ANSWER KEY – PPE PART 2

1. (400,000 – 80,000) ÷ 4 = 80,000

2. (80,000 x 2) = 160,000

3.
SYD denominator = Life x [(Life + 1) ÷ 2] = 4 x [(4 + 1) ÷ 2] = 10
Depreciation – 2nd yr. = (400,000 – 80,000) x 3/10 = 96,000

4. (400,000 – 80,000) x [(4+3)/10] = 320,000 x 7/10 = 224,000

5.
Solution:
Double declining balance rate = 2/Life = 2/4 = 50%
(400,000 x 50% x 50%) = 100,000

6.
Solution:
Depreciation - 2021 (400K x 50%) 200,000
Depreciation - 2022 (400K - 200K) x 50% 100,000
Accumulated depreciation - Dec. 31, 2022 300,000

7. (400,000 – 80,000) x 30,000 / 160,000 = 60,000

8. (400,000 – 80,000) x [(60,000 + 30,000) / 160,000] = 180,000

9. (400,000 – 80,000) x 8,000 / 40,000 = 64,000

10. (400,000 – 80,000) x [(16,000 + 8,000) / 40,000] = 192,000

11.
Solution:
Depreciation = (DD Accumu-lated
Date rate x Carrying amount) depre-ciation Carrying amount
Jan. 1, 2021 800,000
Dec. 31, 2021 40% x 800,000 320,000 320,000 480,000
Dec. 31, 2022 40% x 480,000 192,000 512,000 288,000
Dec. 31, 2023 40% x 288,000 115,200 627,200 172,800
Dec. 31, 2024 40% x 172,800 69,120 696,320 103,680
Dec. 31, 2025 40% x 103,680 41,472 737,792 62,208
737,792

Notice that in the table above, the carrying amount of the asset as of December 31, 2025 is not equal to
zero. It should have been zero because the asset does not have a residual value. Also, the total depreciation
charge over the useful life of the asset is understated by ₱62,208 (800,000 - 737,792).

The carrying amount of ₱62,208 on December 31, 2025 should be zeroed-out. However, if we charge the
whole amount of ₱62,208 in 2025, the total depreciation would be ₱103,680 (₱41,472 + 62,208), which is
higher than the ₱69,120 depreciation in 2024. This would result to an increasing charge rather than
decreasing. Therefore, the depreciation in 2024 and 2025 shall be computed using the straight-line
method as follows:

Carrying amount - Dec. 31, 2023 172,800

Divide by: 2
Straight line depreciation for 2024 and 2025 86,400
The revised depreciation table is shown below:

Depreciation = (DD Accumu-lated Carrying

Date rate x Carrying amount) depre-ciation amount
Jan. 1, 2021 800,000
Dec. 31, 2021 40% x 800,000 320,000 320,000 480,000
Dec. 31, 2022 40% x 420,000 192,000 512,000 288,000
Dec. 31, 2023 40% x 288,000 115,200 627,200 172,800
Dec. 31, 2024 172,800 / 2 86,400 713,600 86,400
Dec. 31, 2025 172,800 / 2 86,400 800,000 -
800,000

12.
Solutions:
Depreciation for each full year of the asset’s life is calculated as follows:
Year Straight line SYD Double declining balance
1 (150K* / 4) = 37,500 4/10 x 150K* = 60,000 50% x 160,000 = 80,000
2 37,500 3/10 x 150K = 45,000 50% x 80,000 = 40,000
3 37,500 2/10 x 150K = 30,000 50% x 40,000 = 20,000
4 37,500 1/10 x 150K = 15,000 50% x 20,000 = 10,000
* (₱160,000 - ₱10,000) = ₱150,000

Since the first full year of the asset’s life does not coincide with the entity’s accounting period, the amounts shown
above are prorated as follows:
Year Straight line SYD Double declining balance
2022 37,500 60,000 x 9/12 = 45,000 80,000 x 9/12 = 60,000
45,000 x 3/12 = 11,250 40,000 x 3/12 = 10,000
37,500 56,250 70,000

*Since the asset was acquired on September 21, 2021 (last half of the month), it is treated as if it has been acquired
on October 1, 2021.

13. (See solutions above)

14. (See solutions above)

15.
Solution:
Annual
Residual Depre-ciable
Cost depre-
value amt.
Useful life ciation
Machine tools 80,000 4,000 76,000 3 25,333
Meters costing 64,000 2,000 62,000 5 12,400
Returnable
containers 120,000 - 120,000 6 20,000
Totals 264,000 258,000 57,733

Composite life = Depreciable amt. ÷ Annual depreciation

(258,000 ÷ 57,773) = 4.5 (rounded-off)

16. (Refer to solution above)

Composite rate = Annual depreciation ÷ Total cost = (57,733 ÷ 264,000) = 21.87%

17. (Refer to solution above)

18. No gain or loss is recognized when an individual asset in a group of assets being depreciated using a
group depreciation method is disposed of.

19.
Solution:
Feb. April Sept. Nov. Total depreciation
Cost of old small tools
24,000 48,000 - 72,000
retired 144,000
Proceeds from sale (2,000) (3,200) - (4,000) (9,200)
Totals 22,000 44,800 - 68,000 134,800

20.
Solution:
Feb. April Sept. Nov. Total depreciation
Cost of newly 40,000 - N/A 88,000 128,000
acquired small tools
Cost of old small 48,000 - 48,000
tools retired
Proceeds from sale (2,000) (3,200) - (4,000) (9,200)
of old small tools
Totals 38,000 44,800 - 84,000 166,800

21.
Solution:
Small tools
Jan. 1, 2021 bal. 600,000 100,000 Proceeds from retired/replaced tools
Additions 240,000 300,000 Depreciation for 2021 (squeeze)
440,000 Dec. 31, 2021 bal.

22.
Solution:
Using straight-line method: (4M ÷ 2) = 2,000,000
PAS 16 prohibits the use of a depreciation method that is based on revenue.

23. (3,600,000 ÷ 9) = 400,000

24. (3,600,000 ÷ 10) = 360,000

25.
Solution:
➢ Double declining balance rate = 2/Life = 2/10 = 20%
➢ Carrying amt. on 1/1/24 = 80M x 80% x 80% x 80% = 40,960,000
➢ Dep’n. – 2024 = 40,960,000 ÷ 7 = 5,851,429

26.
Solution:
➢ SYD denominator = 10 x [(10+1)/2)] = 55
➢ Accumulated depreciation on 1/1/24 = 80M x [(10 + 9 + 8)/55] = 39,272,727
➢ Carrying amt. on 1/1/24 = 80M – 39,272,727 = 40,727,273
➢ Double declining balance rate = 2/7 = 28.57%
➢ Dep’n. – 2024 = 40,727,273 x 28.57% = 11,635,782

27.
Solution:
➢ Carrying amt. on 1/1/24 = (80M – 8M) x 7/10 + 8M = 58,400,000
➢ Dep’n. – 2024 = (58.4M – 10.4M) ÷ (15yrs. – 3yrs.) = 4,000,000

28.
Solution:
Jan. 1, 2025 Accumulated depreciation (2M x 4/10) 800,000
Loss on replacement (squeeze) 1,200,000
Delivery equipment - aircraft (old part) 2,000,000
to derecognize the old part that is replaced
Jan. 1, 2025 Delivery equipment - aircraft (new part) 3,200,000
Cash in bank 3,200,000
to recognize the new replacement part

29.
Solution:
Jan. 1, 2025 Accumulated depreciation (3.2M x 4/10) 1,280,000
Loss on replacement (squeeze) 1,920,000
Delivery equipment - aircraft (old part) 3,200,000
to derecognize the old part that is replaced
Jan. 1, 2025 Delivery equipment - aircraft (new part) 3,200,000
Cash in bank 3,200,000
to recognize the new replacement part

30. [100M – (80M – 20M)] = 40,000,000

31.
Solution:
Depreciated replacement cost 105,000,000
Carrying amount (80M - 20M) (60,000,000)
Revaluation surplus 45,000,000

Replacement cost 140,000,000

Observed depreciation (140M x 20/80) (35,000,000)
Depreciated replacement cost 105,000,000

32.
Solution:
Observed Depreciable amt. of Accumulated depreciation Depreciable
= x
depreciation replacement cost amount
a b
Observed depreciation = 136M x (16M ÷ 64M ) = 34,000,000

Replacement cost 144,000,000 Historical cost 72,000,000

Residual value (8,000,000) Residual value (8,000,000)
Depreciable amt. of replacement Depreciable
cost a 136,000,000 amount b 64,000,000

Replacement cost 144,000,000

Less: Observed depreciation (34,000,000)
Depreciated replacement cost 110,000,000

Depreciated replacement cost 110,000,000

 Less: Carrying amount (56,000,000)
Revaluation surplus 54,000,000

33.
Solution:
The depreciated replacement cost is computed as follows:
Replacement cost 140,000,000
Less: Observed depreciation (35,000,000)a
Depreciated replacement cost 105,000,000

a
Where:
Observed Accumulated depreciation Historical cost
= Replacement cost x
depreciation
35,000,000 = 140,000,000 x (20,000,000/80,000,000)

The revaluation surplus is computed as follows:

Depreciated replacement cost 105,000,000
Carrying amount (80,000,000 – 20,000,000) (60,000,000)
Revaluation surplus – gross of tax 45,000,000

The revaluation surplus gross of tax is allocated as follows:

Revaluation surplus after tax (45,000,000 x 70%a) 31,500,000
Deferred tax liability (45,000,000 x 30%) 13,500,000
a
(70% = 100% - 30% tax rate)

34.
Solution:
The movements in the accounts are determined as follows:
Historical Cost Replacement cost Increase
Building 80,000,000 140,000,000 60,000,000
Accum. depreciation (20,000,000) (35,000,000) (15,000,000)
CA/ DRC/ RSb 60,000,000 105,000,000 45,000,000
b
Carrying amount/ Depreciated replacement cost/ Revaluation surplus

The entry under the proportional method is as follows:

Dec. 31, Building (see table) 60,000,000
2021
Accumulated depreciation (see table) 15,000,000
Revaluation surplus 31,500,000
Deferred tax liability 13,500,000

35.
Solution:
The entry under the elimination method is as follows:
Dec. 31, Accumulated depreciation 20,000,000
2021
Building (balancing figure) 25,000,000
Revaluation surplus 31,500,000
Deferred tax liability 13,500,000

36.
Solution:
The revaluation surplus is computed as follows:
 Appraised value 200,000,000
Carrying amount (320M – 160M) (160,000,000)
Revaluation surplus – gross of tax 40,000,000
Less: Deferred tax liability (40M x 30%) (12,000,000)
Revaluation surplus after tax 28,000,000

The change in carrying amount is determined as follows:

Appraised value 200,000,000
Divide by: Carrying amount (320M – 160M) 160,000,000
Change in carrying amount 125%

The gross carrying amount after the revaluation is restated as follows:

Gross carrying amount before revaluation 320,000,000
Multiply by: Change in carrying amount 125%
Gross carrying amount after revaluation 400,000,000

The accumulated depreciation after the revaluation is computed as follows:

Gross carrying amount after revaluation 400,000,000
Accumulated depreciation after revaluation (squeeze) (200,000,000)
Carrying amount after revaluation (Appraised value) 200,000,000

The changes in the accounts are determined as follows:

Before revaluation After revaluation Increase
Building 320,000,000 400,000,000 80,000,000
Accumulated depreciation (160,000,000) (200,000,000) (40,000,000)
Carrying amount 160,000,000 200,000,000 40,000,000

The entry under the proportional method is as follows:

Dec. 31, Building 80,000,000
2021
Accumulated depreciation 40,000,000
Deferred tax liability 12,000,000
Revaluation surplus 28,000,000

37.
Solution:
The entry under the elimination method is as follows:
Dec. 31, Accumulated depreciation 40,000,000
2021 12,000,000
Deferred tax liability
Revaluation surplus 28,000,000

The carrying amount after the revaluation is reconciled as follows:

Building (original balance) 80,000,000
Accumulated depreciation (40M - 10M debit in entry) (30,000,000)
Carrying amount after revaluation (Appraised value) 50,000,000

38.
Solution:
The depreciated replacement cost is computed as follows:
Replacement cost 140,000,000
Less: Observed depreciation (35,000,000)a
Depreciated replacement cost 105,000,000

a
Where:
Observed Accumulated depreciation Historical cost
= Replacement cost x
depreciation
➢ Accumulated depreciation = (80,000,000 x 5/20) = 20,000,000
➢ Observed depreciation = 140M x (20,000,000/ 80,000,000) = 35,000,000

The revaluation surplus is computed as follows:

Depreciated replacement cost 105,000,000
Carrying amount (80,000,000 – 20,000,000) (60,000,000)
Revaluation surplus before tax 45,000,000

Revaluation surplus after tax (45,000,000 x 70%b) 31,500,000

39.
Solution:
The depreciation subsequent to date of revaluation is computed as follows:
Revalued amount (depreciated replacement cost) 105,000,000
Divide by: Revised remaining useful life 25
Revised annual depreciation expense 4,200,000

40.
Solution:
The observed depreciation is computed as follows:
Observed Depreciable amt. of Accumulated depreciation Depreciable
= x
depreciation replacement cost amount

Where:
Replacement cost 144,000,000 Historical cost 72,000,000
Residual value (16,000,000) Residual value (16,000,000)
Depreciable amt. of replacement
cost 128,000,000 Depreciable amount 56,000,000

Observed 16,000,000 (given)

= 128,000,000 x
depreciation 56,000,000
Observed depreciation = 36,571,429

The depreciated replacement cost is computed as follows:

Replacement cost 144,000,000
Less: Observed depreciation (36,571,429)
Depreciated replacement cost 107,428,571

The revaluation surplus is computed as follows:

Depreciated replacement cost 107,428,571
Carrying amount (72,000,000 – 16,000,000) (56,000,000)
Revaluation surplus 51,428,571

41.
Solution:
Depreciation subsequent to date of revaluation is computed as follows:
Revalued amount (depreciated replacement cost) 107,428,571
New residual value (16,000,000)
Depreciable amount 91,428,571
Divide by: Revised remaining useful life 12
Revised annual depreciation expense 7,619,048

42. (140,000,000 – 80,000,000) = 60,000,000 x 94% = 56,400,000

43.
Solutions:
2021
Appraised value 48,000,000
Carrying amount (32,000,000)
Revaluation surplus 16,000,000

2024
Appraised value 28,000,000
Carrying amount (48,000,000)
Decrease in carrying amount (20,000,000)

The decrease in carrying amount is allocated as follows:

Decrease in carrying amount (20,000,000)
Balance in revaluation surplus 16,000,000
Excess charged to impairment loss (4,000,000)

44.
Solution:
2021
Appraised value 28,000,000
Carrying amount (40,000,000)
Decrease in carrying amount (12,000,000)

The decrease in carrying amount is allocated as follows:

Decrease in carrying amount (12,000,000)
Balance in revaluation surplus -
Impairment loss (12,000,000)

2024
Appraised value 48,000,000
Carrying amount (28,000,000)
Increase in carrying amount 20,000,000

The increase in carrying amount is allocated as follows:

Increase in carrying amount 20,000,000
Previous impairment loss (gain on impairment reversal) 12,000,000
Excess credited to revaluation surplus 8,000,000

45.
Solution:
May 12, Cash on hand (120K – 8K) 112,000
2024
Accumulated depreciation 96,000
Loss on disposal of equipment (squeeze) 192,000
Equipment 400,000

46.
Solution:
Dec. 31, Cash on hand 6,800,000
2021
Accumulated depreciation 3,200,000
Machinery 9,200,000
Gain on disposal of machinery 800,000