DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT

Nagcarlan Business Services has the following information relative to its property, plant and
equipment:

▪ Land – purchased on January 25, 2017 for P850,000

▪ Computer Equipment – total cost is P361,000, with estimated useful life of four years and scrap
value of P25,000. The units of computer equipment were purchased on June 30, 2017.

▪ Transportation Equipment – purchased on June 30, 2018; total depreciable cost is P485,000;
residual value is P35,000; and estimated useful life is five years

▪ Furniture and Fixtures – purchased desks and cabinets totaling to P115,000 on October 1, 2018.
The estimated useful life of the asset is three years and estimated residual value is P13,000.

▪ Machinery and Other Equipment – purchase on March 1, 2019; total purchase price is P924,000
and installation cost incurred is P230,000; salvage value is 10% of the total cost; and annual
depreciation is P129,825. The asset is ready for intended use on April 1, 2019.

The firm will be preparing its annual financial statements for the year ended December 31, 2019. The
firm uses the straight-line method of depreciation.

QUESTIONS:

P850,000 1. How much will be reported as cost of Land as of December 31, 2019? A
P42,000 2. How much is the Depreciation Expense-Computer Equipment in 2017? B
3. How much is the Accumulated Depreciation-Computer Equipment as of
C
P126,000 December 31, 2018?
4. How much is the Accumulated Depreciation-Computer Equipment as of
D
P210,000 December 31, 2019?
5. How much is the book value of the Computer Equipment as of December 31,
E
P151,000 2019?
P97,000 6. How much is the Depreciation Expense-Transportation Equipment in 2019? F
7. How much is the Accumulated Depreciation-Transportation Equipment as of
G
P145,500 December 31, 2019?
8. How much is the book value of the Transportation Equipment as of
H
P374,500 December 31, 2019?
9. How much is the Accumulated Depreciation-Furniture and Fixtures as of
I
P42,500 December 31, 2019?
10. How much is the book value of Furniture and Fixtures as of December 31,
J
P72,500 2019?
P1,154,000 11. How much is the total cost of Machinery and Other Equipment? K
8 years 12. What is the estimated useful life of Machinery and Other Equipment? L
13. How much is Depreciation Expense-Machinery and Other Equipment in
M
P97,369 2019?
14. How much is the book value of Machinery and Other Equipment as of
N
P1,056,631 December 31, 2019?
15. How much is the total cost of Property, Plant and Equipment to be reported in
O
P3,000,000 the Statement of Financial Position as of December 31, 2019

- DEPRECIATION - [email protected] /ljm

 A Land is not subject for depreciation; hence total cost is still P850,000.

Asset cost P361,000

Less: Estimated salvage value (25,000)
Depreciable cost P336,000
B Divided by: Estimated useful life 4
Annual Depreciation P84,000
Number of months from July to December 2017 6/12
Depreciation expense-2017 P42,000

Depreciation expense-2017 P42,000

Add: Depreciation expense-2018
C (refer to Annual Depreciation computed above) 84,000
Accumulated Depreciation-Computer Equipment as of
December 31, 2018 P126,000

Accumulated Depreciation-Computer Equipment as of

December 31, 2018 P126,000
Add: Depreciation expense-2019
D
(refer to Annual Depreciation computed above) 84,000
Accumulated Depreciation-Computer Equipment as of
December 31, 2019 P210,000

Cost P361,000
Less: Accumulated Depreciation-Computer Equipment as of
E December 31, 2019 210,000
Book Value of Computer Equipment as of
December 31, 2019 P151,000

Asset cost (squeezed) P520,000

Less: Estimated salvage value (35,000)
F Depreciable cost P485,000
Divided by: Estimated useful life 5
Annual Depreciation Expense- (2019 full year) P97,000

Depreciation Expense-2018 (July-Dec) (97,000 * 6/12) P48,500

Add: Depreciation Expense-2019
G (refer to Annual Depreciation computed above) 97,000
Accumulated Depreciation-Transportation Equipment as of
December 31, 2019 P145,500

Cost (refer to F for the computation) P520,000

Less: Accumulated Depreciation-Transportation Equipment
H as of December 31, 2019 145,500
Book Value of Transportation Equipment as of
December 31, 2019 P374,500

- DEPRECIATION - [email protected] /ljm

 Asset cost P115,000
Less: Estimated salvage value (13,000)
Depreciable cost P102,000
Divided by: Estimated useful life 3
Annual Depreciation Expense- (2019 full year) P34,000
I

Depreciation Expense-2018 (Oct-Dec) (34,000 * 3/12) P8,500

Add: Depreciation Expense-2019
(refer to Annual Depreciation computed above) 34,000
Accumulated Depreciation-Furniture and Fixtures as of
December 31, 2019 P42,500

Cost P115,000
Less: Accumulated Depreciation-Transportation Equipment
J as of December 31, 2019 42,500
Book Value of Furnitures and Fixtures as of
December 31, 2019 P72,500

Purchase price P924,000

K Add: ODC – Installation Cost 230,000
Total cost of Machinery and Other Equipment P1,154,000

NOTE:
1. If the annual depreciation is not given, you can determine it by getting the difference of
the two succeeding balances of Accumulated Depreciation (e.g., Accumulated
Depreciation 2019 less Accumulated Depreciation 2018)
2. You can also determine the annual depreciation by:
a. Dividing the accumulated depreciation by the number of months the asset has been
used since the time of purchase; and
b. Multiplying the amount derived in Step a by 12 months to get the annual
depreciation.

Example: If the accumulated depreciation as of December 31, 2019 is P500,000 and the
related asset is purchased on May 1, 2018 (20 months from May 1, 2018 to December 31,
2019), the annual depreciation is P300,000, computed as follows:
L
P500,000/20 months = 25,000 monthly depreciation ; P25,000 *12 = P300,000.

TIP: Use this formula in “pyramid.”

- DEPRECIATION - [email protected] /ljm

 Total Cost P1,154,000
Less: Salvage Value (10% of 1,154,000) 115,400
Depreciable Cost P1,038,600
Divide: Annual Depreciation 129,825
Estimated Useful Life 8 years

Annual Depreciation P129,825

Number of months from April* to December 2019 6/12
M Depreciation expense-2019 P97,369

* Depreciation of an asset begins only when it is ready for use by the business.

Cost P1,154,000
Less: Accumulated Depreciation-Machinery and Other
N Equipment as of December 31, 2019 97,369
Book Value of Machinery and Other Equipment as of
December 31, 2019 P1,056,631

Land P850,000
Computer Equipment 361,000
Transportation Equipment (485,000+35,000) 520,000
O
Furniture and Fixtures 115,000
Machinery and Other Equipment 1,154,000
Total Cost of PPE as of December 31, 2019 P3,000,000

- DEPRECIATION - [email protected] /ljm