Reference no: EM133107301

Problem 1 - The following data relate to the first three years of operations for Wind Company:

Acquisition date - July 1, 2021

Estimated service life - 5 years

Cost - P125,000

Estimated service hours - 10,000

Estimated residual value - P5,000

Estimated output (in units) - 24,000

(1) Under the straight-line method, what is the asset's depreciation expense for the year ended December 31, 2021?

a. P25,000

b. P24,000

c. P12,500

d. P12,000

(2) Under the sum-of-the-years' digits method, what is the depreciation expense for the year ended December 31, 2022?

a. P36,000

b. P56,000

c. P60,000

d. P72,000

(3) Under double-declining balance method, what is the asset's carrying value at December 31, 2023?

a. P36,000

b. P34,560

c. P27,000

d. P24,000

(4) Under the service-hours method, what is the asset's depreciation rate per hour?

a. P12.00

b. P12.50

c. P5.21

d. P5.00

(5) Under the productive output method and assuming that the equipment produced 3,000 units and 7,500 units in 2021 and 2022, respectively, what is the accumulated depreciation balance for the asset at December 31, 2022?

a. P72,500

b. P67,500

c. P52,500

d. P37,500

Problem 2 - On January 1, 2016, Davidoff Corporation acquired a building at a cost of P22 million. The building has been depreciated using straight-line basis of a 20-year life, with a residual value of P2 million.

On January 1, 2021, an appraisal of the building by professional and competent appraisers reported a fair value of P20 million with an estimated residual value of P3 million and a remaining useful life of 10 years. It is the company's policy to transfer a portion of the revaluation surplus to retained earnings while the asset is being used by the company.

Assume that the accumulated depreciation of the revaluated asset is restated proportionately with the change in the gross carrying amount of the asset.

(6) How much is the revaluation surplus recognized in the accounts at January 1, 2021?

a. P2,700,000

b. P3,000,000

c. P4,000,000

d. P5,000,000

(7) How much is the annual depreciation charge for the building after revaluation?

a. P1,000,000

b. P1,700,000

c. P2,000,000

d. P2,700,000

(8) Assuming that no further revaluation was recorded and the asset was sold on January 1, 2020 for P1,350,000, what is the gain or loss recognized by Davidoff upon the disposal of the asset?

a. P300,000 gain

b. P300,000 loss

c. P2,000,000 gain

d. P2,000,000 loss

Problem 3 - Niño Cerruti Company has an equipment costing P700,000 with an estimated residual valu of P70,000 and an estimated useful life of six year. After using and depreciating the asset for the past two years, the company upgraded the machine parts and the cost of upgrading amounted to P120,000.

(9) Assuming that the upgrading costs improved the quality of the asset's output, what is the revised depreciation expense for the third year using the straight-line method and sum-of-the-years' digits method, respectively?

a. P135,000; P168,000

b. P135,000; P196,000

c. P152,500; P196,000

d. P152,500; P168,000

(10) Assuming that the upgrading costs extended the asset's economic useful life by an additional two years, what is the revised depreciation expense for the third year using the straight-line method and sum-of-the-years' digits method, respectively?

a. P90,000; P140,000

b. P90,000; P120,000

c. P101,667; P140,000

d. P101,667; P120,000

Problem 4 - Dior Mining began operations on January 4, 2021. Prior to engaging in exploratory and development activities, it purchased a tract of land for P15 million. It is estimated that this tract will yield P480,000 tons of ore with sufficient mineral content to make mining and processing profitable. It is estimated that 15,000 tons of ore will be unearthed in the first and last year and 30,000 tons every year in between. The land will have a residual value of P750,000.

The company build necessary structures and sheds on the land at a cost of P3,600,000. It was completed in 2021 and it is estimated that these structures can serve 20 years but because they must be dismantled if they are moved, they have not scrap value. The company does not intend to use the structures elsewhere.

(11) For the year 2021, how much should Dior Mining report as depreciation expense relating to the said structures and shed?

a. P112,500

b. P180,000

c. P211,760

d. P225,000