Problem Set No. 3: Depreciation, Capitalized Cost, Annual Cost.
1. A machine costing P45,000 is estimated to have a salvage value of P4,350 when
retired at the end off 6 years. Depreciation cost is computed using a constant
percentage of the declining book value. What is the annual rate of depreciation in
percent? (32.25%)
2. An engineer bought an equipment or P500,000. Other expenses including
installation amounted to P30,000. At the end of its estimated useful life of 10 years,
the salvage value will be 10% of the first cost. Using Straight line method of
depreciation, what is the book value after 5 years? (P291,500.00)
3. An asset is purchased for P9,000. Its estimated life is 10 years, after which it will
be sold for P1,000. Find the book value during the third year if Sum of the Year’s
Digit Method is used. (P5, 072.72)
4. A construction equipment costing P480,000 has a life expectancy of 12 years with a
salvage value of 10 % of the first cost. Using depreciation by sinking fund method,
What is the book value of the Machine after 5 years, assume i = 8%? (P346,457.29)
5. A machine costing P50,000 has a life expectancy of 6 years and an estimated
salvage value of P8,000. Calculate the depreciation charge at the end of the fourth
period using fixed percentage method? (P5,264.00)
6. BenDan Corporation makes a policy that for any new equipment purchased, the
annual depreciation cost should not exceed 20% of the first cost at any time with no
salvage value. Determine the length of service life necessary if the depreciation used
is the Sum of the Year’s Digit Method. (9 years)
7. At 6%, find the capitalized cost of a bridge whose cost is P200M and life is 20
years, if the bridge must be partially rebuilt at a cost of P100M at the end of each 20
years. (P245.31M)
8. A company uses a type of truck which costs P2M, with life of 3 years and a final
salvage value of P320,000 How much could the company afford to pay for another
type of truck for the same purpose, whose life is 4 years with a final salvage value of
P400,000, if money is worth 4%? (P2,585,964.73)
9. A bridge cost P1M . It is estimated that the same bridge should be renovated every
50 year at a cost of P800,000 . Annual repairs and maintenance are estimated to be
P30,000 per year. If the interest rate is 5%, determine the capitalized cost of the
bridge? (P1,676,428.00)
10. A new plant to produce a steel tubing requires and initial investment of P10M. It
is expected that after 3 years of operation, an additional investment of P5M will be
required, after 6 years of operation another investment of P3M. Annual operating cost
will be P3M & annual revenues will be P8M. The life of the plant is 10 years. If the
interest rate is 15% per year, compounded annually, what is the NPV (Net Present
Value) of this plant? (P10.51M)