PROBLEM 1 Jessa Co. acquired a new machinery with the ff. acquisition details:
Cash paid for machine excluding VAT of P60,000
Royalty payment base on units produced
Cost of transporting machine
Cost of installation by expert fitter
Labor of testing machine
Materials used and damaged as a result of testing the machine
Repair cost of new machine damaged in the process of installation
Cost of training for personnel who will use the machine
Cost of safety rails and platforms surrounding machine
Cost of water device to keep machine cool
Cost of adjustment to machine to make it operate more efficiently
Estimated dismantling cost be incurred as required by contract
Cost of removing old machine
Loss on premature retirement-old machine
Gratuity paid to operator of old machine, who was laid off
P560,000
19,000
15,000
40,000
20,000
10,000
12,000
25,000
50,000
70,000
57,000
65,000
10,000
120,000
20,000
How much should Jessa Co. record as the cost of its new machine?
PROBLEM 2 The following data pertain to Happy Corporation's property, plant and equipment in 2021.
Adjusted balances as at December 31, 2020 are as follows:
Account
Debit
Land
P7,500,000
Buildings
60,000,000
Acc. Depn. – Buildings
Machinery and Equipment
13,155,000
45,000,000
Acc. Depn. – Machinery and Equipment
Delivery Equipment
Credit
12,500,000
5,750,000
Acc. Depn. – Delivery Equipment
4,230,000
Depreciation Data:
Depreciation Method
Buildings
Machinery and Equipment
Delivery Equipment
Leasehold improvements
Useful Life
150% declining balance
25 years
Straight line
10 years
Sum of the years digits
4 years
Straight line
Transactions during 2021 and other information are as follows:
a. On January 2, 2021, Happy purchased a new truck for P1,000,000 cash and trade-in of a 2-yearold truck with a cost of P900,000 and a book value of 270,000. The new truck has a cash price of
P1,200,000; the market value of the trade-in is not known.
b. On April 1, 2021, a machine purchased for P1,150,000 on April 1, 2016 was stolen. Happy
recovered P775,000 from its insurance company.
c. On May 1, 2021, costs of P8,400,000 were incurred to improve leased office premises. The
leasehold improvements have a useful life of 8 years. The related lease terminates on December
31, 2027.
d. On July 1, 2021, machinery and equipment were purchased at a total invoice cost of P14,000,000;
additional costs of P250,000 for freight and P1,250,000 for installation were incurred
e. Happy determined that the delivery equipment comprising the P5,750,000 balance at January 1,
2021, would have been depreciated at a total amount of P900,000 for the year ended 1 December
31, 2021.
The salvage values of the depreciation assets are immaterial. The policy of Happy Corporation is
to compute depreciation to the nearest month.
1. Based on the preceding information, compute the depreciation expense for 2021 on Buildings.
a. 3,600,000
b. 2,400,000
c. 2,810,700
d.1,859,400
2. Referring to Happy Corp., depreciation expense for 2021 on Machinery and Equipment is
a. 5,188,750
b. 5,303,750
c. 5,275,000
d. 5,963,750
3. Referring to Happy Corp., depreciation expense for 2021 on Delivery Equipment is
a. 1,110,000
b. 1,200,000
c. 1,380,000
d. 1,020,000
4. Referring to Happy Corp. depreciation expense for 2021 on Leasehold Improvements is
a. 700,000
b. 1,050,000
c. 840,000
d. 933,333
5. Referring to Happy Corp., accumulated depreciation - Buildings as of December 31, 2021 is
a. 15,965,700
b. 15,014,400
c. 16,755,000
d. 15,555,000
6. Referring to Happy Corp., accumulated depreciation - Machinery and Equipment as of
December 31, 2021 is
a. 17,288,750
b. 17,113,750
c. 17,200,000
d. 17,688,750
7. Referring to Happy Corp., accumulated depreciation - Delivery Equipment as of
December 31, 2021
a. 5,430,000
b. 4,620,000
c. 4,710,000
d. 4,800,000
8. Referring to Happy Corp., gain (loss) on trade in of truck on January 2, 2021 is
a. (200,000)
b. 200,000
c. (70,000)
d. 70,000
9. Referring to Happy Corp., gain from compensation received from the insurance company is
a. 200,000
b. 775,000
c. 575,000
d. 0
10. Referring to Happy Corp., loss on derecognition of the stolen machinery is
a. 200,000
b. 775.000
c. 575,000
d. 0