On January 1, 20x1, DOC WILLIE Company acquired equipment from Catanduanes Factory Supplies with an estimated useful life of 10 years and a residual value of P50,000 for a total purchase cost of P200,000. Using the method of Sum-of-the-years’ digits, what is the carrying amount of the equipment on December 31, 20x2?

Question

On January 1, 20x1, DOC WILLIE Company acquired equipment from Catanduanes

Factory Supplies with an estimated useful life of 10 years and a residual value of P50,000

for a total purchase cost of P200,000. Using the method of Sum-of-the-years’ digits,

what is the carrying amount of the equipment

on December 31, 20x2?

At December 31, 2019, DOC WILLIE COMPANY's noncurrent operating asset and accumulated depreciation accounts had balances as follows:

	Cost of Asset	Accumulated Depreciation
Land	P 130,000
Buildings	1,200,000	P 265,400
Machinery and equipment	775,000	196,200
Automobiles and trucks	132,000	86,200
Leasehold improvements	221,000	110,500

	Depreciation Method	Useful Life
Land improvements	Straight line	12 years
Buildings	150% declining balance	25 years
Machinery and equipment	Straight line	10 years
Automobiles and trucks	150% declining balance	5 years
Leasehold improvements	Straight line	8 years

Depreciation is computed to the nearest month. The salvage values of the depreciable assets are immaterial.

(a) On January 2, 2020, the company purchased for P900,000 a tract of land as a factory site. An old building on the property was demolished and construction began on a new factory building which was completed at year-end.

Cost of demolition of old building	P 90,000
Sale of scrap from old building	5,000
Title Insurance and legal fees to purchase land	20,000
Architect fee	95,000
New building construction cost	800,000

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(b) On January 4, 2020, another plant facility consisting of land and building was acquired from Tate Company in exchange for 100,000 doc willie Company's shares. On the acquisition date, the share had a closing market price of P14.40 on the Philippine Stock Exchange. The plant facility was carried at P500,000 for land and P1,500,000 for the building at the transaction date. Current appraised values for the land and building are P300,000 and P600,000, respectively.

(b) On March 6, 2020, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of P151,200. These expenditures had an estimated useful life of 12 years.

(c) The leasehold improvements were completed on December 31, 2016, and had an estimated useful life of 8 years. The related lease, which would have terminated on December 31, 2022, was renewable for an additional 4-year term. On April 29, 2020, doc willie exercised the renewal option.

(d) On July 1, 2020, machinery and equipment were purchased at a total invoice cost of P250,000. Additional costs of P10,000 for delivery and P30,000 for installation were incurred.

(e) On August 30, 2020, doc willie purchased a new automobile for P15,000.

(f) On September 30, 2020, a truck with a cost of P24,000 and a carrying amount of P8,100 on the date of sale was sold for P11,500. Depreciation for the 9 months ended September 30, 2020, was P2,352.

(g) On December 20, 2020, a machine with a cost of P17,000 and a carrying amount of P2,975 at date of disposition was scrapped without cash recovery.