The document provides an overview of depreciation and depletion accounting concepts and methods. It defines depreciation as an accounting procedure to systematically reduce the recorded value of an asset over its projected lifetime. Similarly, depletion systematically reduces the recorded value of a natural resource asset as it is used up. The document outlines various depreciation methods like straight-line, double-declining balance, and units-of-production. It also provides examples to demonstrate how to calculate depreciation expense and book value under different methods.

1. DEPRECIATIO
N AND
DEPLETION

2. TABLE OF CONTENTS
02
BASIC
CONCEPTS
INTRODUCTIO
N
DEPRECIATION
METHODS AND
DEPLETION
01 03
04

3. INTRODUCTION
01

4. DEPRECIATION - is an accounting procedure by
which the recorded value (or book value) of an asset is
reduced during it's projected lifetime in a rational and
systematic manner.
DEPLETION - is an accounting procedure by which the
recorded value of a resource based asset is reduced during
it's projected lifetime in a rational and systematic manner.

5. BASIC
CONCEPT
S
02

6. Service life (or useful life) of an
asset is the length of time that
the asset will be used in the
operations of the business.
Salvage Value ( or scrap value
/ residual value / trade-in value)
is the amount that is expected
tHecovered upon the sale or
disposal of the asset at the end
of it's service life.

7. Depreciation schedule is the
asset's diminishing value at the
end of successive periods.
Deprecitation expense is the
reduction in the value of asset
determined for the current period.
Accumulated Depreciation is
the cumulative total of all of all
past current depreciation
expenses reported for the asset.

8. Book Value is the difference between
the acquisition cost and the accumulated
depreciation .That is
BOOK VALUE = ACQUISITION COST
— ACCUMULATED DEPRECIATION
The book value at the end of any accounting
period will also equal the asset's book value
at the end of the previous period less the
current period's depreciation expense. That is
,
BOOK VALUE = PREVIOUS BOOK VALUE
— CURRENT DEPRECIATION EXPENSE

9. The following variables will be in our mathematical
treatment of the different depreciation method:
= Acquisition Cost
AC
= Accumulated Depreciation
AD
= Accumulated Depreciation at End of
Previous Period
ADEPP
BV = Book Value
n = Total number of Periods in the
Service Life

10. BVEPP
= Book Value at End of Previous
Periods
CPDE
= Current Period's Depreciation
Expense
DE = Depreciation Expense
DEPP = Depreciation Expense Per Period
DEPU = Depreciation Expense Per Unit of
Use / Produce
RV = Resale Value
TLU
= Total Lifetime Units
SV = Salvage Value (or scrap value/
Residual Value)

11. FORMULA'S
TO BE
USED
03

12. DEPRECIAT
ION
FORMULA'
S:

13. 7.) DE = DR × BVEPP
8.) DR = 2 ( 100%/ n)
9.) d = 1 – n√SV/AC
10.) DR = n – t + 1
n(n+1)/2
11.) Cost Base = AC – SV
12.) DE = DR × (AC– SV)

14. DEPRECIATION
METHODS AND
DEPLETION
04

15. DEPRECIATION METHODS
Double-Declining-Balance
Depreciation Method
Complex-Declining-
Balance Depreciation
Method
Sum-of-the-Years
Depreciation Method
Straight-line depreciation
method
Units-of-Production
Depreciation Method
Service-Hours
Depreciation Method

16. STRAIGHT -LINE
DEPRECIATION METHOD
• Is the most widely used in business.
• This method assumes that the asset's value declines
by the same amount in every period of it's service life.
• An equal fraction of the asset's total depreciation is
allocated to each accounting period. That is,
DEPP = AC–SV
n

17. DEPP= AC–SV
n
= 110,000–20,000
6
= ₱ 15,000.00
Solution:
Give: AC = ₱110,000.00, SV= ₱20,000.00 , n= 6
1. SSC-R College department purchased a latest computer at
accost of ₱110,000.00 . The estimated life of the computer is 6
years, with a scrap value of ₱20,000.00. Find the annual amount of
depreciation and the book value at the end of the first year.
EXAMPLES:

18. • The computer will be depreciated evenly over the 6-year
life for an annual depreciation of ₱15,000.
B. Since the annual depreciation ₱15,000 the book value at the
end of the first year will be
BV= AC–AD
= 110,000– 15,000
= ₱ 95,000

19. 2. A manufacturing enterprise expects to use a new machine costing ₱
200,000 for five years. It is expected to declines steadily in value and
be sold for about ₱ 50,000 after five years. Using the straight-line
depreciation method;
a. Determine the annual depreciation expense.
b. Prepare the depreciation schedule.
Solution:
a. Given : AC= ₱200,000 , SV= ₱50,000 , n= 5
DEPP= AC – SV
n
= 200,000–50,000
5
= ₱ 30,000
• The annual depreciation
expense of the machine is
₱ 30,000.

20. b. Straight-line depreciation schedule
Year
Depreciation
Expense (DE)
Accumulated
Depreciation (AD)
Book Value (BV)
0 0.00 0.00 ₱200,000
1 30,000 30,000 170,000
2 30,000 60,000 140,000
3 30,000 90,000 110,000
4 30,000 120,000 80,000
5 30,000 150,000 50,000

21. 1.) AD = ADEPP + CPDE
= 30,000 + 30,000
= 60,000
2.) BV= AC – SD
= 200,000 – 60,000
= ₱140,000
BV = BVEPP – CPDE
= 170,000 – 30,000
= ₱140,000
₱

22. UNITS-OF-PRODUCTION
DEPRECIATION METHOD
The passage of time is not in used to determine
an assets depreciation amount.ninstead the
decline in value of an asset is roughly
proportional to some of it's use I
The operations of the business; it
is wise to prorate the asset's lifetime
depreciation in proportion to the expected total
lifetime units of use .

23. Examples:
1: A piece of equipment was purchased at a cost of P2,800,000. The estimated
salvage value is P250,000 with the useful life of 7 years: Assume a production of
75,000 units. Compute the depreciation for the first two years using units-of-
production method with 11,500 and 13,000 units produced, respectively.
Solution:
Now we will compute the depreciation per unit produced.
Given: AC-P2,800,000, SV=P250,000, TLU-75,000 units
DEPU= AC-SV
TLU
=2,800,000-250,000
75,000
=P34 per unit produced

24. Then we need to multiply the units of production and depreciation per
unit to determine the depreciation amount for the first two years.
DE= Number of units of produced x DEPU
=11,500(34)
=P391,000
DE=Number of units of produced x DEPU
=13,000(34)
= P442,000
Therefore the amount of depreciation for the first two years is
P391,000 and P442,000, respectively.

25. Service Hours Depreciation
Method
If the decline value of an asset is more or less proportional
to some measure of its use in the operations of the
business, it is wise to compute tje asset's lifetime
depreciation in proportion to the expected total hours of
use.

26. EXAMPLES
1. The Red Laundry purchased new washing machine and dryers
for P2, 600,000. The machines are expected to last 40,000 hours
and have a residual value of P120,000. If Red elects to use the
service-hours depreciation method, determine the depreciation if the
machine is used for 8,200

27. The depreciation will amount to P508, 400 for 8,200 hours.
2. RFS Transport Inc. purchased a new truck for P1,500,000. The
service life of the truck is based on the hours of operation instead of
distance traveled. If the useful service life of the truck is 3,200 operating
hours and the estimated resale value is P300,000.
a. Determine the depreciation per hour of operation.
b. Construct a deprecation schedule for the first four years if the hours of
operation in successive years are 600, 540, 720, and 480.
Solution:
Given: AC=P1,500,000. SV=300,000. TLU=3,200 hours

28. a. The unit of use in an hour of truck operation. For a service life
of 3,200 hours, the depreciation expense per hour of use is:

29. Double Declining-Balance
Depreciation Method
Under the double declining-balance depreciation method, a
straight line (percentage) rate is first computed assuming
zero salvage value. Then a depreciation rate equal to twice
this straight line rate applied each year to the asset's book
value at the end of the preceding year.
DR=2(100%/n)

30. Example 1. A lighted display at WRS Restaurant cost P170,000 and
has an estimated life of 10 years. Find the book value at the end of the
first year.
The depreciation rate of the light display is 20%.
DE=DR×BVEPP
=0.20(170,000)
=34,000
BV= BVEPP-CPDE
=170,000-34,000
=136,000
The book value of the lighted display after the first year is P136,000.

31. Example 2. W&R Inc. expects a machine that is purchased
for P97,000 to be used for 8 years. Using the double
declining balance depreciation method:
a. Compute the rate of depreciation.
b. Prepare a partial depreciation schedule showing details
for the first six years.

33. Complex Declining Balance
Depreciation Method
The compound reduction or decline at the rate d
that will make the future value of the asset's
acquisition cost equal to the salvage value after n
years. The formula for the salvage value.

35. Examples:
1. Elmer Pascual has purchased a new freezer case in his
business establishment at a cost of P440,000. The estimated life of
the freezer case is 8 years, at which time the trade-in value is
estimated to be P100,000. Determine the depreciation on the first
year using the complex declining balance method of depreciation.

37. SUM-OF-THE-YEAR'S DIGITS
DEPRECIATION METHOD
In sum-of-the-year's-depreciation method each year's
depreciation expense is less than the previous year's
depreciation or it requires a depreciation fraction. The pattern
of the diminishing depreciation expense results, nevertheless,
from the application of a declining depreciation rate to a
constant cost base. With n again representing the service life
in years, the formula for computing the percentage of a
constant cost to be depreciated in year t is:

38. This depreciation rate is applied to the constant cost base
(depreciable amount):
Cost Base= AC-SV

39. Examples:
1. The Elementary Department of San Sebastian College purchased
a new OHP for teaching at a cost of P20,000. The expected life of
the unit is 5 years and the salvage value is expected to be P4,000.
Use the sum-of-the-years-digits depreciation method to determine
the first year's depreciation.

41. Example 2.
A company purchased a machine for P150,000 and
expects to use it for 6 years. The resale value after 6 years
is estimated to be P18,000. Using the sum-of-the-years-
digits method of depreciation, prepare the depreciation
schedule. Include a common for the depreciation rate used
each year.
Solution:
Given: AC=P150,000. SV=P18,000 n=6 years. t=1
The depreciation rate for year t is:

45. DEPLETION
– Is the proportional allocation of the cost of
natural resources to the units used up or
depleted per accounting period.
• Wasting assets are also called natural resourcs because
they are considered to be qorn out (used up) as they are
converted into inventory by cutting, mining, pumping or the
like.

50. Submitted by:
Florida, Jackielou
Bugtong, Kim Desiree
Godinez, Fatima
END OF THE
LESSON!!!