UNIVERSITY OF THE EAST -CALOOCAN

Civil Engineering Department

M5-A1: Depreciation Concepts

SUBMITTED BY

Tricia Mae G. Catapang

20181162356

SUBMITTED TO:

Engr. Reyman Solas

31/10/2021
 NCE – 4103 Time Value of Money 2021

1. ME Board Exam April 2002

An asset was purchased at P480 000.00. It has an estimated life of 10 years and will be
sold at P50,000.00 at that time. What is the depreciation for the first year?
(Ans. P43, 000.00 per year)
Solution:

𝑃−𝑆 480,000 − 50,000

𝑑= = = 43,000
𝐿 10

2. EE Board Exam April 1997/ ME Board Exam April 1998

A machine has an initial cost of P50 000.00 and a salvage value of P10,000.00 after 10
years. Find/What is the book value after five years using straight-line depreciation?
(Ans. P30 000.00)
Solution:

5
𝐷5 = (50,000 − 10,000) = 20,000
10
𝐵𝑉5 = 𝑃 − 𝐷5 = 50,000 − 20,000 = 30,000

3. ME Board Exam April 1998

An asset was purchased for P500 000.00. The salvage value after 25 years is P100
000.00. What is the total depreciation for the first three years using straight-line method?
(Ans. P48 000.00)
Solution:

𝑛 3
𝐷3 = (𝑃 − 𝑆) = (500,000 − 100,000) = 48,000
𝐿 25

4. ECE Board Exam April 2004

A heavy-duty copying machine was procured for P100 000.00 with an estimated salvage
value of P10 000.00 after 10 years. What is the book value after five years? Use straight-
line depreciation. (Ans. P55 000.00)

Solution:

5
𝐷5 = (100,000 − 10,000) = 45,000
10
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𝐵𝑉5 = 𝑃 − 𝐷5 = 100,000 − 45,000 = 55,000

5. ME Board Exam April 1992

A unit of welding machine costs P45 000.00 with an estimated life of 5 years. Its salvage
value is P2500.00. Find its depreciation rate by straight-line method. (Ans. 18.89%)

Solution:
𝑑 𝑃−𝑆 45,000−2,500
𝑘=𝑃 ; 𝑑= = = 8,500
𝐿 5

8,500
𝑘= = 0.1889 𝑜𝑟 18.89%
45,000

6. ECE Board Exam November 2000

What is the book value of electronic test equipment after 8 years of use if it depreciates
from its original value of P120 000.00 to its salvage value of 13% in 12 years? Use
straight-line method. (Ans. P50 400.00)

Solution:
𝑆 = 0.13(120,000) = 15,600
8
𝐷8 = (120,000 − 15,600) = 69,600
12
𝐵𝑉8 = 𝑃 − 𝐷8 = 120,000 − 69,600 = 50,400

7. ME Board Exam November 1992

The initial cost of a paint sand mill, including its installation is, P800 000.00. The BIR
approved life of this machine is 10 years for depreciation. The estimated salvage value
of the mill is P50 000.00 and the cost of dismantling is estimated to be P15 000.00.

Using straight line depreciation, what is the annual depreciation charge and what is the
book value of the machine at the end of six years? (Ans. P76 500.00; P341 000.00)

Solution:
𝑆 = 50,000 − 15,000 = 35,000 𝐷𝑛 = 𝑛𝑑
800 ,000−35,000
𝑑= = 76,500 𝐷6 = 6(76,500) = 459,000
10

𝐵𝑉6 = 800,000 − 459,000 = 341,000

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8. CE Board Exam November 2006

An equipment has a salvage value of P1M at the end of 50 years. The straight-line
depreciation charge is P2M. (Ans. P101M; P51M; year 15)

a) What is the first cost of the machine?

b) What is the book value after 25 years?
c) At what year will its total depreciation be P30M?

Solution:
𝑃−𝑆 𝑃−1,000,000
a.) 𝑑 = 2,000,000 = = 101,000,000
𝐿 50

b.) 𝐵𝑉25 = 𝑃 − 𝐷25 ; 𝐷25 = 𝑛𝑑 = 25(2,000,000) = 50,000,000

𝐵𝑉25 = 10, ,000,000 − 50,000,000 = 51,000,00

c.) 𝐷𝑛 = 𝑛𝑑 ; 𝐷𝑛 = 30,000,000

30,000,000 = 𝑛(2,000,000) 𝑛 = 15 𝑦𝑒𝑎𝑟𝑠

9. A chemical company acquired a mixing machine at a total cost of P95 000.00. It is

expected to wear out in six years with à total salvage value of P15 000.00. Show the book
value of the machine after each year of service by preparing an SLM depreciation table.
𝑃−𝑆 95,000−15,000
𝑑= = = 13,333.33
𝐿 6

Accumulated
Depreciation Charge Book Value at the
Year, (n) Depreciation at the end
per year, (d) end of the year
of the year, (Dn)
1 13,333.33 13,333.33 81,666.67
2 13,333.33 26,666.66 68,333.34
3 13,333.33 39,999.99 55,000.01
4 13,333.33 53,333.32 41,666.68

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5 13,333.33 66,666.65 28,333.35

6 13,333.33 79,999.98 15,000.02

10. ECE Board Exam October 2011

A machine used for construction costs P20 000.00. Its salvage value is P2000.00 after
10 years. What is its annual depreciation using the sinking fund method with 2% interest?
(Ans. P1643.88)
𝑖 0.02
Solution: 𝑑 = (𝑃 − 𝑆) ((1+𝑖)𝑛−1) = (20,000 − 2,000) ((1+0.02)10−1) = 1,643.88

11. A-1 supermarket purchased an open shelf chiller for P40 000.00. Shipping and
installation costs amounted to P1500.00 and P1000.00, respectively. The sinking fund
method with 6.5% interest is to be used over a useful life of eight years. For a salvage
value of P4500.00, determine: (Ans. P16 619.53: P15 862.56)

a) the amount in the sinking fund after four years;

b) the book value at the end of six years.

Solution:
(1+𝑖)𝑛 −1
a.) 𝐷𝑛 = (𝑃 − 𝑆) ( (1+𝑖)𝐿 −1)
(1.065)4 −1
𝐷4 = (42,500 − 4,500) ((1.065)8 −1) = 16,619.53

(1.065)6 −1
b.) 𝐵𝑉6 𝑃 − 𝐷6 ; 𝐷6 = (42,500 − 4,500) ((1.065)8−1) = 26,637.44

𝐵𝑉6 = 42,500 − 26,637.44 = 15,862.56

12. A four-stroke motorbike costs P75 000.00. It will have a salvage value of P10
000.00 when worn out at the end of eight years. Determine the annual replacement
deposit and present a depreciation schedule using the SFF at 5%. (Ans. P6806.92)
𝑖 0.05
𝑑 = (𝑃 − 𝑆) ((1+𝑖)𝐿 −1) = (75,000 − 10,000) ((1.05)8 −1) = 6,806.92

Accumulated
Depreciation Charge
Year Depreciation at the end Book Value
per year, (d)
of the year, (Dn)

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1 6,806.9200 6,806.9200 68,193.0800

2 7,147.2660 13,954.1860 61,045.8140
3 7,504.6293 21,458.8153 53,541.1847
4 7,879.8608 29,338.6761 45,661.3239
5 8,273.8538 37,612.5299 37,387.4701
6 8,687.5465 46,300.0764 28,699.9236
7 9,121.9238 55,422.0002 19,577.9998
8 9,578.0201 65,000.0202 10,000.0000

13. EE Board Exam May 2003

The original cost of a certain piece of equipment is P 150 000.00 and it is depreciated by
a 10% sinking fund method. Determine the annual depreciation charge If the book value
of the equipment after 10 years is the same as if it had been depreciated at P14000.00
each year by straight-line method. (Ans. P8784.36)
𝑃−𝑆 150,000−𝑆
Solution: 𝑑= 14,000 = 𝑆 = 10,000
𝐿 10

𝑖 0.1
𝑑 = (𝑃 − 𝑆) ((1+𝑖)𝐿−1) = (150,000 − 10,000) ((1.1)10 −1) = 8,784.36

14. A machine that costs P75 000.00 five years ago now cost P45 864.31, when 7%
interest is applied using the sinking fund formula. Determine the salvage value of the
machine for an estimated useful life of 10 years. (Ans. P5000.00)

Solution:
𝐵𝑉5 = 𝑃 − 𝐷5
𝐷5 = 𝑃 − 𝐵𝑉5
(1+𝑖)𝑛 −1 (1.07)5 −1
(𝑃 − 𝑆) ( ) = 𝑃 − 𝐵𝑉5 (75,000 − 𝑆) ( ) = 75,000 − 45,864.31
(1+𝑖)𝐿 −1 (1.07)10 −1
𝑆 = 5,000

15. A manufacturing company purchased a delivery van for P650 000.00. After six
years of use, the van is expected to be sold for P165 000.00. Using SFF, determine the
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interest rate to be applied if the book value after three years is calculated at P421 750.00
(Ans. 4%)
Solution: 𝐵𝑉3 = 𝑃 − 𝐷3 421,750 = 650,000 − 𝐷3 𝐷3 = 228,250
(1+𝑖)𝑛 −1 (1+𝑖)3 −1
𝐷𝑛 = (𝑃 − 𝑆) ( (1+𝑖)𝐿−1) 228,250 = (650000 − 165000) ((1+𝑖)6 −1)

𝑖 = 0.03999 𝑜𝑟 4%

16. CE Board Exam May 2006

An equipment costing P60 000.00 has a book value of P4000.00 after 8 years. Find the
constant percentage of the declining book value. (Ans. 28.72%)

𝐵𝑉𝑛 1 4000 1
Solution: 𝑘 =1−( ) 𝑟 = 1 − (60000)8 = 0.2872 𝑜𝑟 28.72%
𝑃

17. ECE Board Exam April 2000

A machine costing P100 000.00 depreciates at 10% annually. What is its book value after
5 years? (Ans. P59 049.00)

Solution:
𝐵𝑉𝑛 = 𝑃(1 − 𝑘)𝑛
𝐵𝑉5 = 𝑃(1 − 𝑘)5 = 100,000(1 − 0.1)5 = 59,049

18. ECE Board Exam April 2000 / April 2001 / April 2014
A VOM has a current selling price of P400.00. If its selling price is expected to decline at
the rate of 10% per annum due to obsolescence, what will be its selling price after 5
years? (Ans. P236.20)

Solution:

𝐵𝑉5 = 𝑃(1 − 𝑘)5 = 400(1 − 0.1)5 = 236.20

19. ECE Board Exam November 2000

What is the book value of electronic test equipment after 8 years of use if it depreciates
from its original value of P120 000.00 to its salvage value of 13% in 12 years? Use
declining balance method. (Ans. P30 794.76)
Solution:
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1
𝑆 𝐿
𝑘 = 1 − (𝑃) ; 𝑆 = 120,000(0.13) = 15,600
1
15,600 12
𝑘 =1− (120,000) = 0.1564 ; 𝐵𝑉8 = 𝑃(1 − 𝑘)8 = 120,000(1 − 0.1534)8 = 30,794.7593

20. A 50-kVA genset that costs P80 000.00 is expected to have a salvage value of
P8009.00. Determine its economic life using the Matheson formula, if the estimated book
value after three years is P33 750.00 . (Ans. 8 years)

Solution: 𝐵𝑉3 = 𝑃(1 − 𝑘)3 33,750 = 80,000(1 − 𝑘)3 𝑘 = 0.25

1 1
𝑆 𝐿 8,009 𝐿
𝑘 = 1 − (𝑃) 0.25 = 1 − (80,000) 𝐿=8

21. Find the accumulated depreciation after five years and the book value on the
seventh year for the genset unit given in no. 20 using a depreciation table.
(Ans. P61 015.63; P10 678.71)
Solution: 𝑑1 = 𝐵𝑉0 𝑘 = 89,000(0.25) = 20,000

Depreciation Charge Accumulated Book Value at n years,

Year
per year, (dn) Depreciation, (Dn) (BVn)
1 20,000 20,000 60,000
2 15,000 35,000 45,000
3 11,250 46,250 33,750
4 8,437.5 54,687.5 25,312.5
5 6,328.125 61,015.625 18,984.375
6 4,746.09 65,761.72 14,238.28
7 3,559.57 69,321.29 10,678.71

𝐷5 = 61,015.625 𝐵𝑉7 = 10,678.71

22. CE Board Exam November 1998

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A machine having a first cost of P60 000.00 will be retired at the end of eight years.
Depreciation cost is computed using a constant percentage of the declining book value.
What is the total cost of depreciation in pesos, up to the time the machine is retired if the
annual rate of depreciation is 28.72%? (Ans. P56 000.00)

Solution: 𝐵𝑉𝑛 = 𝑃 − 𝐷𝑛 ; 𝐵𝑉𝑛 = 𝑃(1 − 𝑘)𝑛

𝑃(1 − 𝑘)𝑛 = 𝑃 − 𝐷𝑛

𝑃(1 − 𝑘)8 = 𝑃 − 𝐷8 60,000(1 − 0.2872)8 = 60,000 − 𝐷8

𝐷8 = 55,795.07

23. CE Board Exam May 2004

An equipment costing P200 000.00 has an estimated scrap value of P25 000.00 at the
end of its economic life of 10 years. Using the Double-Declining Balance Method of
depreciation, what is the book value after eight years of service? (Ans. P33 554.00)

Solution:
2 𝑛 2 8
𝐵𝑉𝑛 = 𝑃 (1 − ) = 200,000 (1 − ) = 33,554.43
𝐿 10

24. An asset that costs P110 000.00 has a useful life of nine years. Determine its
accumulated depreciation after seven years and its salvage value by preparing a DDBM
depreciation table. (Ans. P91 059.94; P11 457.57)

2 𝑛−1 2 2 1−1 2 2 110000(2)

Solution: 𝑑𝑛 = 𝑃 (1 − 𝐿) = 𝑃 (1 − 𝐿) = 𝑃𝑥 𝐿 = = 24,444.44
𝐿 𝐿 9
2 2
𝑘 = 𝐿 = 9 = 0.22

Accumulated
Depreciation Charge
Year Depreciation at the end Book Value
per year, (d)
of the year, (Dn)
1 24,444.44 24,444.44 85,555.56
2 19,012.35 43,456.79 66,543.21
3 14,787.38 58,244.17 51,755.83
4 11,501.30 69,745.47 40,254.53
5 8,945.45 78,690.92 31,309.08

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6 6,957.57 85,648.49 24,351.51

7 5,411.45 91,059.94 18,940.06
8 4,208.90 95,268.84 14,731.16
9 3,273.59 98,542.43 11,457.57

25. ME Board Exam October 1997

An asset is purchased for P120 000.00. Its estimated life is 10 years, after which it will be
sold for P12 000.00. Find the depreciation for the first year using sum-of-the-year's digit
method. (Ans. P19 637.00)

Solution:
𝐿(𝐿 + 1) 10(10 + 1)
𝑦= = = 55
2 2
𝐿−𝑛+1 10 − 1 + 1
𝑑𝑛 = (𝑃 − 𝑆) ( ) = (120,000 − 12,000) ( ) = 19,636.36
𝑦 55

26. ME Board Exam April 1997

An asset is purchased for P9000.00. Its estimated life is 10 years, after which it will be
sold for P1000.00. Find the book value during the second year if sum-of-the-year's digit
(SOYD) depreciation is used. (Ans. P6236.00)
𝑑1 +𝑑2 …𝑑𝑛 𝐿(𝐿+1) 10(10+1)
Solution: 𝐷𝑛 = (𝑃 − 𝑆) ( ) ; 𝑦= = = 55
𝑦 2 2
10+9
𝐷2 = (9,000 − 1,000) ( ) = 2,763.64
55

𝐵𝑉2 = 9,000 − 2,763.34 = 6,236.36

27. ME Board Exam April 1998

A company purchases an asset for P10 000.00 and plans to keep it for 20 years. If the
salvage value is zero at the end of the 20th year, what is the depreciation in the third
year? Use sum-of-the-year's digits depreciation. (Ans. P857.00)
𝐿(𝐿+1) 20(20+1)
Solution: 𝑦= = = 210
2 2
𝐿−𝑛+1
𝑑𝑛 = (𝑃 − 𝑆) ( )
𝑦
20−3+1
𝑑3 = (10,000) ( ) = 857.14
210

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28. CE Board Exam November 2005

An equipment costing P500 000.00 has a life expectancy of 5 years. Using the sum- of-
the-year's digit method of depreciation, what must be its salvage value such that its
depreciation charge for the first year is P100 000.00? (Ans. P200 000.00)
𝐿−𝑛+1 𝐿(𝐿+1) 5(6)
Solution: 𝑑𝑛 = (𝑃 − 𝑆) ( ) ; 𝑦= = = 15
𝑦 2 2
5−1+1
100,000 = (500,000 − 𝑆) ( ) 𝑆 = 200,000
15

29. ECE Board Exam November 1998/EE Board Exam October 2000
ABC/A certain- corporation makes it a policy that for any/every- new equipment
purchased, the annual depreciation cost should not exceed 20% of the first cost at any
time with no/without- salvage value. Determine the length of service life if the depreciation
used is SYD method. (Ans. 9 years)

Solution:

𝑑𝑚𝑎𝑥 = 0.2𝑃 − 𝑑1 ; 𝑆 = 0
𝐿 𝐿
𝑑1 = (𝑃 − 𝑆) (𝑦) = 0.2𝑃 𝐿(𝐿+1) = 0.2 𝐿 = 9 𝑦𝑒𝑎𝑟𝑠
2

30. Dolly Dairy Corporation purchased a Bulk Milk Cooler for P480 000.00. Shipping,
tax, and installation costs amounted to P25 000.00, P20 000.00, and P15 000.00,
respectively. If the estimated salvage value is P40 000.00 after seven years, determine
the book value after four years and the depreciation charge on its last year of service by
preparing an SYD depreciation table. (Ans. P147 142.86; P17 857.14)
𝐿−𝑛+1 𝐿(𝐿+1) 7(7+1)
Solution: 𝑑𝑛 = (𝑃 − 𝑆) ( ) ; 𝑦= = = 28
𝑦 2 2

Depreciation
Accumulated Book Value at n
Year Reverse Order Charge per year,
Depreciation, (Dn) years, (BVn)
(dn)
1 7 125,000 125,000 415,000

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2 6 107,142.86 232,142.86 307,857.14

3 5 89,285.71 321,428.57 218,571.43
4 4 71,428.57 392,857.14 147,142.86
5 3 53,571.43 446,428.57 93,571.43
6 2 35,714.29 482,142.86 57,857.14
7 1 17,857.14 500,000 40,000

31. ECE Board Exam April 1999

A telephone company purchased microwave radio equipment for P6 million, freight and
installation charges amounted to 4% of the purchased price. If the equipment will be
depreciated over a period of 10 years with a salvage value of 8%, determine the
depreciation cost during the 5th year using SYD. (Ans. P626 269.10)

Solution:

𝑃 = 6,000,000 + 0.4(60,000,000) = 6,240,000

𝑆 = 0.08(6,240,000) = 499,200
10(10+1)
𝐿 = 10 ; 𝑦 = = 55
2
𝐿−𝑛+1 10−5+1
𝑑𝑛 = (𝑃 − 𝑆) ( ) = (6,240,000 − 499,200) ( ) = 626,269.10
𝑦 55

32. A rural cooperative purchased a trencher at a cost of P230 500.00. It is estimated

that the trencher will have a salvage value of P25 000.00 after digging 300 000 meters of
irrigation canals. Determine the book value of the trencher after two years, if it was used
to dig 50 000 meters on the first year and 75 000 meters on the second year.
(Ans. P144 875.00)
Solution: 𝑃 = 230,500
𝑆 = 25,000
𝑃𝑜𝐿 = 300,000
𝑑 = 𝑃𝑜
𝑃−𝑆 𝑃𝑜
= 1 =300,000
50,000 = 0.685
230,500−25,000
𝐿 𝑃𝑜2 = 75,000
𝑃−𝐵𝑉𝑛 230,500−𝐵𝑉
𝑛
𝑑= 0.685 = 50,000+75,000 𝐵𝑉𝑛 = 144,875
𝑃𝑜𝑛

33. To package its products, a computer company purchased an automatic packaging

machine for P600 000.00. Freight, insurance, and installation charges amounted to P80
000.00. The machine is expected to be sold for P120 000.00 after packaging 320 000
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units. If the machine packaged 40 000 units in its first year, 55 000 in its second year, and
48 000 units in its third year, determine;

a) the depreciation charge for the third year

b) the book value of the machine at the end of the third year
(Ans. P84 000.00; P429 750.00)
Solution: 𝑃 = 600,000 + 80,000 = 680,000
𝑆 = 120,000
𝑑3 =? ; 𝐵𝑉 =?
𝑃−𝑆 680,000−120,000
a.) 𝑑3 = 𝑃𝑜3 ( 𝑃𝑜 ) = 48,000 ( ) = 84000
3 320,000

680,000−120,000
b.) 𝐷3 = (40,000 + 55,000 + 48,000) ( ) = 250,250
320000
𝐵𝑉3 = 𝑃 − 𝐷3 = 680,000 − 250,250 = 429,750

34. CE Board Exam November 2003

An equipment is bought at P420 000.00 with an economic life of 6 years and a salvage
value of P50 000.00. The first-year depreciation is P105 714.00. The cost of money is
12% per year. What method of depreciation was used?

Solution: 𝑃 = 420,000
𝑆 = 50,000
𝐿 = 6 𝑦𝑒𝑎𝑟𝑠
𝐷𝑛 = 105,714
𝑖 = 12%

Prove that 𝐷1 = 105,714

1. Using SLM.
𝑃−𝑆 420,000−50,000
𝑑= = = 61,666.67
𝐿 6
𝐷𝑛 = 𝑛𝑑
105,714 ≠ (1)(61,666.67) Thus, SLM method is not used.
2. Sinking Fund Formula.
(1+𝑖)𝑛 −1 (1+0.12)1 −1
𝐷𝑛 = (𝑃 − 𝑆) ((1+𝑖)𝐿−1) = (420,000 − 50,000) ((1+0.12)6−1) = 45,593.52
105,714 ≠ 45,593.52 SFF is not used.

3. Using SYD.

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6(6+1)
𝑦= = 21
2
𝐿−𝑛+1
𝑑𝑛 = (𝑃 − 𝑆) ( )
𝑦
6−1+1
105,714 = (42000 − 50000) ( )
21
105,714 = 105,714.29 SYD method used.

35. XZelent Corporation purchased equipment at a cost of P18M. Cost of repairs

amounted to P2.5M. The estimated salvage value after 15 years was P2M. Eight years
later, the equipment is rehabilitated at a cost of P4M. Salvage value and economic life
was expected to increase by PO.5M and five years. Using SYD method, determine the
book value at the end of 15 years. (Ans. P4003 205.13)

Solution: 𝑃 = 18,000,000 + 2,500,000 = 20,500,000

𝑆 = 2,000,000
𝐿 = 15 ; Find 𝐵𝑉2
15+14+13+12+11+10+9+8
𝐷𝑛 = (20.5𝑀 − 2𝑀) ( ) = 14,183,333.33
120
15(15+1)
𝑦= = 120
2
𝐵𝑉8 = 𝑃 − 𝐷8 = 20.5𝑀 − 14,183,333.33 = 6,316,666.67

Situation 2: 𝑃2 = 6,316,666.67 + 4𝑀 = 10,316,666.67

𝑆2 = 2𝑀 + 0.5𝑀 = 2.5𝑀
12(12+1)
𝐿 = 7 + 5 = 12 ; 𝑦 = = 78
2
12+11+10+9+⋯+6
𝐷𝑛 = (10,316,666.67 − 2.5𝑀) ( ) = 6313461.541 = 𝐷15
78

𝐵𝑉15 = 𝑃 − 𝐷15 = 4,003,205.13

36. Solid Builders Corporation purchased a transport mixer for P984 000.00. This
equipment is to be depreciated using the Matheson formula, estimated life is seven years

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 NCE – 4103 Time Value of Money 2021

with a salvage value of P81 000.00. After five years of use the mixer is overhauled at a
cost P250 000.00, which results in the extension of its useful life by another three years.
Assuming the salvage value did not change; find the depreciation charge and the book
value for the eighth year. (Ans. P60 240.15; P155 756.89)

Solution:
Case 1: 𝑃 = 984,000
7(7+1)
𝐿 = 7 𝑦𝑒𝑎𝑟𝑠 ; 𝑦 = = 28
2
𝑆 = 81,000
𝐵𝑉5 = ?
1
81,000 7
𝑘 =1− (984,000) = 0.30
𝐵𝑉5 = 984,000(1 − 0.30)5 = 165,380.88

Case 2: 𝑃 = 𝐵𝑉5 + 250,000 = 165,380.88 + 250,000 = 415,380.88

𝐿 = 5 𝑦𝑒𝑎𝑟𝑠 ; 𝑦 = 28
1
81,000 5
𝑘 = 1 − (415,380.88) = 0.2789
𝑑𝑛 = 𝑃(1 − 𝑘)𝑛−1 𝑘 = 415,380.88(1 − 0.2789)3−1 (0.2789) = 60,239.15

𝐵𝑉3 = 415,380.88(1 − 0.2789)3 = 155,751.77

37. On July 1, 1985, Ram Corporation acquired a building at a cost of P3.5M,

additional costs for repairs and improvement amounted to P0.3M. Economic life was
estimated at 30 years. On July 1, 1995, the building was renovated at a cost of P1.7M.
The expected life did not change. Using the DDBM, determine the book value of the
building on July 1, 2005. (Ans. P1257 378.02)

Solution:
Case 1: 𝑃1 = 3.5𝑀 + 0.3𝑀 = 3.8𝑀
𝐿 = 30 𝑦𝑒𝑎𝑟𝑠 ; 𝑛1 = 10 ; 𝐵𝑉10 = ?
2 10 2 10
𝐵𝑉10 = 𝑃 (1 − 𝐿) = 3.8𝑀 (1 − 30) = 1,906,124.936

Case 2: 𝑃1 = 𝐵𝑉10 + 1.7𝑀 = 1,906,124.936 + 1.7𝑀 = 3,606,124.936

𝐿 = 20 𝑦𝑒𝑎𝑟𝑠 ; 𝑛1 = 10
2 10 2 10
𝐵𝑉10 = 𝑃 (1 − 𝐿) = 3,606,124.936 (1 − 20) = 1,257,378.02

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38. St. Francis Cooperative purchased a P45 000.00 - pump for its irrigation project.
Set-up and installation cost amounted to P5000.00. Using the SYD method, economic life
and salvage value was initially estimated to be 12 years and P3800.00, respectively. Due
to poor maintenance and continuous exposure to the elements, a re-evaluation after five
years indicated that the remaining economic life is only four years, with a salvage value
of P2500.00. Find the book value of the pump for the seventh year.
(Ans. P7865.40)
Solution:
Case 1: 𝑃1 = 45,000 + 5,000 = 50,000
𝐿 = 12 𝑦𝑒𝑎𝑟𝑠 ; 𝑛 = 5
𝑆 = 3,800 𝐵𝑉5 = ?
12(12+1)
𝑦= = 78
2
12+11+10+9+8
𝐷𝑛 = (50,000 − 3,800) ( ) = 29,615.38
78
𝐵𝑉5 = 𝑃 − 𝐷5 = 50,000 − 39,615.38 = 20,384.62

Case 2: 𝑃2 = 𝐵𝑉5 = 20,384.62

𝐿 = 4 𝑦𝑒𝑎𝑟𝑠 ; 𝑛 = 2
𝑆 = 2,500
4(4+1)
𝑦= = 10
2
4+3
𝐷𝑛 = (20,384.62 − 2,500) ( 10 ) = 12,519.23
𝐵𝑉2 = 𝑃 − 𝐷𝑛 = 20,384.62 − 12,519.23 = 7,865.39

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