ADDITIONAL PROBLEMS ON DEPRECIATION, REVALUATION AND IMPAIRMENT

Problem I.
On January 1, 2018, Canada Company purchased a machinery overseas with terms 2/10, n/30 and a trade discount of 10%.
The invoice price is P4,500,000. The entity paid an additional P80,000 for delivery of the machine and P310,000 for
installation and testing. The machine was installed on March 1, 2018. It was estimated that the machine would have a
useful life of 5 years and a residual value of P800,000. The entity decided to depreciate the machinery using double
declining method.

On the beginning of 2019, the entity decided to switch to straight line method of depreciation.
1. What is the depreciation to be recorded on 2018?
2. What is the accumulated depreciation on December 31, 2019?

Problem II.
An equipment was purchased three years ago costing P 2,000,000 and is depreciated using double declining method. The
entity believes that the residual value of the equipment at the end of its 4-year useful life if P50,000.
3. What is the depreciation expense to be recognized on its 4th year?

Problem III.
Chiksilog company has adopted the asset revaluation model. On January 1, 2018, the company has the below assets and
relevant information related to their values:
 A building purchased for P10,000,000 on April 1, 2015 which has a carrying amount of P 8,625,000.
 A machinery which was purchased January 2016 for P3,000,000. Estimated residual value was set at P 20,000 and
useful life is 5years. Accumulated depreciation is P 1,212,000.
 Five computer equipments purchased for P 40,000 each last July 1, 2014. Each computer set is believed to be
usable for 8years. Accumulated depreciation for these amounts to P 74,375.
On January 1, 2018, the company identified the following as a result of a thorough study of industry benchmarks.
(a) the building’s fair value is P 10,000,000 and that it ‘s remaining useful life is 25 years.
(b) The machinery’s replacement cost is P 3,500,000; estimated useful life from date of purchase is 7 years.
(c) The sound value of each computer equipment is P30,000. Useful life and residual value remain the same.
All depreciable assets are depreciated using the straight line method except for the machinery. Revaluation surplus is
realized based on the depreciation method of the related asset.

4. What is the estimated useful life of the building prior to revaluation?

5. What was the depreciation expense attributed to the machinery on 2017?
6. How much is the residual value for each computer?
7. What is the revaluation surplus to be recorded on January 1, 2018?
8. How much is the total depreciation expense for 2018?
9. What amount of revaluation surplus would be transferred to retained earnings for 2018?

Problem III.
Cool Company owned an equipment costing P5,200,000 with original residual value of P400,000. The life of the asset is 10
years and was depreciated using the straight line method.
The equipment has a replacement cost of P8,000,000 with residual value of P200,000. The age of the asset is 4 years and
is appraised to have a total revised useful life of 12 years. The entity decided to carry the equipment at revalued amount.
10. What amount should be initially reported as Revaluation Surplus?

Problem IV.
On January 1, 2018, Zimbabwe Company has a machinery with cost of P5,000,000 and accumulated depreciation of
P1,500,000. The machinery was acquired on January 1, 2015 and had been depreciated using the straight line method
with useful life of 10 years and no residual value. On January 1, 2018, the entity tested the machinery for impairment and
ADDITIONAL PROBLEMS ON DEPRECIATION, REVALUATION AND IMPAIRMENT

ascertained that its remaining life is 5 years and is expected to generate undiscounted net cash inflows of P800,000 per
year. The fair value of the machinery on January 1, 2018 is P 3,000,000.
The appropriate discount rate is 8%. The present value of an ordinary annuity of 1 at 8% for 5 periods is 3.99.
On January 1, 2019, the recoverable amount of the machinery was identified to be P3,000,000.
11. What is the impairment loss to be recognized on 2018?
12. What is the depreciation of the machinery for 2018?

Problem V.
Lobo Company reported an impairment loss of P2,000,000 in 2017. This loss was related to an item of property plant and
equipment which was acquired Jan 1, 2016 with a cost of P10,000,000, useful life of 10years and no residual value. The
straight line method of depreciation is used.
On December 31, 2017, the entity reported this asset at P6,000,000 which is the fair value on such date.
On December 31, 2018,the entity determined that the fair value of the impaired asset after disposal cost is P 7,500,000.
Related disposal cost would total P 200,000.
13. What amount of gain on reversal of impairment should be reported for 2018?

Problem VI.
One of the cash generating units of Sanmig Company is the production of liquor. The entity believed that the assets of the
cash generating unit are impaired based on an analysis of economic indicators. The assets and liabilities of the cash
generating unit at carrying amount at year-end are:

Cash P 4,000,000 Accounts Payable P 2,000,000

Accounts Receivable 6,000,000 Loans Payable 1,000,000
Allowance for Bad Debts 1,000,000
Inventory 7,000,000
PPE, net 18,000,000
Goodwill 3,000,000

The entity determined that the value in use of the cash generating unit is P 30,000,000. The accounts receivable are
considered collectible, except those considered doubtful.

14. What is the impairment loss on the inventory?

Problem VII.
Brandy Company has two cash generating units. At year-end the carrying amounts of the assets of one CGU are:

Inventory P 200,000
Accounts Receivable 300,000
Plant and Equipment 6,000,000
Accumulated Depn 2,600,000
Patent 850,000
Goodwill 100,000
 The accounts receivable are regarded as collectible
 The fair value lesss cost of disposal of the inventory is equal to the carrying amount
 The patent has a fair value less cost of disposal of P 750,000.
 At year-end the entity undertoook impairment testing of the CGU and determined the value in use of the unit at
P 4,050,000.

15. What is the impairment loss allocated to the Plant and Equipment?