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CHAPTER 5

PROBLEMS
5-1

a.

Cash price is the cost.

P215,000

b.

Downpayment
Notes payable (50,000 x 3.1699)
Preference shares (500 x 110)
Cost of machine

P 50,000
158,495
55,000
P263,495

c.

Purchase price
Appraisal cost
Total cost to be allocated
Allocation:
Land
22,150,000 x 10,000/25,000
Building
22,150,000 x 12,500/25,000
Equipment
22,150,000 x 2,500/25,000

d.

e.

5-2

5-3

5-4

P22,000,000
150,000
P22,150,000
P 8,860,000
P 11,075,000
P 2,215,000

Cash price
800,000 x .90 x .98
Present value of the disposal costs
50,000 x 0.5019
Cost of equipment

P705,600
25,095
P730,695

Purchase price 154,560/1.12

Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800
Total cost

(Uy Company)
Land
Office building
Warehouse
Managers residence

(4,500,000
(4,500,000
(4,500,000
(4,500,000

P138,000
10,300
P148,300

x 2,187,500/5,625,000)
x 2,000,000/5,625,000) + 120,000
x 937,500/5,625,000)
x 500,000/5,625,000)

(Chang Corporation)
a.
720,000 x .90
b.
Down payment
Present value of 24 monthly installments
25,000 x 21.2434
Total

1,750,000
1,720,000
750,000
400,000
P648,000
P150,000
531,085
P681,085

(a)

Books of Planters Company

Cash
Equipment
Accumulated Depreciation-Building
Loss on Exchange of Building
Building
1,000,000-540,000 = 460,000 book value
460,000 400,000 = 60,000 loss

50,000
350,000
540,000
60,000
1,000,000

Books of Producers Company

Building
Accumulated Depreciation-Equipment
Cash
Gain on Exchange of Equipment
Equipment

400,000
320,000
50,000
70,000
600,000

600,000-320,000 = 280,000
280,000 350,000 = 70,000 gain

(b)
Books of Planters Company
Equipment
Accumulated Depreciation-Building
Building
Books of Producers Company
Building
Accumulated Depreciation-Equipment
Equipment
5-5

1,000,000
280,000
320,000
600,000

(Abatis Forwarders)
Land
Accumulated Depreciation Trucks
Trucks
Cash
Gain on Exchange of Trucks

5-6

460,000
540,000

10,340,000
4,400,000
`

12,800,000
340,000
1,600,000

Equipment (new)
Accumulated Depreciation
Loss on Exchange of Equipment
Equipment ((old)
Cash (64,000 33,000)

55,000
16,000
8,000
48,000
31,000

5-7
King Company
Tooling Machine
Automobile (net)
Gain on Exchange of Automobile

172,800
135,000
37,800

Princess Company
Machinery (new)
Accumulated Depreciation Machinery (old)
Loss on Exchange of Machinery
Machinery (old)
Cash

41

1,200,000
340,000
190,000
850,000
880,000

Chapter 5- Property, Plant and Equipment

5-8

(Urban Corporation)
Land purchase
Demolition of old building
Legal fees for land acquisition
Building permit fees
Interest on loan for construction
Building construction costs
Assessment by the city government for sewer
connection
Landscaping costs*
Equipment purchased of use in excavation
(cost proceeds from sale) 800,000 640,000
construction
Salvage from the demolished building
Total costs

Land
P2,000,000
300,000
150,000

Land
Improvements

Building

80,000
270,000
5,000,000

120,000
P350,000
160,000
100,000
(70,000)
P2,500,000

P350,000

P5,610,000

Compensation for injury to construction worker is chargeable to loss; this expenditure could have
been avoided had the company obtained insurance on its workers. If an insurance was acquired,
the amount of premiums paid may be charged to the building being constructed.
Profit on construction is not recognized anywhere in the accounts.
should be charged for the actual costs incurred in its completion.

The self-constructed asset

The cost of modifications to the new building per instruction by the building inspectors is charged
to loss since this expenditure is not a necessary expense for the asset. This was incurred as a
result of the companys negligence and could have been avoided had proper planning been done.
*Landscaping costs may be charged to the land account if there is an indication that such an
expenditure is permanent in nature.
5-9

(Doy Company)
Purchase price of land
Payments to tenants to vacate premises
Demolition of old building
Legal fees for purchase contract and recording ownership
Title guarantee insurance
Proceeds from sale of salvaged materials
Total

42

P4,000,000
200,000
100,000
50,000
20,000
(10,000)
P4,360,000

5-10

(Yu Corporation)
Land
Improvements
P 10,000
110,000

Balances, December 31, 2011

Cost of fencing the property
Paid to a contractor for building erected
Building permit fee
Excavation expenses
Architects fees
Invoice cost of machines acquired
Custom duties and other charges
Allowances, etc. to technicians during
installation
Balances, December 31, 2009

Buildings
P 900,000

Machinery and
Equipment
P 980,000

2,000,000
20,000
50,000
50,000
2,000,000
60,000
140,000

P120,000

P3,020,000

400,000
P3,580,000

The interest of P150,000 is an imputed interest and is not recognized anywhere in the financial
statements.
The royalty payments of machines purchased are charged to operating expense for the period.
Land account balance at December 31, 2012 is computed as follows (for discussion only):
Cash paid
P2,500,000
Mortgage assumed
4,000,000
Legal fees, taxes and documentation expenses
50,000
Payment to squatters to vacate premises
100,000
Cost of tearing down building
120,000
Salvage from old building demolished
(150,000)
Balance, January 1, 2012
700,000
Balance, December 31, 2012
P7,320,000
5-11

5-12

(Far East Company)

a.
Direct materials
Direct labor
Allocated fixed costs (20% 700,000)
Total before interest cost
Capitalized interest: (300,000 x 10% x 6/12) (specific borrowing)
Total cost of equipment

P220,000
150,000
187,500
140,000
P697,500
15,000
P712,500

b.

P348,500

Average accumulated expenditures: (697,500/2)

Capitalized interest:
Specific borrowing
300,000 x 10% x 6/12
General borrowings
48,750 x 16% x 6/12
Total capitalized interest

(Metro Company)
a.
4,000,000 x 10%
Less interest income earned on temporary investment of loan
Capitalized interest

43

P 15,000
3,900
P 18,900
P400,000
( 85,000)
P315,000

Chapter 5- Property, Plant and Equipment

b.

c.

1,000,000 x 10%
1,000,000 x 10% x
1,000,000 x 10% x
1,000,000 x 10% x
Total interest
Less interest income
Capitalized interest

9/12
6/12
3/12
earned on temporary investment of loan

Computation of average accumulated expenditures:

400,000 x 12/12
1,000,000 x 9/12
1,200,000 x 5/12
1,000,000 x 3/12
400,000 x 0/12
Average accumulated expenditures

Computation of weighted average interest rate:

(10% x 1,200,000) + (12% x 1,600,000)
1,200,000 + 1,600,000
Interest of specific borrowing:
1,600,000 x 10%
Less interest earned
Interest on general borrowing:
300,000 x 11.14%
Capitalized interest
d.

P100,000
75,000
50,000
25,000
P250,000
40,000
P210,000
P 400,000
750,000
500,000
250,000
---------P1,900,000

11.14%
P160,000
20,000

2,800,000 x 10%
1,600,000 x 10%
2,000,000 x 12%
Total interest on loans
Less capitalized interest: (1,900,000 x 10.625%*)
Interest expense for 2012

P140,000
33,420
P173,420
P280,000
160,000
240,000
P680,000
201,875
P478,125

* 680,000 6,400,000 = 10.625%

5-13

(Lim Company)
360,000 x 12/12
600,000 x 7/12
1,500,000 x 6/12
1,500,000 x 1/12
Average accumulated expenditures

P 360,000
350,000
750,000
125,000
P1,585,000

a.

Interest of specific borrowing (3,000,000 x 12%)

Less interest revenue earned from temporary investments of
specific borrowing
Capitalized interest

P 360,000

Interest on specific borrowing (1,200,000 x 12% )

Less interest revenue earned from temporary
investments of specific borrowing

P 144,000

b.

Interest on general borrowings

385,000* x 12.14%**
Capitalized interest
* 1,585,000 1,200,000 = 385,000
** 680,000 5,600,000 = 12.14%

44

49,000
P 311,000

49,000
95,000

46,739
141,739

Chapter 5- Property, Plant and Equipment

5-14

(Alondra Corporation)
(a)

Average accumulated expenditures:

4,000,000 x 12/12
8,000,000 x 9/12
12,200,000 x 6/12
8,800,000 x 3/12
7,000,000 x 0/12
Average accumulated expenditures

P4,000,000
6,000,000
6,100,000
2,200,000
-----P18,300,000

Average interest rate

12%(17,000,000) + 10%(12,000,000) + 12%(14,000,000) = 11.44%
17,000,000 + 12,000,000 + 14,000,000

(b)
5-15

5-16

Capitalized interest is 11.44% x P18,300,000 (lower than actual interest cost)

= P2,093,520
Total cost of buiding = Total construction cost + capitalized interest cost
= P40,000,000 + P2,093,520 = P42,093,520

(Pifer Corporation)
(a)

Materials
Direct labor
Total

1,250,000
250,000
700,000
2,200,000

(b)

Materials
Direct labor
Total

1,250,000
250,000
440,000
1,940,000

(Pioneer Development Corporation)

(a)

Land
Cash
Unearned Income from Government Grant

3,000,000

Building
Cash

15,000,000
15,000,000

Depreciation Expense
Accumulated Depreciation
(15,000,000/20 years)

750,000
750,000

Unearned Income from Government Grant

Income from Government Grant
(2,950,000/20 years)
(b)

50,000
2,950,000

Property, Plant and Equipment

Land
Less Unearned Income from Government Grant

45

147,500
147,500

3,000,000
2,802,500
197,500

Chapter 5- Property, Plant and Equipment

Alternatively, the unearned income from government grant may be presented as part of
the entitys liabilities.
5-17

(Tan Company)
a.
Depreciation charges for 2012 and 2013
2012
1. SL
(800,000 80,000) / 8 = 90,000
90,000 x 9/12= 67,500
2. Hrs
720,000/100,000 hrs = 7.20/hr.
worked
7.20 x 4,500 hrs = 32,400
3. Units of 720,000/900,000 units = 0.80/unit
output
0.80 x 40,000 units = 32,000
4. SYD
720,000 x 8/36 x 9/12 = 120,000
5. DDB
2/8 = 25%
25% x 800,000 x 9/12=150,000
6. 150%
1.5/8 = 18.75%
DB
18.75% x 800,000 x 9/12= 112,500
b.

5-18

Carrying amount of the asset at the end of 2013

Depreciation Method
Cost
1. Straight-line
800,000
2. Hours worked
800,000
3. Units of output
800,000
4. SYD
800,000
5. DDB
800,000
6. 150% declining balance
800,000

(De Oro Company)

a.
Method 1 Method 2 -

Method 3 -

b.

5-19

(Real
a.
b.
c.

Straight-line method
Sum-of-the-years digits method
320,000 80,000 = 4 year life
320,000 x 4/10 = 128,000
320,000 x 3/10 = 96,000
150% declining-balance method
1.5 4 = 37.5%
37.5% x 340,000
=
37.5% x (340,000-127,500)
=

Straight line method

Sum-of-the-years digits method
320,000 x 2/10
150% declining balance method
37.5% x (340,000-127,500-79,688)
Company)
2/5 = 40%; 26,400 40% = 66,000
12,000 x 5 years = 60,000; 66,000 60,000 = 6,000
Carrying amounts, end of year 3
Straight-line (66,000 36,000)
Sum-of-the-years digits(66,000 48,000 )
Double-declining balance (66,000 52,744)

46

2013
90,000
7.20 x 5,500 hrs = 39,600
0.80 x 60,000 units = 48,000
720,000 x 7.25/36 =145,000
800,000-150,000=650,000
25% x 650,000 = 162,500
800,000-112,500=687,500
18.75% x 687,500) =
128,906
Accum. Depr.
157,500
72,000
80,000
265,000
312,500
241,406

Carrying amount
642,500
728,000
720,000
535,000
487,500
558,594

127,500
79,688
P80,000
64,000
49,804

= P30,000
= P18,000
= P13,256

Chapter 5- Property, Plant and Equipment

The method with the lowest carrying amount at time of sale will yield the highest amount
of gain on disposal. Therefore, the double-declining balance method will provide the
highest gain on disposal at the end of year 3.
5-20

(Citi Company)
a.
Depreciation Expense for 2012
Double-declining balance method
800,000 x 25% x
Sum-of-the-years digits method
720,000 x 8/36 x 1/2

P100,000
80,000

Double declining
700,000 x 25%

P175,000

Sum-of-the-years digits method

720,000 x 8/36 x 1/2
720,000 x 7/36 x
b.

5-21

P80,000
70,000

Carrying (book) value at December 31, 2013

Double-declining balance method
Date
Depreciation Expense for the year
12/31/12
800,000 x 25% X = P100,000
12/31/13
700,000 x 25%
= 175,000

CV, end
P700,000
525,000

Sum of the years digit method

Cost
Accumulated Depreciation, 12/31/13 (720,000 x 11.5/36)
Carrying value, 12/31/13

P800,000
230,000
P 570,000

(Asiaplus Corporation)
(a)
Depreciation Expense Equipment
Accumulated Depreciation - Equipment
(82,000-2,000)/10 = P8,000
(33,000-3,000)/6 = 5,000
(22,000-1,000)/7 = 3,000
(18,000 -2,000)/5 = 3,200
Total
P19,200
(b)

(c)
(d)

P150,000

19,200
19,200

Cash
Accumulated Depreciation Equipment (3,200 x 4)
Loss on Sale of Equipment Part
Equipment

5,000
12,800
200

Equipment
Cash

20,000

18,000
20,000

Depreciation Expense Equipment

Accumulated Depreciations Equipment

47

19,200
19,200

Chapter 5- Property, Plant and Equipment

Components 1 3 =
P16,000
Component 4 = 20,000/5
4,000
Total depreciation for
P20,000
5-22

(Total Company)
1.
The company changes to the sum-of-the-years digits method
Cost
Less accumulated depreciation (1,100,000 10) x 4
Carrying amount of the asset, beginning of 5th year
Revised depreciation for the 5th year
760,000-100,000 = 660,000; 660,000 x 6/21
2.

5-23

It was estimated that the assets remaining life is 5 years.

Revised depreciation for the 5th year
(760,000 100,000) / 5 years

(Chartered Company)
Cost
Less accumulated depreciation 30,000 x
Carrying amount, January 1, 2012

(5+4) / 15

Depreciation expense for 2009 (14,000 x 7/28)

5-24

5-25

5-26

(Standard Company)
Cost
Less accumulated depreciation:
2008 20% x 500,000
100,000
2009 20% x 400,000
80,000
2010 20% x 320,000
64,000
2011 20% x 256,000
51,200
Carrying amount, January 1, 2012
Depreciation expense for 2012
204,800 10,000 = 194,800; 194,800 5 years
Carrying amount of the asset, January 1, 2012
Estimated remaining life in years
Depreciation expense for year ended December 31, 2012

P1,200,000
440,000
P 760,000
P 188,571

P 132,000
P 32,000
18,000
P 14,000
P 3,500
P500,000

295,200
P204,800
P 38,960
P153,600

8
P 19,200

(Carmi Company)
Cost
P378,000
Less: Accumulated Depreciation, August 1, 2012(378,00035,000)/5 x 2 137,200
Carrying value, August 1, 2012
P240,800
Overhaul costs (capitalized)
80,000
Carrying value after overhaul
P320,800
Depreciation (August December 31, 2012 see below)
22,567
Carrying value, December 31, 2012
P298,233
Depreciation for 2012
(378,000 35,000)/5 x 7/12
(320,800 50,000) / (5 2) + 2 = 270,800 / 5 x 5/12
Total

48

P40,017
22,567
P62,584

Chapter 5- Property, Plant and Equipment

5-27

5-28

(Chu, Inc.)
Accumulated depreciation at January 1, 2012 (528,000 x 4/8)
Revised depreciation expense for 2012
528,000-264,000 = 264,000; 264,000 / 2 yrs.
Accumulated depreciation at December 31, 2012
(Lu Company)
January 1, 2012
Impairment Loss Machinery
Accumulated Depreciation
Cost
Accumulated Depreciation 1/1/12
Carrying value 1/1/12
Recoverable amount
Impairment loss

131,250
P500,000
168,750
331,250
200,000
P131,250

(Island Souvenirs)
a.
Value in use (1,500,000 700,000) x 3.7908
Residual value (500,000 x 0.6209)
b.

c.
5-30

132,000
P396,000

131,250

December 31, 2012

Depreciation Expense (200,000 20,000) /2
Accumulated Depreciation
5-29

P264,000

90,000
90,000
3,032,640
310,450

Carrying value (9,000,000 1,500,000)

Recoverable amount (higher between 3,200,000 and
3,343,090)
Impairment loss

3,343,090
7,500,000
3,343,090
4,156,910

Revised annual depreciation

(3,343,090 500,000) / 5 years

568,618

(a)

Depreciation expense
5,600,000 / 16 years

2010
350,000

(b)

December 31, 2011

Depreciation Expense
Accumulated Depreciation

350,000

2011
350,000

350,000

Accumulated Depreciation
Recovery of Previous Impairment
Recoverable amount
Carrying value (5,600,000 700,000)
Increase in value
Limit on recovery:
Impairment loss
Recovered impairment
2,400,000 / 16 years = 150,000; 150,000 x 2 years
Limit on recovery

49

2,100,000
2,100,000
7,500,000
4,900,000
2,600,000
2,400,000
300,000
2,100,000

Chapter 5- Property, Plant and Equipment

(c)

Cost
Accumulated depreciation (4,400,000 + 700,000 2,100,000)
Carrying amount, December 31, 2011

10,000,000
3,000,000
7,000,000

To check: Limit on carrying value without impairment

10,000,000 x 14/20
(d)

7,000,000

Depreciation expense for 2012

7,000,000 / 14 years

500,000

5-31
a.
01/01/10

b.
12/31/10

12/31/10

12/31/11
12/31/11
c.
1/1/12

12/31/12

Cost
Accum
CV

Equipment
Revaluation Surplus
Accumulated Depreciation
3,600,000-2,400,000 = 1,200,000 (50% Inc.)
50% x 4,000,000 = 2,000,000
50% x 1,600,000 = 800,000

2,000,000
1,200,000
800,000

Depreciation Expense
Accumulated Depreciation-Equipment
3,600,000 6 yrs = 600,000

600,000

Revaluation Surplus
Retained Earnings
1,200,000 6 yrs = 200,000

200,000

Depreciation Expense
Accumulated Depreciation-Equipment

600,000

Revaluation Surplus
Retained Earnings

200,000

Accumulated Depreciation-Equipment
Revaluation Surplus
Equipment

600,000
400,000

Depreciation Expense
Accumulated Depreciation-Equipment
2,000,000 4 yrs = 500,000

500,000

Revaluation Surplus
Retained Earnings
1,200,000-200,000-200,000-400,000=400,000
400,000 4 yrs = 100,000

100,000

Original

1/1/10

1/1/10

4.000M
1.600M
2.400M

+2.00M
+0.80M
+1.20M

6.000M
2.400M
3.600M

600,000

200,000

600,000
200,000

2010
and
2011
+1.20M
-1.20M

50

1,000,000
500,000

100,000

12/31/11

1/1/12

1/1/12

12//31/12

6.00M
3.60M
2.40M

-1.00M
-0.60M
-0.40M

5.00M
3.00M
2.00M

5.00M
3.50M
1.50M

Chapter 5- Property, Plant and Equipment

5-32

(Samsung Company)
1/1/07
Machinery
Cash
12/31/07
12/31/08

3,600,000
3,600,000

Depreciation Expense (3,600,000/10)

Accumulated Depreciation

360,000

Depreciation Expense
Accumulated Depreciation

360,000

Machinery
Accumulated Depreciation
Revaluation Surplus

300,000

360,000

Cost
3,600,000
720,000
2,880,000

Machinery
Accumulated Depreciation
Net
12/31/09

12/31/10

12/31/10

12/31/11
12/31/12

360,000

Revalued
3,900,000
780,000
3,120,000

Depreciation Expense (3,120,000 / 8 years)

Accumulated Depreciation

390,000

Revaluation Surplus
Retained Earnings (390,000 360,000)

30,000

Depreciation Expense (3,120,000 / 8 years)

Accumulated Depreciation

390,000

Revaluation Surplus
Retained Earnings (390,000 360,000)

30,000

Accumulated Depreciation
Revaluation Surplus (240,000 30,000 30,000)
Revaluation Loss
Machinery
New Rev
Machinery
3,350,000
Accumulated Depreciation
1,340,000
Net
2,010,000

60,000
240,000
Increase
300,000
60,000
240,000
390,000
30,000
390,000
30,000

220,000
180,000
150,000
Ledger Bal
3,900,000
1,560,000
2,340,000

Depreciation Expense (2,010,000 / 6 years)

Accumulated Depreciation

335,000

Depreciation Expense
Accumulated Depreciation

335,000

550,000
Decrease
550,000
220,000
330,000
335,000
335,000

Machinery
Accumulated Depreciation
Recovery of Previous Revaluation Loss (P & L)
Revaluation Surplus
Increase in asset value
Unrecovered revaluation loss
Initial revaluation loss
Recovered through lower depreciation
150,000 / 6 = 25,000; 25,000 x 2 years
Revaluation surplus

51

1,150,000
690,000
100,000
360,000
460,000
150,000
50,000

100,000
360,000

Chapter 5- Property, Plant and Equipment

New Rev
Machinery
4,500,000
Accumulated Depreciation
2,700,000
Net
1,800,000
Check:
Carrying value based on cost (no revaluation loss)
(3,600,000 x 4 years) / 10 years
Revalued amount, 12/31/10
Revaluation Surplus
12/31/13

Depreciation Expense 1,800,000/4

Accumulated Depreciation
Revaluation Surplus (360,000 / 4 years)
Retained Earnings

5-33

5-34

(Coco Company)
(a)
Cost
Accumulated depreciation 12/31/11 300,000/10 x 2
Carrying amount 12/31/11 before impairment
Recoverable amount
Impairment loss

Ledger Bal
3,350,000
2,010,000
1,340,000

1,440,000
1,800,000
360,000
450,000
450,000
90,000
90,000
P300,000
( 60,000)
P240,000
192,000
P 48,000

(b)

Carrying value 12/31/11 after impairment

2012 depreciation (192,000/8)
Carrying amount 12/31/ 12 before recovery

P192,000
( 24,000)
P168,000

(c)

Carrying amount before recovery of impairment

New recoverable amount
Increase in value
Limit on recovery
Previoius impairment
P48,000
Recovered in 2012 (30,000 24,000)
(6,000)
Limit on recovery
P42,000

P168,000
222,000
P 54,000

Impairment recovery to be recognized at 12/31/12

P 42,000

(Lakers, Inc.)
(a)
Cost
Accumulated depreciation 12/31/09 100,000/10
Net
Revalued amount
Revaluation surplus 12/31/09
(b)

Carrying amount 12/31/11 112,500 x 7/9

Recoverable amount
Decrease in value
Remaining balance of Revaluation Surplus (22,500 x 7/9)
Impairment loss in profit or loss

52

Increase
1,150,000
690,000
460,000

P100,000
( 10,000)
90,000
112,500
P 22,500
P 87,500
67,375
P 20,125
( 17,500)
P 2,625

Chapter 5- Property, Plant and Equipment

(c)

5-35

5-36

As of 1/1/12
Depreciation expense for 2012 67,375/7
Net before revaluation on 12/31/12
Revalued amount
Increase in value
Unrecovered impairment loss (2,625 x 6/7)
Revaluation surplus, December 31, 2012

P67,375
( 9,625)
57,750
73,000
P15,250
( 2,250)
P13,000

To check: CV without impairment, cost model

100,000 x 6/10
Revaluation surplus, December 31, 2012
Revalued amount, December 31, 2012

P60,000
13,000
P73,000

(Allied Company)
Purchase price
Residual value
Development costs incurred and capitalized during 2010
Depletable cost 1/1/11
Estimated supply of mineral resources
Depletion expense per ton in 2011
Number of tons removed during 2011
Depletion expense for 2009

P4,450,000
( 650,000)
750,000
P4,550,000
3,500,000
P
1.30
x 550,000
P 715,000

Depletable cost, January 1, 2011 (see above)

Less depletion expense for 2009
Add development costs incurred and capitalized during 2012
Depletable cost for 2012
Revised estimated supply of mineral resource, 2012
Revised depletion rate per ton
Number of tons removed during 2012
Depletion expense for 2012

P4,550,000
( 715,000)
961,000
P4,796,000
4,360,000
P
1.10
700,000
P 770,000

(Ong Exploration Company)

Purchase price
Development costs
Salvage value
Restoration costs at present value (2,500,000 x 0.4632)
Depletable cost
Estimated recovery from the property
Depletion rate per metric ton
Resources extracted during 2011
Depletion expense for 2011

P45,000,000
1,500,000
( 6,000,000)
1,158,000
P41,658,000
10,000,000
P
4.1658
x 1,000,000
P 4,165,800

Depletable cost, 2011 (see above)

Depletion expense for 2011
Development costs in 2012
New depletable cost for 2012
Remaining number of metric tons (9,250,000-1,000,000)
Revised depletion per metric ton
(rounded)
Number of metric tons removed during 2012
Depletion expense for 2012

P41,658,000
( 4,165,800)
750,000
P38,242,200
8,250,000
P
4.64
x 1,500,000
P 6,960,000

53

5-37

(Family Mining Company)

Depletion rate per ton:
4,000,000 + 400,000 200,000
1,400,000 tons
Depreciation expense per ton:
300,000 20,000
1,400,000 tons
a.

b.

c.

5-38

P3.00
P0.20

Cost of ending inventory

2,000 units x 6 months
Production cost per unit
(8.00 + 3.00 + 0.20)
Ending Inventory, December 31, 2011

x 11.20
P134,400

Cost of goods sold

18,000 units x 6 months
Production cost per unit
Cost of goods sold for 2011

108,000
x 11.20
P1,209,600

Depletable cost in 2011

Less depletion expense for 2011
20,000 units x 6 months
120,000
Depletion rate per ton
x 3.00
New depletable cost for 2012
Revised estimated recovery at January 1, 2012
Revised depletion rate for 2012

P4,200,000

Depreciable cost in 2011

Less depreciation expense for 2011 (120,000 units x 0.20)
Depreciable cost for 2012
Revised estimated recovery at January 1, 2012
Revised depreciation rate for 2012

P 280,000
( 24,000)
P 256,000
800,000
P
0.32

(Yap Machine Shop)

a.
1.
Cash
Accumulated Depreciation-Building
Loss on Disposal of Assets
Land
Building
2.

3.
4.

5.

12,000

360,000
P3,840,000
800,000
P
4.80

1,700,000
450,000
150,000
800,000
1,500,000

Cash
Accumulated Depreciation-Equipment
Loss on Disposal of Assets
Equipment

120,000
250,000
30,000

Equipment
Cash

298,000

400,000
298,000

Land
Income from Donated Asset
Cash

8,000,000
7,800,000
200,000

Cash

240,000
240,000

54

Chapter 5- Property, Plant and Equipment

6.

7.

Equipment
Accumulated Depreciation-Equipment
Gain on Disposal of Assets
Equipment
Cash
Building
Cash

150,000
15,000
22,000
40,000
103,000
28,000,000
28,000,000

b.
Beginning balance
(3)
(4)
(6)
(7)
Total
Balance
5-39

Property, Plant and Equipment (Net)

2,150,000 (1)
298,000 (2)
8,000,000
125,000
28,000,000
38,813,000 Total
36,573,000

1,850,000
150,000

2,000,000

(Pat Corporation)
a.
Depreciation and amortization expense for year ended December 31, 2012
Buildings
1.5/25 = 6%; (12,000,000-2,631,000) x 6%
P 562,140
Machinery and Equipment
Based on beginning balance (9,000,000 x 10%)
900,000
Less depreciation of machine destroyed
230,000 x 10% x 9/12
17,250
P 882,750
New machine
2,800,000 + 50,000 + 250,000=310,000
3,100,000 x 10% x 6/12
155,000
Total
P1,037,750
Automotive Equipment
Based on beginning balance
180,000
Less depreciation of car traded 180,000 x 2/10 36,000
P 144,000
New car (240,000 x 4/10)
96,000
Total
P 240,000
Leasehold Improvement (1,680,000 x 8/80)
P 168,000
b.

Gain ( loss) from disposal of assets

Fair value of car traded in (240,000 200,000) P 40,000
54,000
Machine destroyed by fire
Insurance recovery
P155,000
Book value of machine (230,000 x 4/10 )
92,000
Net gain from disposal of assets

55

P(14,000)
63,000
P 49,000

Theory
MC1
MC2
MC3
MC4
MC5

D
D
C
D
A

MC6
MC7
MC8
MC9
MC10

Problems
MC26
D
MC27
B
MC28
B
MC29
D
MC30
B
MC31
D
MC32
D
MC33
C
MC34
D
MC35
C
MC36

MC37

MC38

MC39

MC40

MC41

MC42
MC43
MC44

D
C
A

MC45

MC46

MC47

MC48
MC49

B
C

MC50

MC51

D
D
B
C
B

MC11
MC12
MC13
MC14
MC15

D
B
B
D
D

MC16
MC17
MC18
MC19
MC20

D
C
A
B
D

MC21
MC22
MC23
MC24
MC25

C
B
C
C
C

Cost is FV of trading securities exchanged = 1,000 x 34 = 34,000

14,400,000 x 5/20 = 3,600,000
200,000 + 3,000 + 6,000 = 209,000
(800,000 20,000) x 12/78 x 9/12 = 90,000
780,000 x 11.25/78 = 112,500; 90,000 + 112,500 = 202,500
800,000 202,500 = 597,500
4,500,000 + 30,000 + 6,000 + 40,000 + 60,000 = 4,636,000 Land
10,000 + 50,000 + 90,000 + 45,000 + 150,000 + 9,800,000 = 10,145,000 Building
1,800,000 x 10% = 180,000; 180,000 45,000 = 135,000
2,500,000 1,800,000 = 700,000
700,000 x 9% = 63,000; 135,000 + 63,000 = 198,000
4,000,000 x 10% x 6/12 = 200,000
750,000 x 12% x 6/12 = 45,000; 200,000 + 45,000 = 245,000
1,000,000 + (4,000,000 2) = 3,000,000; 2,000,000 x 10% = 200,000
1,000,000 x 11% = 110,000; 200,000 + 110,000 = 310,000
4,500,000 + 1,320,000 + 77,000 + 53,000 = 5,950,000 total depreciable cost
112,500 + 66,000 + 9,625 + 13,250 = 201,375 total depreciation expense
5,950,000 201,375 = 29.5 yrs.
4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000 total cost
201,375 6,335,000 = 3.18%
4,500,000 40 yrs. = 112,500
77,000 x 6/36 = 12,833
240,000 12,000 = 228,000; 228,000 120 mos = 1,900 per mo
1,900 x 63 mos = 119,700
240,000 119,700 = 120,300; 120,300 130,000 = 9,700
270,000 x (8+7)/36 = 112,500
270,000 8 = 33,750; 33,750 x 2 = 67,500
112,500 67,500 = 45,000
1.5/5 = 30% depreciation rate; 600,000 x 30% x = 90,000
600,000 90,000 = 510,000; 510,000 x 30% = 153,000
90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD
90,000 x 2/15 = 12,000
240,000 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400
160,000/4 = 40,000; 400,000/40,000 = 10 years
240,000 40,000 = 200,000; 200,000 65,000 = 135,000
(900,000 300,000) / 3 yrs = 100,000
600,000 + 100,000 = 700,000
900,000 420,000 = 480,000; 480,000 300,000 = 180,000

56

MC52
MC53

D
C

MC54

MC55
MC56
MC57

B
C
A

MC58

MC59

MC60

MC61

MC62

MC63

MC64

MC65

MC66

MC67
MC68

D
C

MC69

MC70

42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000

49,200,000 43,755,000 = 5,445,000; 5,445,000 4.5 years = 1,210,000/yr
1,210,000 x 40 yrs = 48,400,000; 49,200,000 48,400,000 = 800,000
20,000 FV cash received 3,000 = 17,000 cost;
40,000 30,000 = 10,000; 20,000 10,000 = 10,000 Gain
20,500 6,000 = 14,500; 14,500 16,800 = 2,300
54,000,000 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 2,400,000 = 23
3,400,000 200,000 + 800,000 = 4,000,000
4,000,000 4,000,000 = 1.00 per ton; 1.00 x 375,000 tons = 375,000
P0 for Quarry No. 1 since the asset is only being leased.
1,000,000 300,000 = 700,000; 700,000 100 M = 0.007 per ton
0.007 x 1,380,000 = 9,660
.007 x 40,000,000 = 280,000; 700,000 280,000 = 420,000
420,000 20,000,000 = 0.21; 0.21 x 1,380,000 = 28,980
3,600,000 800,000 = 4.50; 4.50 x 60,000 = 270,000
96,000 6,000 = 90,000; 90,000 800,000 = 0.1125
0.1125 x 60,000 = 6,750
(8,600,000-600,000) 40 yrs = 200,000; 200,000 x 5 yrs. = 1,000,000
8,600,000-1,000,000-600,000 = 7,000,000; 7,000,000 30 yrs = 233,333
8,000,000 1,000,000 233,333 = 7,366,667
7,500,000 7,366,667 = 133,333
160,000 x 10 yrs = 1,600,000; 4,000,000 1,600,000 = 2,400,000
3,240,000 2,400,000 = 840,000
4,000,000 160,000 = 25 years; 25 10 = 15 years remaining
3,240,000 15 = 216,000
160,000 x 9 yrs. = 1,440,000; 4,000,000 1,440,000 = 2,560,000
2,560,000 500,000 = 2,060,000; 2,060,000 16 yrs. = 128,750
2,060,000 128,750 = 1,931,250; 3,240,000 1,931,250 = 1,308,950
160,000 128,750 = 31,250; 500,000 31,250 = 468,750
1,308,750 468,750 = 840,000
(360,000 6) x 2.5 yrs = 150,000
360,000 150,000 = 210,000 book value; 210,000 70,000 = 140,000 loss
70,000 3.5 remaining years = 20,000; 70,000 20,000 = 50,000
1,800,000 600,000 = 1,200,000; 600,000 3 = 200,000
1,200,000 + 200,000 = 1,400,000
3,000,000 300,000 = 2,700,000; 2,700,000 10 = 270,000
270,000 x 4 = 1,080,000
3,000,000 1,080,000 = 1,920,000; 1,920,000 900,000 = 1,020,000
1,920,000 6 yrs = 270,000 or 2,700,000 10 yrs = 270,000

57