Question 1181849: A consortium of international telecommunication companies contracted for the purchase and
installation of fiber optic cable linking Manila City and Cebu City at total cost of P980 million. This amount
includes freight and installation charges estimated at 12% of the above total contract price. If the cable
shall be depreciated over a period of 15 years with 1% salvage value and money is worth 6% per annum,
what is the depreciation charge during 13 th year, depreciation chargers after 10 years and book value
after 13 years using straight line method.
Answer by CPhill(1959)   (Show Source):
You can put this solution on YOUR website! Here's the breakdown of the depreciation calculations:
1. **Calculate the cost of the cable (excluding freight and installation):**
* Let 'C' be the cost of the cable.
* The total contract price (P980 million) includes freight and installation, which is 12% of the total contract price.
* So, 1.12C = P980,000,000
* C = P980,000,000 / 1.12 = P875,000,000
2. **Calculate the annual depreciation:**
* Depreciable amount = Original cost - Salvage value
* Depreciable amount = P875,000,000 - (0.01 * P875,000,000) = P875,000,000 - P8,750,000 = P866,250,000
* Annual depreciation = Depreciable amount / Useful life
* Annual depreciation = P866,250,000 / 15 years = P57,750,000
3. **Depreciation charge during the 13th year:**
* With the straight-line method, the depreciation charge is the *same* each year.
* Therefore, the depreciation charge during the 13th year is P57,750,000.
4. **Depreciation charges after 10 years:**
* Total depreciation after 10 years = Annual depreciation * 10 years
* Total depreciation after 10 years = P57,750,000 * 10 = P577,500,000
5. **Book value after 13 years:**
* Total depreciation after 13 years = Annual depreciation * 13 years
* Total depreciation after 13 years = P57,750,000 * 13 = P750,750,000
* Book value after 13 years = Original cost - Total depreciation after 13 years
* Book value after 13 years = P875,000,000 - P750,750,000 = P124,250,000
**Summary:**
* Depreciation charge during the 13th year: P57,750,000
* Depreciation charges after 10 years: P577,500,000
* Book value after 13 years: P124,250,000
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