Unit VII – Depreciation, Depletion, Revaluation and Impairment of Assets ( 7.5 hours)
Intermediate Accounting 1 by Valix, et al. ( 2021 edition)
Chapter 28 - Depreciation
- 29 - Depreciation
- 30 - Depletion
- 31 – Revaluation
- 32 – Impairment of Assets
Methods of Depreciation
1. Equal or uniform charge method
a. Straight line
b. Composite method
c. Group method
2. Variable charge or use-factor or activity methods
a. Working hours or service hoursehtod
b. Output or production method
3. Decreasing charge or accelerated or diminishing balance
a. Sum of years’ digits
b. Declining balance method
c. Double declining method
4. Other methods
a. Inventory or appraisal
b. Retirement method
c. Replacement method
Activity 1:
Chapter 28 – Depreciation
28 – 1 Amicable Co.
28 – 3 Definite Company
28 – 5 Silent Company
28 – 6 Noriane Company
Chapter 31 - REvaluation
31 – 1 Hilarious Company
31 – 8 Raven Company
Chapter 29 – Depreciation
29 – 1 Domino Company
29 – 2 Mogul Company
29 – 7 Frey Company
29 – 9 Ambitious Company
29 – 10 Turtle Company
29 – 11 Xavier Company
Chapter 32 – Impairment of Assets
32 – 2 Winn Company
32 – 7 Palawan Company
Chapter 30 – Depletion
30 – 3 Samar Company
Activity 2:
For items 1 -2:
1. On July 1, 2018, Lima Company purchased machinery that require a down payment of P 100,000, plus 24
monthly payments of P 50,000. The cash price of the machinery was P 1,100,000. The machinery has useful life of
10 years and residual value of P 50,000. The entity uses the straight line method of depreciation.
The amount of depreciation expense to be reported on December 31, 2018 is:
a) P 130,000
b) P 110,000
c) P 105,000
d) P 52,500
2. the journal entry to record depreciation on December 31, 2018 would be:
For items 3 – 6:
Frame company disclosed that the depreciation policy of on machinery is as follows:
 A full year depreciation is taken in the year of acquisition.
 No depreciation I taken in the year of disposition.
 The straight line method is used.
On June 30, 2018, the entity sold for P 2,300,000 a machine acquired in on April 1, 2015 for P 4,200,000. The
machinery has estimated
useful life of five years and a residual value of P 600,000.
3. The amount of depreciation expense to be reported on December 31, 2018 is:
a) P 720,000
b) P 360,000
c) 0
d) not given (specify) __________
4. The balance of accumulated depreciation – machinery account on June 30, 2018 is:
a) P 2520,000
b) P 2,340,000
c) P 2,160,000
d) not given (specify) ________
5. The gain (loss) on disposal of machinery is:
a) P 620,000
b) 440,000
6. the journal entry on June 30, 2018 would be:
c) P 260,000
d) not given (specify) ______
For items 7 -8:
Tread Company purchased a factory equipment for P4,500,000 on January 1, 2018. The factory equipment has
an estimated useful life of four years and a residual value of P 500,000. Depreciation is computed using the sum
of years’
digits method.
7. What is the accumulated depreciation on December 31, 2019?
a) P 3,150,000
b) P 2,800,000
c) P 1,600,000
d) P 1,200,000
8. the carrying amount of the factory equipment on December 31, 2019 is:
a) P 2,900,000
b) P 2,700,000
c) P 1,700,000
d) P,350,000
for items 9- 12:
Base Company purchased a machine which was installed and put into service January 1, 2018 at a total cost of P
2,560,000. The machine is depreciated over 8 years by the double declining balance method with residual value of
P 160,000.
9. the depreciation expense to be recorded on the machine for 2019?
a) P 640,000
b) P 480,000
c) P 300,000
d) not given (specify) __________
10. the accumulated depreciation to be reported on the machine on December 31, 2019 is: ________________
11. assuming the machine was purchased on July 1, 2018, the depreciation expense for 2018 would be: ______
12. assuming the machine is being depreciated by the 150% declining balance method, the depreciation expense
for 2019 is: ________________
For items 13 – 14:
Trade Company purchased equipment on January 1, 2016 for P 5,000,000. The equipment had an estimated 5year service life. The depreciation policy for 5-year assets is to use the 200% declining balance method for the
first 2 years and then switch to the straight line depreciation method.
On December 31, 2019:
13. what amount should be reported as depreciation expense for the equipment? ___________________
14. what amount should be reported as accumulated depreciation for the equipment? _______________
For items 15 – 16:
On Novermber 15, 2018, Bear Company made payments for the following expenditures:
Replacement parts for overhaul of machine
550,000
Labor and overhead in connection with overhaul
Continuing, frequent and low cost repairs
140,000
150,000
Replacement of broken gear of machine
50,000
The overhaul resulted in a significant increase in production.
15. the journal entry to record the expenditure to be capitalized would be:
16. refer to no. 15, except that the overhaul did not result in increase in production but extended its useful life,
the journal entry to record overhaul costs incurred would be:
17. what amount of the expenditures should be charged repairs and maintenance? _________________
18. A truck that cost P 800,000 was originally being depreciated over 10 years using the straight line method with
salvage value of P 10,000. If after one year, it was decided that the truck would last an additional ten years, the
second year depreciation would be:
a)
P 80,000
b) P 79,000
c) P 71,100
d) not given (specify) ______________
For items 19 - 20.
ABC Co acquired a machine on January 1, 2018 at a purchase price of P 480,000. ABC company incurred
commission of P 20,000 on the purchase, freight cost of P 22,000 in transferring the machine to ABC location
and installation and testing costs of P 18,000. The machine is estimated to have a useful life of 10 years and a
residual value of P 40,000.
It is estimated that the machine can produce up to 100,000 units of product over its useful life. The actual units
produced were 8,000 units and 10,000 units in 2018 and 2019, respectively.
19. the depreciation expense in 2018 is: ___________________________
20. the carrying amount of the machine on December 31, 2019 is: __________________________
End