Regine Mae Yaniza - 2 Year Bsce

REGINE MAE YANIZA – 2ND YEAR BSCE
Let’s Check
Activity 1: Now that you review the most essential principles in engineering economy.
Let us try to check your understanding by solving the following cost problems:
1. A certain equipment costs ₱7000 has an economic life of “n” years and a salvage
value of ₱350 at the end of “n” years. If the book value at the end of 4 years is
equal to ₱2197.22, compute the economic life of the equipment using SYDM.
2. ABC Corporation makes its policy that for every new equipment purchased, the
annual depreciation cost should not exceed 20% of the first cost at any time
without salvage values. Determine the length of service if the depreciation used
is SYDM.
3. A consortium of international communications companies contracted for the
purchase and installation of a fiber optic cable linking two major Asian cities at a
total cost of ₱960,000,000. This amount includes freight and installation charges
at 10% of the above total contract price. If the cable depreciated over a period of
15 years with zero salvage value, what is the depreciation charge during the 5th
year using SYDM?
4. The corporation purchased a machine for ₱1 million. Freight and installation
charges amounted to 3% of the purchase price. If the machine shall be
depreciated over a period of 8 years with a salvage value of 12%. Determine
the depreciation charge during the 5th year using sum of year’s digit method.
5. A machine that cost ₱1,230,000 has estimated life of 10 years. If the

predetermine salvage value is ₱80,000. Compute the annual rate of depreciation
charge using declining balance method.
Let’s Analyze
Activity 1: Getting acquitted with the essential terminology and basic concepts in the
study of engineering economy is not enough, one should be able to analyze and solve
complex cost problems involving interest, cash flow analysis, annuities and decision
making methods.
At this juncture, you will be required to elaborate your answers about the following
questions:
1. A radio service panel truck initially cost ₱56,000. Its resale value at the end of
the 5th year of the useful life is estimated at ₱15,000. By means of the
declining balance method, determine the depreciation charge for the 2nd
year.
2. An asset is purchase for ₱9000. Its estimated life is 10 years after which it will
be sold for ₱1000. Find the book value during the first year using sum of
year’s digit method (SYDM).
3. A motor cost ₱100,000 has an estimated life of 10 years and can be sold at
₱20,000 at the end of 10 years. Calculate the book value at the end of 8
years using sum of year’s digit method (SYDM).
4. The original cost of a certain machine is ₱150,000 has an economic life of 8
years with a salvage value of ₱9000 at that time. If the depreciation of the first
year is equal to ₱44475, what method is used in the calculation of
depreciation?
5. A certain office equipment has a first cost of ₱20,000 and a salvage value of
₱1,000 at the end of 10 years. Determine the book value at the end of 6 years
using SYDM.
In a Nutshell
Activity 1: Based from the definition of the most essential terms in the study of
curriculum and the learning exercises that you have done, please feel free to write your
arguments or lessons learned below. I have indicated my arguments or lessons learned.
1. Straight line method is mostly used in equipment estimates.
Your Turn
2. Depreciation in economics is a measure of the amount of value an asset loses
from influential factors affecting its market value.
3. Depreciation is the systematic reduction of the recorded cost of a fixed
asset. Examples of fixed assets that can be depreciated are buildings, furniture,
and office equipment.
4. The choice of the depreciation method can impact revenues on the income
statement and assets on the balance sheet.
5. The five common methods of depreciation that impact revenues and assets
are: straight line, sinking fund method, Matheson formula, sum-of-years-digits,
and double-declining balance.
6. Straight line method assumes that the loss in value is directly proportional to the
age of the property.
7. Sinking fund method gives uniform annual charges. The accumulates for
replacement purpose uses interest.
8. In Straight line method the depreciation is the same all throughout the year.
9. The declining balance method, also known as the reducing balance method, is
an accelerated depreciation method that records larger depreciation expenses
during the earlier years of an asset’s useful life, and smaller ones in later years.
10. Sum-of-the-years' digits is an accelerated method for determining an asset's
expected depreciation over time.
11. Depreciation is an accounting technique that involves pairing the cost of using a
tangible asset with the advantage gained over its useful life.
12. A double-declining balance method is a form of an accelerated depreciation
method in which the asset value is depreciated at twice the rate it is done in the
straight-line method. Since the depreciation is done at a faster rate (twice to be
precise) of the straight-line method, it is called accelerated depreciation.
13. Economic depreciation can be important for asset owners seeking to sell an
asset in the open market.

Regine Mae Yaniza - 2 Year Bsce

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REGINE MAE YANIZA – 2ND YEAR BSCE

5. A machine that cost ₱1,230,000 has estimated life of 10 years. If the

1. Straight line method is mostly used in equipment estimates.

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