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 equal to 10% of the cost.

Required: Prepare depreciation table using straight line method

Initial cost (historical cost) of equipment
Residual value
Depreciable amount
Divide: Estimated useful life
Annual depreciation

Accumulated Carrying
Date Depreciation Depreciation Amount
Jan. 1, 2021 500,000
Dec. 31, 2021 112,500 112,500 387,500
Dec. 31, 2022 112,500 225,000 275,000
Dec. 31, 2023 112,500 337,500 162,500
Dec. 31, 2024 112,500 450,000 50,000

450,000
00,000.

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

16,000

machine was
to 10% of the cost.
500,000
(50,000)
450,000
4
112,500
 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

Initial cost (historical cost) of equipment

 Residual value (500,000 x 10%)
Depreciable amount

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

= 4 x [(4 + 1) ÷ 2]
10

Depreciation table

Depreciable SYD
Date Amount Factor Depreciation
Jan. 1, 2021
Dec. 31, 2021 450,000 4/10 180,000
Dec. 31, 2022 450,000 3/10 135,000
Dec. 31, 2023 450,000 2/10 90,000
Dec. 31, 2024 450,000 1/10 45,000

450,000
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

500,000
 (50,000)
450,000

Accumulated Carrying
Depreciation Amount
500,000
180,000 320,000
315,000 185,000
405,000 95,000
450,000 50,000
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

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

Date Depreciation
Jan. 1, 2021
Dec. 31, 2021 40,000
Dec. 31, 2022 24,000
Dec. 31, 2023 14,400
Dec. 31, 2024 1,600
Dec. 31, 2025
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

Double declining rate

Depreciation charges are computed as follows

2021 (500,000 x 50%)
2022 (500,000 - 250,000) x 50%
2023 (500,000 - 250,000 - 125,000) x 50%
2024 (500,000 - 250,000 - 125,000 - 62,500) x 50%

Carrying amount in 2024 is computed as follows:

2024 (500,000 - 250,000 - 125,000 - 62,500- 31250)

Carrying amount in 2023 (500,000 - 250,000 - 125,000 - 62,500)

Residual value
Depreciation in 2024

Depreciation table

Date Depreciation
Jan. 1, 2021
Dec. 31, 2021 250,000
Dec. 31, 2022 125,000
Dec. 31, 2023 62,500
Dec. 31, 2024 12,500

450,000
 declining balance method
acquired a piece of equipment for P100,000. The equipment
fe of 5 years and a residual value of P20,000.

= 2 ÷ Life
= 2 ÷ 5 = 40%

puted as follows
0 x 40%) 40,000
0 - 40,000) x 40% 24,000
0 - 40,000 - 24,000) x 40% 14,400
0 - 40,000 - 24,000 - 14,400) x 40% 8,640

mputed as follows:
0 - 40,000 - 24,000 - 14,400 - 8,640) 12,960

000 - 40,000 - 24,000 - 14,400) 21,600

20,000
1,600

Accumulated Carrying
Depreciation Amount
100,000
40,000 60,000
64,000 36,000
78,400 21,600
80,000 20,000
80,000 20,000
uary 1, 2021 for P500,000. The machine was
years and a residual value equial to 10% of the cost.
ble using double declining method

= 2 ÷ Life
= 2 ÷ 4 = 50%

puted as follows
0 x 50%) 250,000
0 - 250,000) x 50% 125,000
0 - 250,000 - 125,000) x 50% 62,500
0 - 250,000 - 125,000 - 62,500) x 50% 31,250

mputed as follows:
0 - 250,000 - 125,000 - 62,500- 31250) 31,250

000 - 250,000 - 125,000 - 62,500) 62,500

50,000
12,500

Accumulated Carrying
Depreciation Amount
500,000
250,000 250,000
375,000 125,000
437,500 62,500
450,000 50,000
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

a. Acquistion cost 1,000,000

Residual value (100,000)
Depreciable amount 900,000
 Depreciation rate = 900,000/12,000 = 75/hour

12/31/21 Depreciation expense (3,600 x 75)

Accumulated depreciation

12/31/22 Depreciation expense (3,000 x 75)

Accumulated depreciation

b. Acquistion cost 1,000,000

Residual value (100,000)
Depreciable amount 900,000

Depreciation rate = 900,000/720,000 = 1.25/unit

12/31/21 Depreciation expense (240,000 x 1.25)

Accumulated depreciation

12/31/22 Depreciation expense (200,000 x 1.25)

Accumulated depreciation
pment for P100,000. The
ours (input), or a total
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

ry 1, 2021 for
The machine is
tal productive
l usage and

te is determined:
270,000
270,000

225,000
225,000

300,000
300,000

250,000
250,000