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What is the value of an asset after 8 years of use estimated useful life of 10 years, the salvage
if it depreciation from its original value of P120, value will be 10% of the first cost. Using straight
000.00 to its salvage value of 3% in 12 years? line method of depreciation, what is the book
Answer: D. P42, 400.00 value after 5 years?
2. A man bought an equipment which cost P524, Answer: B. P291, 500.00
000.00. Freight and installation expenses cost 10. A machine costs P8, 000.00 and an estimated
him P31, 000.00. If the life of the equipment is life of 10 years with a salvage value of P500.00.
15 years with an estimated salvage value of What is its book value after 8 years using
P120, 000.00, find its book value after 8 years. straight line method?
3. An equipment costing P250, 000 has an 11. A factory equipment has an initial cost of P200,
estimated life of 15 years with a book value of 000.00. Its salvage value after ten years is P20,
P30, 000 at the end of the period. Compute the 000.00. As a percentage of the initial cost, what
depreciation charge and its book value after 10 is the straight-line depreciation rate of the
years using straight line method. equipment?
Answer: A. d = P14, 666.67; BV = P103, Answer: C. 9%
333.30 12. An asset is purchased for P120, 000.00. Its
4. An equipment costing P250, 000 has an estimated economic life is 10 years, after which
estimated life of 15 years with a book value of it will be sold for P12, 000.00. Find the
P30, 000 at the end of the period. Compute the depreciation for the first year using the sum-of-
depreciation charge and its book value after 10 the-year’s digit, (SOYD).
years using sinking fund method assuming i = Answer: D. P19, 636.00
8%. 13. An asset is purchased for P9, 000.00. Its
Answer: D. d =P8, 102.50; BV = P132, 622.60 estimated life is 10 years, after which it will be
5. An equipment costing P250, 000 has an sold for P1, 000.00. Find the book value during
estimated life of 15 years with a book value of the third year if sum-of-the-year’s digit (SOYD)
P30, 000 at the end of the period. Compute the depreciation is used.
depreciation charge and its book value after 10 Answer: B. P5, 072.00
years using declining balance method. 14. An asset is purchased for P500, 000.00. The
Answer: C. d = P9, 235.93; BV = P60, 832.80 salvage value in 25 years is P100, 000.00. What
6. An equipment costing P250, 000 has an is the total depreciation in the first three years
estimated life of 15 years with a book value of using straight line method?
P30, 000 at the end of the period. Compute the Answer: A. P48, 000.00
depreciation charge and its book value after 10 15. A machine has an initial cost of P50, 000.00 and
years using the sum of year’s digit method. a salvage value of P10, 000.00 after 10 years.
Answer: D. d = P11, 000; BV = P57, 500 What is the book value after five years using
7. An asset costing P50, 000 has a life expectancy straight-line depreciation?
of 6 years and an estimated salvage value of P8, Answer: D. P30, 000.00
000. Calculate the depreciation charge at the end 16. A company purchased an asset for P10, 000.00
of the fourth period using fixed-percentage and plans to keep it for 20 years. If the salvage
method. value is zero at the end of the 20th year, what is
Answer: B. P5264.00 the depreciation in the third year? Use sum-of-
8. A machine costing P45, 000 is estimated to have the-years digits depreciation.
a salvage value of P4, 350 when retired at the Answer: C. P857.00
end of 6 years. Depreciation cost is computed 17. An asset is purchased for P9, 000.00. Its
using a constant percentage of the declining estimated life is 10 years, after which it will be
book value. What is the annual rate of sold for P1, 000.00. Find the book value during
depreciation in %? the first year if sum-of-the-year’s digit (SOYD)
Answer: B. 32.25% depreciation is used.
9. An engineer bought an equipment for P500, Answer: B. P7, 545.00
000. Other expenses including installation 18. A machine having a first cost of P60, 000.00
amounted to P30, 000. At the end of its will be retired at the end of 8 years. Depreciation
cost is computed using a constant percentage of be redeemed for P105, 000. What net rate of
the declining book value. What is the total cost interest will the man obtain on his investment?
of depreciation, in pesos, up to the time the Answer: B. 3.47%
machine is retired if the annual rate of 27. A man wants to make 14% nominal interest
depreciation is 28.72%? compounded semi-annually on a bond
Answer: A. 56,000 investment. How much should the man be
19. XYZ Corporation makes it a policy that for any willing to pay now for a 12%, P10, 000 bond
new equipment purchased; the annual that will mature in 10 years and pays interest
depreciation cost should not exceed 20% of the semi-annually?
first cost at any time with no salvage value. Answer: C. P8, 940.50
Determine the length of service life necessary if 28. It is estimated that a timber tract will yield an
the depreciation used is the sum-of-the-year’s annual profit of P100, 000 for 6 years, at the end
digit (SOYD) method. of which time the timber will be exhausted. The
Answer: C. 9 years land itself will then have an anticipated value of
20. Determine the capitalized cost of an equipment P40, 000. If a prospective purchaser desires a
costing P 2M with and annual maintenance of return of 8% on his investment and can deposit
P200, 000.00 if money is worth 20% per annum. money in a sinking fund at 4%, what is the
Answer: C. P 3M maximum price he should pay for the tract?
21. At 6%, find the capitalized cost of a bridge Answer: A. P459, 480.00
whose cost is P250M and life is 20 years, if the 29. A mine is purchased for P1, 000,000.00 and it is
bridge must be partially rebuilt at a cost of anticipated that it will be exhausted at the end of
P100M at the end of each 20 years. 20 years. If the sinking-fund rate is 4%, what
Answer: A. 245.3 must be the annual return from the mine to
22. An item is purchased for P100, 000.00. Annual realize a return of 7% on the investment?
costs are P18, 000.00. Using 8%, what is the Answer: D. P103, 582
capitalized cost of perpetual service? 30. A syndicate wishes to purchase an oil well
Answer: D. P325, 000.00 which, estimates indicate, will produce a net
23. A company uses a type of truck which costs income of P2M per year for 30 years. What
P2M, with life of 3 years and a final salvage should the syndicate pay for the well if, out of
value of P320, 000. How much could the this net income, a return of 10% of the
company afford to pay for another type of truck investment is desired and a sinking fund is to be
for the same purpose, whose life is 4 years with established at 3% interest to recover this
a final salvage value of P400, 000, if money is investment?
worth 4%? Answer: A. P16, 526,295
Answer: C. P2, 585,964.73 31. An investor pays P1, 100,000 for a mine which
24. A P100, 000, 6% bond, pays dividend semi- will yield a net income of P200, 000 at the end
annually and will be redeemed at 110% on July of each year for 10 years and then will become
1, 1999. Find its price if bought on July 1, 1996, useless. He accumulates a replacement fund to
to yield an investor 4%, compounded recover his capital by annual investments at
semiannually. 4.5%. At what rate (%) does he receive interest
Answer: D. P114, 481.14 on his investment at the end of each year?
25. A community wishes to purchase an existing Answer: A. 10.04
utility valued at P500, 000 by selling 5% bonds 32. Machine cost = \$15,000; Life = 8 years; Salvage
that will mature in 30 years. The money to retire Value = \$3,000. What minimum cash return
the bond will be raised by paying equal annual would the investor demand annually from the
amounts into a sinking fund that will earn 4%. operation of this machine if he desires interest
What will be the total annual cost of the bonds annually at the rate of 8% on his investment and
until they mature? accumulates a capital replacement fund by
Answer: D. P33, 915.05 investing annual deposits at 5%?
26. A man paid P110, 000 for a P100, 000 bond that Answer: C. \$2456.66
pays P4000 per year. In 20 years, the bond will