lOMoARcPSD|23272433
Auditing Problems - PPE (Ocampo)
Introduction to Research Methods and Research Writing (Our Lady of Fatima University)
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lOMoARcPSD|23272433
a
410. ~ Cost of lan
d‘tand improvements
and building
rporation was incorporated on January 2,2
010. The fol] wi
wegae to the Aliaga’s property and equipment transactiong
:
“nat of and, which included an ‘old apar
tment building
* ps aon Goo7
Or ppraised at P300,000
cou
80,000
ertment building mortgage assumed, including
elated interest due at the time of purchase
30,000
20,000
~ peliquent property taxes assumed by Aliaga . ~
Payments to tenants to vacate the apartment building
Cost of razing the apartment building
proceeds from sale of salvaged materials
Architects fee for new building
Building permit for new construction
_
Fee for title search
Survey before construction
40,000
.
~
10,000
60,006
40,000
Oo
25;000
20, 700
of new building
Excavation before construction of new building
Payment to building contractor
7
Assessment by city for drainage project
Cost of grading and leveling
100,006
_
10,000,000
15,900
}
50,000
80,000
‘Temporary quarters for construction crew
Temporary building to house tools and materials
Cost of changes during construction to make new
' building more energy efficient
“ment of medical bills of employees accidentally
iar ed while inspecting isuilding construction
Prem;
. of
b
g driveway and parking lot. .
vstalling lights in parking lot
or insurance on building during const
Open
ouse party to celebrate
le Tation
opening 0
a“
360,000
,
|
-
.
18,000.
60°000.
12,000
”
the
Cosi of ats
'
—
50,309
- 90,000
|
|
nterest cost on specific borrowing incurred during
Pa constructiori
st oe
ng
=
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30,050
——
50,000.
oe
_
FEA (H‘ Br
ye
lOMoARcPSD|23272433
,
\B
QUESTIONS:
Based on the above
following:
and the
result. of your
P3,270,000
Cost of Building
a. P10,810,000
b. P10,895,000
2,
Cost of Land Improvements
a. P12,000
b. P22,000
3.
4.
S.
c.
P3,185,000
d.
P3,205,000
b)
deter; INE the
of Property, Plarti and equipment
! costs directly attributable to brin ;
wi condition necessary for it ty be canna to the location
manner ee
he initial
ree
.
estimate of the costsof di
consequence
c.
d.
P122,000
0
P
Question No.
of having
used the item during a particular’. a a
1
Cost of land
Apartment building mortgage assumed, including
related interest due at the time of purchase
building
20,000
40,000
Cost of razing the apartment building
incurred
Proceeds from sale of salvaged materials
Fee for title search
Survey before construction of new building
P62,000
P50,000
(10,000)
‘25,000
20,000
Assessment by city for drainage project
_ 15,000
Cost of grading-and leveling
——30,000
Total cost of Land
P3,270,000
.
Answers: 1) B; 2) A;,3)B; 4) A, 5)D
Architects fee for new building
Suggested Solution:
Excavation before construction of new building
.
»
.
as tangible
.
i, held for use in the production or supply of goods oF S
__ rental to.others, or for administrative purposes: vei
I. expected to be used during more than one period.
16 further
for
equipment
te Tuthatcostqualifies
ee
See cOSt.
iis
nt
ez tee
a)
Vi
state
that
an
item
shall D6
an asset
of ioe
recognitio
nor©
ua
_n
wee eopmcon
includ
g import dutie.
,
Purchase taxes, after deducting trade discounts an
\
334
Payment to building contractor
items
Temporary
ences, /"
Interest ost
tant 4
abate
ron
.
to make new
construction
of changes
.
a uilding
efficient
energy
more during
nd
on
opecific borrowing incurred
construction
during
;
emium for insurance on building during
. Construction
1Olai cost of Buiiding
pre ab 2
»200
non-T,
quarters for construction crew
Temporary building to house tocis and materials
of PY operty i asur edae. ane!0
Te COSt Of ai Wei OF propery,
i Piant ANGtestnd
ing
its purchase price,
A one
Building permit for new construction
PAS 16 par. 6 defines “Property, plant and equipment’
15 and
80,000
~ 30,000
Payments to tenants to vacate the apartment
Question No. 2
that are:
Pern 009
Deliquent property taxes assumed by Aliaga
Total depreciable property and equipment
c.
P10,947,500
"a. P11,182,000
d.
P10,882,000
b. P10,967,000
Par.
oe
removing the
for purposes other than to produce inventories during that ed
P10,875,000
P11,110,000
c.
d.
P 80,000
P110,000
.
of operating in the
which an entity incurs either when the item ig he obligation for
c.
d.
Amount that should be expensed when
a.
b.
yl?
wud
. c) ; tem and restoring the site on whieh tiated
1, Cost of Land
a, 2,980,000
b,
audit,
a,
aa
nd
5.
K
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335
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100,000
:
10,000,000
, 30,000
50,000
90,000
360,000
___ 30,000
BAO.) Ui)
_
lOMoARcPSD|23272433
vir- Audit of Property, Plant and Equipment
a
Question No. 3”
of
quot of
:
paving driveway and parking lot
How 35000
“Question No. 4
G oh930,700
2,025,000
~
|
P"g93,000
Payment of medical bills of employees
‘Cost of open house party
answer
Cost of windows broken by vandals
Total cost amount that should be expensed
sugested Solution:
:
Question No. 5
ice
|
of machinery
Invoic’ Prount
P2,000,000
not taken
seit
onnewmachine
=
tallation
cost of new machine
Building (see no. 2)
Land improvements (see no. 3)
Testing costs
Total depreciable PPE
(40,000)
——
60,000:
i
; the duration
duration of the trial run
calor
iosoon
ae
of engineer for the
Salary
Cost of the new machine
PROB
NO. 2 - Cost
LE
of machiner
M y
The following items relate to the
acquisition
Bongabon Corporation in 2010:
PROBLEM NO. 3 - Cost of various property, plant and equipment
of.a new machine by
n's
tion’
ratio
The property, plant and equiipment. sectii on of Zaragoza Corpo
i
the
included
2009
31,
December
at
position
statement of financial
Invoice price of machinery
— Cash discount not taken
following items:
T Freight on new machine
tend
Cost of removing the old machine
Loss on disposal of the old machine
Gratuity paid to operator of the old machine who
off
cost of new machine
1
of new machine damaged in the
of installation
operation
+ Salary
of cngincer for the duration of the trial run
Opera
ting cost during
all SWAN Re wreant first month of regular use
hine
Varennes Granted because the new
mome waenne
Proved to be of inferior quality
ad
mn
|
‘
Land improvements
i
Buildings =
P2,100,000
560,000
3,600,000
:
6,600,000
Machinery, and equipment
.
© Testin 8 costs before machine was put into regul
ar
-
|
should be recognized as cost of the new machine?
Total cost of Land Improvements
: Cosh
: erty, Mant and Equipment
if
ve of installing lights if parking lot
was laid
Installation
Repair cost
Process
a
.
During 2010 the following data were available to yo u
Analysis of the accounts:
t~ Cash Paid on purchase of land
“ea
|,
:
assumed on the land bought, including
wterest at 16%
t Realtors commission
at
ay eepeec
Saal fees
veut : Leeweee crseel
secl lo
nte tting
pe
tie CARTE
WSS, stably
clew
the
\ Amount Paid to relocate persons sq
L ., Property
.
fering down. an old building 02
337
336
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upon
your
ae ait.
16.000,
ments
=
400,000
ang neo
ito
rs
lOMoARcPSD|23272433
ae
Equipment
vil: Audit of Property, Plant and
<a.
.
demolished Cost of fencing the property:
440,
8,000
(Building permit fees
Excavation expenses
“\Architect’s fee
Interest that would have been earned had the money
600,009
_Realtor’s commission
"
oe
Legal fees, realty taxes and documentation expenses
.
and test run
1,600,000
{based on
480,000.
QUESTIONS:
.
2. Land improvem
ents
~ @ P1,300,000
.
b. “ P1,000,000
&
b.
P12,300,000P11,750,000
4. Machinery and eq
uipmient
>.
compute
P29,900,000
P29,600,000
P1,250,000
P
560,000
—
P16,440,000:
A. 0
©
Building
audit,
for the
P12,000,000 .
P11,700,000 ~
Ei
a
property
Cost of tearing down an old building on the land
Amount recovered from the salvage of the building
demolished
Land, 12/31/10
aet
1,200,000
200,000
Amount paid to relocate persons squatting on the
400,000
300,000
.
__.200,000
P30,000,000
Question No. 2
Land improvements, 12/31/09
P
Cost of fencing thé property
Land improvements, 12/31/ 10
Being permit fees
oe
»
No.
; éo
100,000. -
Pp 6,600,000
8,000,000
equipment, 12/31/
Voice cost of machinery acquired
reight, unloading, pnd delivery charges
Customs duties and other charges
Owances; hotei accommodations, etc. pals
foreign technicians
Achinery and equipment, 12/31/ 10
339
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250,000
P.200,000
4
achinery and
0,000
FBO 0D
"50,000
~
Architect’s fee
Buildings, 12/31/10
UNQuest
a
560,000
40,000
P1.000,000
Question No. 3
— gs,
Buildin
12/31/09
_
ted
iount paid to a contractor for the building erec
“avation expenses
20)
“3.
a9
1. Land
a. P30,000,000
b. P14,000,000
of your
ao
’ Based or the above ‘and the result
following as of December 31,
2010:
ae
.
Cash paid on purchase of land
Mortgage assumed on the land bought, including
360,000
etc., paid to
units produced and sold)
ee
25009
100,00,
240,000
Royalty payment on machines purchased
;
:
8,000 009
{ Freight, unloading, and delivery charges
Customs duties and other charges
of machines
ae
ys-sudit of Property, Plant and Equipment
I
Questio: n N (o} 591/09
used during the period of construction been
~ invested in the money market
Mf Invoice cost of machinery acquired
foreign technicians during installation
7
Solution:
;
suggested
(200
Lt amount paid to’a contractor for the building erecteq
Allowances, hotel accommodations,
y
a
jrawerst1) As 2); 3)C; 4)D
L_ amount recovered from the salvage of the building
B
—_—_—
\
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240,000
id to
560,000
__ 1,600,0
00
600,000
auf
V7. AUG Of Pieper) 0
lOMoARcPSD|23272433
vo
PROBLEM NO. 4 - Acquisitions of property, plant and equip men
dit of Curapo
ion wi
“apo
connection with your au
In
the
noted
you
siementl for the year 2010,‘
.
c Company’
folloy -
affecting the property and equipment items of the com par
Jan.'1
Purchased real property for PS,926,900,
y's finane:
5 trang, ‘Cal
wi Jich ing]
.
had been prepaid by the vendor; 20% uw” ihe Purchase that
is deemed applicable to land ard the b: lar-. to Buide
A mortgage of P3,000,000 was
assumed vy Cuyapo ante
purchase.
Cash was paid for the balance.
Previous
owners
had
failed
to
take
ca. re
of norma
maintenance and repair requirements on
the buildings,
necessitating current reconditioning at a cost of P'236,800,
Feb. 15
Demolished garages
being recovered on
in the rear of the building, P36,000
the lumber salvage.
The company
made on the .construction by indepencent
Upon
completion
of construction, city
inspectors ordered extensive
modifications
to the building
as a result of failure on the part of the company to comes
with building safety code.
Mar.
1.
The company
P320,000
exchanged
(par P24,000)
its own
shares with a fair een
for a patent
and
a new equipt!
The equipment hasa fair value of P200,000.
Apr.
1
The
new
addition,
‘
machinery
a
Manufacturer
new
of the
for
the
franchise
cash of P144,000.
acquired
Payment
Gunuacicd
es
of P400,000 and
fair value is P 360,0
fur peu Kui
int
47 i
ivis ae i
made by
payin
is set at
00.
45
e work
b.
2.
940,000
c.
P1,005,200
P4,645,600
3. “Machinery and equipment
a. . P360,000
b. P560,000
4. Land improvements
a. P360,000
P 76,800
&. 6,764,400)
2) A;
lant and
pr
equipment
a auiPment
qd.
P4,681,600
c.
d.
P576,615
P659,692
c.
P436,800
0
6.718,092
- d. . P6,618,400
3) B; 4)C, 5)D
SMagested Solution:
Question No.
P1,052,800
d. P
P6,731,200
Answers: 1)C;
.
976,000
c. P4,762,400
P5S,005,600
5. Total prope
P
d.
Buildings
a.
,
1
J
5 ,026,0
contract price
Aa; Property
Adinetnd
Cost taxes
of landfrand2010
buildings
tcen
os
Cont of Loe aPPlicable to land
a>
at a cost P3
60,000 and P76,800, respectively:
was complet ed and paid for on June 1.
the
1. Land
a. P
4
1
Go
Witty
Couipeusy
was
.
Dvuilding
The value of the franchise
5
P160,000, while the machine’s
The
new
machinery.
issuing bonds with a face value
f
a
,
the following:
b.
Such modifications, which cov
have been avoided, cost P76,800.
‘
year,
repairs were completed at a cost of P60,000:
on the above and the result of your audit,
determine the cH
b.
proceeded to construct a warehouse.
The cost of such
warehouse was P540,800, which was P90,000 less than the
average bids
contractors.
The business was closéd . to
:
inventory.
Duiting this time, required gt
pec: 31
Ctiong
ly:
charge of P146,000 representin:; property tax for on
Jan..15
Audit of Property, Plant and Equipment
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Pr46, 000
A 920,008
20%
P-976,000
341
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vil- Audit of Property, stant ant! eine
2s)
lOMoARcPSD|23272433
»st allotated to ) building
burldin (P4,880,000 x 80%)
Reconditioning costs prior to use
_ Salvage proceeds from demolition of garages
Construction cost of warehouse
P3,904: 330/000
;
_ 540.50)
—
7
1) The savings on construction of P90,000 should be ignored
2) The modification costs of P76,800 and the redecorating andsnt.
‘costs of P60,000 should be expensed.
Tepair
Fair value of machine acquired on Apr.
Cost of Machinery and equipment
1
P200,000
360,009
P560,000
|
Question No. 4
Parking lots
Waiting sheds
P360,000
76,800 ©
Cost of Land improvements .
‘P436,800
Question No, 5 ;
. Land (see no. 1).
P 976,000
Buildings (see no. 2}
4,645,600
560,000
Machinery and equipment (see no. 3}
d improvements (see no, 4)
Total cost of Property, plant and equipment
___436,800
PROBLEM NO. 5 - Acquisition errors -'land
and building
San- Leonardo-M.
Manufa
Build
0: bes
ie
oo
12,/10 but new
#28
manufacturing activities until 8/1/10 beard and
Hoe
Ost
3
until that.d
d ofandremovi
dilaJapida
‘di n
ted ding
buildi
ng
hil
.
7.
;
Particular
Legal fers
aptl 10
8
~
Amount
Fire insurance premium payment
5/1/ 10
30,000
Special tax assessment for streets
5/1/ 10
36,000
Partial payment of new building
5ftl
£
27,500
g/1/10
construction
Final payment on building construction
9
oon
12/31410
Asset write-up
375,000
g/i/10
General’ expenses:
|
. 1. To acquire
the
land
150,000
P3,443,500
and
building
on 1 /31/10, the company
i
paid
P500,000 cash and 5,000 ordinary shares (par value‘= P100/
share)
which is
P210.
_
very actively traded and had a market value, per share of
x
When the old building was removed, San Leonardo paid Demolition
Co. P25,000,
material.
but
also
received
P10,000 from
.
the sale of salvaged
Legal fees covered the following:
Cost of organization
Examination of title covering purchase of land
al work in connection with the building
construction ~
ah
:
Total
P10,000 .
12,500
.
_.7,500
30,000
berinning May 1, 2010.
cturing Co. was incorporated on 1/2/1
picilities were not completed
/ 28) 10
|
fe 10
The fire insurance premium covered premiums for a three-year term
8 Account at 12/31/10 per the books was asate.follows:The *
t
Date’
ee
0,000
1/31/10
Lang
an
&
2
ma
Additional information:
|
Fair value of equipment acquired on Mar. 1
one
;
|
6 1800
P4.64
_ Cost of Buildings ~
Question No. 3
.
ee, uait of property, Plant and Equipment
Question No, 2
Notes:
-
" ae
expenses covered the following for the period 1/7/1
0 to
/10,
President's salary
buiperin
Totat
z tendent covering supervision of new
P1,00%; 000
5,
343
3427
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es
__50,000
P150,000
- Audit of Property, Plant ana &quipment
vil
6.
_——
>
Because of the rising land costs, the president Ww as Sure
land was worth at least P275,000 more than What je that the
company.
‘
t
.
|
“OSE the
rn
on the above
and
the
result
of your
audit,
adjusted balance of following as of December 31, 2010:
1.
Land
a.- P1,055,000
b.
P1,605,000
a. P1,860,500
b. P1,888,000
Answers: 1) B;
c.
.
P1,105,000
c.
d.
P1,810,500
P1,857,500
d.
LON
2. Building
s
Compute for the
pro
you
10,001)
ae
2h
|
P1,605,000
Question No, 2
Final Payment
i
Fire insurance during con
Plant superintenden Bi on $ eto.
12/3)
a
{id
:
ar
(P36,000 0 xx 3/36)
3/
/
of the
Carran
glan Company
equipment
and
P
P
’
20,
QUESTIONS:
.
Based on the above and the result
adjusted halance of the following:
a
2
of your
j
audit, dete
Land
P644,000
c.
322,000
0
50,0000
———
;
LL wee
318,400
5,000
.
1,480
4,800
102,000
408.000
book value.
9000 0
900
__
:
1,
70
|
960,000
” 16,000
Based on property tax assessments, which are believed to mid
represent the relative values involved, the building is worth twice ;
much as the land. The machinery was subject to a 2% cash discount,
Which was taken and credited to Purchases Discounts. Of the two
options, P6,000 is related to the building and land purchased
a
a at
i
Id
sold
was
machinery
old
The
purchased.
not
those
to
P10,000 related
P1,550,
000
25,000
.
audit
Hk price of machinery purchased
Freight on machinery purchased
Re: air to machinery resulting from damage during
shipment
.
Sost of removing old machinery
Nriveways and sidewalks
Building remodeling
seit
rivuilding
iliti
since
acquisition
o
i
Unlities
paidid sinc
q
[P500,000 + (5,000 x P210)}
ial payment-
your
Property
P1,577,500
Demolition cost
’ Proceeds from. Salvage materials
Legal fees ~ title €xamination
Legal fees — construction of
building
during
that the
carried out a number of transactions involving
the acquisition
a
1
Land, 12/31/10
d
note
land, building and mach
inery
compan
of assets.
2) A
Special tax assessment
BLEM NO. 6 — Acquisition errors —
of land and building
Acquisition price
.
‘Options t ken out on several pieces of property
Cost of land and dilapidated building
Puig,
A
vo-
All expenditures were record ed in -he fol
lowing single
ofgset
seveaccount, identified as Property and equipment:
Suggested Solution:
Question No.
udit of Property, Plant and Equipment
.
QUESTIONS:
Based
lOMoARcPSD|23272433
\
sy
as
nvildin B mn
eg, pa,uae,0u0
». 1,040,000
344
P326,000
d. P424,0
a. P "722,000
345
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mmine
the
lOMoARcPSD|23272433
an
: vir- Audit of Property, Plant and Equipment
3, Machinery
b.
a
a
a. 2317,032
P318,512 .
yt AY
.
mae gud
pa
P321,839
hr
ithe
,
Answers: 1)B; 2)C¢; 3A
Land
Buildi
Building
P320,000'
Adjusted balance
\
sa17 5,000
032
P317,032
PROBLEM NO. 7 - Land and building; Borrowing cost
.
On January 1, 2009, Cabiao Corporation purchased a tract of
number 101) withr’sa buil ding for P1,800,000, Additionally, Ca
Far
in
su
egeante
s ranc
e,
P54,000.
off P54,000
vah
P1,500,000
Theand theclosi
The closing stateme?
ing.
build
Land ibe
s
JO)
we,
entered into a P9,000,000 fixed-price contract with or
value
Cada
of
building Coe Ut March i, 2605 for the comstractio’ Coieted ie:
occu /& On
the
the land
site 101.
The
building
was
Located
aa:BS LONG
September
30, 2010. . Additional construct
oN
We,
construction
life
from
date
cost,
.
Cabiao
borrowed
P9,000,000
on
installments of
ten annual
in Cabiao
The atloanthe isratepayable
20C9.
jlus interest
of 14%,
used part of the loan
Cabiao’s average amounts
working: capital requirements.
-
the
above
and
Cast of land site number
a.
b.
lane d (site
-P300;000. Shortly hortly tenes
aat.a os
after acquisition, the building wasrazed
P225,000.
following:
1.
1 fees es
PiE = ited
somaemis
ofsio
P108,00
©of ———Fgicattt
n0, legalfe
t
& real state broke
a forty-year
,
on
Based
P312,032
i y purchased
i
Freight
on machiner
Adjusted balance
have
QUESTIONS:
oO
Net purchase price of machinery (P318,400 x .98)
to
ment for borrowing cost.
Cabiac is using the allowed alternative treat
P1,044,000
| P322,000
estimated
285,000
as follows:
ated building construction expenditures were
Promamul
0
~ P2,700,000¥.1Y ;
period March 1 to December 31, 2009
the
6,900,000 y..ny,
2010
31,
For the period January 1 to September
4,000
400,000
Question No. 3
Buna
is
r900,0" . i
P 640,000
=
2,000
P 36,000
of
and will be depreciated using the 150%-decliningbalance
\yarchmy0
Land {P960,000 x 1/3)
- Building (960,000 x 2/3)
Option paid on property acquired:
Land (6,000 x 1/3)
Building (6,000 x 2/3)
Cost of building remodelling
;
‘
ding
pion
«nance
.
Allocation of acquisition price:
land
:
,
ipettiods
Question$ No. 1 and 2
:
and blueprints
set's fees for design-and supe
rvision
amp
Suggested Solution:
- that ‘the
; specifications
P1,905,000
the
result of your audit, determine the
101
c. Pea
.
c. P10,3 29,000
2. Cost of office building
a. P10,581,000
“~ b. P10,360,500 3.
d. P10,
reciation of office building for 20 2
P96,800
d.
P97,130
Answers: 1) ©; 2) B; 3)B
MSSEStes Sosut:
x
,
P 99,197
10 360,100
on cost
347
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960,500
P102,800
Deprecia:
a.
,
)
d.
P1,800,000
000
900
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:
—
slipAR
~ vit- Audit of Property, Plant and Equipment
queen
Acquisition 08
.
lOMoARcPSD|23272433
~
ts cora@hieaion
Mt yeaa
18,000
54,000
Total cost of land site 101
porrowt
spect
Question No. 2
Care
Pg
“
2 P ae He
mana
(P2,700,000
x 1.14% x 10/12)
724,500
(P6,900,000 x 14% x 9/12)
Total cost of office building
Borrowing costs are interest and other
, connection with the borrowing of funds.
costs
that
an
ae
285 00)
1,039,500
P10,360,500
entity incurs in
*
finance charges jn respect of finance lease
s recognized in accordance
' with PAS 17: and
described in PAS 39;
.
exchange differences arising. from foreign
currency borrowings tor
extent that they
he
are regarded as an adjustment to interest costs.
equitty CoP ital,to
; d cost . of oF equi
inciude actuai or impute
i
pursuant
‘ability
any preferred capital not classifieda as a liability pur
PAS. 32.
3
PAS
Sorrowing cost does not
.
Accounting Treatment
Borrou;; ,
ctlysore attributable
ieey
conc
tecesTieussareesl oedire
TST Ew iTS
tereseeee COs
oes Biverethat
we
tr
Sty
St tyeseetes corer
t ne
sessed
fe
sr
wSl
to theoat a0q
the te
efore, should be capitalized. Other borrow?
ui asther
Ore temmangnized
an expense.
|
ng 008
Ze
period, or
ai
e
swings - where funds are borrowed specifically, costs eligible
ition are the actual costs incurred less any income earned on :
temporary investment of such borrounngs.
2
_qs - where funds are part ofa general pool, the eligible
d by applying a capitalization rate to the expenditure
General borrow
‘se
Since the specific
capital purposes,
ie weighted average of
gener
borrowing: for the asset was used partly
setting
fo
0 borrowing is considered a general borrowing.
italization
Commencement 0
Capitalization should commence wen a
are being mcurr
borrowing costs
interest expense calculated using the effective interest rate method as|
Freee
;
-
the construction peed,
italization
for
oe app licable to the
tO a costs
onporrowing
*
that
eligible
out 8 ee ° The capitalization rate a
|
Borrowing cost may include:
*
be
fo r capita
,00
P315,000
Jan. 1 to Sept. 30, 2010
:
‘for ? investment broperty during
“costs
5,0 00
P2,20
05,0
Fixed-price contract cost
.
Plans, specifications and blueprints
Architect's fees and design supervision
uipment
Equip
eg ible assets during the development
- yentoriesinve
___ 225.000
Cost C razitig the existing building
and
inset i cans ete etpeilof re
judit of Prope! Hlant
eee go00
Rei fees
a
Title guarantee insurance
~~
—
and
,
nditures are being incurred
‘ties that are necessary to
le are in progress
(may
use or of physical production).
prepare the asset for its intended
mencement
include some activities prior to com
capitalization
Suspension and cessation of
7
riods in which
Capitalization should be suspended
aon
should |
Cevelopment is interrupted.
to prepare the
as e
active
hen
substantially all of the activities romani fe Prinor modifications are
intended
use
outstanding,
“ompiete.
or sale
are complete.
this indicates that substantially
0
.
w
Where construction is completed in
ee, capitaliz So
uf the activities
bestmuction of the other parts hen
substantially
oe:
—
non Wing costs should cease
WIN". sanded use of Soe S
U“SSSaru to orovere that part forse ee
Questioy No.
3
Beprecisn
Precindon
=
_
expense
348
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-s UT rquxi2dcret 5) 7 x Sf isi
rst9.960,500
x Us
jriv,sc™
a4
349
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Let
lOMoARcPSD|23272433
PROBLEM NO. 8 - Government grants
.
y
Provided below are indepe
ndent situations
f
‘de th
involving B0venmer,
You are required to provide the answer
to each Tequiremen,
1.
Nueva Ecija Inc. received a grant of P30 million to ¢
an
b
<
Mant cod Equipment
yp Auait
1,eva of Property,
Ecija
)
4,
2.
6 million
On January
©
d.
1, 2009, Nueva Ecija
@ ~P75,000,000
b. P 3,600,000
3.
Company
rec:
ad a grant of is,
“Cc.
d.
P3,000,000
P
0
ition attached
to this grant was that Joying
Ecija Inc. should clean up this
land and lay roads by ed
laborers from the village in which the land is a
rkers.
government has fixed the
minimum wage payable
2 ted to cost
The entire operation will take
three year
s and is este 10 million
P50 million. This amount will
be
spen
t
in this way" | third 3%
cach in the first and Second year
s
The fair value of this land is curr
ently P60 million.
should be Tecognized as income
- Of the first year?
a. P10,000,000
“ b. P12,000,000
|
=
.
from government gran’. t
c. P20,000,000
d.. P
0
of the
a cons
which
costs PSO million, will be dep
using the straight-lin
reciated
e method over 10 yea
rs. Assuming that the
tuition subsidy will be
offered evenly over the
period of 4 years, the
ameunt that should be recogn
ized as income at the end of year 1
a. P6.0 million
is
\c.. P8.25 million
b.
P5.0 million
Answers: 1) ©;
2) €;
d.
3) B;
P8.75 million
4)€
Suggested Solution:
Question No.1
™~
Year 1 income (P30 million x 1/15)
Nueva Ecija Inc. was granted 2,50
0 acres of land in a vie
located near the slums outside the city
limits, by a loca! BON ue
authority. The cond
and P30 million in
iss
udents for four years from the date
of grant.
Pl million
million from the Japanese government
for it
construction of 4
laboratory and research facility
with an e.-aated cost of P90.
million and useful life of 25 years. The facil
ity was completedin
early 2010. The amount-to be recogniz
ed in Nueva Ecija’s 2010
profit or loss as income from governmen
t grant is
received
ol
grant iy to be idated
il
puilding for st
utilized to purc
udents from un
hase gion
derdeveloped or
dev ‘lopingcountrie
s
(ou
The college building,
Ecija Inc. will incur costs in this manner: Year ] _ pj, le
Nog
- P2 million; Year 3 - P3 million; Year 4 — P4
million: Yo Year
milliot.
_How much
should
be Tecognized gy in nt 5 ~ps
government grant at the end of year |?
TE frog
a. P30 million
. ©.
P2 million
P
Ine.
.
The batance of the grant is
for subsidizing the
st
Ran,
costs it incurred in planting trees over a period Of fin een sate ity
b.
Me
x
How mu
© ine end
P2,000,00¢
.
net t in the form of trans; Es
Government grants are assistanc
e by governmnen
J
th
re cornpitance
of resources to an entity in: retum fi ue
Pas
es
of
certain conditions relating to the operating activities 0} the entity.
Government
me
grants shall be recognized “
necessary to match them
.
over {ne pene
hich they are intendec
with the related costs
;
(PAS 20 par . 12)
° compensate, on a systematic basis.
G
“4g
:
zed
cognized
es are recogniz
swuts in recognition of specific OPENS AS 20 pai. 17}
*“RE Beriod as the relevant
expense. (PA
Cuestion No. 2
auntsen related
“Cor
Qs
, o
~
DoendAn
a
8’ enCcas
;
to depreciable
AnH
arn
in
TU
th pa
keke
assets lane
ar
nernmortions
coperer ees
see
e usually recogn
Im
»
bh
. thigh
Uo
is charged, (PAS 20 par. 17)
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:
as Income
t n the
3,000,000
2010 income (P75 million/2
5)
G
u
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ized as
intiae
danni
SoaTS
incame
hoce
an {mes
:
Vas er
No, 3
_ Question
Year
ae
lOMoARcPSD|23272433
ys
.
p
50)
‘ncome
ome (P60 (P60 millioyn tixx 110/
1 inc
, au dit of Proverty, Plant and
Equipment
)
puiidis
y also require the
related to non-depreciable assetsbe ma
reant
recognized as income flier
then
ld
wou
and
ns
tio
iga
obl
aln
art
periods which bear the cost of meeting the obligations. (PAs 20 pa te
" of
~
0 500,000,
nit
and
12, land
arch
of
which
30%
was allocated
oroceeds from dernolition of building.
Question No. 4 —
Warehouse
proceeds and other funds were
warehouse at a cost of P7,200,000.
3,754,000
P8,250,000
On December
Delivery
‘Cost
‘Land |
Building
P4,800,000
1,800,000
Warehouse
Machine .
Delivery
Smit
;
=
~
Proceeds
3,720,000
288,000
8;400,000
1,320,000
8,880,000
—_ 1,200,000
570,006
564,000
960,000
truck
—
Acc. Dep.
2010
:
,
"384,000
Mtg
«108,000
.
352
loss ty on the above
and
:
the result of your audit, compute the gain or
.
.
ve fecognized for each of the following dispositions:
>
1,
0
3/*r
49 900
Land
_ 3,720,000 gain
P1,080,000
2,
Ze'q90
3.
‘ofl
Pe.
loss
~——@, P4,800,000 loss
d.
P
P 432 000 gain
c.
P2,232,000 loss
P1,368,000 loss
d.
P
Baitay,
w
lu
Lig
.
564,000
_ On January 15, a condemnation award was received aS cons sto! »
for the forced sal
ding,
W
ore
of the
_ the path of'a
new € higi
“oy », s land and building:
ue
having a
_ QUESTIONS:
ue
‘qeral
was exchanged for a machine
Truck
Ba
.
dd the
disclose
Fai
15, the machine
*
Warehouse
bP 290.900 eaten
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"0
.
.
_
0
c, PE, 400,000 Ines
P 480,000 gain
a
"ae
year
a replacement
mie
—P
On November 13, the delivery truck was-sold to a used car dealer.
‘PROBLEM NO. 9 - Disposals of property, plant and equipment
i
o
the
to purchase
.
fair.value of P756,000 and cash of P108,000 was received.
_ be. appropriate to allocate part of a grant on one basis and part m
another. (PAS 20 par. 19)
for
used
Machine
Grants are sometimes received as part of a package of financial or fiscal
aids to which a number of conditions are attached. In such cases, cares
needed in identifying the conditions giving rise to costs and expenses
which determine the periods over which the grant will be earned. It may
Your audit of Llanera Corporation
following Property dispositions:
ber represent the
net
On July 4, the warehouse was destroyed by
fire. The Warehouse was
purchased on January 2,.2004.
On December 12, the insurance
P4,500,000
Total income end of year 1
cost of
books. The real estate was acquired with the ingen a
value.
((P60 million x 3/4)/10]
Grant related to specific expenses
[(P60 million x 1/4)/4]
to the mot
oe
oliate
shin g the bu ildin
corpor
g, and thisi was acc
no
omplis
f August.
Cash proceeds received in Septem hed during the month
Non-monetary grant and the related asset are usually Tecognizeq at fai
" Grant related to depreciable. asset
|
urch
building were
Pp.
353
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0
—
a,
t . Rant and Renaiment
of Property
: yr-ao Audi
:
.
-
1
i
e.
lOMoARcPSD|23272433
Po
C
= wa756,000 gait
TOR
_ oP
>. P27,000 gain
:
5. Delivery truck
a. P&36,000 loss
c.
4.
b: P636,000 gain
yil-AY
FE8S,000 gain
Oy
F, of Property, Plant and Equipment
ene
12»stion: No.
yalue
0
-
066,000 gain
plant and equipment shall be determined as the difference between the
net disposal proceeds, if any, and the carrying amount of the item.
ne
2
5
wSS
-
trite
ensuing
.
jrom
the
cas
Gerecoonition
of
wae
am
:
tn
weim
of
70,
pr,
TAY y
A
the item's |
plant and equipment shall be included in profit or loss when
derecognized. Gains shall not be classified as revenue.
Question No. 2
7
None.
.
The proceeds from demolition of building will be deduc
from the cost of the land.
Question No. 3
Insurance
P564,000
630,000
sale
,
B..66,000
Inc. at
data relate on the Plant Assets account of Licab,
December 31, 2009:
The gain or loss arising from the derecognition of an item of property,
OF
~ F288,000
The fo lowing
P3,+20,000
4,800,000
Pi.0S0,000
The carrying amount of an item of property, plant and equipment shall be
derecognized (a) on disposal or (b) when no future econornic benefits av
expected from its use or disrosal.
>
ors
on
-
iation methods
PROBLEM NO. 10 — Deprec
Cash received
Cost of land
Loss on condemnation of land
yun
576,000
Carrying amount (P1,200,000 - PS70,000)
Loss
:
P864,000
No. 5
question
gales proceeds
Question No. J
=
:
mact nne
Gain on exchange
PS6,000 loss
“Suggested Solution:
ae
of old
ro ying amount (P960,000 - P384,000)
Answersl) B; 2) D; 3) A; 4) C, 5) Cc
TT
:
proceeds
: ps,880,000
VOITVine Suman + me
.
S Venus
ob 2.700
ANN
DI
ANN
ANAM
2eUrewsus
Gaiain on in
i surance Policy
settlement .
.
':
Wewures
A
sg
ogs
was
ove
ted
Original cost
P87 ,500
Useful life .
10 years
Year Purchased
Salvage valuc
Depreciation
A
L
2004
Plant
P7,750
SYD
;
R
P200,000
P127,500
|
Assets
2006
2005
37,500
15 years
P7,500
Activity
te
hours
arte
ier
ro sear
é
Pa
declining
: balance
method
record any
i b, Inc. does not
|asset is purchased, Lica
an
r
yea
the
In
:
Note
apa
ach Yin. tah
depreciation expense on the asset.
takes a.
ired oF traded in, Ltca®, +
In the year an asset is ret et.
year depreciation on the ass
The following transaction occurred during 2010:
32,500
P
for
d
sol
s
wa
L
t
se
As
" On May: 5,
.
1
On December
cash.
31, it was determined thet
5,250 hours during 2010.
355
354.
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Yi - AUAU
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a
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ey
lOMoARcPSD|23272433
Me.
audi of Property, Plant and Equipment.
A
(c) On December 31, before computing depreciation expe
OR, the management
of Licab,
from 1/1/10 was 10 years.
Ine, décided
the uses
Uh
wi
ae
le
Life
;
pom,9N Ay.Ser
"4
(d) On December 31, it was discovered that a plant ASSet pur
2009 had been expensed completely in that year,
P55,000 and has useful life of 10 years
and
hig
no on
this asset, which can be referred to as “Asset S,”
CO%Is
Less accumulated depreciation
ANCe fo,
P
0
How much is the adjusted balance of Plant Assets as of Dece
31, 2010?
a. P670,000
b,
c.
P527,500
d.
Carrying amount,
Less residual value
Remaining depreciable amount
Divide by y remaining & life
Depreciation of Asset R for 2010 _
.
|
P83,300
-
b. P88,479
Answers: 1) B;
2) a;
3) B;
4)D,
5)c
356
¢.
asset over its useful life.
an
tematic
of an asset shall be allocated on a systeman’
SSS over its useful life.
be reviewed at
me residual value and the useful life of an asset oer from previous
a change in an
‘ast at each financial year-end and, if expectaes
mber
‘stinates, the changes) shall be accounted Jor O°” ing policies,
P615,000
qounting
Cha
estimate
in
accordance
with P AS 8
"ges in Accounting Estimates and Errars. °
Psgz,50c
Question
No. 3
Adjusting entry:
P82,050
d. ‘P80,600
ori
Depreciation is the systematic allocation of the depreciable amount of
The depreciable amount
_ 5. How much is the total depreciation expense for 2010?
a.
37,500
162,500
12.500
156.0
1/1/10
S would include a ‘debit/credit to Retained Earnings of
‘a. P55,000 debit
c. P44,000 credit |
d.
;
10
Less accumulated depreciation, 1/1/
[(P200,000 - P12,500) x 3/15]
How much is the depreciation of Asset R for 2010?
a. P15,000
c. P16,250
b. P21,429
.
d. P23,214
P55,000 credit
29.950
P10,250
P200,000
.
Cost
om
3.: The adjusting entry to correct the error of failure to capitalize Asse
4.
ae
Question No. 2
How much is the gain or loss on sale of Asset L?
a. P10,250 ioss
c.
P16,050 gain
—b. P10,250 gain
d.
P16,050 loss
.
65,250
{(P87,500-P7,750)x 45/55}
Gain on sale of Asset Lo
(Disregard tax implications)
b..
P87,500
|
Cost
Value,
“Based on the above and the result of your audit, answer the
followin
2.
P32,500
_
eeds
' gales procying
V ue:
Less carr
QUESTIONS:
1.
sted Solution:
question No.7
Chased
Management has decided to use the double-declining b an
yo
kL
Asset s
Retained earnings
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P55,000
P55,0
\
ann
\
357 |
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HON ,
.
and Equipment
at - Audit ofProperty, Plant
lOMoARcPSD|23272433
. V yg - Audit of Property, Plant and Equipment
Question No. 4
et L (Sold)
reset - .
Asset R
Ascet E
P
127,500
200,000
200,000
an relation to the ai
rcraft over the next
ten years are expected
to
follows:
-
Mr
an
__ 55,000
Asset S
ia scrap.
AssetL [(P87,500 - P7,750) x 5/55]
~cted
“ae
Asset A {(P127,500 - P7,500)/37,500 x 5,259]
On January |, 2010, Penaranda Aiilines acquired a new acroplane fora
total cost of P30 million.- A breakdown of the costs to build th
aeroplane was given by the manufacturers:
Fitting out of aircraft:
Seats
All costs include
relevant part.
Iti
install ation
ti
and
:
a4associated
. ‘osts
costs
.
en
Mowing
Emcee
ct
eee
65 2G.
eel
ThillioOn,
WITMm
Ue
P
es
Sees
BG
mechanisms
| every
two
years
:
equipment
maintenance of 60,000,
“Placed in 2016.
hy
is expected
to cost
P300,00C
per
at
expected
casts
of
750,000
{in 2012),
meye8t
4
and
rep
costs for repair
- Thisws incurs annuals
: totally
‘
The cquipment ia expected to be mies
QUEST IONS:
Me
©”
Baseq ©n the above
he main
vel
at the
the aircraft
aircraft
will be kept tor ten years
falueeof
;
Ady and and t t eog sat
‘The
expecteg
at that stage is. the body
di ene ce
Proportionate value, ewe
10% capacity should be on the market in 2016,
faulty
Fo.
.
nan Preparation
with &*
expe
and
By
750,00"
¢
labor
The
Airlines that a new prototype
‘St Uperades will take into effect the expected changes in technology.
4,500,00"
Food preparation equipment
Penaranda
These engines are
of P900,000.
P900,000 (in 2014), P1,035,000 (in 2016) and P1,230,000 {in 2018).
350,000
600,000
- cockpit
seats
SXPecl
3,ULU,0UU
Carpets
Electrical equipment - passenger seats
informed
costs
2016 by substantially better equipment at a cost of P1,050,000. The
flectnea. equipment in the cockpit is tested frequently at an expected
Major upgrades to the equipment are
cost of P750,000.
annuz
P 9.000.000
12,600,099
Engines (2)
has
for P18 million.
maintenance
annum. Carpets are reclaced every five years. They will be replaced in
2015 at an expecied cost of P195,000, but will not be repiaced ccfore
the aircraft is sold in 2020.
Cleaning costs per annum amount to
P30,000. The electrical equipment (such as the TV) for each seat has
annua)
repair
cost
of
P45,000.
{t is expected
thai, with the
impruvements in technology, the equipment will be totally replaced in
NO. 11 - Components depreciation
Aircraft body
in 2018
annual
rittings - Seats are replaced every three years.
Expected replacement
costs are P3.6 million in 2013 and P4.5 million in 2019. The repair of
P82. 0 50
tom
PROBLEM
again
and that «xisting engines could be upgraded at a cost of P3 million.
ee
for 2010
and
incur
engine with an extra
32:690
Asset E [(P200,000 x 80%) x 20%}
to
wanufacturer
18'000
Asset R (see no. 2)
Total depreciation expense
“Y ive years foxé eras
ine
has ane xpected
ted life life of of four years
engine
before be ‘
Itis expected that the engines will be replaced in 2014 for
713.5 million
Questiort No. 5
Asset S (P55,000 x 20%)
requires inspection eve
and tear, at a cost of P30,000.
idl es -= Bach
P582,500
Plant Assets, 12/31/10
pody - The body
i
teen
-
a Pesoopn
and
¢
ve ETL
the result of your audit,
answer the following:
eCldtiow cxpoae
>. P270,000
a
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fut Ait 900,000 1S
d. 711,000
359
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lOMoARcPSD|23272433
M2
ent
Audit ofProperty. Plant and Equipm
s is
ine
iation expense for Eng
na rereye)
:
2. Th e annual deprec
ro,v
7
Pi,206,000
‘a
d.
b P2,100,000
The
e_ p
nnn
UU
questionuaNol . 4. eciation
- fodd6)preparation
depr t
Ann
n
e
m
0,
p
i
75
u
(P 000/
eq
840,000
ng is
iat ion expense for c.FittingsP1,565,000
dep
ual,00
ann825
0 rec
- iat
d:
b. P3,380,000
4,
P
? juait of Property, Plant
and Equipment
wee.
P1,580,000
ation e
expense for Food Prepar
quipment
The annual depreciation
Pment is:..
pROBLEM
E
d.
‘pb. -P150,000
depreciation balances at December 31, 2009 are:
P187,500
Depreciation
P 367,500
114,326
210,000
Automobiles and trucks
and accumulated -~
Accumulated
P1,380,000
Machinery and equipment
Suggested Solution:
108,000
432,000
Leasehold improvements
Depreciation policy:
Question No. 1
P9,000,000
Cost of aircraft body
Cost subject to depreciation
Divide by useful life
_
Depreciation methods and useful lives:
e Machinery and equipment - straight line; 10 years.
Automobiles and trucks — 150% declining balance; 5 years, all
‘e
a.
2,700,000
Less residual value (P6,300,000 x 9/21)
6,300,000
10
630,000
P_
Annual depreciation - aircraft body
Ao 10 par.
and trucks
are immaterial except for automobiles
Salvage values mate
cost.
of
15%
to
es
equal
age
d
valu
salv
which have esti
Additional information:
3,000,000
Annual depreciation - engines (P12,000,000/4)
a,
q
,
Question No. 3
360
into
a.
oe g
operaun
12-year
Jease
;
.
*
50,00 0
_#500
“290.00
invoice
\a
cost
4 peeust 30,
On
Pos
,
5,000.
P1580
© °-" -
hased at a
On July 1, 2010, machinery and Installation
equipment were
IPE : non was
¢
Mcurred,
100,009
uaryer1,
\thib
ti
i
starting
The leasehold improvements were comple” 2007.”
.
P1,000 vag
Electrica
eel equipment —- se seats (P600,0000/6)
Electrical equipment —~ c cockpiti ° (P4,500,000/ / 10)
Annual depreciation - a
entered
$1, 2006 and the facility was occupied on January"
Scrap, the current engines in effect have no residual value.
Carpets (PIS0.000/5) |
Gabaldon
2007.
Since the engines will.be replaced after four years and wil
Seats (P3,000,000 /3)-
.
Leasehold improvements - straight line
Depreciation is computed to the nearest month.
43}
. Question No. 2
were acquired after 2005.
°
ent with a cost that's
of ; an item of property, plant and equipm
part
. Each
iated
:
.
in relation to’ the total cost of the item shall be depreciate
significant
seoparstels::
PAG
14
Stparaey.
Cost
;
4) C¢
Answers: 1) A;'2) C; 3)D;
ive
y’s property, plant and equip ment
/
Gabaldon Compan
c. P125,000
a. P 75,000 ©
12 — Comprehens
NO.
Bs
125,000
|
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of P325,000.
20
10,
|
Gabaldon
‘
36
pu
au
rehased new
ans
.
1
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tomobile for
:
.
e sae
lOMoARcPSD|23272433
uipment
ty, Plant and Eq
yu - Audit of Proper
of pag was
with a cost
00 eat
= 5 2009
0, a an truc
31,
ber 30,.of 201
on k7December
P30.000
On Septemamount
carrying
a.
December 20,2010,
amount
a oonying
P4,000.
on
of P2,975
of disposition,
date
wag tot
Balance,
2000
1/1/10
/ P1i8,000
(P30,000 x 30% x 9/12)
Gain on sale of truck
balance
of the
property,
P1,919,000
b. P2,388,500
.
.
1s
The carrying amount of
ents 31, 2010 is
a. P1,567,497
b. Pt,290,547
.
>
Suggested Solution:
31D:
4) D,
|
d.
.
equipment:
Balance, 1/1
ment
(1,380,000 - P17,000) x 10%]
achine sold, 12/20 (P17,000 x 10%)
P
5)c
A
Acquired, 7/1/10
((P325,000 + P44,000) x 10% x 6/12]
Rmobiles and trucks:
Maining
beginning
balance
r {(P2 10,000. 1 1.4,326-P30,000) % sot}
|
|
369,000
17,000}
48,000
P1732,
on0
000
PES
. B2.351,000
4.
Machinery and equipment:
_ maining beginning balance
,578,9
P1,380,000
25,
aschoid improvements’
Operty, plant & equipment, 12/31/10
Question No.
2,975
2100
Truck sold, 9/30
47
Pi,617,322
Pl
and
Acquired, , 8/30
31,
;
d equip
the property, plant an
_23.250
P__250
3
Automobiles and trucks:
d. P221,402
b. 245,065
P1,025
Balance, 1/1.
_
Acquired, 7/1 (P325,000 + P44,000)
Machine sold, 12/20
equipment as of
P138,000
c.
Gain on sale of machine
Machinery
P2,351,000
d.
P4,000
Question No.
for the year ended December
a. P185,402
Answers: 1) C: 2A:
and
24,750
Sales proceeds
Less carrying value of machine sold.
P2,307,000
c.
depreciation expense
oon
plant
6.750
Question No. 2
0
P
d.
P2,725
December 31, 2010 is
3.
.
Depreciation for 2010
The adjusted
4.
sag
(P48,000 - P30,000)
The gain on sale of machinery on December 20, 2010 is
c. P13,000
a. P1,025
a.
.
Less accumulated dep.:
1. The gain on sale of truck on September 30 is
c. P250
a. P2,680
O
d. P
b. P6,500
3.
1
Cost
Based on the above and the result of your audit, answer the following
b.
No.
eds’
Tess CarTying value of truck
_
QUESTIONS:
2.
jp audie of Property, Plant ond Srpnpment
a cost of P17,
with
a machine
°
tion
|
P23,500
wie
TUck
sold,8/30
9/30(P25,000
(P30,000x30%%9/
Cquired,
x 30% * 4/ 19,
363
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36,300
_ 1,700
" \_ 18,450
19,702
6,750
Pl 56,450
lOMoARcPSD|23272433
vir- Audit of Property, Plant and Equipment
“audit of Property, Plant and Equipment
Leasehold improvements (P432,000/ 12)
Tolal depreciation expense for 2010.
Question No.5
Total cost of PPE, 12/31/10 (see no. 3)
“£351.09
Machinery and equipment:
Balance, 1/1
.Depreciation expense for 2010
Machine sold, 12/20
(P17,000 - P2,975)
Automobiles and trucks:
P367,500
156,450
(14,025)
Balance, 1/1
114,326
Depreciation expense for 2010
Truck sold, 9/30 (see no. 1)
(24,750)
1/1
36,000
Carrying amount, 12/31/10
_
P
£909,995
Company,
1,
2009.
Your
examination
118,528
144,000
P1,578,947
prepared
resulted
Guimba Company
Trial Balance
Dece mber 31, 2010
Cash
Accounts receivable — net
rentories,
December 31, 2009
Buildings
Metmulated depreciation, building
inery
Accumulated de
preciation. ma
chinery
567,000
11,250
:
—
679,500
1,500,000
Share premuum
150,000
Donated shares
180,000
Retained earnings, December 31, 2009
222,450
Purchases
2,625,000
850,500
Salaries and wages
Factory operating expenses
Administrative expenses
507,000
364,500
105,000
Bond interest
45,000
P6,000,000
Additional data are
6,000,000
as follows:
(1) The 1,500,000 share capital was issued at a 10 percent premium to
the owners
the trial balance
in
the
necessity
applying the adjusting entries indicated in the additional data below.
on
75,000
105,000
accounts payable
of the land and buildings on December 31, 2008, the
date of organization.
‘below as of December 31, 2010. The company started its operations i
January
Credits
Net sales
PROBLEM NO, 11 - Comprehensive
Your new audit client, Guimba
30
Share capital
772,453
.
Bond discount
qreasury shares
First mortgage, 6% sinking fund bonds
108,000
Depreciation expense for 2010
—
Accrued bond interest
28,952
Leasehold improvements
Trial Balance
December 31, 2010
sinking fund assets
P23
Less accumulated depreciation, 12/21/10:
Balance,
Guimba Com
30,005
*
Sree
Shares with a par value of 180,000 were
donated back by the vendors. The following entry was made:
©
Treasury shares
Donated
P180,000
shares
P18
0,000
;
ae
The shares were donated because the proceeds from rdinse ie.
of
Sale were to be
considered as an allowance on 7 - first recorded.
sich’ a8
d and buildings in proportion to their open
The treasury shares were sold in 2010 for ra
Credited to Treasury shares.
Creditsi
P5 10,000
600,000
669,660
Sooo
a
444,000
(2)
a
g,g00
45,099
On
Decembar
a1
2010,
A
business started was removed.
machine
C
ost: ing
OO
The ake hine
onlyhad
entry
&t 10 percent during the first year-pe
rediting the Machinery account with its sales Pr
365
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p15,00n0
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ice 0
when
the
was
one
depreciated
en ade
fP6000.
t
:
t
and Equipment
Act of Property, Plan
ee
Ry
—
straight-line 5,
(3) Depreciation is to be provided on the
10 percen;
; machinery,
puiidings, 2 perc
; ent of cosi
residual values.
Sis,
lOMoARcPSD|23272433
;
question
:
Toll
sty
yaad)
3 QUESTIONS:
c.) P630,000
|
‘a. - P660,000
b. P588,000
d. P
2010
(a? P907,200
.
c.
P950,400
3. The adjusted
2010is
-—
:
d.
carrying
amount
a. P399,000
b. P345,000
—
of Machinery
as
note:
.
7
of December 31,
* b. P7,500 loss
c.
d.
(80,000)
_- (45,000)
The proceeds received from sale of. donated shares will not be
Adjusted cost of building (see no. 1) _
Less accumulated depreciation, 12/31/10
P945,000,
sh
Carrying amount of building, 12 /31/10—
P907,200
Question No. 3
Machinery,
>
31,
;
BOO.
1/1/10 (P444,000 + P6,000)
Less machinery sold on 12/31/10
Machinery,
__37,800
.
12/31/10
0
- Less accumulated depreciation, 12/31/ 10
(P435,000 x 10% x 2)
P6,000 gain
Carrying amount
P7,500 gain
of Machinery,
12/31/
1.
+otal depreciation expense ‘OT 2010
5)A
367
aha
50,000
(30,000)
45,000)
00!
ciation aron Machinery for(P450,
Depre
Tote
2010
" Suggested Solution: .
Onn
0,009 P
2%)
:
4 on
ion No.
SuestDepre
ciati
on Building (p945,000 = x i 0%)
Answers:'l) C; 2) 4;
3)D; 4),
Total
Total
P§30,000 945,000 1.575.000
(P945,000 x 2% x-2)
é.. P63,900
d. .P63,000°
©
oe
Question No. 2
.
P6,000 loss
po
subsequently donate a portion of their shares.
.
on December
Ete O?.much is the . gain or loss on; sale of machinery
@&
P660,000
Sie se
treasury Stock subterfuge . This occurs when excessive shares are
issued for a property with the understanding thai the shareholders shall
c. P354,000
‘4... P348,000
E
Building
oe eeaing
wredited to Share Premium (Donated Capital) account since this involves.
4. The adjusted depreciation expense for 2010 is
_ a. P64,800
- b. P62,400
from sale of donated
agjasted balances
is
O°
P905,400
P945,000
d balances
" Bldg. (P75,000 x 990/1,650)
2. The adjusted carrying amount of Building as of December 31. 991)
is -
land
an
Land (P75,000 x 660/ 1,650)
answers to the following:
31,
:
1
i” Applied
snares as deducti‘omon from:
from:
of your audit, you are to bie
th
Based on the above and the result
‘4. The correct balance of Land account as of December
No.
ee
<r
audit of Propert¥, Plant and Equipment —
:
of c 0“8
Ste,
f
x
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=e
:
00
87,000
348,000
P18,900
45,000
a2 000
P63,900
se
OOO
lOMoARcPSD|23272433
t
om udit of Property, Plant and Equipmen
Question No. 5
P 6,0,
Sales proceeds
on
Less accumulated depreciati
(P15,000 x 10% x 2)
Logs on sale of machinery
3.00
—=000
N00
p720,000,
p6,480,000.
be
ried the
fixed-asset and depreciation schedule presented below.
CORPORATION
Ended Sept. 30
LandA
Bidz A
.
eae
Idg. B
Acq.
Date
Cost
Salvage
Dep.
Method
10/1/08
2
320,000
Straight.
~?
N/A
10/1/08”
10/1/08
?
Unaer
Const.
aes
10/2/08
Mach.A
10/2/08?
Mach.B
10/1/09
:
N/A — Not applicable
;
>?
N/A
24,000
N/A.
line
N/A
_
?
}
al
N/A
2009
N/A
?
139,600
N/A
N/A
‘
S
Sane
8
:
onvight=
20
.
asce
vis
d. Certain
building had an ap, raised value of
.
equipment
wag
oH
l
to the corporation by a loca
n
whe
apprai sal of the equipment
age
donated
An independent
university.
donated placed the fair market valuc a t
an
P240,000
and the salv
value at P24,000.
¢.
tallation expense
200 includes ins
e of P119,209.
airrss %, an d maintenanc A was suld 00
reppai
Machinery A’s total cost of P1,31
of P4,, 800
and
normal
Machinery
at P48,000.
Salvage value is estimated
February 1, 2010.
ired
with
¢ n
a dow
acqu
de in 11
B was
On October 1, 2009, Machinery ining pay™ en; ts to be ma 1, 2009
remal
the
r
and
Payment of P45,920
g Octobe
each begn mn
s ofrateP48,000
installment
the¢ prevailing
wae 8%.
interest
9
|
Ba
tine
rou have +been asked ig eseiet
in comolering
tnis
gcnedule:
eesist
in
complecunmg
wes
yee
e
Weve
in
July 2011.
.
10
the-years’-
Life
150%
declining
48,000
the
ng wi ll be completed and occupie
It is estimated that the buildi
30, 2009, and September 30, 2010
Depreciation
Expense Year
|
Assets
and
Construction
By September 30, 2010, Jaen has paid
i, 2009.
October
total construction costs of P3,600,000. .
P2,560,000 of the estima ted
d by
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September
‘
fr
P30 per share. Diag
value of P5 per share and a fair value of
to demolish an existing building ©
October 2008, Jaen paid P128,000
new building.
on this land so it could construct
began on
of buil ding B on the newly acquired land
The accounting department of Jaen has sue ni
JAEN
ir
acqu
quired
werev
A
in e
was acquired on October 2, 2008,
a
», Land B shares of Jaen. At the date of scqulstion, te
ordinary
Jaen Corporation, a manufacturer of steel products,
October 1, 2008.
Building S
ee
Jaen paid, P6,560,000 for the lend eet opi
ng
an
At the time of acquisition, the land’ had ms
Se
corporation.
together
ue of
12,009
PROBLEM NO. 14 - Comprehensive
.
and
5-3]
Less carrying value, 12/31/10:
7 ct,
¥9
;
2st
corrects Je
vs
that the data already on the schedule AF
have obtaines:
ed the following information from the compa
and personnel:
os
the fe fo lowing:
result of your audit, answer
Sed on the above and the
LT, he cost of Building A is
P5,904,000
P6,560,000
c.
d.
p656,000 0
P
369
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lOMoARcPSD|23272433
ity» Plant and Equipment
of Propert
gr Aud
ndB
The cost of La
. i.
"yyvil- Audit oF Property, Plant
is
3. The cost of Machine B is
|S 2 p370,080
b. P416,000
A
P228,000
P
0
c.
d.
a. . PGOO,G05
pb. .P728,000°
|
P
2010is |
.
b: P415,000,
P389,776
|
c. P265,667
d.
P262,608
Mining 8 Co Corp. acquir
June 1, 2010, Natividad
f
ed the rights
to a coal:
T 24,
a
The
Cost allocable to coal was P7,000,000 extracted ‘and
ona June
J, 2010, the company purchas
te
the production,
costing P190,000 which hee ment
.
‘be
vinta life of 10 years. The equipment‘extracted
was expected
oboalies
one
mine and
from tothebecome
after all the coal deposits had been
p10,000 selling price of the equipment could be expected. Production
_
was in full blast since June 2, 2010.
QUESTIONS:
Answers: 1) A; 2)B; 3)B; 4).¢
Based on the above and the result of your audit, answer the following:
: Suggested Solution:
1. What would be the depletion expense for the year ended December
31, 2010?
a. P1,050,000
c. P306,250
b. P 525,000
4d. P612,500
Question No. 1
Cost of building A (P6,560,000 x 6,480/7,200)
Question No, 2
Fair value of shares issued (20,000 x P30)
Demolition costs ©
P600,000
128,000
P728,000
Cost of Land B
Question No. 3
-
15 — Wasting asset
a teach month.
The ‘total depreciation expense for the year ended Septemte
a. P264,296
NO.
une
containing
an estimated
n pany
estimated
2,000,009
that 25,000reserves
tons oféf coal
would tr
he ofof coal.
c. P388,592
d.
ROBLEM
and Equipment
ee Down payment
Present value of installment payments
(P48,000 x 7.710) —
ost of Machine B
What would be the depreciation expense on the new equipment
for
the year ended
a.
b.
P18,000
PB
Answers:
70,080
3h
Suggested So
lution:
‘Question No. 4
: Building A (same
in 2009)
Building B (under co
ns
Do
. nated equipment truction)
(P240,000 x 85%
Macnine A
x 15%)
(P1,319,200-P1 19
Machine B (P416,00,200-P48,000) x 7/36 x 4/12]
0/20)
(OWL Gepreciation
expense for 2015.
-
9000
7,000
Pp 45,920
Question
December 31, 2910?
1) D;
No.
-¢. P15,750
d.
P16,625
2c
]
| P612,500
Depletion expense for 2010 (25,000 x 7 x P3.5*)
* 7,000,000/ 2,000,000)
Question No. 2
Depreciation expense for 2010 (25,000°x 7 x PO.9°)
,
:
b
(190,000 — p} 0,000)/ 2,000,000).
371
a7mM
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.
P.15,750
SE
,
,