On Jan. 1, 2010, an equipment was acquired through an exchange. The old equipment has an original cost of P3,500,000, estimated salvage value of P500,000, fair value of P1,800,000, total useful life of 15 years and remaining useful life of 10 years. The new equipment obtained through the exchange has a fair value of P1,500,000, salvage value of P500,000 and a remaining useful life of 10 years. Both have the same production capacity. The balance was settled with cash.
On Jan. 1, 2013, it spent P100,000 for routinary repairs and P500,000 to replace a major part. The replaced part does not have a measurable initial cost. Based on data, the cost of the part increases by 3% per year. The new part has a useful life of 6 years.
1. What is the Gain or (loss) on exchange on Jan. 1, 2010?
2. What is the Depreciation expense for the year 2013?