SAMPLE PROBLEMS ON DEPRECIATION

1. An equipment is bought for P20,000. Its salvage value is P5,000. Assume that its lifetime
is 5 years. Determine its depreciation cost after 3 years. Use double declining balance
method.

Solution:
d n=Co ¿
d 3=C o ¿
d 3=P 2,880

2. A used piece of depreciable property was bought for P20,000. If it has a useful life of 10
years and a salvage value of P5,000, how much will it be depreciated in the 9 th year. Use
declining balance method.

Solution:
L CL
k =1−
√Co
5000
k =1−
d 9 =Co ¿
√
10

20000
=0.12944

d 9 =20000¿
d 9 =854

3. An equipment costs P50,000 and it can last up to 6 years. The equipment was transported
from Singapore to Philippines which costs P2,000 for the delivery fee. The equipment was
taxed by 10% of its purchase cost. If its salvage value is P7,000, find the depreciation cost
in year 3. Use Sum of Year’s Digits Method.

Solution:
C o=50,000+2,000+50,000( 0.10)
C o=P 57,000
C L =P 7,000

L−n+1
d n= ( Co −C L )
L(1+ L)
2
6−3+ 1
d n= (57000−7000 )
6(1+6)
2
d 3=P 9,523.8
4. A man bought a machine for P60,000 which has useful life of 5 years. It has a salvage value
of P20,000. Using the Sinking Fund Method with i = 10% cpd. annually, find the annual
depreciation and the book value at year 3.

( ( 1+ i ) L −1 )
C o−C l=d
i
( ( 1+0.1 )5−1 )
60,000−20,000=d
0.1
d=P 6,551.889

( ( 1+i )n−1 )
Dn=d
i
D3=P 21,686.786

C n=C o−Dn
C 3=P 38,313.213

5. Find the book value and depreciation of 1st and 2nd year using declining balance method.

CL
k =1−
√
L

Co
k =0.197

C n=C o ¿
C 1=60,000 ¿
C 1=P 48,164.493

C 2=60,000 ¿
C 2=P37,633.641

d n=Co ¿
d 1=60,000 ¿
d 1=P 11,835.506
d 2=60,000 ¿
d 2=P 9,500.853
6. A man bought a sedan for P800,000. After two years, his sedan now has a selling price of
P450,000. His sedan is expected to last up to 8 years. Find the total depreciation value in
two years using Straight Line Method.
C o−C l
d=
L
800,000−45 0 , 000
d=
8
d=P 43,750
Dn=d n ¿

D 2=43 ,75 0 ( 2 )

D 2=P 87,500

7. A machine with an initial cost of P1,200,000 and life of 12 years is to be depreciated

using the Balance Declining method. What must be its minimum salvage value such that
its book value after 5 years is will not be lower than P24,000?

Cl
C n=Co(1−k )n where k =1−
√
L

Co
5 5

[ ( √
P 24,000=P 1,200,000 1− 1−
12 Cl
P1,200,000 )] =P 1,200,000 [ √
12 Cl
P 1,200,000 ]
Cl=P 25,214.7

8. An engineer bought an equipment for P800,000. Other expenses, including installation,

amounted toP50,000. At the end of its estimated useful life to 10 years, the salvage value
will be 10% of the first cost. Using the constant Declining Balance Method, what is the
book value after 5 years?

Cl
k =1−
√
n

Co

C m=Co(1−k )m

P 85,000
k =1−
√
10

P 850,000

C 5=P 850,000(1−0.21)5
k =0.21
 C 5=P 261,549.80

9. A machine costing P620,000 is estimated to have a salvage value of P320,000 when

retired at the end of 8 years. Depreciation cost is computed using declining balance
method. What is the annual rate of depreciation in percentage?

Cl
k =1−
√
n

Co

P 320,000
k =1−
√
8

P 620,000
k =0.0793
k =7.93 %

10. 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.

First Cost=C O =500,000+ 30,000=530,000

SalvageValue=C L=10 % of CO =0.10 ( 530,000 )=53,000

C O−C L 530,000−53,000 477,000

Annual Cost of Depreciation=d= = =
L L L
Book Value at the end of 5 years=C5=291,500

C n=C O−D n =CO −5 d

5 ( 477,000 )
291,500=530,000−
L
L=10 years

11. A special tool for the manufacture of finished product costs P20,000 and have salvage
value of P2,000 at the end of an estimated three-year useful life. Compute the second-
year depreciation using sum of years digit method.

Year Depreciation
1 3
( C −C L )
6 O
2 2
( C −C L )
6 O
3 1
( C −C L )
6 O
 2 1
Depreciation of the 2nd year=d 2= ( C O−C L )= ( 20,000−2,000 )
6 3
d 2=P 6,000

12. An equipment costs P500,000 and has a salvage value of P25,000 after its 25 years of
useful life. Using double declining balance method, what will be the book value of the
equipment at the end of 8 years?
2 2
k = = =0.08
L 25

C n=C O ( 1−k )n

C 8=500,000 ( 1−0.08 )8

C 8=P 256,609.44

13. The first cost of the machine is Php 2,800,000 with a salvage value of Php 600,000 at the
end of its life of five years. Determine the depreciation after four years using constant
percentage method?
A. Rate of Depreciation: B. Book Value:

C L =C o ( 1−k )n C n=C o ( 1−k )n

600,000=2,800,000 ( 1−k )5 C 4=2,800,000 ( 0.73485 ) 4

( 1−k )=0.73485 C 4=P 816,493.68

C. Accumulated Depreciation
D n=C o −Cn

D 4 =2,800,000−816,493.68

D 4 =1,983,506.32

15. An equipment costs P50,000 and can last up to 5 years. It was imported overseas at the
cost of P1,000 and taxed for 15% of its purchase cost. Find the depreciation cost in year 2
if the salvage value is P8,000, using the SYD Method.
L−n+1
C o=50,000+1,000+50,000(0.15) L(1+ L)
d n=(C o−C L )
2
 5−2+ 1
C o=P 58,000 5 (1+ 5)
d 2=(58,000−8,000)
2
C L =P 8,000 d 2=P 3,333.33

16. You bought a Ford Ranger for P1,250,000 and is expected to last for 6 years. At the half
of its life, it has a selling price of P650,000. Find the total depreciation value of the car
using straight line depreciation.
( C ¿ ¿ o−C n)
C o=P 1,250,000 D n=n ¿
L
3(1,250,00−650,000)
C L =P 450,000 D 3=
6
L=6 D3=P 300,000
n=3

17. Example An equipment costs P50,000 and it can last up to 6 years. The equipment was
transported from Singapore to Philippines which costs P2,000 for the delivery fee. The
equipment was taxed by 10% of its purchase cost. If its salvage value is P7,000, find the
C 0=50,000+2,000+ ( 50,000 ) ( 0.10 )

C 0=P 57,000

C 0=P 57,000

C L =7,000

6−3+1
d 3=(57,000−7,000)( )
6 ( 1+ 6 )
2
d 3=P 9,523.81

18. An equipment depreciates by P5,000 every year. Assume the interest rate is 10%
compounded annually, find the D5.
d = 5,000
n = 5 years
i = 10%
Dn=d ¿

D n=5,000 ¿
D 5=P 30,525.5

19. A machine has an initial cost of P50, 000.00 and a salvage value of P10, 000.00 after 10
years. What is the book value after five years using straight-line depreciation?
Solution:
50000−10000
Annual Dep=
10
Annual Dep=P 4 ,000.00
C 5=50 , 000−5 ( 4 , 000 )

C 5=P 30 ,000.00

20. 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 giving 8.5%. Solve for the depreciation.
Solution:
( Co−Cl ) i
Depreciation=
( 1+i )n−1

( 45000−2500 ) 0.85
¿
( 1+0.85 )5−1

¿ P 7 ,172.54