DEPRECIATION PROBLEM #1 AA Company purchased a machine at a cost of P635,000 on March 10,2019. It was estimated that the machine would have a residual value of P35,000. Statistics relating to the machine over its estimated useful life were: Estimated useful life: Years 5 Service hours 60,000 Production output 150.000 Actual operations for 2019, 2020 and 2021: Service hours Unit produced 2019 14,000 34,000 2020 13,000 32.000 2021 10,000 25,000 REQUIRED: 1. Compute for the depreciation per service hour. 2. Compute for the depreciation per unit produced. 3. Compute for the depreciation expense for the year 2019 and 2020 using: a. Straight line method b. SYD (Sum of the years' digits) c. Service hours d. Units of production 4. Compute for the carrying amount of the machine as of December 31, 2019 and December 31, 2020 using: a. Straight line method b. SYD c. Service hours d. Units of production 5. For the following questions, use the straight line method of depreciation: a. Assuming that the machine was sold on October 1, 2020 for P510,000, I. How much is the carrying amount of the machine as of October 1, 2020? ii. How much is the gain/loss on sale? Specify your answer. b. Assuming that on January 1, 2021, the company decided to change the depreciation method to units of production: i. How much is the depreciation expense for 2021? ii. How much is the carrying amount of the machine as of December 31, 2021? C. Assuming that on March 10, 2021, the company discovered that the useful life of the machine was 10 years from the date of purchase: 1. How much is the depreciation expense for 2021? ii. How much is the carrying amount of the machine as of December 31, 2021? d. Assuming that on March 10, 2021, the company incurred costs which extended the life of the machine for another 2 years: 1. How much is the depreciation expense for 2021? ii. How much is the carrying amount of the machine as of December 31, 2021? e. Assuming that on March 10, 2021, the company incurred costs which extended the life of the machine to 6 years: 1. How much is the depreciation expense for 2021? ii. How much is the carrying amount of the machine as of December 31, 2021? Cost PROBLEM #2 BB Company's depreciation policy on machinery and equipment is as follows: A full year's depreciation is taken in the year of an asset's acquisition. NO depreciation is taken in the year of an asset's disposition. The estimated useful life is five years. The straight-line method is used. On June 30,2019, BB Company sold for P2,300,000 a machine acquired in 2016 for P4,200,000. The estimated residual value was P600,000. REQUIRED: 1. What is the carrying amount of the machine as of June 30, 2019? 2. What amount of gain or loss on disposal should BB Company record in 2019? Specify your answer. PROBLEM #3 CC Company used a hand tool in the manufacturing activities. On January 1, 2019, there are 800 of such tools on hand at cost of P200 each. Acquisition and retirement during 2019 and 2020 are: Retirement and Estimated Acquisition and Retirement value of tools proceeds at year-end 2019 400 @ P300 300 @ P50 200,000 2020 900 @ P400 700 P70 350,000 Retirement may be assumed to be on first-in, first-out basis. REQUIRED: Compute for the carrying amount of the tools as of December 31, 2019 and 2020 under the following methods: a) Retirement b) Replacement c) Inventory DEPLETION PROBLEM #4 DD Company was engaged in the rock and gravel business. The following transactions relate to the acquisition and development of an extensive gravel pit 2019 Cost of acquisition and development 960,000 Estimated output 2,400,000 tons Production 1,000,000 tons 2020 Additional development cost 490,000 Production 600,000 tons 2021 Additional development cost 500,000 New estimate of remaining output 2,500,000 tons Production 700,000 tons REQUIRED: 1. Compute for the carrying amount of the asset for the year ending 2019, 2020, and 2021. 2. Compute for the depletion expense for the year ending 2019, 2020, and 2021. PROBLEM #5 EE Company acquired a silver mine in Easter Mindanao in 2016. Because the mine is located deep in the Mindanao frontier, EE Company was able to acquire the mine for the low price of P50,000. In 2017, the company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2017 cost P750,000. Because of the improvements to the mine and to the surrounding land, it is estimated that the mine can be sold for P600,000 when mining activities are complete. During 2017, five buildings were constructed near the mine site to house the mine workers and their families. The total cost of the five buildings was P2,000,000. Estimated residual value is P200,000. In 2019, geologists estimated that 4,000,000 tons of silver ore could be removed from the mine for refining. During 2019, the first year of operations, only 500,000 tons of silver ore were removed from the mine. However, in 2020, workers mined 1,000,000 tons of silver. During that same year, geologists discovered that the min contained 3,000,000 tons of silver ore in addition to the original 4,000,000 tons. Development costs of P1,300,000 were made to the mine early in 2020 to facilitate the removal of the additional silver. Early in 2020, an additional building was constructed at a cost of P375,000 to house the additional workers needed to excavate the added silver. This building is not expected to have any residual value. REQUIRED: 1. Compute for the depletion expense for the year ending 2019 and 2020. 2. Compute for the depreciation expense for the year ending 2019 and 2020. 3. Assuming that on 2021, the company decided to shutdown its mining operations. a. Compute for the carrying amount of the wasting asset as of December 31, 2021. b. Compute for the depreciation expense of the buildings for the year 2021, assuming that the useful lives of the buildings are 5 years and 2 years, respectively REVALUATION PROBLEM #6 FF Company provided the following data pertaining to a machinery on the date of revaluation: Cost Replacement cost Machinery 4,500,000 7,200,000 Accumulated 900,000 depreciation Age of asset 3 years REQUIRED: 1. Appreciation or revaluation increase 2. Carrying amount 3. Depreciated replacement cost 4. Revaluation surplus 5. Original useful life of the asset 6. Prepare journal entry to record the revaluation. 7. Prepare journal entry to record the annual depreciation subsequent to revaluation 8. Prepare journal entry to record the piecemeal realization of the revaluation surplus. PROBLEM #7 GG Company provided the following data on the date of revaluation: Building, at original cost 5.000.000 Building, at fair value 6.000.000 Accumulated depreciation - cost (40-year life and 10 1,250,000 years expired) REQUIRED: Under the "proportional approach and elimination approach", prepare journal entries for the current year. PROBLEM #8 On January 1, 2019, HH Company reported the following account balances pertaining to property, plant, and equipment: Land 2,000,000 Building 15,000,000 Accumulated depreciation 3,750,000 Machinery 3,000,000 Accumulated depreciation 1,500,000 Assets have been carried at cost since their acquisition. All assets were acquired on January 1, 2009. The straight-line method is used. On January 1, 2019, the entity decided to revalue the property, plant, and equipment. On such date, competent appraisers submitted the following: Replacement cost Land 5,000,000 Building 25,000,000 Machinery 5,000,000 REQUIRED: 1. What is the revaluation surplus on January 1, 2019? 2. What is the depreciation for the current year? 3. What is the revaluation surplus on December 31, 2019? IMPAIRMENT PROBLEM #9 JJ Company determined that due to obsolescence, an equipment with an original cost of P4,500,000 and accumulated depreciation on January 1, 2019 of P2,100,000 had suffered a permanent impairment and as a result should have a recoverable amount of only P1,500,000 as of the beginning of the year. In addition, the remaining useful life of the equipment was reduced form 8 to 3 years. REQUIRED: 1. Prepare journal entry to record the impairment on January 1, 2019. 2. Prepare journal entry to record the depreciation for 2019. 3. Determine the carrying amount of the equipment on December 31, 2019. PROBLEM #10 KK Company has one division that performs machinery operations on parts that are sold to contractors. A group of machines had an aggregate cost and accumulated depreciation on January 1, 2019 as follows: Machinery 90,000,000 Accumulated depreciation 25,000,000 The machines have an average remaining useful life of 4 years and it has been determined that this group of machines constitutes a cash generating unit. The fair value less cost of disposal of this group of machines in an active market is determined to be P48,000,000. Based on supportable and reasonable assumptions, the financial forecast for this group of machines reveals the following cash inflows and cash outflows for the next four years: Cash Cash inflows outflows 2019 30,000,000 12,000,000 2020 32,500,000 17,500,000 2021 27,500,000 12,500,000 2022 16,000,000 4,000,000 It is believed that a discount rate of 8% is reflective of time value of money. The table of present value shows that the present value of 1 at 8% is as follows: Period Present value of 1 1 0.930 2 0.857 3 0.794 0.735 REQUIRED: 1. Determine the value in use. 2. Determine the recoverable amount. 3. Prepare journal entry to record the impairment loss, if any. 4. Prepare journal entry to record the depreciation for the current year. PROBLEM #11 LL Company reported an impairment loss of P2,000,000 in the income statement for the year ended December 31, 2019. This loss was related to long-lived assets acquired on January 1, 2018 with cost of P10,000,000, useful life of 10 years and no residual value. On December 31, 2019, the entity reported the long-lived assets at P6,000,000 which is the fair value less cost of disposal on such date. On December 31, 2020, the entity determined that the fair value less cost of disposal of the impaired long-lived assets had increased to P7,500,000. The straight line depreciation is recorded for the impaired assets. REQUIRED: Prepare journal entry to record the following: 1. Depreciation for 2018 2. Depreciation for 2019 3. Impairment loss for the year ended December 31, 2019 4. Depreciation for 2020 5. Gain on reversal of impairment in 2020 PROBLEM #12 MM Company has four cash generating units. One CGU has been experiencing significant losses in prior years. Thus, it becomes necessary to determine an impairment for the cash generating unit. The assets of the CGU at carrying amount at the current year-end are: Cash 10,000,000 Accounts receivable 20,000,000 Inventory 30,000,000 Property, plant, and equipment, net 50,000,000 Goodwill 5,000,000 It is reliably determined that the value in use of the CGU at the current year-end is P100,000,000 REQUIRED: 1. Determine the impairment loss of the CGU. 2. Prepare journal entry to record the impairment loss