ENGINEERING ECONOMY

Problem Set Depreciation

Aug 3, 2017

1. An equipment was purchased at a cost of P1,000,000 with an expected service life of 10 years and a
salvage value P100,000. Solve for the book value during the 5 th year using Straight-line method
a. P550,000 b. P655,239 c. P316,172 d. P654,545

2. Sinking fund method, i=10% pa

a. P550,000 b. P655,239 c. P316,172 d. P654,545

3. Declining Balance Method

a. P550,000 b. P655,239 c. P316,172 d. P654,545

4. Sum-of-the-years digit method

a. P345,455 b. P655,239 c. P316,172 d. P654,545

5. In order to make it worthwhile to purchase a piece of equipment, the annual depreciation costs for the
equipment cannot exceed P500,000 at any time. The original cost of the equipment is P3M and a salvage
value of P50,000 is expected after its service life. Determine the length of service life (nearest integer)
necessary if the equipment is depreciated by Sum-of-the-years-digit method
a. 5 b. 6 c. 7 d. 12

6. Declining - balance method

a. 5 b. 6 c. 7 d. 22

7. Straight-line method
a. 5 b. 6 c. 7 d. 12

8. Sinking –Fund-method, 1=10% pa

a. 5 b. 6 c. 7 d. 12

9. The original cost of a certain piece of equipment is P500,000 and is depreciated by a 12% sinking fund
method. Determine the annual depreciation charge if the book value of the equipment after 10 years is the
same as if it had been depreciated at P40,000 each year by straight line formula.
a. P22,794 b. P497,026 c. P683,113 d. P383,600
10. An equipment bought 2 years ago is computed to have a book value of P64,000 using declining-balance
method. The service life of the equipment is 10 years with salvage value P10,737.
What is the total depreciation after 3 years?
a. P22,794 b. P48,800 c. P12,800 d. P83,600

11. What is the annual depreciation charge on that year?

a. P22,794 b. P48,800 c. P12,800 d. P83,600

I. Multiple Choice (1 pt each)

1. The equation, FC  SV represents the
L
a. Annual depreciation, Straight-line method b. Annual depreciation, DBM
c. Book value Straight-line method d. Annual depreciation, SYDM
e. Total depreciation, Straight-line method

2. The equation, FC  nd  represents the

a. Annual depreciation, Straight-line method b. Annual depreciation, DBM
c. Book value Straight-line method d. Annual depreciation, SYDM

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3. The equation,   is equal to the
FC  SV  i

 1  i   1
L

a. Total depreciation, Sinking-fund method b. Annual depreciation, DBM

c. Book value Sinking-fund method d. e. Annual depreciation, Sinking-fund method

4. The equation,  1  i n  1 is equal to the

d 
 i 
a. Total depreciation, Sinking-fund method b. Annual depreciation, DBM
c. Book value Sinking-fund method d. Annual depreciation, Sinking-fund method

5. The equation,  1  i n  1 is equal to the

FC  d  
 i 
a. Total depreciation, Sinking-fund method b. Annual depreciation, DBM
c. Book value Sinking-fund method d. Annual depreciation, Sinking-fund method

6. The equation, FC1  f n is equal to the

a. Annual depreciation, Straight-line method b. Annual depreciation-DBM
c. Total depreciation, DBM d. Book value, DBM

7. The equation, SV 1  f n  L is equal to the

a. Annual depreciation, Straight-line method b. Annual depreciation, DBM
c. Total depreciation, DBM d. Book value, DBM

8. The equation, FC1  f n1  f  is equal to the

a. Annual depreciation, Straight-line method b. Annual depreciation, DBM
c. Total depreciation, DBM d. Book value, DBM

9. The equation, FC  SV L  1  n 2 is equal to the

L  1L
a. Total depreciation, SYDM b. Book value- SYDM
c. Annual depreciation, SYDM d. Annual depreciation, DBM

10. The equation, FC  SV 2L  1  n n is equal to the

L  1L
a. Total depreciation, SYDM b. Book value-SYDM
c. Annual depreciation, SYDM d. Total depreciation, DBM

11. The equation, FC  SV 2 L  1  n n is equal to

FC 
L  1L
a. Total depreciation, SYDM b. Book value, SYDM
c. Annual depreciation, SYDM d. Total depreciation, DBM

12. The amount of money obtained when the property cannot be disposed as a useful unit but rather dismantled and sold
as junk to be used again as a manufacturing raw material.
a. First cost b. Book value c. Salvage value d. Present value e. Scrap value

13. The net amount of money obtainable from the sale of the used property over and above any charges involved in
removal and sale.
a. First cost b. Book value c. Salvage value d. Present value e. Scrap value

14. The worth of the property as recorded in the books of account of the enterprise and is equal to the original cost less
the amounts which have been charged to depreciation.
a. First cost b. Book value c. Salvage value d. Present value e. Scrap value

15. Conveys the idea of constantly keeping a property in good condition.

a. Service life b. Depletion c. Maintenance d. Obsolescence

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16. The period during which the use of property is economically feasible.
a. Service life b. Depletion c. Maintenance d. Obsolescence

17. Material loss due to exploitation particularly of natural resources.

a. Service life b. Depletion c. Maintenance d. Obsolescence

18. The following are physical depreciation except one

a. Wear b. Tear c. Corrosion d. Obsolescence

19. This method of depreciation is based on uniform annual charge. All amounts in the fund (including
interest) earn interest. The company uses the amount accumulated in its operations, and therefore assumed
to earn interest.
a. Straight-line b. DBM c. Sinking Fund d. Sum-of-the-years

20. This is the simplest and most widely used method compared to any other method. It is based on uniform
annual charge. It doesn’t take into account the interest or profit earned on accumulated depreciation fund.
It is a standard accounting method of depreciation acceptable by the Bureau of Internal Revenue.
a. Straight-line b. DBM c. Sinking Fund d. SYDM

21. The annual depreciation cost is a constant percentage of the book value at the beginning of the year. The absolute
value of annual depreciation decreases as time progresses.
a. Straight-line b. DBM c. Sinking Fund d. SYDM

22. The annual depreciation cost differs each year in terms of both percentage and amount and decreases as
time progresses. It provides for a rapid depreciation during the early years of life of property, hence faster
recovery of capital.
a. Straight-line b. DBM c. Sinking Fund d. SYDM

23. It is also known as Matheson Rule.

a. Straight-line b. DBM c. Sinking Fund d. SYDM

24. Which method of depreciation is best described by the following: It provides very rapid depreciation during the
early years of life of the property. Properties can be depreciated to zero value.
a. Straight-line b. DBM c. Sinking Fund d. SYDM

25. Which of the following depreciation methods can never depreciate an equipment to zero.
a. Straight-line b. DBM c. Sinking Fund d. SYDM

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