Accountancy Review Center (ARC)
of the Philippines Inc.
One Dream, One Team
FINANCIAL ACCOUNTING AND REPORTING
FAR.117—PPE – ACQUISITION
STUDENT HANDOUTS
CABARLES/SAGOT/CAYETANO
MAY 2021 CPALE REVIEW
LEARNING OBJECTIVES
1. Identify the different modes of acquisition of property,
plant and equipment and determine the measurement of
“purchase price” using the following modes:
a.
b.
c.
d.
e.
f.
g.
h.
Cash basis
On account
Issuance of note (deferred payment)
Issuance of shares
Exchange or trade-in
Lump sum acquisition
Donation
Construction
2. Identify cost that are directly attributable to bring the
asset to the location and condition in the manner
intended by the management.
3. Determine the measurement of the costs of dismantling
and removing the item ad restoring the site on which the
property, plant and equipment is located.
REVIEW NOTES
Property, Plant and Equipment (PPE)
Mode
Measurement of Cost to Acquire
On Account
List price
Trade discount
Invoice price
Cash discount (taken or not)
Cash price (cost)
The following are the characteristics of a property, plant and
equipment:
1. Tangible assets – items of PPE have physical substance.
2. Used in normal operations – items of PPE are either used
in production or supply of goods or services, for rental (if
not land or building), for administrative purposes or for
selling goods.
Priority 1 – Cash Price
Priority 2:
3. Long-term asset – items of PPE are expected to be used
from more than a year.
Initial Measurement (Cost)
Initially, PPE are measured at cost, the cost composed of:
1. Purchase price, including import duties and
nonrefundable purchase taxes, after deducting trade
discounts and rebates. (a.k.a. cost to acquire from seller)
Issuance of
Notes
(Deferred
Payment)
2. Cost directly attributable to bringing the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
3. Initial estimate of the cost of dismantling and removing
the item and restoring the site on which it is located, the
obligation for which an entity incurs.
Measurement of “COST TO ACQUIRE”:
The measurement of cost to acquire will depend on the mode
of acquisition, the following are the rule in measuring the
purchase price:
Mode
Measurement of Cost to Acquire
Cash Basis
Cash paid (face value)
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XX
(XX)
XX
(XX)
XX
Fair value of the note issued
Downpayment
Cost
XX
XX
XX
Fair value of the note
• Interest Bearing – Principal Amount
• Non-Interest Bearing – Present value
of the principal amount
• Interest w/ Unrealistic NR – Present
value of principal + present value of
nominal interest
Priority 1 – Fair value of PPE received
Issuance of
Shares
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Priority 2:
Fair value of shares given up
Cash paid
Cost
XX
XX
XX
Priority 3:
Par value of shares given up
Cash paid
Cost
XX
XX
XX
Page 1 of 8
FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
Cost – Fair value of PPE received
WITH COMMERCIAL SUBSTANCE
Priority 1:
FV of PPE given up (old)
XX
Cash paid
XX
Cash received
(XX)
Cost
XX
Donation
Share premium DC – if donated by
shareholders
Other income – if donated by nonshareholder
Priority 2 – FV of PPE received (new)
Exchange or
Trade-in
Priority 3:
CA of PPE given up (old)
Cash paid
Cash received
Cost
The following are capitalized as cost of
newly constructed building:
XX
XX
(XX)
XX
WITHOUT COMMERCIAL SUBSTANCE
CA of PPE given up (old)
XX
Cash paid
XX
Cash received
(XX)
Cost
XX
Constructio
n
FV of PPE given up is available:
FV of PPE given up
CA of PPE given up
Gain or loss on exchange
Gain or loss
on
Exchange
XX
(XX)
XX
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
Cost of demolishing old building (net)
Cost to vacate the old building
Raw materials used – net of discount
Direct labor applied
Overhead applied
Construction cost
Excavation cost
Cost of temporary structure
Supervision (superintendent fee)
Inspection fee
Building permit
Insurance during construction
Architect fee
Other cost that will improve the bldg.
Borrowing cost
Additional:
- Cost of old building if the new building
will be investment property.
- Cost of sidewalks, pavements, parking
lot and driveways is capitalized as
building if such are part of the
blueprint.
- Cost of ventilating system, lighting
system, elevator is capitalized as
building if installed during construction.
FV of PPE given up is NOT available:
FV of PPE received (new)
Cash paid
Cash received
Assumed FV of PPE given up
Cost incurred in connection with the
donation (e.g., registration fees and legal
fees) are deducted to:
XX
(XX)
XX
XX
FV (assumed) of PPE given up XX
CA of PPE given up
(XX)
Gain or loss on exchange
XX
Direct Attributable Cost
The issue in Lump Sum Acquisition is the
allocation of the cost to multiple (group)
PPE acquired:
Priority 1 – Relative FV method
(FV of all PPE is available)
Lump Sum
Acquisition
Purchase
price of
group
x
FV of
single PPE
FV of all PPE
in the group
= Cost
Priority 2 – Residual method
(FV of one PPE is not available)
Purchase price of group
FV of PPE with FV (cost)
Cost of PPE w/o FV
XX
(XX)
XX
Priority 3 – Allocated 100% to land
(No FV available)
0961-718-5293; 0936-407-4780; (02)-8376-0405
The expenditure that are capitalize as direct attributable cost
will depend on the class of PPE acquired:
Land:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
Unpaid mortgage
Unpaid taxes
Options acquired
Professional fees (broker or agent commission)
Legal fees
Title search or guarantee insurance
Fees for registration and transfer of title
Cost of surveying
City assessments
Payment to vacant the land
Cost of clearing, grading, leveling and landfill
Building:
a.
b.
c.
d.
e.
f.
Unpaid mortgage
Unpaid taxes
Options acquired
Professional fees (broker or agent commission)
Cost to repair (prior to initial use)
Cost to remodel (prior to initial use)
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
Machine and Equipment:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Import duties, non-refundable taxes
Discounts and rebates
Transportation and handling
Insurance while in transit
Cost of testing and trial run
Installation cost and other site preparation
Fees paid to consultations for advice
Cost of safety rail and platform
Cost of water device to keep machine cool.
Repair necessary before initial use
Land Improvement
The following cost are capitalizable as land improvement:
(a) Landscaping, trees, and scrubs
(b) Permanent fences
(c) Water and drainage systems
(d) External driveways, parking lots and safety lightings
(e) Sidewalks and pavements
NON Capitalizable Expenditures
(a) Pre operating loss
(b) Loss on premature disposal of old PPE
(c) Dismantling cost of the old PPE
(d) Repair cost due to negligence
(e) Repair cost after during the use
(f) Training cost of the personnel
(g) Insurance cost after delivery
(h) Recoverable taxes (VAT)
(i) Advertisement cost or marketing cost
(j) Insurance after construction
(k) Taxes subsequent to the acquisition
(l) Imputed interest
(m) Damages incurred or accidents during construction
(n) Options not acquired
(o) Advertisement and open-house parties
(p) Abnormal amount of wasted materials, labor and
overhead
(q) Internal profits or savings on constructions
DISCUSSION QUESTIONS
1. Which of these is not a major characteristic of a PPE?
A. Possesses physical substance
B. Acquired for use in operations
C. Yields services over a number of years
D. All of these are major characteristics of a PPE.
2. Plan assets may property include:
A. Idle equipment waiting sale
B. Property held for investment purposes
C. Land held for undetermined future use
D. Self-constructed asset currently in use
3. Property, plant, and equipment may properly include
A. deposits on machinery not yet received.
B. idle equipment classified as held for sale asset under
PFRS 5.
C. land held for speculation, rather than for use in the
entity’s normal business activities.
D. none of these.
4. On January 1, 2022, Romania Company purchased a
specialized factory equipment for cash at a purchase
price of P700,000. The company incurred P20,000 freight
cost and handling costs of P10,000. The company
expects that it will incur dismantling cost amounting to
P80,000 at the end of the equipment’s 5-year useful life.
The prevailing market interest rate during the transaction
date was 6%.
PV factory of 1 at 6% for five periods - 0.747
PV factory of annuity at 6% for five periods - 4.212
How much is the initial cost of the equipment?
A 730,000
C.
789,760
B. 810,000
D. 1,066,960
5. The debit for a non-refundable sales tax properly levied
on the purchase of machinery would be a charge to
A. the machinery account.
B. a separate deferred charge account.
C. miscellaneous tax expense (which includes all taxes
other than those on income).
D. accumulated depreciation--machinery.
0961-718-5293; 0936-407-4780; (02)-8376-0405
6. Marla Company acquired new equipment on account on
March 1, 2021 with a 5% discount if paid with in 15 days.
The following information is available:
List price
Trade discount
Removal of old equipment
Cost of installation
Insurance taken during delivery
Transportation costs
3,500,000
20%
100,000
50,000
20,000
30,000
If the invoice was paid on March 31, 2021, what should
be the cost of equipment?
A 2,760,000
C. 2,900,000
B. 3,425,000
D. 3,010,000
7. Discount given for early payment of credit purchases of
operational asset should be:
A. Recorded as interest expense at purchase date.
B. Capitalized as a cost of the asset acquired and
subsequently allocated to depreciation expense
C. Recorded as interest revenue at purchase date
D. Deducted from the invoice price when determining
the cost of the asset
8. Taylor Swift (TS) Company purchased machinery on
December 31, 2020, paying P80,000 down and agreeing
to pay the balance in four equal installments of P60,000
payable each December 31.
Implicit in the purchase price is an assumed interest of
12%. The following data are abstracted from the present
value tables:
PV factory of 1 at 6% for five periods
0.63552
PV factory of annuity at 6% for five periods 3.03735
What is the cost of the machinery purchased on
December 31, 2020?
A 182,241
C. 262,241
B. 320,000
D. 290,842
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
9. PPE purchased on long-term credit contracts should be
initially recognized at
a. the total amount of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.
10. Doug Airlines sold used jet aircraft to Adele Company for
P800,000, accepting a five-year 6% note for the entire
amount. Adele’s incremental borrowing rate was 14%.
The annual payment of principal and interest on the note
was to be P189,930.
The aircraft could have been sold at an estimated cash
price of P651,460. The present value of an ordinary
annuity of P1 at 8% for five periods is 3.99.
The air craft should be capitalized on Adele’s books at
A 949,650
C. 757,820
B. 800,000
D. 651,460
11. When payment for is deferred beyond normal credit
terms, the difference between the cash price and total
payment is
A. Capitalized as cost of PPE
B. Charged to retained earnings
C. Interest expense over the credit period
D. Interest expense over the useful life of the asset
Numbers 15-18
Below is the information relative to an exchange of asset by
Mimi Bernan Company. The exchange has commercial
substance in Case 1 and without commercial substance in
Case 2.
Case 1
Case 2
Old Equipment
Book value
Fair value
75,000
85,000
50,000
75,000
Cash paid
15,000
7,000
15. The initial cost of the new equipment under Case 1 is
A
90,000
C. 70,000
B. 100,000
D. 60,000
16. What is the gain or loss in exchange should Mimi Bernan
Company under Case 1?
A 10,000 gain
C. 15,000 gain
B. 10,000 loss
D. Zero
17. The initial cost of the new equipment under Case 2 is?
A 57,000
C. 43,000
B. 82,000
D. 68,000
18. What is the gain or loss in exchange should Mimi Bernan
Company under Case 2?
A 25,000 gain
C. 7,000 loss
B. 25,000 loss
D. Zero
Numbers 19-20
12. In January 2022, Utah Corporation entered into a
contract to acquire a new machine for its factory. The
machine, which had a cash price of P2,000,000, was paid
for as follows:
Down payment
5,000 ordinary shares of Utah with an
agreed-upon value of P370 per share
300,000
1,850,000
2,150,000
Prior to the machine’s use, installation costs of P70,000
were incurred. The machine has an estimated useful life
of 10 years and an estimated salvage value of P100,000.
The straight-line method of depreciation is used.
The cost of the machinery purchased on January 2022 is
A 1,850,000
C. 2,070,000
B. 2,150,000
D. 2,300,000
13. When a closely held corporation issues equity shares in
exchange for land, the land should be recorded at the
A. Current market value of the land
B. Total par value of the shares issued
C. Current market value of the shares issued
D. Total book value of the shares issued
14. Tilt Company acquired land from Display Company
which will be used as a plant site in exchange for 20,000
newly issued shares of Tilt’s ordinary shares.
At the date of acquisition, Tilt’s ordinary shares had a par
value of P20 per share and a fair value of P30 per share.
The fair value of the land was P500,000 when Cooper
acquired this 2 years ago.
How much is the initial cost of the newly acquired land?
A 400,000
C. 600,000
B. 500,000
D. 200,000
0961-718-5293; 0936-407-4780; (02)-8376-0405
On July 1, 2017, Banded Water Company traded in an old
machine with a carrying amount of P10,000 for a similar new
machine having a cash price of P32,000, and paid a cash
difference of P19,000.
19. How much should the property be initially recognized?
A 32,000
C. 51,000
B. 29,000
D. 13,000
20. How much is the gain or loss from the trade in
transactions?
A 22,000
C. 3,000
B. 10,000
D. Zer0
21. On April 1, 2022, Pacific Corporation purchased for
P2,700,000 a tract of land, a warehouse and an office
building. The following data were collected regarding the
property.
Land
Warehouse
Office building
Fair
values
875,000
375,000
1,000,000
Vendors’
book value
700,000
400,000
975,000
The appropriate amounts that Pacific should record for
the land?
A 700,000
C.
945,000
B. 875,000
D. 1,050,000
22. Apportionment of the purchase price in a lump-sum
acquisition of various assets may be based on all of
these, except
A. Book values of the assets to the seller
B. Relative market values
C. Tax assessment values
D. Appraised values
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
Numbers 23-24
Numbers 28-29
On June 1, Thick Company acquired a real property by
issuing 35,360 shares of its P100 par value ordinary shares.
The shares were selling on the same date at P125.
Secrets Inc. was incorporated on January 1, 2021. The
following items relate to Secrets, Inc.’s property, plant and
equipment:
A mortgage of P4,000,000 was assumed by Thick on the
purchase. Moreover, the company paid P180,000 of real
property taxes in the prior years. Twenty percent of the
purchase price should be allocated to the land and the
balance to the building.
In order to make the building suitable for the use of Thick,
remolding costs had to be incurred in the amount of
P900,000. This however necessitated the demolition of a
portion of the building, which resulted in recovery of salvage
material sold for P30,000.
Parking lot cost the company P320,000 while repairs in the
main hall were incurred at P45,000 prior to its use.
23. The correct cost of the land should be
A 1,664,000
C. 2,040,000
B. 1,720,000
D. 2,400,000
24. The correct cost of the building should be
A 6,330,000
C. 7,750,000
B. 7,795,000
D. 7,560,000
25. On July 1, 2017, Apprentice Company accepted an office
equipment from a stockholder which originally cost the
stockholder P5,000,000. On the same date, the
equipment had a fair market value amounting to
P3,300,000. The company paid P200,000 for payment of
registration and legal fees related to the transaction.
What should Apprentice Company initially recognize the
donated equipment?
A 5,000,000
C. 3,500,000
B. 3,300,000
D. Zero
26. An entity purchased land an old hotel on which it is
located with the plan to tear down and build a new hotel
on the site. Any allocated cost to the old hotel is
A. Depreciated over the period from acquisition to the
date the hotel is to be torn down
B. Written off as loss in the year the hotel is torn down
C. Capitalized as part of the cost of the land
D. Capitalized as part of the cost of the new hotel
27. Lorraine purchased a tract of land as an investment
property. The entity razed an old building on the property
Purchased price of land and an old
building
Fair value of old building
Demolition of old building
Proceeds from sale of salvaged materials
Legal fees for purchase contract and
recording ownership
Title guarantee insurance
Payment of property taxes in arrears on
land
Option paid for an alternative land not
acquired
Special assessment for city improvements
What is the cost of the land?
A 4,600,000
C.
B. 4,120,000
D.
0961-718-5293; 0936-407-4780; (02)-8376-0405
4,000,000
300,000
200,000
20,000
150,000
50,000
100,000
30,000
120,000
Cost of land, which included an old
apartment building
Delinquent property taxes assumed by
Secrets, Inc.
Payments to tenants to vacate the
apartment building
Cost of razing the apartment building
Architects fee for new building
Building permit for new construction
Fee for title search
Survey costs
Excavation before construction of new
building
Payment to building contractor
Assessment by city for drainage project
Cost of grading and leveling
Temporary quarters for construction crew
Temporary building to house tools and
materials
Cost of changes during construction to
make new building more energy efficient
Interest cost on specific borrowing incurred
during construction
Payment of medical bills of employees
injured
while
inspecting
building
construction
Cost of paving driveway and parking lot
Cost of installing lights in parking lot
Premium for insurance on building during
construction
Cost of open house party to celebrate
opening of new building
Cost of windows broken by vandals
distracted by the celebration
28. What is the cost of land?
A 5,960,000
B. 6,440,000
C.
D.
29. What is the cost of building?
A 21,740,000
C.
B. 21,750,000
D.
6,160,000
60,000
40,000
80,000
120,000
80,000
50,000
40,000
200,000
20,000,000
30,000
100,000
160,000
100,000
180,000
720,000
36,000
120,000
24,000
60,000
100,000
24,000
6,540,000
6,410,000
21,790,000
21,720,000
30. The cost of land typically includes the purchase price and
all of the following costs except
A. improvements, such as grading, filling, draining, and
clearing.
B. survey costs.
C. cost of private driveways and parking lots.
D. assumption of any liens or mortgages on the
property.
31. If an entity demolishes an old building and construct a
new building, any demolition cost incurred is
A. Capitalized as cost of the land
B. Capitalized as cost of the new building
C. Expensed immediately
D. Charged to retained earnings
/ END /
4,330,000
4,300,000
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
PRACTICE EXAM – PROBLEMS
1. On January 3, Mojave Company purchased a specialized
factory equipment at a purchase price of P1,000,000 plus
12% value-added tax. The company incurred P30,000 in
freight and P70,000 installation cost.
5. Afrojack Company acquired two items of machinery as
follows:
•
The company expects that it will incur dismantling cost
amounting to P133,815 at the end of the equipment’s 5year life. The prevailing market interest rate during the
transaction date was 6%.
The present value factor of P1 at 6% for 5
periods
The present value factor of P1 ordinary
annuity at 6% for 5 periods
0.7473
The prevailing rate of interest for this type of note at
date of issuance was 12%. The present value of an
ordinary annuity of P1 at 12% is 1.69 for two periods
and 2.40 for three periods. The new machine was
damaged during its installation and the repair cost
amounted to P50,000.
4.2124
How much should the equipment be initially recognized?
A 1,000,000
C. 1,200,000
B. 1,100,000
D. 1,220,000
2. Leonicus Corp. has recently acquired a computer system
for its central office in Cebu City. Determine the
acquisition cost of the new computer system given the
following costs:
List price
Trade discount taken
Removal of old computer
Concrete slab poured as a base for
the computer
Insurance in transit
Repairs incurred while in transit
Transportation costs
Purchase discount not taken
A
B.
145,600
166,400
C.
D.
P152,000
56,000
16,000
43,200
1,920
4,800
6,400
2%
160,800
161,600
•
6. Clarisse Company had the following
acquisitions during the current year:
0961-718-5293; 0936-407-4780; (02)-8376-0405
property
•
Acquired a tract of land in exchange for 50,000
ordinary shares of 100 par value with a market price
of P150 per share on the date of acquisition. The last
property tax bill indicated assessed value of
P4,000,000 for the land. However, the land has a fair
value of P6,000,000.
•
Received land as a donation from a major
shareholder as an inducement to locate a plant in the
city. No payment was required but the entity paid
P50,000 for legal expenses for land transfer. The land
is fairly valued P1,000,000.
•
Acquired a machine with an invoice price of
P3,000,000 subject to a cash discount of 10% which
was not taken. The entity incurred cost of P50,000 in
removing the old welding machine prior to the
installation to the new one. Machine supplies were
acquired at a cost of P150,000.
The new machinery shall be recorded at a cost of
A 411,712
C. 419,712
B. 405,000
D. 397,000
The fair value of the truck received was P17,500. At what
amount should Colby record the truck received in the
exchange?
A 7,000
C. 10,500
B. 9,500
D. 17,500
On January 1, 2017, Afrojack Company acquired
used machinery by issuing to the seller a three-year,
noninterest bearing note for P3,000,000. In recent
borrowing, Afrojack has paid a 12% interest for this
type of note. The present value of P1 at 12% for 3
years is 0.71.
What is the total cost of the machinery?
A 4,820,000
C. 4,530,000
B. 4,580,000
D. 4,870,000
3. A piece of machinery has marked price of P550,000. It
was purchased under the term 15%, 10%, and 5%
discounts. The cost of freight and installation after
deducting the P8,000 sales proceeds of the old
machinery which was replaced is P12,000.
4. Colby Inc. exchanged a truck with a carrying amount of
P12,000 and fair value of 20,000 for a truck and P2,500
cash. The cash flows from the new truck are not
expected to be significantly different from the cash flows
of the old truck.
On December 30, 2017, Afrojack Company
purchased a machine in exchange for a noninterest
bearing note requiring three payments of
P1,000,000. The first payment was made on
December 31, 2017, and the others are due annually
on December 30.
What is the total increase in property, plant and
equipment as a result of the acquisition?
A 11,200,000
C. 9,700,000
B. 10,000,000
D. 9,750,000
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
Numbers 7-9
Marissa incurred the following cost during the current year
in relation to the property, plant and equipment:
Cash paid for purchase of land
Mortgage assumed on the land purchased,
including interest accrued
Realtor commission
Legal fees, realty taxes and documentation
expenses
Amount paid to relocate persons squatting
on the property
Cost of tearing down an old building on the
land to make room for construction of new
building
Salvage value of the old building demolished
Cost of fencing the property after completion
of construction
Amount paid to the contractor for the
building constructed
Building permit fee
Excavation fee
Architect fee
Interest that would have been earned had
the money used during the period of
constructed been invested
Invoice cost of machine acquired
Freight unloading and delivery charges
Custom duties and other charges
Allowances and hotel accommodation, paid
to foreign technicians during installation and
test run of machine
•
During the year, Blackpink also purchased machinery
with a list price of P700,000. Freight on machinery
purchased amounted to P8,000 while repairs to
machinery due to damage during shipment amounted to
P4,600. The manufacturer offered Blackpink 2% cash
discount for the said machine, but due to cash constraint,
it was not availed.
100,000
200,000
50,000
110,000
5,000,000
50,000
50,000
200,000
150,000
2,000,000
60,000
140,000
400,000
9. What amount should be capitalized as cost of machine?
A 2,600,000
C. 2,200,000
B. 2,000,000
D. 2,560,000
10. Explosib, Inc. acquired two units of equipment on
December 31, 2021.
The first equipment was purchased in exchange for a
ten-year non-interest bearing note requiring annual
payment of P1,000,000 every December 31 starting
December 31, 2022.
The second equipment was acquired by issuing a
two-year P6,000,000 non-interest bearing note. The
prevailing rate for notes of these types on December
31, 2021 was 12%.
What is the total cost of the two units of equipment?
Present value factor round to two (2) decimal places
A 10,130,000
C. 11,130,000
B. 10,450,000
D. 16,470,000
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Blackpink Company purchased land with a building on it,
for P2,280,000. It was reliably determined that the
building is worth twice as much as the land. Blackpink
has the intention of using the old building hence,
necessary remodeling at a cost of P800,000 were
initiated. Also, Blackpink constructed driveways and
sidewalks amounting to P204,000, fences of P100,000,
and water system of P64,000.
300,000
50,000
8. What amount should be capitalized as cost of building
A 5,300,000
C. 5,450,000
B. 5,410,000
D. 5,560,000
§
•
2,500,000
1,000,000
7. What amount should be capitalized as cost of land?
A 3,950,000
C. 3,850,000
B. 4,100,000
D. 3,800,000
§
Numbers 11-12
The following transaction are entered by Blackpink Co.:
11. How much is the adjusted balance of the building?
A 1,520,000
C. 2,320,000
B. 1,724,000
D. 2,524,000
12. How much is the initial cost of the machine?
A 694,000
C. 708,000
B. 698,600
D. 712,600
Numbers 13-15
Jip Company revealed the following asset acquisition during
the current year:
Land, building and machinery were acquired in exchange for
the Jip’s 15,000 ordinary shares. The shares had a par value
of P150 and fair value of P180 on the date of purchase. The
land and building had fair values of P1,000,000 and
P1,400,000 respectively but the machine had no fair value.
Incurred the following costs connected to the purchase:
Repairs to the building prior to occupancy
Construction of machine base
Driveway and parking lot
Remodeling cost of building
Special assessment by government for
public improvement
150,000
170,000
120,000
190,000
30,000
Purchased another machine with a price of P350,000, subject
to a 4% cash discount and paid freight on the machine of
P15,000.
13. What is the total cost of the land?
A 1,030,000
C. 1,120,000
B. 1,000,000
D. 1,150,000
14. What is the total cost of the building?
A 1,710,000
C. 1,740,000
B. 1,770,000
D. 1,860,000
15. What is the total cost of the machine?
A 821,000
C. 806,000
B. 835,000
D. 820,000
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FAR | FAR.117—PPE ACQUISITION
ARC – ACCOUNTANCY REVIEW CENTER
Numbers 16-17
On February 1, 2017, Exile Company traded in an old
machine with a book value of P8,000 for a similar new
machine having a cash price of P35,000 and a list price of
P40,000. Exile paid P25,000 as a result of trade-in. The fair
value of the asset given up is not determinable.
Numbers 19-20
At the beginning of the current year, EZE Company reported
land P3,200,000 and building P7,500,000. During the current
year, the following transactions occurred:
•
A piece of land was acquired for P1,600,000. To be able
to acquire the land, P200,000 was paid to a real estate
agent, and P100,000 was incurred to clear the land.
During the course of clearing the land, timber and gravel
were recovered and sold for P75,000
•
A second piece of land with a building was acquired for
P5,400,000. The appraiser valued the land at P2,000,000
and the building at P1,000,000. Shortly after acquisition,
the building was demolished at a cost of P100,000. A
new building was constructed at a cost of P5,000,000
plus excavation fee P80,000, architect fee P120,000 and
building permit P70,000.
•
A third piece of land was acquired for P2,000,000 and
was held for undetermined use.
16. How much should the new machine be initially
recognized?
A 35,000
C. 60,000
B. 40,000
D. 25,000
17. How much is the gain or loss from the trade in
transaction?
A Nil
C. 7,000
B. 2,000
D. 17,000
18. Joanne Company exchanged an old machine, costing
P3,000,000 and 50% depreciated, for a used machine
and paid a cash difference of P500,000. The fair value of
the old machine was determined to be P1,800,000. What
amount should be recorded as cost of the machine
received in exchange?
A 1,800,000
C. 1,300,000
B. 2,300,000
D. 2,000,000
19. What total cost of land should be reported under
property, plant and equipment?
A 10,625,000
C. 10,425,000
B.
8,725,000
D.
8,625,000
20. What is the total cost of the building?
A 14,670,000
C. 12,870,000
B. 14,570,000
D. 12,770,000
/ End /
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