of specific during Premium for insurance on building Total Cost of Building Answer: Letter A. Cost of Land Improvements

30,000 200,000 8,000,000 300,000 25,000 8,555,000

Answer for Problem 28-9 Computation for Share Capital Melancholy Company Shares 100,000 Multiply By: Market price x 45 Total Share Capital 4,500,000 Computation for Share Capital (Land) Total Share Capital 4,500,000 Multiply by: Ratio x 1/3

Share Capital - Land

1,500,000

Computation for Share Capital (Land) Total Share Capital 4,500,000 Multiply by: Ratio x 2/3 Share Capital - Land 3,000,000

Table for Share Capital Classification

FV

Ratio

Share Capital

Land

1,200,000

1/3

1,500,000

Building

2,400,000

2/3

3,00,000

Total

3,600,000

Cost of Land Balances, January 1 Acquisition cost Total Purchase Cost of Land Add: Directly attributable cost Share Capital - Land Total Cost of Land- Year End

4,500,000

3,500,000 1,250,000 4,750,000 1,500,000 6,250,000

Answer: Letter A. Cost of Building Balances, January 1 Add: Directly attributable cost Share Capital - Building Total Cost of Building- Year End

6,000,000 3,000,000 9,000,000

Answer: Letter B. Cost of Land Improvements Balances, January 1 Add: Directly attributable cost New parking lot, street, sidewalk Total Cost of Land Improve- End

900,000 750,000 1,650,000

Answer: Letter A. Cost of Equipment Balances, January 1 Add: Equipment Purchase Total Acquisition Cost Freight & unloading charge Installation Cost

1,500,000 3,000,000 4,500,000 50,000 350,000

Less: Equipment Sold Original (500,000) Total Cost of Equipment- Year 4,400,000 Answer: Letter D.

Cost End

Cost of transporting the machine 30,000 Labor cost of installation by expert 50,000 Cost of safety rails and platform 60,000 Cost of water device to keep cooling 80,000 Cost of adjustment to machine efficient 75,000 Estimated dismantling cost (Contract) 65,000 Initial Cost for Machinery 1,200,000

Finals - Machinery Answer for Problem 29-1 Cost of Equipment supplier invoice Initial delivery and handling cost Cost of site preparation Consultants used for advice Estimated dismantling cost 300,000 Initial Cost for Machinery

2,500,000 200,000 600,000 700,000 (Contract) 4,300,000

Explanation: ● Cost of Equipment supplier invoice - This is a promissory note since there is interest charge paid. If may purchase discount ang invoice less ito whether taken or not. ● Cost of site preparation - Kung saan ilalagay ang asset kaya need icapitalized. ● Consultant - Kailangan din i capitalized para masigurado na maayos at safe ang acquisition ng equipment. ● Interest charged is not capitalized which is binili natin ito promissory note. Need to amortized. ● Dismantling cost - i capitalized ito kahit hindi pa binabayaran kasi required by the contract. If the problem is silent it is not required by the contract therefore hindi icapitalized. Even if hindi pa actual na incurred since it is required by the contract it will be capitalized because without you committing to do the dismantling of the equipment after the usage of it perhaps you will not be able to acquire the equipment without agreeing in this terms.

Answer for Problem 29-2 Cash Paid for Machine Including VAT Cash Paid 896,000 Less: VAT 96,000

800,000

Explanation: ● Cost of paid for machine including VAT- Irrecoverable Input Tax - Value Added Tax on purchase. - Malalaman kung isasama ba ang VAT sa pag capitalized by knowing if the business is VAT registered or Non VAT Register. - To determine the nature of the business you can look their certificate registration under BIR form 2303 or tingnan yung resibo. Required ilagay sa resibo na kung ang business ay VAT register or Non VAT Register. - If VAT register the VAT will accounted for separately. It will not be capitalized. Purchases Input Tax Accounts Payable/Cash If non VAT registered we cannot deduct it kasi ang Input tax ay pagbangga don or pag bawas sa VAT na binabayaran mo. Pag business establishment mainly dalawa binabayaran na tax which is business tax (VAT or Other percentage Tax) and income tax. Vat register obviously you will pay VAT kaya nagsesetup ng separate title. Ibabawas yung VAT na binili mo don sa VAT na binenta mo and yun ang babayaran kay BIR. Ang problema kapag non vat register kasi yung VAT na everytime na bumibili ito hindi naibabawas kasi walang binabayaran na VAT yung business which is ang binabayaran ay Other percentage tax. Kaya nga may Irrecoverable input tax. This will be capitalized. When the problem is silent it will be assumed that the nature of business is VAT registered unless stated otherwise. Normally the amount you will see in the problem is VAT exclusive. Input Tax - Binili Output Tax - Binenta ● Insurance Cost normally in construction you will be capitalized but in machinery or equipment that we buy or purchase then insurance will be accounted as expense. ● When the problem is silent the cost of training for personnel will be accounted for as expense because the assumption is that the machinery

●

is a normal item and not a rare item or original invention. Dismantling cost - i capitalized ito kahit hindi pa binabayaran kasi required by the contract. If the problem is silent it is not required by the contract therefore hindi icapitalized.

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Answer for Problem 29-3 Note: If non interest bearing the first measurement will be the cash price equivalent and the second measurement present value plus down payment. We have only pv of the note which is the fair value.

Initial Value Downpayment PV of Note Fair Value

500,000 1,900,000 2,400,000

Breakdown for the unearned interest Total Value of Machine 3,200,000 Less: Downpayment (500,000) Face Value of the Note 2,700,000 Less: PV of the Note (1,900,000) Unearned Interest 800,000 Note: We will not use the price of a new machine because the one we purchased is second hand. Fair Value

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Answer for Problem 29-4 Note: Yung machine na niremove hindi icacapitalized as part ng bagong machine but instead it would be charged as expense. Yung sa building icoconstrcut mo yung building hindi pa gawa pero dito yung machine is buo na so ang problem lang yung pagsalpak ng machine. In terms of the status or condition of the asset quite different kasi yung building icoconcstruct pa unlike the machine is ready na kaya hindi icacapitalized yung removal.  

2,400,000

Added Cost: General overhaul and repairs 150,000 Cost of spare parts to breakdowns 200,000 Cost of installation 80,000 Cost of testing machine prior to use 110,000 Cost of Hauling from vendor to entity 10,000 Safety devices added to machine 250,000 Total Initial Value of Machinery 3,200,000 Explanation: ● Cost of removing old machine - Hindi ito kinakapitalized kasi hindi siya part ng machine kung sa land and building pwede ito icapitalized. This will be an expense. Kung pwede naman ilagay ito sa iba pang lagayan or my room pa for that purchased machine then hindi ito kasama expense ito pero kapag

kinakailngan talaga at walang mapaglalagyan then it will be capitalized. Cash Proceed from sale - less don sa old machien na cost of removing. Cost of repairing damage to the machine caused when the machine was dropped during installation - Not capitalized because pwede naman ito maiwasan so it will be an expense. Repairs incurred during the first year of operations - hindi ito kasama sa capitalization kasi tapos na yung asset na ready to use the asset it will be as maintenance. Just to maintain the status of the machine. After the asset magkakaroon tayo ng capitalization if maiimprove ang efficiency, productivity or buhay ng asset hindi lang ma mamaintain lang.

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Cost of removing old machine – Expense Cash proceed from the sale of old machine – different entry. You have to compare the carrying amount of the old machine versus the cash proceed titingnan mo kung may gain or loss don sa removal ng machine. Ibabangga mo sa CA ng old machine para makuha ang gain or loss. Yung repair damage to machine cost – charged as expense because this was not plan. Pwede siyang maiwasan.

Invoice Cost, net of Discount 1,520,000 Transportation Cost 50,000 Installation Cost 50,000 Payment for strengthening the floor 150,000 Salary - Installation 40,000 Cash Allowance 100,000 Total Capitalized Cost of New Machine 1,710,000 Answer: LETTER C 

Cash discount ibabawas whether taken or not.

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Invoice Cost Multiply by: Discount Rate Cash Discount Less: Invoice Cost Invoice Cost, Net   

1,600,000 x 5% 80,000 1,600,000 1,520,000

Strengthening the floor – kasi mabigat ang machine kaya isasama. Isasama ang trial ng chief engineer so since 2/3 lang (60,000 x 2/3) Cash allowance isasama dahil naprove na yung quality ng machine ay less than expected. Yung binigay or binayaran ay bloated it doesn’t represent the true value.

Problem 29-5 Continuing and frequent repairs Repainting of the plant building Partial Replacement of Roof Tiles Repair and Maintenance Expense Answer: LETTER C 

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400,000 100,000 150,000 650,000

All are expense except the major improvements to the electrical wiring system because it is classified as Asset. Capital expenditure – part na ng asset. Kapag naimprove yung quality ng asset in terms of its function and life. Major improvements. Income Expenditure – Classified as expense; gastos to maintain to the status and the good condition of the asset because it doesn’t add in the function and life of the asset. Kung ang painting ay like magiging waterproof ang buidling pwede natin icaptilized na dati hindi waterproof ngayion pwedeng proof which is add sa function nito.

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Problem 29-7 Purchase of Collating and Stapling Installation Attachment Replacement Parts of Overhaul Labor and Overhead Overhaul Capitalizable Value

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Capitalizable Value of Machine: Purchase Price Installation Cost

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Answer: LETTER A

Magiging asset lang yung partition kapag yung painting of partition is kasama sa plan sa pagbuo ng 4 section to improve the production. Pwede naman din ito maging expense kung pinapaganda mo nalang yung partition like repainting.

Problem 29-9 Initial Design Fee for proposal-Plan 150,000 New Condenser for Central air 10,000 Purchase of executive chair & table 200,000 Purchase of storm window installation 500,000 Overhead Crane for assembly 350,000 Installation of automatic door 200,000 Capitalizable Value 1,410,000 

All costs are Capitalizable. Value of Machine Value of Assembly Line Capitalizable Value

840,000 360,000 260,000 140,000 1,600,000

Problem 29-8 Painting Partition 50,000 Labor Cost of tearing down 200,000 Major Replacement of motor machine 500,000 Cost of grading land 600,000 Dust Filters in the Interior of the factory 140,000 Capitalizable Value 2,150,000

Problem 29-6

750,000 140,000 890,000 Capitalizable Value for Assembly Line: Materials 400,000 Conversion Cost 180,000 580,000

Yung cost of improvement hindi man naimprove ang useful life but rather naimprove nito sa assembly line. Increase in Life or Increase in Function

  

Service Contract on the office equipment ito ay expense to good condition. Executive chairs and table ay furniture and fixtures account Sealing of roof leaks ay classified as expense. Replacement of door is also classified as expense. Replacement of broken gear in machine is also expense.

Depreciation – FINALS 890,000 580,000 1,470,000

Note: Depreciation kailan ba dapat magstart magdepreciated ng asset? Kapag sinimulan na gamitin. Kapag cinocosntrcut palang at hindi pa ginagamit ang asset then don’t depreciated the asset. Kapag ready na ang asset at pwede na gamitin don mag start ng depreciate.

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Depreciation of an asset begins when it is available for use. PFRS 5 Asset held for sale. Ang treatment ay inventory. If the asset is held for sale the depreciation is ceases when the asset derecognized.

Three Methods of Depreciation: 1. Depreciation – PPE 2. Depletion – Wasting Assets resources) 3. Amortization – Intangible Assets

(Natural

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Declining balance and Double Declining balance hindi gumagamit ng residual value kasi assumed at the end of the life of asset the remaining value will be equally in residual value and also it is assumed on the first years of the usage of the asset medyo mataas ang paggamit kasi bago pa and therefore mas mataas ang depreciation expense na dapat recognized.  Straight line method lahat ng depreciation all throught out ng life is pare pareho lang.  Output Method hindi ka nagbabase ng useful life kasi titngna mo rin kung fair na ang method ng depreciation mo ay straight line kasi ito ay nagbabase sa tagal ng buhay o paggamit ng asset. Regardless kung madalas o hindi. Ang base ng depreciation ay ang kanyang pakinabang o productivity sayo. Like for example etong printer is hanggang 50,000 prints lang and then after non hindi mo na magagamit. Mas relevant yung capacity kaysa sa life.  Retirement method or replacement method – mostly ginagamit ito sa plastic wares or gawa sa plastic mas matagal bago masira. Pag nasira don palang mag dedepreciate.  Most of the time ang ginagamit ay straight line method.  Sum of the years ito ay ammended na straight line you just have to add 6 years ang life 1, 2, 3,4,5,6 yun na ang magiging denominator nya.Nagdedecrease ang assets gradually. Habang tumatagal mas nababawasan ang economic benefit ng asset. Pareho lang ng straight line pero ang asusmption sa unang taon mataas ang usage then gradually bababa ito. Number Pattern Formula: n/2 x (r+1) Example: 6 years useful life Sum of the years 1 2 3 4

Pro-rata 6/21 5/21 4/21 3/21

5 6 Total: 21

2/21 1/21

Sum of the years 1 2 3 4 5 6 7 8 9 10

Pro-rata 1+10 =11 2+9 = 11 3+8 =11 4+7 = 11 5+6 = 11 Total : 55

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Declining method yung formlua hindi applicable sa basic calculator. Hanggang 2 lang ang square root na function. Depletion ang ginagamit ay output rather than sa useful life kasi you have to know anong mas relevant kung buhay ng asset o capacity ng asset. Ang capacity ay para sa depletion. Wasting Assets are natural resources. Mining for the mountains.

Problem 30-1 Note: The concept about depreciation happens when the asset is readily available to be used. Most of the depreciation method utilized residual value other than declining balance method.

January 1, 2019 – Starting depreciation Date of Acquisition Capitalizable Value Residual Value Estimated Life in Years Estimated Service Hours Estimated Production Units   

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January 1, 2019 635,000 35,000 5 60,000 150,000

Straight Line Method - Estimated Life in Years Depreciation Rate per Service – Estimated Service Hours Depreciation Rate per Unit Produced – estimated Production Units Kaisa isang hindi nag coconsider ng residual value is declining balance method Lahat ng ito ay straight line except that etong dalawa like sevice and production is output method.

Depreciable Cost = Cost – Residual Value/ Salvage Depreciable Cost = Capitalizable Value – Residual Depreciable Cost = 635,000 – 35,000 Depreciable Cost = 600,000

= 100,000 Formula for Straight Line Method Rate: = 100%/ Estimated Life = 100% / 5 years Straight line Rate = 0.2 or 20% Formula for Depreciation Rate per Service Hours: = Depreciable Cost / Estimated Service Hours = 600,000/ 60,000 Depreciation Rate per Service Hours = 10 pesos per hour Formula for Depreciation Rate per Unit Produced: = Depreciable Cost / Estimated Production Units = 600,000/ 150,000 Depreciation Rate per Unit Produced = 4 pesos per unit 

The general formula is simply divide the depreciable cost by the cost driver. Pag Straight line pareho pareho lang.

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Depreciation Expense = Depreciable Cost / Cost Driver

Year 2019 Year 2020 Year 2021 Year 2022 Year 2023 Total

Straight Line 120,000 120,000 120,000 120,000 120,000 600,000

Service Hours 140,000 130,000 100,000 110,000 120,000 600,000

Production Method 136,000 128,000 100,000 116,000 120,000 600,000

Computation for Straight Line: = Depreciable Cost x Straight Line Rate = 600,000 x 20% = 120,000 

This will be depreciation expense all throughout the asset retired within 5 years.

Computation for Service Hours: Year 2019 = Service Hours x Depreciation rate per Service = 14,000 x 10 = 140,000 Year 2020 = Service Hours x Depreciation rate per Service = 13,000 x 10 = 130,000 Year 2021 = Service Hours x Depreciation rate per Service = 10,000 x 10

Year 2022 = Service Hours x Depreciation rate per Service = 11,000 x 10 = 110,000 Year 2023 = Service Hours x Depreciation rate per Service = 12,000 x 10 = 120,000

Computation for Unit Produced: Year 2019 = Units Produced x Depreciate rate per Unit produced = 34,000 x 4 = 136,000 Year 2020 = Units Produced x Depreciate rate per Unit produced = 32,000 x 4 = 128,000 Year 2021 = Units Produced x Depreciate rate per Unit produced = 25,000 x 4 = 100,000 Year 2022 = Units Produced x Depreciate rate per Unit produced = 29,000 x 4 = 116,000 Year 2023 = Units Produced x Depreciate rate per Unit produced = 30,000 x 4 = 120,000 

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At the end of the life of the asset since tapos na yung benefit na madedrived natin sa machine we have to disposed it at 35,000 pesos. The entry is similar.

Journal Entry: Depreciation Expense xxxxxx Accumulated Depreciation xxxxxx

Assuming that tapos na yung ng life of the asset: December 31, 2023 - At the time of Disposal of the asset Cost 635,000 Less: Accumulated Depreciation (600,000) Carrying Amount 35,000 

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The accumulated depreciation pertains total depreciation that you have recognized form the start to the end and kahit anong method mo ay pareho ang total ng depreciation. At the end of December 31, 2023 the carrying amount It is actually the residual value. Assuming maibebenta natin sya at residual value there’s no gain or loss.

Selling Price at Residual Value Less: Carrying Amount Journal Entry: Cash in Bank Accumulated Depreciation Machinery 

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Kaisa isang hindi nag coconsider ng residual value is declining balance method Lahat ng ito ay straight line except that etong dalawa like sevice and production is output method.

Depreciable Cost = Cost – Residual Value/ Salvage Depreciable Cost = Capitalizable Value – Residual Depreciable Cost = 570,000 – 20,000 Depreciable Cost = 550,000

635,000

Formula for Depreciation Rate per Working Hours: = Depreciable Cost / Estimated Working Hours = 550,000/ 50,000 Depreciation Rate per Service Hours = 11 pesos per hour

35,000 600,000

1. Kahit anong denominator or cost driver your numerator is the same regardless kung anong depreciation method except in declining balance. They have the same accumulated depreciation. Pareho pareho kasi sila ng numerator which is depreciable cost.

Formula for Depreciation Rate per Unit Produced: = Depreciable Cost / Estimated Production Units =550,000/ 200,000 Depreciation Rate per Unit Produced = 2.75 pesos per unit  

The general formula is simply divide the depreciable cost by the cost driver. Pag Straight line pareho pareho lang.

Depreciation Expense = Depreciable Cost / Cost Driver

Problem 30-2 Note: The concept about depreciation happens when the asset is readily available to be used. Most of the depreciation method utilized residual value other than declining balance method.

July 1, 2019 – Starting depreciation

Straight Line Method Years

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Formula for Straight Line Method Rate: = 100%/ Estimated Life = 100% / 10 years Straight line Rate = 0.1 or 10%

Summary:

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Depreciation Rate per Working– Estimated Working Hours Depreciation Rate per Unit Produced – estimated Production Units

35,000 35,000 0

Hindi icrecredit ang 35,000 dahil ito ay carrying amount. Credit the machinery in its cost. Residual value assume na pwede ibenta.

Date of Acquisition Capitalizable Value Residual Value Estimated Life in Years Estimated Working Hours Estimated Production Units

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July 1, 2019 570,000 20,000 10 50,000 200,000 - Estimated Life in

Year s 2019 2020

Straight Line

Working Hours

27,500 55,000

33,000 55,000

Production Method 49,500 60,500

Computation for Straight Line: Year 2019  Since july nagstart 6 months lang e mostly annual ang kinukuha pag ganto multiply sa 6/12. Kung calendar ang ginagamit the prorate it. = Depreciable Cost x Straight Line Rate = 550,000 x 10% Annually = 55,000 6 months = 55,000 x 6/12 Depreciation = 27,500

Equipmen t Total

Year 2020 Isang buong taon na so = Depreciable Cost x Straight Line Rate = 550,000 x 10% Annually = 55,000

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This will be depreciation expense all throughout the asset retired within 5 years.

Computation for Working Hours: Year 2019 = Service Hours x Depreciation rate per Service = 3,000 x 11 = 33,000 Year 2020 = Service Hours x Depreciation rate per Service = 5,000 x 11 = 55,000

Computation for Unit Produced: Year 2019 = Units produced x Depreciate rate per Unit produced = 18,000 x 2.75 = 49,500 Year 2020 = Depreciable Cost x Depreciate rate per Unit produced = 22,000 x 2.75 = 60,500 

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At the end of the life of the asset since tapos na yung benefit na madedrived natin sa machine we have to disposed it at 35,000 pesos. The entry is similar.

Journal Entry: Depreciation Expense xxxxxx Accumulated Depreciation xxxxxx 

Computation for Depreciable Cost: Machinery Cost Less: Residual Value Depreciable Cost – Machinery

Cost

Machinery Office Equipmen t Building Delivery

Residual Value

Depreciable Cost

Estimated Life

Annual Depreciation

310,000 110,000

10,000 10,000

300,000 100,000

5 10

60,000 10,000

1,600,000

100,00 0 30,000

1,500,000

15

100,000

400,000

4

100,000

430,000

310,000 (10,000) 300,000

Building Cost Less: Residual Value Depreciable Cost – Building

1,600,000 (100,000) 1,500,000

Delivery Equipment Cost Less: Residual Value Depreciable Cost –Delivery

430,000 (30,000) 400,000

Computation for Annual Depreciation: Machinery Depreciable Cost 300,000 Divide by: Useful Life / 5 Annual Depreciation- Machinery 60,000 Office Equipment Depreciable Cost Divide by: Useful Life Annual Depreciation-Office Equipment

100,000 / 10 10,000

Building Depreciable Cost Divide by: Useful Life Annual Depreciation-Building

1,500,000 / 15 100,000

Delivery Equipment Depreciable Cost Divide by: Useful Life Annual Depreciation-Delivery

400,000 / 4 100,000

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Problem 30-3 - Composite - Different assets involved / Group - Similar Assets

270,000

Office Equipment Cost 110,000 Less: Residual Value (10,000) Depreciable Cost –Office equipment 100,000

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Total Accumulated Depreciation at the end of 10th Year = Depreciable Cost regardless of the method because all of them have the same numerator.

2,300,000

Pag building may aircon may, f&f to simplify baka pwedeng isang depreciation ang gamitin. Whether composite or group mag arrive lang sa isang depreciation or average. Composite actually means average. Majority of the depreciation method utilize of residual value. Pwede ibase sa working hours and output method hindi lang sa useful life.

Formula for Average / Composite Depreciation Rate: = Annual Depreciation / Depreciable Cost = 270,000 / 2,300,000 Average / Composite Depreciation Rate = 11.74% Formula for Average / Composite Life: = Depreciable Cost / Annual Depreciation

=2,300,000/270,000 Average / Composite Life = 8.52 Other Formula: 100% / Average Depreciation Rate Journal Entry: Depreciation Expense 270,000.00 Accumulated Depreciation 270,000.00

Problem 30-4 - Composite - Different assets involved / Group - Similar Assets Cost

Building

6,100,000

Machinery Equipmen t Total

2,550,000 1,030,000

Residual Value

Depreciable Cost

Estimated Life

Annual Depreciation

100,00 0 50,000 30,000

6,000,000

20

300,000

2,500,000 1,000,000

5 10

500,000 100,000

9,500,000

900,000

Computation for Depreciable Cost: Building Cost Less: Residual Value Depreciable Cost – Building

6,100,000 (100,000) 6,000,000

Machinery Cost Less: Residual Value Depreciable Cost –Machinery

2,550,000 (50,000) 2,500,000

Equipment Cost Less: Residual Value Depreciable Cost – Equipment

1,030,000 (30,000) 1,000,000

Computation for Annual Depreciation: Building Depreciable Cost Divide by: Useful Life Annual Depreciation- Building

6,000,000 / 20 300,000 2,500,000 / 5 500,000

Equipment Depreciable Cost Divide by: Useful Life Annual Depreciation-Equipment

1,000,000 / 10 100,000

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

Formula for Average / Composite Life: = Depreciable Cost / Annual Depreciation =9,500,000/900,000 Average / Composite Life = 10.56 Other Formula: 100% / Average Depreciation Rate Journal Entry: Depreciation Expense Depreciation 900,000

Pag building may aircon may, f&f to simplify baka pwedeng isang depreciation ang gamitin. Whether composite or group mag arrive lang sa isang depreciation or average. Composite actually means average. Majority of the depreciation method utilize of residual value. Pwede ibase sa working hours and output method hindi lang sa useful life. Inisgnificant ang vaerage life dahil iba iba ang asset The true is average deprecation rate. Ginagamit natin ito kung walang pinagbago ang composition ng machinery and other asset ang 270,000. Kungnag babago Kapag may nabawa at nadagdag sa asset we need to compute new depreciation.

900,000 Accumulated

For the 5th Year: (Machinery) Cost 2,550,000 Less: Accumulated Depreciation (2,500,000) Carrying Amount 50,000 *Actually the residual value *Composite / Group Method, upon retirement or sale of PPE, no gain or loss is recognized. *Dahil halo halo na yung asset kasi di mo masabi kung magkano nalang yung accumulated depreciation. Wala na tayong pakeelam kung less or more than an ma compute na accumulated depreciation bast ang importante kapag retirement under group method no gain or loss recognized. Journal Entry: Cash in Bank Accumulated Depreciation Machinery Cost

Machinery Depreciable Cost Divide by: Useful Life Annual Depreciation-Machinery



Formula for Average / Composite Depreciation Rate: = Annual Depreciation / Depreciable Cost = 900,000 / 9,500,000 Average / Composite Depreciation Rate = 9.47% or 0.09473684211

Building Machinery Equipmen t Total

Initial Value

40,000 2,510,000 2,550,000 Retirement (Less)

6,100,000 2,550,000 1,030,000

Purchase (Add) 0 0 0

9,680,000

0

2,550,000

End Balance 6,100,000

2,550,000 1,030,000 7,130,000

Presentation in the Balance Sheet: Total Cost 7,130,000 Less: Accumulated Depreciation Prior (900,000 x 5) 4,500,000 Retirement 2,510,000 1,990,000 Carrying Amount 5,140,000 For the 6th Year: Depreciation = Adjusted Cost of the assets x average rate Depreciation = P7, 130,000 x computed average rate at the beginning Depreciation = 7,130,000 x 9.47% or 0.09473684211 Depreciation = 675,473.68 *Nababago lang ang average rate pag sinabi ng management na kailangan magbago. Isang beses lang magcompute ng average rate tapos adjust adjust nalang. Journal Entry: Depreciation Expense 675,473.68 Accumulated Depreciation 675,473.68

Depreciation – Sum of the Years and Declining Balance

Problem 31-1 *Gradual ang declined sa benefit ng asset. Period the year 1 is april 1 2019 since ito ay start. The sum of the years is gagamitin ang period covered. Depreciable cost ay hindi nagbabago. From 8 years nababawasan ng isang taon. SYD = n/2 x (n+1) SYD =8/2 x (8+1) SYD = 36

Multiply by: Factor of 7th Year Annual Depreciation – 7th Year Year 8 Depreciable Cost Multiply by: Factor of 8th Year Annual Depreciation –8th Year

Computation for Depreciable Cost: Cost 1,200,000 Less: Residual Value 120,000 Depreciable Cost 1,080,000 Period Covered

1

April 1, 2019 to April 1, 2020 April 1, 2020 to April 1, 2021 April 1, 2021 to April 1, 2022 April 1, 2022 to April 1, 2023 April 1, 2023 to April 1, 2024 April 1, 2024 to April 1, 2025 April 1, 2025 to April 1, 2026 April 1, 2026 to April 1, 2027

2 3 4 5 6 7 8

Depreciab le Cost 1,080,000

Factor 8/36

Annual Depreciatio n 240,000

1,080,000

7/36

210,000

135,000

1,080,000

6/36

180,000

135,000

1,080,000

5/36

150,000

135,000

1,080,000

4/36

120,000

135,000

1,080,000

3/36

90,000

135,000

1,080,000

2/36

60,000

135,000

1,080,000

1/36

30,000

135,000

1,080,000

1,080,000

36

Straight Line 135,000

Computation for Annual Depreciation: Year 1 Depreciable Cost Multiply by: Factor of 1st Year Annual Depreciation – 1st Year

1,080,000 x 8/36 240,000

Year 2 Depreciable Cost Multiply by: Factor of 2nd Year Annual Depreciation –2nd Year

1,080,000 x 7/36 210,000

Year 3 Depreciable Cost Multiply by: Factor of 3rd Year Annual Depreciation –3rd Year

1,080,000 x 6/36 180,000

Year 4 Depreciable Cost Multiply by: Factor of 4th Year Annual Depreciation –4th Year

1,080,000 x 5/36 150,000

Year 5 Depreciable Cost Multiply by: Factor of 5th Year Annual Depreciation –5th Year

1,080,000 x 4/36 120,000

1,080,000 x 3/36 90,000

Year 7 Depreciable Cost

1,080,000

1,080,000 x 1/36 30,000

Kung straight line pare pareho lang ang economic future benefit pero pag gumamit ng sum of the years onti onting nag dedecline ang benefit.

For 2019: April 1, 2019 to December 31, 2019 - Year 1 = 240,000 x 9/12 = 180,000 LETTER A 

Since mula april hanggang december is part pa din ng year 1 according sa period covered and since hanggang december 31, 2019 ang tinatanong multiply mo lang yung annual depreciation na nakuha sa year 1 sa 9/12. Bakit 9/12? Kasi April – December 9 Months ang bilang.

For 2020: Year 1 - January 1, 2020 to April 1, 2020 = 240,000 – 180,000 na narecognized na last December 31, 2019 = 60,000 Or = 240,000 x 3/12 = 60,000 Year 2 - April 1, 2020 to December 31, 2020 = 210,000 x 9/12 = 157,500 Year 1 Year 2



 

Year 6 Depreciable Cost Multiply by: Factor of 6th Year Annual Depreciation – 6th Year

2/36 60,000

Computation for Straight Line: =Depreciable Cost / Useful Life = 1,080,000/8 Years Depreciation for Straight Line= 135,000 

Yrs.

x



60,000 157,500 217,500

LETTER B

Ang tanong hindi pa tapos ang year 1 pag dating ng 2020 kasi ang period covered ay hanggang april 1, 2020 para mabuo ang year 1. So since na recognized na ang 180,00 last year ideduct yun sa annual deprecation for year 1. And since hinahanap ang buong taon ng 2020. Mula April 1, 2020 hanggang December 31,2020 naman ay 9 months ulit. Kapag gagamit ng sum of the years need to be careful that is true when you bought the asset other than January 1.

Double Declining Balance- FINALS Note: You need first to compute the straight line Rate. Straight Line Rate = 100% / Useful Life = 100%/ 8 years = 12.50% or 0.125    

Yung straight line double lang para makuha ang double declining rate. Ito lang ang tangin depreciation method na hindi gumagamit ng residual value. Hindi din kukunin dito ang depreciable cost. Kapag nagcompute ng depreciation next year hindi na yung 1,200,000 ang base kundi yung bagong carrying amount na

1,200,000 225,000

225,000

975,000

243,750

468,750

506,250

- 82,500

386,250

120,000

Carrying Amount April 1, 2019- CA Less: Accumulated Depreciation- 2019 Carrying Amount December, 2019



Jan 1, 2019 to Dec 31, 2019 Jan 1, 2020 to Dec 31, 2020 Jan 1, 2021 to Dec 31, 2021 Jan 1, 2022 to Dec 31, 2022 Jan 1, 2023 to Dec 31, 2023

2 3

Depreciable Cost 4,000,0000

SYD 5/15

Annual Depreciation 1,333,333.33

4,000,0000

4/15

1,066,666.67

4,000,0000

3/15

800,000.00

4,000,0000

2/15

533,333.33

4,000,0000

1/15

266,666.67

15

Carrying Amount

April 1, 2019

Accumulated Depreciation Accumulated Depreciation – April 1 Add: Depreciation Accumulated Depreciation – 2019

Period Covered

4,000,000



Accumulated Depreciation

Computation for December 31, 2019: Depreciation Carrying Amount Multiply by: Double Declining Rate x Depreciation Annually Multiply by: April - December x Depreciation

Yrs . 1

5

Formula for Depreciation Expense: = Carrying Amount x Declining Rate

December 31, 2019 December 31, 2020 December 31, 2021

Computation for Depreciable Cost: Cost 5,000,000 Less: Residual Value 1,000,000 Depreciable Cost 4,000,000

4

Double Declining Rate = Straight line rate x 2 = 12.50% x 2 = 25.00% or 0.25

Depreciation

SYD = n/2 x (n+1) SYD =5/2 x (5+1) SYD = 15

1,200,000 25% 300,000 9/12 225,000 0 225,000 225,000

Unang taon gamit na gamit tapos in the next year gradually.

Computation for Annual Depreciation: Year 1 Depreciable Cost 4,000,000 Multiply by: Factor of 1st Year x 5/15 Annual Depreciation – 1st Year 1,333,333.33 Year 2 Depreciable Cost Multiply by: Factor of 2nd Year Annual Depreciation –2nd Year

4,000,000 x 4/15 1,066,666.67

Year 3 Depreciable Cost Multiply by: Factor of 3rd Year Annual Depreciation –3rd Year

4,000,000 x 3/15 800,000

Year 4 Depreciable Cost Multiply by: Factor of 4th Year Annual Depreciation –4th Year

4,000,000 x 2/15 533,333.33

Year 5 Depreciable Cost Multiply by: Factor of 5th Year Annual Depreciation –5th Year

4,000,000 x 1/15 266,666.67

Double Declining Method – Drastic

1,200,000 ( 225,000) 975,000

If the last year the last carrying amount would be equal to residual value.

Problem 31-15 *Gradual ang declined sa benefit ng asset. Period the year 1 is January 1 2019 since ito ay start. The sum of the years is gagamitin ang period covered. Depreciable cost ay hindi nagbabago. From 5 years nababawasan ng isang taon.

Straight line Rate = 100% / useful Life = 100% / 5 years

Double Declining Rate = Straight Line Rate x 2 = 20% x 2

Computation for December 31, 2020: Depreciation Carrying Amount Computation for December 31, 2021: 975,000 Multiply The lastby:balance Double would Declining be Rate the equivalent x of residual 25% Depreciation Annually value. 243,750 Carrying Amount Accumulated Depreciation Accumulated Carrying Amount Depreciation –December 2019 506,250 225,000 Add: Depreciation Less: Accumulated Depreciation 2021 (386,250) 243,750 Accumulated Carrying Amount Depreciation – 2020 120,000 468,750 Depreciation Carrying Amount December 31,Depreciation Accumulated 2019- CA 2021 Less: Accumulated Depreciation Depreciation-2020 2020 Carrying Amount Depreciation 2021December, 2020

975,000 386,250 ( (468,750) 468,750) 506,250 (82,500)

= 20%

= 40%

Accumulated Depreciation Accumulated Depreciation –December 31 3,920,000 Add: Depreciation 80,000 Accumulated Depreciation – 2022 4,000,000

Formula for Depreciation Expense: = Carrying Amount x Declining Rate Depreciation

Accumulated Depreciation

Carrying Amount 5,000,000

January 1, 2019 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022

2,000,000

2,000,000

3,000,000

1,200,000

3,200,000

1,800,000

720,000

3,920,000

1,080,000

80,000

4,000,0000

1,000,000

Computation for December 31, 2019: Depreciation Carrying Amount Multiply by: Double Declining Rate x Depreciation Annually Accumulated Depreciation Accumulated Depreciation –January 1 Add: Depreciation Accumulated Depreciation – 2019

5,000,000 40% 2,000,000 0 2,000,000 2,000,000

Carrying Amount January 1, 2019- CA Less: Accumulated Depreciation- 2019 Carrying Amount – December, 2019 Computation for December 31, 2020: Depreciation Carrying Amount Multiply by: Double Declining Rate x Depreciation Annually

Computation for December 31, 2021: Depreciation Carrying Amount Multiply by: Double Declining Rate x Depreciation Annually

3,000,000 40% 1,200,000

5,000,000 (3,200,000) 1,800,000

1,800,000 40% 720,000

Accumulated Depreciation Accumulated Depreciation –December 31 3,200,000 Add: Depreciation 720,000 Accumulated Depreciation – 2021 3,920,000 Carrying Amount January 1, 2019- CA Less: Accumulated Depreciation- 2021 Carrying Amount – December, 2021 Computation for December 31, 2022:

5,000,000 (4,000,000) 1,000,000

Miles Driven it is like an output method. Depreciation Expense = Depreciable Cost / Cost Driver Depreciation Expense per Mile: = Cost – Residual Value / Useful life in Miles = 5,000,000 – 1,000,000 / 100,000 = 4,000,000 / 100,000 = 40 Year 2019 (30,000 x 40) Year 2020 (20,000 x 40) Year 2021 (15,000 x 40)

1,200,000 800,000 600,000 2,600,000

Problem 31-16 - Inventory Methods

5,000,000 (2,000,000) 3,000,000

Accumulated Depreciation Accumulated Depreciation –December 31 2,000,000 Add: Depreciation 1,200,000 Accumulated Depreciation – 2020 3,200,000 Carrying Amount January 1, 2019- CA Less: Accumulated Depreciation- 2020 Carrying Amount – December, 2020

Carrying Amount January 1, 2019- CA Less: Accumulated Depreciation- 2022 Carrying Amount – December, 2022

5,000,000 (3,920,000) 1,080,000

Note: This one is applicable kapag small item pero PPE na ginagamit mo more than 1 years na madala smagpalit ng item. Ginagamit ang retirement, replacement and inventory. Kapag ginamit mo sila you don’t report it as merchandise inventory. Remember the merchandise inventory ay mga items readily available for sale remember din na ang pinaguusapan ay PPE. Ang mga method na yan ay ginagamit natin not to say na ang ating asset ay inventory but rather it is matter of properly accounting the PPE. Parang composite or group method hindi mag cocompute ng straight line depreciation kundi ang ating ginagawa naghihintay tayo na madispose o magamit yung asset o mareplace. Kapag madalas ang pagpapalit ng items. Kapag hindi kasi madalas may impact yun sa depreciation. It would be defeat the timeliness. Assuming FIFO ang gagamitin. Journal Entry: March 31, 2019 Tools Cash in Bank July 31, 2019 Tools Cash in Bank

40,000 40,000

20,000 20,000

Inventory Method - to recognize the depreciation expense Computation: Beginning Inventory March 31 Acquisition Cost July 31 Acquisition Cost Cost of Tools Available for Used Less: Ending Inventory Cost of Tools Used

140,000 40,000 20,000 200,000 150,000 50,000

Journal Entry: Depreciation Expense Tools

50,000 50,000

Cash in Bank 4,000 Miscellaneous Income 4,000 -

Recognized of sale of used tools at salvage value on December 31, 2019

Problem 31-17 Journal Entry: Year 2019 Tools (400 x 300) 120,000 Cash in Bank 120,000 Inventory Method Depreciation Expense (300 x P200) Tools

60,000 60,000

- Since FIFO method ang 300 na retirement is kukuhanin sa 800 units na on hand na halagang 200 pesos noong January 1, 2019. Cash in Bank (300 x P50) Miscellaneous Income -

15,000 15,000

Yung cash proceeds na kukunin sa retirement which is yung kung ilan yung unit multiply the cash na 50 per unit.

Retirement Method / Replacement Method Depreciation Expense = difference between the proceed and the carrying amount Cash in Bank Depreciation Expense Tools

15,000 45,000 60,000

Note: Retirement – old na yung asset; medyo luma na yung asset while sa replacement – more likely na may sira yung asset. Retirement Method = Original cost of Asset Retired – Salvage Proceeds Replacement Method = Replacement Cost of the Asset Retired – Salvage Proceeds