Acquisition of PPE
The following pertains to an entity’s acquisitions of PPE during the year:
a. Purchased a new printing machine on Dec. 2 at an invoice price of P4,000,000 with terms
2/10, n/30. On Dec. 15, the entity paid the required amount for the machine.
b. Acquired an equipment by issuing P800,000, five-year 6% note. The entity’s incremental
borrowing rate is 14%. The annual payment for principal and interest on the note is to be
P189,930. The asset has a cash price of P651,460.
c. Acquired a machine on Dec. 30 by issuing a noninterest bearing note requiring three
payments of P1,000,000. The first payment was made on the date of purchase, and the
others are due annually on Dec. 30. The prevailing rate of interest for this type of note at date
of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 1.69 for two
periods and 2.40 for three periods.
d. The entity has a machine with a carrying amount of P450,000. Another entity has a delivery
vehicle with a carrying amount of P300,000. The entities exchanged the machine and vehicle,
and the other entity paid an additional P90,000 cash as part of the exchange. Assume that
the fair value of the delivery vehicle is P420,000. The exchange has commercial substance.
e. A used delivery truck was traded in for a new truck. Information relating to the trucks follows:
Used truck:
Cost
Accumulated depreciation
New truck:
List price
Cash price without trade-in
Cash price with trade-in
f.
P1,600,000
1,200,000
2,000,000
1,900,000
1,560,000
Received land from a non-owner to facilitate the construction of a plant. The entity paid
P100,000 for the land transfer. The land’s fair value is P1,500,000.
Comprehensive problem
Unseld, Inc.’s property, plant, and equipment at Dec. 31, 2020:
Asset
Original Cost
Year Purchased
Useful Life
Depreciation
method
P
P175,000
2015
10 years
SYD
Additional information:
R
P255,000
2016
75,000 hours
Activity
T
P400,000
2017
15 years
Straight-line
C
P400,000
2019
10 years
Double Declining
Balance
1. In the year an asset is purchased, Unseld, Inc. does not record any depreciation expense on
the asset.
2. In the year an asset is retired or traded in, Unseld, Inc. takes full year depreciation on the
asset.
3. On May 5, Asset P was sold for P65,000 cash.
4. Asset R was used for 100,500 hours during 2021. Accumulated usage as of Dec. 31, 2020
is 40,800 hours.
5. On Dec. 31, before computing depreciation expense on Asset T, the management of Unseld
determined that the useful life remaining from Jan. 1, 2021 is only 10 years.
6. On Dec. 31, it was discovered that a plant asset purchased in 2020 had been expensed
completely in that year. This asset costs P110,000 and has useful life of 10 years and no
salvage value. Management has decided to use the double-declining balance for this asset,
which can be referred to as “Asset I.”
Required:
Compute the following:
1.
2.
3.
4.
Gain or loss on sale of Asset P
Total depreciation expense for 2021
Adjusted cost of PPE as of Dec. 31, 2021
Carrying amount of PPE as of Dec. 31, 2021 (show in good form)