FT Problem Set 01 Depreciation

ES 181 – a Engineering Economy
Problem Set 01 - Depreciation
Solve the following problems.
1. A VOM has a selling price of P400.00. If its selling price is expected to decline at a rate of 10%
per annum due to obsolescence, what will be the selling price after 5 years?
2. A machine costs P8,000.00 and an estimated life of 10 years with a salvage value of P500.00.
what is its book value after 8 years using straight line method?
3. A telephone company purchased a microwave radio equipment for P 6 million, freight and
installation charges amounted to 4% of the purchased price. If the equipment will be
depreciated over a period of 10 years with a salvage value of 8%, determine the depreciation
cost during the 5"'year using SYD.
4. ABC Corporation makes it 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 SYD method.
5. A company purchases an asset for P 10,000.00 and plans to keep it for 20 years. If the salvage
value is zero at the end of 20th year, what is the depreciation in the third year? Use SYD
method.
6. An asset is purchased for P 500,000.00. The salvage value in 25 years is P100,000.00. What is the
total depreciation in the first three years using straight line method?
7. A machine has an initial cost of P 50,000 and a salvage value of P10,000 after 10 years. What is
the book value after 5 years using straight line depreciation?
8. An asset is purchased for P 9,000.00. Its estimated life is 10 years after which it will be sold for P
1,000.00. Find the book value during the first year if sum-of years' digit (SYD) depreciation is
used.
9. The cost of equipment is P 500,000 and the cost of installation is P 30,000. lf the salvage value is
10% of the cost of equipment at the end of 5 years, determine the book value at the end of the
fourth year. Use straight-line method.
10. An asset is purchased for P20,000.00. Its estimated life is 10 years after which it will be sold for
P12,000.00. Find the depreciation for the first year using SYD method.
11. A machine has an initial cost of P 50,000 and a salvage value of P 10,000 after 10 years. Find the
book value after 5 years using straight-line depreciation.
12. A machine has an initial cost of P 50,000.00 and a salvage value of P 10,000.00 after 10 years.
What is the straight line method depreciation rate as a percentage of the initial cost?
13. A machine costing P45,000.00 is estimated to have a book value of P4,350.00 when retired at
the end of 6 years. Depreciation cost is computed using percentage of the declining book value.
What is the annual rate of depreciation in %?
14. An asset is purchased for P 120,000.00. lts estimated life is 10 years, after which it will be sold
for P 12,000.00. Find the depreciation for the second year using the sum-of-years' digit method.
15. A machine costing P 720,000 is estimated to have a book value of P 40,545.73 when retired at
the end of 10 years. Depreciation cost is computed using a constant percentage of the declining
book value. What is the annual rate of depreciation in %?
16. An asset is purchased for P 9,000.00. lts estimated economic life is 10 years after which it will be
sold for P 1,000.00. Find the depreciation in the first three years using straight line method.
ES 181 – a Engineering Economy
Problem Set 01 - Depreciation
17. An engineer bought an equipment for P 500,000. He spent an additional amount of P 3O,0OO
for installation and other expenses. The estimated useful life of the equipment is 10 years. The
salvage value is x % of the first cost. Using the straight-line method of depreciation, the book
value at the end of 5 years will be P 291,500. What is the value of x?
18. The initial cost of a paint sand mill, including its installation, is P 800,000. The BIR approved life
of this machine is 10 years for depreciation. The estimated salvage value of the mill is P 50,000
and the cost of dismantling is estimated to be P 15,000. Using straight-line depreciation, what is
the annual depreciation charge?
19. The initial cost of a paint sand mill, including its installation, is P 800,000. The Bli approved life of
this machine is 10 years for depreciation. The estimated salvage value of the mill is P50,000.
Using straight-line depreciation, what is the book value of the machine at the end of six years?
20. A unit of welding machine cost P 45,000 with an estimated life of 5 years. lts salvage value is P
2,500. Find its depreciation rate by straight-line method.
21. An equipment costs P 1O,OOO with a salvage value of P 500 at the end of 10 years. Calculate the
annual depreciation cost by sinking fund method at 4 % interest.
22. A machine initially worth P 50,000 depreciates in value each year by 20% of its value at the
beginning of that year. Find its book-value when it is 9 years old.
23. A consortium of international telecommunication companies contracted for the purchase and
installation of fiber optic cable linking Manila City and Cebu City at a total cost of P 960 million.
This amount includes freight and installation charges estimated at 10% of the above total
contract price. lf the cable shall be depreciated over a period of 15 years with zero salvage value
and money is worth 6% per annum, what is the annual depreciation-charge?
24. An asset is purchased for P 9,000.00. lts estimated economic life is 10 years after which it will be
sold for P 1,000.00. Find the depreciation in the first three years using sum-of-years' digit
method.
25. A radio service panel truck initially cost P 560,000. lts resale value at the end of the 5 th year of
the useful life is estimated at P 150,000.00. by means of declining balance method, determine
the depreciation charge for the second year.

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ES 181 – a Engineering Economy

Problem Set 01 - Depreciation

Solve the following problems.

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