Problem 1
ABC Company purchased a machine with the following costs:
Purchase price: ₱800,000
Import duties: ₱40,000
Delivery: ₱25,000
Installation: ₱35,000
Employee training: ₱20,000
Initial advertising: ₱15,000
Testing costs: ₱10,000
The machine was ready for use on January 1, 2026.
Required:
1. Determine the initial cost of the machine.
2. Determine the amount that should be expensed immediately.
Problem 2
XYZ Company purchased land and a building for a lump sum of ₱10,000,000.
Their relative fair values are:
Land: ₱4,000,000
Building: ₱6,000,000
Required:
1. Allocate the purchase price between land and building.
2. Determine the amount initially recognized for each asset.
Problem 3
A company constructed a warehouse with the following expenditures:
Direct materials: ₱3,000,000
Direct labor: ₱1,500,000
Construction-related overhead: ₱500,000
General administrative expenses: ₱200,000
Abnormal material wastage: ₱100,000
Architect's fees: ₱300,000
Required:
Determine the amount to be capitalized as the cost of the warehouse.
Problem 4
A company incurred the following expenditures on an existing machine:
Expenditure Amount
Routine maintenance ₱30,000
Major upgrade increasing production capacity ₱200,000
Lubrication ₱10,000
Minor repairs ₱25,000
Replacement of a significant component ₱350,000
Employee training ₱40,000
Required:
Classify each expenditure as either:
CAPITALIZE, or
EXPENSE
Then determine the total amount capitalized and total amount expensed.
Problem 5
A machine has a carrying amount of ₱1,500,000.
A significant component with a carrying amount of ₱200,000 is replaced with a new component
costing ₱350,000.
The replacement meets the recognition criteria.
Required:
1. How much should be capitalized?
2. How much should be derecognized?
3. What is the carrying amount of the machine immediately after the replacement, assuming
no other changes?
Problem 6
A machine was purchased for ₱900,000.
Additional information:
Residual value: ₱90,000
Useful life: 9 years
Straight-line depreciation
Required:
1. Determine the depreciable amount.
2. Determine annual depreciation.
3. Determine accumulated depreciation after 4 years.
4. Determine carrying amount after 4 years.
Problem 7
A machine was purchased on January 1, 2026 for ₱1,200,000.
The following costs were incurred:
Installation: ₱100,000
Testing: ₱50,000
The machine was fully installed and available for use on April 1, 2026.
Additional information:
Residual value: ₱100,000
Useful life: 10 years
Straight-line depreciation
Required:
1. Determine the total cost of the machine.
2. Determine annual depreciation.
3. Determine depreciation expense for 2026.
Problem 8
A machine costs ₱1,500,000 and has a residual value of ₱150,000.
The machine is expected to produce 90,000 units during its useful life.
Actual production:
Year 1: 15,000 units
Year 2: 20,000 units
Year 3: 25,000 units
Required:
1. Determine depreciation per unit.
2. Determine depreciation expense for each year.
3. Determine accumulated depreciation after Year 3.
4. Determine carrying amount after Year 3.
Problem 9
A building is acquired for ₱12,000,000.
The cost is divided into:
Main structure: ₱9,000,000
Roof: ₱2,000,000
Elevator: ₱1,000,000
Estimated useful lives:
Main structure: 30 years
Roof: 10 years
Elevator: 5 years
Residual values are zero.
Required:
1. Determine annual depreciation for each component.
2. Determine total annual depreciation.
3. Determine the carrying amount of the building after 3 years.
Problem 10
Equipment has:
Original cost: ₱2,000,000
Accumulated depreciation: ₱600,000
Accumulated impairment losses: ₱100,000
The company uses the cost model.
Required:
Determine the carrying amount of the equipment.
Problem 11
A machine was purchased for ₱2,500,000.
Residual value: ₱250,000
Useful life: 10 years
Straight-line depreciation
After 4 years, the machine has an impairment loss of ₱150,000.
Required:
1. Annual depreciation.
2. Accumulated depreciation after 4 years.
3. Carrying amount before impairment.
4. Carrying amount after impairment.
5. Total accumulated reduction in the asset's carrying amount after impairment.
Problem 12
A machine originally cost ₱1,000,000.
Residual value: ₱100,000
Original useful life: 10 years
Straight-line depreciation
After 4 years, management determines that the machine has a remaining useful life of 3 years.
The residual value remains ₱100,000.
Required:
1. Determine accumulated depreciation after the first 4 years.
2. Determine carrying amount at the beginning of Year 5.
3. Determine depreciation expense for each of the remaining 3 years.
Problem 13
A machine has:
Cost: ₱1,500,000
Accumulated depreciation: ₱500,000
Recoverable amount: ₱850,000
Required:
1. Determine the carrying amount before impairment.
2. Determine the impairment loss.
3. Determine the carrying amount after impairment.
Problem 14
An asset has:
Carrying amount: ₱900,000
Fair value less costs of disposal: ₱750,000
Value in use: ₱820,000
Required:
1. Determine the recoverable amount.
2. Determine whether an impairment loss exists.
3. If there is an impairment loss, calculate it.
Problem 15
A machine has:
Original cost: ₱1,000,000
Accumulated depreciation: ₱600,000
Selling price: ₱450,000
Required:
1. Determine the carrying amount.
2. Determine the gain or loss on disposal.
3. State whether it is a gain or loss.
Problem 16
Equipment has:
Cost: ₱800,000
Accumulated depreciation: ₱500,000
Accumulated impairment loss: ₱50,000
Disposal proceeds: ₱200,000
Required:
1. Determine the carrying amount.
2. Determine the gain or loss.
3. Prepare the journal entry for the disposal.
Problem 17
On January 1, 2022, ABC Company purchased a machine for ₱3,000,000.
Additional costs:
Delivery: ₱100,000
Installation: ₱200,000
Testing: ₱50,000
Employee training: ₱75,000
The machine was available for use on January 1, 2022.
Additional information:
Residual value: ₱350,000
Useful life: 10 years
Straight-line depreciation
Cost model is used
On January 1, 2025, the machine was sold for ₱2,000,000.
Required:
1. Determine the initial cost of the machine.
2. Determine the depreciable amount.
3. Determine annual depreciation.
4. Determine accumulated depreciation as of December 31, 2024.
5. Determine carrying amount immediately before disposal.
6. Determine the gain or loss on disposal.
7. Prepare the journal entry for the disposal.
Problem 18
On January 1, 2026, Company A acquired a machine for:
Purchase price: ₱2,000,000
Delivery: ₱80,000
Installation: ₱120,000
Employee training: ₱50,000
The machine was available for use immediately.
Information:
Residual value: ₱200,000
Useful life: 8 years
Straight-line depreciation
Cost model
On January 1, 2028, the company incurred:
Routine maintenance: ₱40,000
Major upgrade: ₱300,000
The upgrade increased the machine's production capacity and qualifies for capitalization.
At December 31, 2028, the machine's recoverable amount was ₱1,300,000.
Required:
1. Determine the initial cost of the machine.
2. Determine annual depreciation before the upgrade.
3. Determine accumulated depreciation before the upgrade.
4. Determine the carrying amount immediately before the upgrade.
5. Determine the new carrying amount after the upgrade.
6. Determine depreciation after the upgrade, assuming the remaining useful life is
unchanged.
7. Determine the carrying amount before impairment at December 31, 2028.
8. Determine the impairment loss, if any.
9. Determine the final carrying amount at December 31, 2028.
10. Identify which expenditure was expensed and which was capitalized.