Question

1. A generator costing P750,000 depreciates in value each year by 20% of its value. Find its book value when the generator is 5 years old using DBM.

2. APIEMS Corporation is establishing a sinking fund for the purpose of accumulating a sufficient capital to retire its outstanding bonds at maturity. The bonds are redeemable in 10 years and their maturity value is P10M. How much should be deposited each year if the fund pays interest at the rate of 4%?

3.Cobb and Ariadne loaned from Totem Bank PhP 28,000 which is to be repaid by equal payments every quarter for the next 5 years. Given interest rate of 7% compounded continuously, how much will be the amount of each payment?

4. APIEMS Corporation is establishing a sinking fund for the purpose of accumulating a sufficient capital to retire its outstanding bonds at maturity. The bonds are redeemable in 10 years and their maturity value is P10M. How much should be deposited each year if the fund pays interest at the rate of 4%?

5. Philex Oil Refinery developed an oil well which is estimated to contain 7M barrels of oil at an initial cost of $75M. What is the depletion charge during the year where it produces 1M barrels of oil? Use the Unit or Factor Method in computing depletion.

Answer 1

Answer 1:

Book value at the end of year 5 can be calculated as follows:

Year	Book value in beginning	Depreciation rate	Depreciation	Book value in end of year
1	750000	0.2	150000	60000
2	60000	0.2	12000	48000
3	48000	0.2	9600	38400
4	38400	0.2	7680	30720
5	30720	0.2	6144	24576

Answer 2:

Yearly deposited =P10M(A/F,4%,10)=P10M*0.0833=P833,000.

Answer 3:

Amount of each payment by Cobb and Ariadne=PhP28000(A/P,1 ³/₄%,20)=PhP28000*0.0597=PhP1671.6.

Answer 4:

Yearly deposited =P10M(A/F,4%,10)=P10M*0.0833=P833,000.

Answer 5:

Depletion charge=Depletion base/Total units expected to be extracted*Units extracted during the period =$75M/7M*1M=$10.71M.