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1. On April 1, 2004, Batangas Company bought machinery under a contract that required
a down payment of P500,000 plus 24 monthly payments of P300,000 for total
payments of P7,700,000. The cash price of the machinery was P6,500,000. The
machinery has an estimated useful life of four years and estimated residual value of
P500,000. Batangas uses SYD method of depreciation. In its 2005 income statement,
what amount should Batangas report as depreciation for this machinery?
a. 2,400,000
b. 1,800,000
c. 1,950,000
d. 2,275,000

2. A schedule of plant assets owned by Bauan Company is presented below.

Cost Scrap cost Life Annual dep
Building 8,800,000 800,000 20 years
Machinery 3,200,000 320,000 15 years
Equipment 640,000 5 years
Bauan computes depreciation on the straight line method. The composite life of the
assets should be
a. 19.8
b. 13.3
c. 18.0
d. 16.0

3. Alitagtag Company purchased factory equipment which was installed and put into
service July 1, 2004 at a total cost of P9,000,000. Residual value was estimated at
P1,000,000. The equipment is being depreciated over 10 years by the double declining
balance method. For the year 2005 how much depreciation expense should Alitagtag
record on this equipment?
a. 1,620,000
b. 1,440,000
c. 2,220,000
d. 1,280,000

4. On January 1, 2004, Taal Company acquired equipment to be used in its

manufacturing operations. The equipment has an estimated useful life of 5 years and
residual value of P3,000,000. The depreciation applicable to this equipment was
P3,200,000 for 2005 computed under the sum of year’s digits method. What was the
acquisition cost of the equipment?
a. 12,000,000
b. 15,000,000
c. 12,600,000
d. 19,000,000
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5. San Jose Corporation, a manufacturer of steel products, began operation on October 1,

2003. The accounting department of San Jose has started the fixed-asset and
depreciation presented below.
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September 30, 2004, and September 30, 2005
Expense Year
Ended Sept. 30
Acquisition Depreciation Life in
Assets Date Cost Salvage Method Years 2004 2005
Land A 10/1/2003 (1) N/A N/A N/A N/A N/A
Building A 10/1/2003 (2) P40,000 Straight-line (3) P17,450 (4)
Land B 10/1/2003 (5) N/A N/A N/A N/A N/A
Building B Under P320,000 Straight-line 30 - (6)
Construction to date -
Donated 10/2/2003 (7) 3,000 150% 10 (8) (9)
equipment declining
Machine A 10/2/2003 (10) 6,000 Sum-of-the- 8 (11) (12)
Machine B 10/1/2004 (13) - Straight-line 20 - (14)
N/A – Not applicable

You have been asked to assist in completing this schedule. In addition in ascertaining that
the data already on the schedule are correct, you have obtained the following information
from the Company’s records and personnel:

a. Land A and Building A were acquired from a predecessor corporation. San Jose paid
P820,000 for the land and building together. At the time of acquisition, the land had an
appraised value of P90,000, and the building had an appraised value of P810,000.
b. Land B was acquired on October 2, 2003, in exchange for 2,500 newly issued shares
of San Jose’s common stock. At the date of acquisition, the stock had a par value of
P5 per share and a fair value of P30 per share. During October 2003, San Jose paid
P16,000 to demolish an existing building on this land so it could construct new building.
c. Construction of building B on the newly acquired land began on October 1, 2004. By
September 30, 2005, San Jose has paid P320,000 of the estimated total construction
costs of P450,000. It is estimated that the building will be completed and occupied by
July 2006.
d. Certain equipment was donated to the corporation by a local university. An
independent appraisal of the equipment when donated placed the fair market value at
P30,000 and the salvage value at P3,000.
e. Machinery A’s total cost of P164,900 includes installation expense of P600 and normal
repairs and maintenance of P14,900. Salvage value is estimated at P6,000.
Machinery A was sold on February 1, 2005.
f. On October 1, 2004, Machinery B was acquired with a down payment of P5,740 and
the remaining payments to be made in 11 annual installments of P6,000 each
beginning October 1, 2004. The prevailing interest rate was 8%. The following data
were abstracted from the present-value tables (rounded):
Present value of P1 at 8% for 11 years 0.429
Present value of an ordinary annuity of P1 at 8% for 11 years 7.139

For each numbered item on the foregoing schedule, supply the correct amount. Round
each answer to the nearest peso.
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6. Lemery Company acquired property in 2005 which contains mineral deposit. The
acquisition cost of the property was P20,000,000. Geological estimates indicate that
5,000,000 tons of mineral may be extracted. It is further estimated that the property
can be sold for P5,000,000 following mineral extraction. For P2,000,000, Lemery is
legally required to restore the land to a condition appropriate for resale. After
acquisition, the following costs were incurred:
Exploration cost 13,000,000
Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000
The company extracted 600,000 tons of the mineral in 2005 and sold 450,000 tons. In
the 2005 income statement, what amount of depletion is included in cost of sales?
a. 4,800,000
b. 3,600,000
c. 5,400,000
d. 4,050,000

7. Calaca Company quaries limestone, crushes it and sells it to be used in road building.
Calaca paid P20,000,000 for a certain quarry on January 1, 2004. The property can be
sold for P4,000,000 after production ceases. The original total estimated reserves
totaled 5,000,000 tons. Calaca quarried 500,000 tons in 2004 and 1,500,000 tons in
2005. An engineering study performed in 2005 indicated that as of December 31,
2005, 4,500,000 tons were available. Calaca Company should record 2005 depletion
a. 3,600,000
b. 4,800,000
c. 6,000,000
d. 4,500,000

8. On July 1, 2005 Balayan Company purchased rights to a mine. The total purchase
price was P50,000,000 of which P5,000,000 was allocated to the land. Estimated
reserves were 6,000,000. Balayan expects to extract and sell 100,000 tons per month.
Balayan Company purchased new equipment on July 1, 2005 for P21,000,000 with
estimated life of 8 years. However, after all the resource is removed, the equipment
will be of no use and will be sold for P3,000,000. What is the depreciation of the
equipment for 2005?
a. 1,800,000
b. 2,100,000
c. 1,125,000
d. 3,600,000

9. Calatagan Company provides the following balances at the end of 2005:

Wasting asset, at cost 100,000,000
Accumulated depletion 30,000,000
Capital liquidated 10,000,000
Retained earnings 15,000,000
Depletion based on 250,000 units extracted at P50 per unit 12,500,000
Inventory of resource deposit (50,000 units) 6,000,000
Calatagan can declare maximum dividend on December 31, 2005 of
a. 32,500,000
b. 45,000,000
c. 29,000,000
d. 15,000,000

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