QUIRINO STATE UNIVERSITY

CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

SELF-PACED LEARNING MODULE

IN

ENG’G ECO (ENGINEERING ECONOMICS)

COMPILED BY:

ORLANDO D. DAVIN JR.

INSTRUCTOR

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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

MODULE 3 Basic Economy Study Methods

LEARNING OUTCOMES 1. Enumerate the basics economy study methods

2. Compute the different problems about economy study
methods.

REFERENCES
:
A. Engineering Economics Handbooks
B. Engineering Economics by J.A.S. Tordillo
C. Engineering Mathematics Vol.2 by D.I.T. Gillesania

DISCUSSION

BONDS

Bond is a financial security note issued by businesses or corporation and by the

government as a means of borrowing long-term fund. It may also be defined as a long-
term note issued by the lender by the borrower stipulating the terms of repayment and
other conditions.
Bonds do not represent ownership of a business or corporation and therefore not
entitled to share of the profits. The bondholder has no voice in the affair of the business.
However, the bondholder has a more stable and secured investment than does holder
of common or preferred stock of the business or corporation.
Bonds are issued in certain amounts known as the face value or par value of the
bond. When the face value has been repaid, normally at maturity, the bond is said to
be redeemed or retired. Bond rate is the interest rate quoted in the bond.

Classification of Bonds

1. Registered bonds. The name the owner of this is recorded on the record books of the
corporation and interest payments are sent to the owner
periodically without any action on his part.
2. Coupon bonds. Coupon bond have coupon attached to the bond for each interest
payment that will come due during the life of the bond. The owner
of the bond can collect the interest due by surrendering the to the
offices of the corporation or at specified banks.

Methods of Bond Retirement

1. The corporation may issue another set of bonds equal to the amount of bonds due
for redemption.
2. The corporation may set up a sinking fund into which periodic deposits of equal
amount are made. The accumulated amount in the sinking fund is equal to the amount
needed to retire the bonds at the time they are due.

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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

The following illustrates the normal life cycle of a bond.

A. Periodic payments as interest of the bond until they are redeemed.

B. Single payment upon maturity of bond. This payment is usually equal to the par
value of the bond.

Value of a bond- is the present worth of all the amounts the bondholder will
receive through his possession of the bond. The two payments that the
bondholder will receive the following:
A. Periodic payments as interest of the bond until they are redeemed.
B. Single payment upon maturity of bond. This payment is usually equal to the par
value of the bond.

3
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

Examples:

1. A P1,000, 6% bond pays dividend semi-annually and will be

redeemed at 110% on June 21,2004. It is bought on June 21,
2001 to yield 4% interest. Find the price of the bond.

2. To secure a return of 4%, at what price should a bond be

purchased if it is redeemable at P1,000 in 10 years and plays
annual dividends P35.00?

Solution:
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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

𝑍𝑟[(1+𝑖 )𝑛 −1] 𝐶
𝑉𝑛 = + (1+𝑖)𝑛
(1+𝑖)𝑛 𝑖

35[(1.04)10−1] 1000
𝑉𝑛 = (1.04)10 (0.04)
+
(1.04)10
𝑉𝑛 = 𝑃959.45 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒

3. A man offered a land bank certificate with a face value of

P100,000 which is baring interest of 8% per year payable
semiannually and due in 6 years. If he wants to earn 6% semi-
annually, how much must be pay the certificate?

Solution:

𝑍𝑟[(1 + 𝑖)𝑛 − 1] 𝐶
𝑉𝑛 = +
(1 + 𝑖)𝑛 𝑖 (1 + 𝑖)𝑛
𝑍𝑟 = 𝑝𝑒𝑟𝑖𝑜𝑑𝑖𝑐 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑜𝑟 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑜𝑓 𝑏𝑜𝑛𝑑
(0.08)
𝑍𝑟 = 100,000 2
𝑍𝑟 = 4,000
0.06
𝑖 = 2 = 0.03
𝑛 = 6(2) = 12
𝐶 = 𝑟𝑒𝑑𝑒𝑚𝑝𝑡𝑖𝑜𝑛 𝑝𝑟𝑖𝑐𝑒
(𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑐𝑒𝑟𝑡𝑖𝑓𝑖𝑐𝑎𝑡𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑚𝑎𝑢𝑟𝑖𝑡𝑦)
𝐶 = 𝑃100,000
𝑉𝑛 = 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑏𝑜𝑛𝑑 𝑎𝑡 𝑖𝑡𝑠 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒
𝑍𝑟[(1+𝑖 )𝑛 −1] 𝐶
𝑉𝑛 = +
(1+𝑖)𝑛 𝑖 (1+𝑖)𝑛
4,000[(1+.03)12−1] 100,000
𝑉𝑛 = (1+.03)12 (0.03)
+
(1+0.03)12
𝑉𝑛 = 39,816.01 6 + 70,137.988
𝑉𝑛 = 109,954

DEPRECIATION

Depreciation is the reduction of fall in the value of an asset or

physical property during the course of its working life and due to the
passage of time. Depreciation is the decrease in the value of physical
property with the passage of time.

Definitions of Value
Value, in a commercial sense. is the present worth of all future
profits that are to be received through ownership of a particular
property.
The market value of a property is the amount which a willing

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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

buyer will pay to a willing seller for the property where each has equal
advantage and is under no compulsion to buy or sell.
The utility or use value of a property is what the property is
worth to the owner as an operating unit.
Fair value is the value which is usually determined by a
disinterested third party in order to establish a price that is fair to
both seller and buyer.
Book value, sometimes called depreciated book value, is the
worth of a property as shown on the accounting records of an
enterprise.
Salvage or resale, value is the price that can be obtained from
the sale of the property after it has been used.
Scrap value the amount the property would sell for if disposed
off as junk?

Purposes of Depreciation

1. To provide for the recovery of capital which has been invested

in physical property.
2. To enable the cost of depreciation to be charged to the cost of
producing products or services that results from the use of the
property.

Types of Depreciation:

1. Normal depreciation

(a) Physical - is due to the reduction of the physical ability of an

equipment or asset to produce results.
(b) Functional- is due to the reduction in the demand for the
function that the equipment or asset was designed
to render. This type of depreciation is often called
obsolescence.
2. Depreciation due to changes in price levels
3. Depletion

Physical depreciation is due to the lessening of the physical ability of a

property to produce results. Its common causes are wear and deterioration.
Functional depreciation is due to the lessening in the demand for the function
which the property was designed to render. Its common causes are inadequacy,
changes in styles. population centers shift, saturation of markets or more
efficient machines are produced.
Depreciation due to changes in price levels is almost impossible to predict
and therefore is not considered in economy studies.
Depletion refers to the decrease in the value of a property due to
the gradual extraction of its contents.

6
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

Physical and Economic Life

Physical life of a property is the length of time during which it is capable

of performing the function for which it was designed and manufactured.
Economic life is the length of time during which the property may be
operated at a profit.

Requirements of a Depreciation Method

1. It should be simple.
2. It should recover capital.
3. The book value will be reasonably close to the market value at
any time.
4. The method should be accepted by the Bureau of Internal Revenue.

Depreciation Methods
We Shall use the following symbols for the different depreciation methods.

7
QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

8
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

A. Examples for Depreciation (Straight-line method)

1. A machine costs P8,000 and an estimated life of 10 years with a salvage

value of P500. What is the book value after 8 years using straight line
method.

Solution:
Solving for annual depreciation charge, d
𝐶 −𝐶
𝑑 = 𝑜𝑛 𝑛
8,000−500
𝑑= 10
𝑑 = 750
Solving for book value after 8 years, C8
𝐶𝑚 = 𝐶𝑜 − 𝐷𝑚
𝐶8 = 8,000 − 750(8)
𝑪𝟖 = 𝟐, 𝟎𝟎𝟎

2. An engineer bought an equipment for P500,000. He spent an additional

amount of P30,000 for installation and other expenses. The salvage value
is 10% of the first cost. If the book value at the end of 5 years. Will be
P291,500 using straight line method of depreciation, compute the useful
life of the equipment in years

Solution:

9
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

Solving for annual depreciation charge, d

𝐶 −𝐶
𝑑 = 𝑜𝑛 𝑛
𝐶𝑜 = 500,000 + 30,000 = 530,000
𝐶𝑛 = 530,000(. 010) = 53,000

530,000−53,000
𝑑= 𝑛
477,000
𝑑= 𝑛

Solving for the useful life of equipment in years.

𝐶𝑚 = 𝐶𝑜 − 𝐷𝑚
477,000(5)
291,500 = 530,000 − 𝑛
238,500𝑛 = 477000(5)
𝒏 = 𝟏𝟎 𝒚𝒆𝒂𝒓𝒔

3. An asset is purchased for P9,000.00. Its estimated economic life is 10

years after which it will be sold for P1,000.00. Find the depreciation in the
first three years using Straight Line Method.

Solution:
𝐶𝑜 −𝐶𝑛
𝑑= 𝑛
9,000−1,000
𝑑= = 800
10
Total dep. After 3 years. =800(3)
Total dep. After 3 years. =P2,400

B. Examples for Depreciation (Sinking Fund Method)

1. A unit of welding machine cost P45,000 with an estimated life of 5 years.

Its salvage value is P2,500 find its depreciation rate of sinking fund
method. Assuming that will deposit the money to a bank given 8.5%. Solve
for the depreciation.

Solution:

(𝐶𝑜 −𝐶𝑛 )(𝑖)

𝑑= (1+𝑖)𝑛 −1

Sinking fund method: @ 8.5%

(45,000−2,500)(.085)
𝑑= (1+.085)5−1

𝒅 = 𝑷𝟕, 𝟏𝟕𝟐. 𝟓𝟒

2. An equipment cost P10,000 with a salvage value of P500 at the end of 10

years. Calculate the annual depreciation by sinking fund method at 40%
interest.

Solution:
(𝐶𝑜 −𝐶𝑛 )(𝑖)
𝑑= (1+𝑖)𝑛 −1

10
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

(10,000−500)(0.40)
Annual depreciation(d) = (1+0.40)10 −1

d = 𝑃13,608

3. A dump truck was bought for P30,000 six years ago. It will have a salvage
value of P3,000 four years from now. It is sold now for P8,000. What is its
sunk cost if the depreciation method used is sinking fund method at 6%?

Solution:
(𝐶𝑜 −𝐶𝑛 )(𝑖)
𝑑=
(1+𝑖)𝑛 −1

(30,000−3,000)(0.06)
Annual depreciation: 𝑑= = 𝑃2,048.43
(1+0.06)𝑛 −1
Total depreciation after 6 years:
𝐴[(1+𝑖 )𝑛 −1]
𝐹= 𝑖

2,048.43[(1+0.06)6 −1]
𝐹= (0.06)

2,048.43[(1+0.06)6 −1]
𝐹= (0.06)
Total Depreciation: 𝐹 = 14,288
Book value: = 30,000 - 14,288 =P15,712
Sunk cost: = 15,712 -8,000
Sunk cost: = P7,712.00

C. Examples for Depreciation (Declining Balance Method)

1. A machine costing P45, 000 is estimated to have salvaged value
of P 4, 350 when retired at the end of 6 years. Depreciation cost
is computed using a constant percentage of the declining book
value. What is the annual rate of depreciation in %?

Solution:

Note: Cn – salvage value

Co – first cost
𝑚 𝐶𝑛
𝑘 = 1− √
𝐶𝑜

6 4,350
𝑘 = 1 − √45,000

𝑘 = 32.25%

11
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

2. A machine costing P720,000 is estimated to have a life of 10 years. If the annual

rate of depreciation is 25%, determine the total depreciation using a constant
percentage of declining balance method.

Solution:

Note: Cn – salvage value

Co – first cost

𝑚 𝐶𝑛
𝑘 =1− √
𝐶𝑜

𝐶𝑛
= (1 − 𝑘)𝑚
𝐶𝑜

𝐶𝑛 = 𝐶𝑜 (1 − 𝑘)𝑚
𝐶𝑛 = 720,000(1 − 0.25)10

𝐶𝑛 = 40, 545.73

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝐶𝑜 − 𝐶𝑛

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 720,000 − 40,545.73

𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = 𝑷𝟔𝟕𝟗, 𝟒𝟓𝟒. 𝟐𝟕

3. A radio service panel truck initially cost P56, 000. Its resale value at the
end of 5th year of the useful life is estimated at P15, 000. By means of
declining balance method, determine the depreciation charge for the 2nd
year.

Solution:

𝑚 𝐶𝑛
𝑘 =1− √
𝐶𝑜

5 15,000
𝑘 =1− √
56,000
𝒌 = 𝟎. 𝟐𝟑𝟐
Year Depreciation Book value
1 56,000(0.232) = P12,992 56,000 – 12,992 = P43,008
2 P43,008(0.232) = P 9,977.86

Depreciation charge for the 2nd year = P9, 977.86

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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

D. Examples for Depreciation ( Sum of Years Digit Method)

1. An asset is purchased for P9, 000. Its estimated life is 10

years, after which it will be sold for P1, 000. Find the book
value during the third year if the sum-of year’s digit (SOYD)
depreciation is used.

Solution:
SYD = 1 + 2 + 3 + 4 + 5 + 6 + 7+ 8 + 9 + 10 =55

10
𝐷𝑒𝑝1 = (9,000 − 1000) ( ) = 𝑃1,454.54
55
9
𝐷𝑒𝑝2 = (9,000 − 1000) ( ) = 𝑃1,309.10
55
8
𝐷𝑒𝑝3 = (9,000 − 1000) ( ) = 𝑃1,16.63
55
Total for 3 years = P3, 927.28

Book value in 3 years = 9000 – 3927.28 = 5,072.72

2. MLBB Corporation makes its policy that for every new

equipment purchased, the annual depreciation cost should
not exceed 20% of the first cost at any time without salvage
value. Determine the length of service if the depreciation used
is the SOYD method.

Solution:
𝑛
𝑆𝑢𝑚 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠 = 2 (1 + 𝑛)
𝑛
𝐷𝑒𝑝. = (𝐹𝐶 − 𝑆𝑉)(𝑛 )
(1 + 𝑛)
2
𝑛
0.20𝐹𝐶. = (𝐹𝐶 − 0)(𝑛 )
(1 + 𝑛)
2

Note: dep= 20% of FC with 0 –salvage value

Use algebra you will get:

𝒏 = 𝟗 𝒚𝒆𝒂𝒓𝒔

3. Special tools for the manufacture of finished product cost

20,000 and have salvage value of P2, 000 at the end of an
estimated three-year useful life. Compute the second year
depreciation using SOYD.

Solution:
13
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

Sum of years = 1 + 2 + 3 = 6

Year Depreciation
3
1 (𝐹𝐶 − 𝑆𝑉)
6
2
2 (𝐹𝐶 − 𝑆𝑉)
6
1
3 (𝐹𝐶 − 𝑆𝑉)
6

2
𝐷𝑒𝑝. = (2,000 − 2,000)
6
𝑫𝒆𝒑. = 𝑷𝟔, 𝟎𝟎𝟎

DEPLETION

Depletion cost is the reduction of the value of certain natural

resources such as mines, oil, timber, quarries, etc. due to the
gradual extraction of its Contents.

Methods of Computing Depletion Charge for a year:

Unit or Factor Method

This method is dependent on the initial cost of the property

and the number of units in the property.

The depletion charge during any year is calculated using the

following formula:

Let: I.C. = initial cost of property

T.U. =total units in property

U.S. =units sold

The depletion cost during any year is:

𝐼. 𝐶.
𝐷𝑒𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 = (𝑈. 𝑆)
𝑇. 𝑈.

Percentage or Depletion Allowance Method

The depletion charge (or simply depletion) under this method,
is computed as follows:

Depletion = Fixed % of gross income

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 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

Or

Depletion = 50 % of net taxable income

Note: Use the smaller depletion charge.

Example in Depletion:

1. Shell Philippines, a multinational company, has a total gross

income for a particular year of P 50,000,000. The taxable
income after taking all deductions except for depletion is 18,
500,000. What is the allowable depletion allowance for that
particular year? Take percentage of gross income for oil as 22%.

Solution:

Using Depletion Allowance Method:

Depletion Charge = 0.22(50,000,000) = 11,000,000

Depletion Charge = 0.50(18,500,000) = 9,250,000
Use the smaller value, P9,250,000

15
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

MODULE 3: BASIC ECONOMY STUDY METHODS

NAME: SCORE:
COURSE AND YEAR: DATE:

I. PROBLEM SOLVING. Show all necessary solutions

1. The Saudi Arabian Oil Refinery developed an oil at an initial cost of $

50,000,000. What is the depletion charge during the year where it
produces half million barrels of oil? Use unit or factor method in
computing depletion.
A. 5,000,000 B. 5,010,000 C. 5,025,000 D. 5,035,000

2. A P1,000, 6% bonds pay dividend semi-annually and will be redeemed at

110% on July 1, 1975. It is bough on July 1, 1972 to yield (4%, m=2). Find
the price and form a table showing amortization of the premium.
A. 1,414 .81 B. 1,144 .81 C. 1,441 .81 D. 4,144 .81

3. A man wants to make 14% nominal interest compounded semiannually on

a bond investment. How much should the man be willing to pay now for a
12%, P10,000-bond that will mature in 10 years and pays interest
semiannually?
A. 8,905 B. 8,590 C. 8,950 D. 8,509

4. A man purchased a share or Stock for P135.OO six years ago and has
received a dividend of P6.00 at the end of each year. If he sold the share
for P120 today, at what rate could he consider that he has been paid
interest. Assuming that he would have re-invested such interest at 4%
compounded annually?
A. 2.8% B. 3.1% C. 2.7% D. 3.6%

5. A machine hag an initial cost of P50,000.00 and a salvage value

P10,000.00 after 10 years. What is the book value after five years using
straight-line depreciation?
A. P35, OOO B. P25,000 C. P15,500 D. P30,000

6. The first cost of a certain machine After 8 years it will have a salvage value
of P18,000.00. Compute the book value at the end of 3 yrs. by using
straight line method:
A. 84,000 B. 63,000 C. 46,000 D. 56,000

7. An equipment costs P8,000 has an economic life of 8 years and a salvage

value of P400 at the end of 8 years. The first year depreciation amounts to
P1688.89. What method is used in the calculation of the depreciation.
A. straight line method C. declining balance method
B. sum of years digit method D. sinking fund method

8. Erectors Co. owns earth moving equipment that cost After 8 years it will
have estimated salvage value of P18,000.00 Compute the depreciation
charge for straight line method for first two years and the book value at
the end of 5 years.

16
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

A. P19,000; P42,700 C. P19,100; P44,000

B. P18,000; P45,000 D. P18,900; P43,900

9. A broadcasting corporation purchased equipment for P53,000 and paid

P1,500 for freight and delivery charges to the job site. The equipment has
a normal life of 10 years with a trade-in value of P5000.00 against the
purchase of a new equipment at the end of the life. Determine the annual
depreciation cost by sinking fund method.
A. P5568.40 B. P4322.54 C. P3755.46 D. P4898.32

10. A machine costs and has an estimated salvage value of at the end of 20
years’ useful life. Compute the book value at the end of 2nd year using
sinking fund method of depreciation based On 8% interest rate.
A. P77,272.85 B. P69,84225 C. P78,346.22 D. P73,423.42

11. A piece of earth-moving machine equipment was purchased at a cash

price of P25,0000. The life of this equipment was estimated at 6 years with
no salvage value. However, at the end of 4 years, the machine had become
so inefficient, because of waring of parts, this was replaced. Depreciation
was allowed on the company books by the sinking fund method with a 4%
interest. Determine the annual depreciation.
A. P3769 B. P3468 C. P4220 D. P3890

12. A hydraulic machine cost P180,000 and has a salvage of P 15,000 at the
end of its useful life which is 12 years. If the depreciation at the first year
is P9,780.71. What method is used in computing the depreciation. Assume
money is worth 6% annually.
A. Declining Balance Method C. Sum of Years Digit Method
B. Straight Line Method D. Sinking Fund Method

13. An equipment costs P7000, has a life of 8 years and a salvage value of
P350 at the end of 8 years. Determine the depreciation charge during 4th
year using the sum of years digit method. Compute also the total
depreciation at the end of the 4th year.
A. P830.23; P5204.87 C. P1067.34; P7643.23
B. P932.61; P4802.78 D. P739.10; P9452.10

14. A cost P7,350 has a life of years and has a salvage value of P350 at the
end of 8 years. Determine its book value at the end of 4 years using Sum
of years Digit.
A. P3476.90 B. P2294.44 C. P6543.21 D. P5455.01

15. A consortium of international communications companies contracted for

the purchase and installation of a fiber optic cable linking two major Asian
cities at a total cost of P960 Million. This amount includes freight and
installation charges at 10% of the above total contract price. If the cable
depreciated over a period of 15 years with zero salvage value, what is the
depreciation charge during the 8th year using the sum of the years digits
method?
A. P64 million B. P23 million C. P80 million D. P76 million

16. A machine costs P80,000 and has an estimated salvage value of P20,000
at the end of 20 years useful life. Compute the book value of the machine
after two years using sum of the years digit method.

17
 QUIRINO STATE UNIVERSITY
CABARROGUIS CAMPUS
Cabarroguis, Quirino 3400
CIVIL ENGINEERING DEPARTMENT
“Let us build a Community of Engineers Task to Provide
Efficient Engineering Solutions for the Society”

A. P68,857.14 B. P76,346.12 C. P54,821.62 D. P74,216.34

17. A telephone company purchased a microwave radio equipment for P6M.

Freight and installment charges amounted to 3% of the purchased price.
If the equipment shall be depreciated over a period of 8 years with a salvage
valoe of 5%. Determine the depreciation charge during the 5th year using
the sum of the years digit method.
A. P957, 902.56 C. P652, 333.33
B. P756, 632.78 D. P845, 935.76

18. The corporation purchased a machine for P1million. Freight and

installation charges amounted to 3% of the purchase price. If the machine
shall be depreciated over a period of 8 years, with a salvage value of12%.
Determine the depreciation charge during the 5th year using the sum of
the years digit method.
A. P101,107.11 C. P107,110.11
B. P170,110.11 D. P100,711.11

19. A machine cost P7,350 has a life of 8 years and has a salvage value ofP350
at the end of 8 years. Determine its book value at the end of 4 years using
Constant- Percentage of Declining Value.
A. P2534.13 B. P4332.42 C. P1604.14 D. P2533.86

20. A machine having a certain first cost has life of 10 years and a salvage
value 6.633% of the first cost at the of 10 years. If it has a value of P58,
914 at the end of the 6 year, how much is the first cost of the machine if
the constant percentage declining value is used in the computation for its
depreciation. (Sometimes call Matheson's Method).
A. P600, 000 B. P300, 000 C. 700,000 D. 350,000

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