Bugle Company’s property, plant, and equipment and related accumulated

depreciation accounts had the following balances at December 31, 2006:

Class of PPE Cost Accumulated

Depreciation
Land P3,900,000
Buildings 36,000,000 P7,962,000
Machinery and equipment 23,250,000
5,886,000
Transportation equipment 3,960,000
2,586,000
Lease improvements 6,630,000
3,315,000

Class of PPE Depreciation method

Useful Life
Land improvements Straight-line 12 years
Buildings 150% declining balance 25
years
Machinery and equipment Straight-line 10 years
Transportation equipment 150 % declining balance
5 years
Lease improvements Straight-line 8 years

Bugle computes depreciation to the nearest month. The salvage values of

the depreciable assets are considered immaterial.

Transactions during 2007 and other information are described below:

1. On January 5, 2007, a plant facility consisting of land and a building

was purchased from Torotot Company for P18,000,000. Of this amount,
20% was allocated to land.
2. On April 3, 2007, new parking lots, streets, and sidewalks at the
purchased plant facility were completed at a total cost of P5,760,000.
These expenditures had an estimated useful life of 12 years.
3. The lease hold improvements were completed on December 31,
2003, and had an estimated useful life of 8 years. The related lease,
which would have terminated on December 31, 2009, was renewable for
an additional 4-year term. On April 30, 2007, Bugle exercised the
renewal option.
4. On July 1, 2007, machinery and equipment were purchased at a total
invoice cost of P7,500,000. Additional costs of P300,000 for delivery and
P900,000 for installation were incurred.
5. On August 31, 2007, Bugle purchased a new automobile for
P450,000.
6. On September 29, 2007, a truck with a cost of P720,000 and a
carrying amount of P243,000 on the date of sale was sold for P345,000.
Depreciation for the 9 months ended September 30, 2007, was P70,560.
7. On December 22, 2007, a machine with a cost of P510,000 and a
carrying amount of P89,250 at date of disposition was scrapped without
cash recovery.

Based on the preceding information, calculate the 2007 depreciation

expense on each of the following classes of PPE:

1. Land improvements
a. 480,000 b. 360,000 c. 320,000 d. 923,000

2. Buildings
a. 2,546,280 b. 3,024,000 c. 2,762,280 d.
1,682,280

3. Machinery and equipment

a. 2,325,000 b. 3,195,000 c. 1,597,500
d. 2,760,000

4. Transportation equipment
a. 363,132 b. 454,860 c. 433,962 d. 527,760

5. Leasehold improvements
a. 828,750 b. 552,500 c. 663,000 d. 1,326,000

SOLUTION
1. 2007 DEPRECIATION EXPENSE-LAND IMPROVEMENTS:
(P5,760,000/12 years x 9*/12)
P360,000 Ans. B.
*April 1-December 31

2. 2007 DEPRECIATION EXPENSE-BUILDINGS

 Book value, Jan. 1, 2007 (P36,000-P7,962,000)
P28,038,000
Building acquired, Jan. 5, 2007 (P18,000,000 x 80%)
14,400,000
Total 42,438,000
150% declining balance rate (1/25 x 150%)
X6%
Depreciation P2,546,280
Ans. A.

3. 2007 DEPRECIATION EXPENSE-MACHINERY AND EQUIPMENT:

Machinery and equipment, Jan. 1, 2007 (P36,000,000-P7,962,000)
P2,325,000
Purchased July 1, 2007 (P8,700,000/10 x 6/12)
435,000
Total P2,760,000
Ans. D.

4. 2007 DEPRECIATION EXPENSE-TRANSPORTATION EQUIPMENT:

Book value, Jan. 1, 2007 (P3,960,000-P2,586,000)
P1,374,000
Less: Book value on Jan. 1, 2007, of truck sold Sept. 29, 2007
(P243,000 + P70,560)
313,560
Amount subject to depreciation
1,060,440
150% declining balance rate (1/5 x 150%)
X30% P318,132
Truck sold Sept. 29, 2007
70,560
Automobile purchased Aug. 31, 2007 (P450,000 x 30% x 4/12)
45,000
Total
P433,692

Ans. C.

5. 2007 DEPRECIATION EXPENSE-LEASEHOLD IMPROVEMENTS:

Book value, Jan. 1, 2007 (P6,630,000-P3,315,000)
P3,315,000
 Useful life of leasehold improvements (8-3)
/5years
Depreciation P663,000
Ans. C.
The useful life of leasehold improvements is used because it is shorter
than the extended lease term of 6 years (2 years remaining lease term + 4
years renewal option exercised).