[PROPERTY, PLANT & EQUIPMENT]
AUDITING/FAR
Problem 1
In preparing the 2017 draft financial statement of CPALE 2019 Company, the Land account of P2,500,000.00 to be
reported under PPE included the following:
 P500,000.00 held for long term-term capital appreciation
 P380,000.00 held for a currently undetermined future use
 P100,000.00 building leased out under an operating lease
 P200,000.00 vacant building held to be leased out under an operating lease
 P200,000.00 property that is being developed for future use as investment property
 P270,000.00 held for sale in the ordinary course of business
 P180,000.00 held for production of goods
 P120,000.00 held for administrative purposes
What is the correct amount to be reported under PPE section?
Problem 2
In preparing the 2017 draft financial statement of CPALE 2019 Inc., the Building account of P4,200,000.oo to be
reported under PPE included the following items:
 P450,000.00 in the process of development for sale
 P850,000.00 being developed as an investment property
 P600,000.00 currently being redeveloped for continued use as an investment property
 P250,000.00 occupied by employees(rentals at market rates)
 P250,000.00 occupied by employees(rentals are not at market rates)
 P400,000.00 fair value of a building constructed by TCC Examinees Realty to be used as substation by
CPALE 2019 Inc.(for the use of TCC Examinees Realty’s tenants)
What is the correct amount to be reported under PPE section?
Problem 3
In preparing the draft financial statement of CPALE 2019 Enterprises, the Investment property account of
P1,500,000.00 to be reported includes the following:
 P500,000.00 Equipment held for long term-term capital appreciation
 P500,000.00 Machineries held for a currently undetermined future use
 P500,000.00 Automobiles leased out under an operating lease
What is the correct amount to be reported under Investment Property section?
Problem 4
During 2017, CPALE 2019 Corp. acquired/received the following assets:
1. Land X acquired for P220,000. In addition, to acquire the land, CPALE 2019 Corp. paid a P15,000.00
commission to a real agent. P25,000.00 were incurred to clear the land. During the course of clearing the
land, timber and gravel were recovered and sold for P5,000.00
2. Land Y was acquired on September 30, 2017 on which a new building will be immediately constructed.
The cost related to the acquisition included the following:







Cash Payment
Broker’s fee
Option price paid for the land acquired
Option price paid for the land that was not acquired
Deliquent property tax for 2016 that was assumed
and paid by CPALE 2019 Corp
Property taxes for 2017 to be paid on or before
December 31,2017
Cost of relocating squatters
P1,200,000.00
P165,000.00
P80,000.00
P120,000.00
P72,000.00
P96,000.00
P25,000.00
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[PROPERTY, PLANT & EQUIPMENT]
AUDITING/FAR
3.
Received from City Government Land Z as an inducement to locate a plant in the city. The fair value of the
land was P600,000. No payment was required but CPALE 2019 Corp paid P40,000.00 of legal costs for land
transfer. Grading and leveling cost totaled P30,000.00
What is the correct amount to be reported under Investment Property section?
Problem 5
In 2017, 9 Months To Go Company acquired the following equipment:
 January 1: Chopper having a selling price of P200,000. A 10% discount was made available which was
availed by 9 Months To Go Company; transportation and insurance cost totaled to P4,500.00
 October 1: Cutter having a selling price of P350,000. An 8% discount as available which 9 Months To Go
Company failed to avail. Import duties were P20,000.00. Insurance costs for October 2017 to September
2018, P12,500.
 November 1: Paid P50,400, for a grinder, inclusive of the 12% Vat. Safety rails and platform P5,000.00.
Cooling devices P10,000.00
 December 1: Paid P80,000.00 plus Vat of P9,600.00 for a molder. Installation, testing and trial run cost
P8,000.00; training cost of personnel who will use the machine P3,000.00
What amount initially capitalized under PPE account?
Problem 6
CPA Na Co. purchased several machines in 2017 as follows:
 January 5: A new slicing machine was purchased. A down payment of P250,000.00 was made and 5 annual
installments of P200,000.00 are to be made beginning January 5, 2018. The cash price of the machine was
P1,000,000.00
 March 6: A mixing machine by issuing to the seller a three-year, non interest bearing note for
P800,000.00. In recent borrowing, CPA Na Co. has paid a 12% interest for this type of note.
 July 1: CPA Na Co. issues a P900,000.00, 5-year non-interest bearing note in exchange for a new
equipment when the market rate of interest for obligations of this nature was 10%. CPA Na Co. will pay
off the note in five equal installments starting July 1, 2017.
 December 31: CPA Na Co. issues a P1,750,000, 4-year, non-interest bearing note in exchange for alabeling
machine when the prevailing market rate of interest for obligations of this nature was 8%. CPA Na Co. will
pay off the note in four equal installments every December 31 starting December 31, 2018.
The total cost of the machinery and equipment account is?
Problem 7
Pandesal Inc. an oil exploration & production company recently installed an oil rig at a cost of P30,000,000.
Legislation requires that oilrigs similar to the one installed by Pandesal Inc. be decommissioned at the end of its
useful life. Pandesal Inc. expects that the useful life of the rig will be 20 years and estimated the decommissioning
cost to be P4,000,000. Current interest rates are at 8%.
The initial cost of the oilrig to be recorded by Pandesal Inc. is?
Problem 8
Pande Limon Corp. acquired a truck in exchange for P15,000.00 of its own shares held in treasury. The P10 par
value shares were acquired for P12 and were quoted at P18 while the truck’s fair value was P245,000.00 at the
time of the exchange. What is the initial amount to be recorded for the truck?
Problem 9
Pande Coco Company acquires equipment (EQ 14) in exchange for equipment (EQ 9) plus cash of P150,000. The
carrying and fair value of EQ 14 and EQ 9 at the date of the exchange are as follows:
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[PROPERTY, PLANT & EQUIPMENT]
AUDITING/FAR
EQ 14
EQ 9
Equipment(cost)
P500,000.00
P320,000.00
Accumulated Depreciation
P175,000.00
P180,000.00
Fair value of equipment
P335,000.00
P185,000.00
The configuration (risk, timing and amount) of the cash flows are determined to be significantly different
a) The initial cost of the new equipment is?
b) The gain(loss) recognized in relation to the exchange is?
Problem 10
All Meat Company acquires machine (MC 24) in exchange for machine (MC 10) plus cash of P5,000. The carrying
and fair value of MC 24 and MC 10 at the date of the exchange are as follows:
MC 24
MC 10
Equipment(cost)
P125,000.00
P120,000.00
Accumulated Depreciation
P30,000.00
P40,000.00
Fair value of equipment
P100,000.00
P95,000.00
The configuration (risk, timing and amount) of the cash flows are determined to be insignificantly different
a) The initial cost of the new machine is?
b) The gain(loss) recognized in relation to the exchange is?
Problem 11
In 2017, Hawaiian Inc constructed a new building and incurred the following:
 Excavation fees
 Architecture design fees
 Building Permit fees
 Imputed interest(on funds used in construction – stock financing)
 Cost of removal of old building
 Labor costs
 Overhead costs
 Materials used
 Profit on self construction
 Safety inspection costs prior to use
The amount initially recorded as the cost of the building is?
P120,000.00
P90,000.00
P60,000.00
P70,000.00
P50,000.00
P160,000.00
P50,000.00
P500,000.00
P100,000.00
P25,000.00
Problem 12
The following expenditures were incurred by Pepperoni Corporation during 2017:
 Cost of real estate purchased as a plant site (FV Land P487,500 and
Building P112,500)
P500,000.00
o Delinquent Property taxes assumed by Pepperoni
P40,000.00
o Commision fees paid to real estate agency
P16,000.00
 Cost of demolishing old building
P30,000.00
 Proceeds from salvage of demolished building
P5,000.00
 Cost of land fill and clearing
P316,000.00
 Land survey
P40,000.00
 Building Permit
P20,000.00
 Excavation costs
P30,000.00
 Temporary quarters for construction crews
P16,000.00
 Installation of permanent fences around the property
P40,000.00
 Cost of paving the driveways and parking bays
P20,000.00
 Interest paid on money borrowed for construction
P20,000.00
 Payment for construction of building
P1,200,000.00
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[PROPERTY, PLANT & EQUIPMENT]
 Insurance premium on building during construction
 Opening ceremony costs of new building
The cost of Land, Land Improvements and Building?
AUDITING/FAR
P120,000.00
P50,000.00
Problem 13
Lumpiang Shanghai Company borrowed P2,000,000.00 specifically to finance the cost of constructing a regional
office. The loan was dated March 1, 2017. Interest on the loan is at 12%. Construction on the building started only
on September 1, 2017 and was completed on December 31, 2017.
During the period of construction, Lumpiang Shanghai Company incurs directly attributable costs of P650,000.00 in
September 2017 and P450,000.00 in each month from October to December 2017(these costs are incurred on the
first day of each month).
Each month the borrowings, less any amount used for the building in that month are reinvested and earn interest
at a rate of 6% per annum.
What is the amount of borrowing cost to be capitalized?
Problem 14
On January 1, 2017, Lumpiang Sariwa Company started construction of its own cold storage facility. Portions from
the proceeds of the following general borrowings were used to finance the construction.
 12% short term loan, maturity date, April 1, 2017
P2,000,000.00
 8% long term loan, maturity date, December 31, 2017
P8,000,000.00
Construction of the cold storage facility started on January 1, 2017. Disbursement were made as follows:
January 1
P1,400,000.00
September 30
P700,000.00
April 1
P1,800,000.00
December 1
P300,000.00
June 30
P1,000,000.00
The building was completed and ready for occupancy on January 1, 2018
What is the amount of borrowing cost to be capitalized?
Problem 15
Lumpiang Togue Inc. constructs a new head office building commencing on September 1, 2017 and was completed
at December 31, 2017. Directly attributable expenditure on this asset is P400,000.00 September 2017 and
P350,000 at the beginning of eacg month from October to December 2017.
Lumpiang Togue Inc. has not taken out any specific borrowings to finance costs on its general borrowings during
the construction period.
During the year Lumpiang Togue Inc. had 9% debentures in issue with a face value of P3,000,000.00 and an
overdraft of P1,200,000 which increased to P1,500,000 in December 2017 on which interest was paid at 12%.
The amount of borrowing cost to be capitalized in relation to the building construction form 2017 is?
Problem 16
On January 1, 2017, Lumpiang Hubad Inc. Lumpiang Gulay Construction Corp to build its regional poffice building
for P2,820,000 on a land that it had previously purchased. The building was completed at the end of December 31,
2017, and during the period the following payments were made to the contractor:
January 1
P300,000.00
September 30
P540,000.00
April 1
P960,000.00
December 1
P240,000.00
June 30
P780,000.00
Lumpiang Hubad Inc.’s borrowing as of December 31, 2017 were as follows:
 10% 4-year note, interest payable annually, borrowed specifically to finance the project; debt outstanding
December 31, 2017 amounted to P700,000. Interest of P65,000 was incurred during the year and interest
income of P20,000 was earned on these funds.
 12.5% 10-year note, interest payable annually; issued January 1, 2017 face amount P1,000,000.00 and
remained unchanged during the year; and
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[PROPERTY, PLANT & EQUIPMENT]
AUDITING/FAR

10% 10-year note interest payable annually; issued January 1, 2017 face amount P1,500,000.00 and
remained unchanged during the year
What is the amount of borrowing cost to be capitalized?
Problem 17
On October 1, 2017, CookiesNCream Company purchased equipment for P6,270,000. It estimated that the
equipment will have useful life of 8 years and a salvage value of P160,000. It was estimated that the equipment
could be used for 40,000 hours and that it can produce 90,000 units. In 2017, the equipment was used for 550
hours producing 14,550 units. In 2018 the equipment was used for 1,800 hours producing 60,000 units
Depreciation Method
Depreciation Exp. 2017
Depreciation Exp. 2018
Carrying Value 2018
Straight Line
Sum of the years’ digits
200% declining balance
Activity based(hours)
Activity based(units)
Problem 18
Presented below is information related to Vanilla Company.
Asset
Cost
Est. Scrap
Est. Life(Years)
A
P52,500
P5,500
10
B
P35,600
P4,800
8
C
P24,600
P3,000
9
What is the Composite rate of Depreciation? Composite life of the assets?
Problem 19
Rocky Road Inc. has a balance of P900,000 in its water meters account on January 1, 2017. In 2017, Rocky Road Inc.
installed new meters as follows:
March
June
October
Cost of new meters installed
P280,000
P400,000
P360,000
Cost of old meters replaced
P180,000
P200,000
Proceeds from sale of old meters
P10,000
P18,000
a. Depreciation for 2017 under the retirement method is?
b. Depreciation for 2017 under the replacement method is?
Problem 20
Machinery was purchased for P1,625,000 by Panda Company, originally estimated to have a useful life of 15 years
with a salvage value of P50,000.00 Depreciation has been entered for 4 years on this basis.
In 2017, the total estimated life was reassessed to be 12 years with a salvage value of P30,000. Jimmy Cricket
company uses the straight line method of depreciation.
a. The 2017 prior period adjustment to the beginning retained earnings is?
b. Depreciation Expense in 2017?
Problem 21
Equipment was purchased for P950,000. It had an estimated residual value of P40,000 and an estimated life of 12
years. Depreciation was recorded under the double-declining balance method for the past three years. In 2017,
Pilot Company decided to change to straight line method.
a. The 2017 prior period adjustment to the beginning retained earnings is?
b. Depreciation Expense in 2017?
Problem 22
Pieces of furniture were purchased for P900,000 on January 1, 2015. Double Declining balance has been recorded
for two years. The estimated residual value of the machine was P60,000 and the estimated life is 8 years. At the
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[PROPERTY, PLANT & EQUIPMENT]
AUDITING/FAR
start of 2017, it was discovered that the computation of the depreciation erroneously included the estimated
residual value(as part of the computation)
a. The 2017 prior period adjustment to the beginning retained earnings is?
b. Depreciation Expense in 2017?
Problem 23
Chicharong Baboy Company purchased a wood cutter on September 1, 2012 for P609,000. At the time of
acquisition, the machine was estimated to have a useful life of 14 years and a residual value of P21,000. Chicharon
Company has recorded depreciation under the straight line method. On May 31, 2017 the wood cutter was sold
for P420,000.
What is the gain/(loss) on the sale of the wood cutter?
Problem 23
Chicharong Bulaklak Company’s Depreciation policy on its machinery is as follows:
 Full year’s depreciation is taken in the asset’s acquisition year
 No Depreciation is taken in the asset’s disposition year
 Estimated life is 5 years under straight line depreciation method
On June 30, 2017 Chicharong Bulaklak Company sold for P660,000 a machine acquired in March 1, 2013 for
P880,000. The original estimated residual value was P80,000.
What is the gain/(loss) on the disposal?
Problem 23
On September 1, 2015, Mushroom Chicharon Company acquired an asset for P1,200,000. The asset is being
depreciated over a 5-year period using the sum of the years’ digit method. It has a salvage value of P80,000. The
asset was sold at the end of 2017 resulting in a gain of P90,000.
What is the selling price of the asset?
Problem 24
On July 1, 2017 Sandok Company received a condemnation reward of P1,500,000.00 as compsensation for the
forced sale of a plant that is in the path of a new highway to be constructed. On this date the building has a
depreciated cost of P750,000 and the land P250,000
What is the gain/(loss) included in the 2017 profit or loss statement?
Problem 25
Sensi Corp. bought equipment having a useful life of 10 years and a salvage value of P50,000 on January 1, 2019.
The equipment is being depreciated under 150% declining method. In January 1, 2021 the company decided to
change the method of depreciation to straight line method. If the depreciation expense for 2021 is P129,218.75
what is the Cost of the equipment.
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