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# CHAPTER 5

PROBLEMS

5-1.

a.

## Cash price is the cost.

P215,000

b.

Downpayment
Notes payable (70,000 x 3.3121)
Cost of machine

P100,000
231,847
P331,847

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
1,000,000 x .90 x .98
Present value of the disposal costs
50,000 x 0.5019
Cost of equipment

P882,000
25,095
P907,095

## 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

(49,500,000
(49,500,000
(49,500,000
(49,500,000

x
x
x
x

P138,000
10,300
P148,300

21,875,000/56,250,000)
20,000,000/56,250,000) + 1,200,000
9,375,000/56,250,000)
5,000,000/56,250,000)

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

19,250,000
18,800,000
8,250,000
4,400,000

P648,000
P150,000
531,085
P681,085

## (Planters Company and Producers Company)

Books of Planters Company
Cash
Equipment
Accumulated Depreciation-Building
Loss on Exchange of Building
Building
1M-540,000 = 460,000; 400,000 460,000 = 60,000 L
Books of Producers Company

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

1,000,000

## Chapter 5- Property, Plant and Equipment

5-5.

5-6.

Building
Accumulated Depreciation-Equipment
Cash
Gain on Exchange of Equipment
Equipment
600,000-320,000 = 280,000; 350,000-280,000=70,000 G
280,000 350,000 = 70,000 gain
(Black Company and Berry Company)

50,000
70,000
600,000

## Books of Black Company

Equipment
Accumulated Depreciation-Building
Building

460,000
540,000

## Books of Berry Company

Building
Accumulated Depreciation-Equipment
Equipment

280,000
320,000

1,000,000

600,000

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

5-7.

400,000
320,000

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

5-8.
King Company
Tooling Machine
Automobile (net)
Gain on Exchange of Automobile

172,800

Princess Company
Machinery (new)
Accumulated Depreciation Machinery (old)
Loss on Exchange of Machinery
Machinery (old)
Cash
5-9.

135,000
37,800

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

(Urban Corporation)
Land
P12,000,000

Land purchase

36

Land
Improvements

Building

## Chapter 5- Property, Plant and Equipment

Demolition of old building
Legal fees for land acquisition
Building permit fees
Interest on loan for construction
Building construction costs
Landscaping costs*
Equipment purchased of use in excavation
(800,000 640,000)
construction
Salvage from the demolished oldbuilding
Total costs

300,000
150,000
P

P3,500,000

80,000
270,000
15,000,000

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

P350,000

P5,610,000

*Landscaping costs may be charged to the land account if there is an indication that such an
expenditure is permanent in nature.
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 elsewhere 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.

5-10.

5-11

(Day Company)
Purchase price of land
Payments to tenants to vacate premises
Demolition of old building
Legal fees for purchase contract and recording ownership
Delinquent property taxes on land
Proceeds from sale of salvaged materials
Total

P4,000,000
200,000
100,000
150,000
50,000
(20,000)
P4,480,000

(Yu Corporation)

## Balances, December 31, 2012

Cash paid on purchase of land
Mortgage assumed on the land
bought including interest at 10%
Legal fees, realty taxes and
documentation expenses
Payment to squatters
Razing costs of old building
Salvage value from building
demolition
Cost of fencing the property

Land
P7,000,000
4,500,000

Land
Improvements
P500,000

5,000,000
50,000
100,000
120,000
(150,000)

37

500,000

Buildings
P 9,000,000

Machinery
and
Equipment
P 980,000

## Chapter 5- Property, Plant and Equipment

Paid to a contractor for building
erected
Building permit fee
Excavation expenses
Architects fees
Invoice cost of machines acquired
charges
Custom duties and other charges
Allowances, hotel
accommodations paid to
technicians during installation
and test runs of machines
Balances, December 31, 2013

12,000,000
20,000
50,000
150,000

2,000,000
60,000
140,000

P16,620,000

P1,000,000

P21,220,000

400,000
P3,580,000

The interest of P150,000 is an imputed interest and is not reported elsewhere in the financial
statements.
The royalty payments of machines purchased are charged to operating expense for the period.
5-12.

(Metro Company)
a.
P5,000,000 x 10%
Less interest income earned on temporary investment of loan
Capitalized interest

P500,000
( 125,000)
P375,000

b.

1,250,000 x 10%
1,250,000 x 10% x 9/12
1,250,000 x 10% x 6/12
1,250,000 x 10% x 3/12
Total interest
Less interest income earned on temporary investment of loan
Capitalized interest
Total construction costs
Total cost of building

P 125,000
93,750
62,500
31,250
P 312,500
40,000
P 272,500
5,000,000
P5,272,500

c.

## Computation of average accumulated expenditures:

1,400,000 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

P1,400,000
750,000
500,000
250,000
---------P2,900,000

## Computation of weighted average interest rate:

(10% x 1,600,000) + (12% x 2,000,000)
1,600,000 + 2,000,000
Interest of specific borrowing:
1,800,000 x 10%
Less interest earned
Interest on general borrowing:
2,900,000 1,800,000 = 1,100,000
1,100,000 x 11.11%

38

11.11%

P180,000
10,000

P170,000

122,210

## Chapter 5- Property, Plant and Equipment

d.

Capitalized interest

P292,210

2,800,000 x 10%
1,600,000 x 10%
2,000,000 x 12%
Total interest on loans
Less capitalized interest: (2,900,000 x 10.625%*)
Interest expense for 2013

P280,000
160,000
240,000
P680,000
308,125
P371,875

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

5-13.

(Lim Company)
3,600,000 x 12/12
6,000,000 x 7/12
15,000,000 x 6/12
15,000,000 x 1/12
Average accumulated expenditures
a.

b.

P3,600,000
3,500,000
7,500,000
1,250,000
P15,850,000

## Interest on specific borrowing (30,000,000 x 12%)

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

P 3,600,000

## Interest on specific borrowing (12,000,000 x 12%)

Less interest revenue earned from temporary
investments of specific borrowing

P 1,440,000
249,000
P

1,191,000
Interest on general borrowings
15,850,000 12M = 3,850,000; 3,850,000 x 12.14%*
467,390
Capitalized interest

P 1,658,390

## ** 6,800,000 56,000,000 = 12.14%

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

P 4,000,000
6,000,000
6,100,000
2,200,000
-----P18,300,000

## Weighted average interest rate of general borrowings:

10% x 12,000,000 + 12% x 14,000,000 = 11.08%
12,000,000 + 14,000,000
Capitalized interest
Specific borrowing (12% x 17 million)
General borrowings

39

249,000
P 3.351,000

P2,040,000

## Chapter 5- Property, Plant and Equipment

18,200,000 17,000,000 = 1,200,000
1,200,000 x 11.08%
Total
(b)

5-15.

5-16.

## Total cost of building = Total construction cost + capitalized interest cost

= P40,000,000 + P2,172,960
= P42,172,960

(Pifer Corporation)
(a)
Materials
Direct labor
Total
(b)

Materials
Direct labor
Total

P1,250,000
250,000
700,000
P2,200,000
P1,250,000
250,000
440,000
P1,940,000

## (Pioneer Development Corporation)

(a)
Land
Cash
Unearned Income from Government Grant
Building
Cash

3,000,000

50,000
2,950,000

15,000,000
15,000,000

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

750,000

## Unearned Income from Government Grant

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

132,960
P2,172,960

## Property, Plant and Equipment

Land
Less Unearned Income from Government Grant

147,500

750,000

147,500

P3,000,000
2,802,500
P 197,500

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
2. Hrs
worked
3. Units of

## (800,000 80,000) / 8 = 90,000

90,000 x 9/12= 67,500
720,000/100,000 hrs = 7.20/hr.
7.20 x 4,500 hrs = 32,400
720,000/900,000 units = 0.80/unit

40

2013
90,000
7.20 x 5,500 hrs = 39,600

output
4. SYD
5. DDB
6. 150%
DB
b.

## Carrying amount of the asset at the end of 2013

Depreciation Method
Cost
1.
2.
3.
4.
5.
6.

5-18.

Straight-line
Hours worked
Units of output
SYD
DDB
150% declining balance

## (De Oro Company)

a.
Method 1 Method 2 -

Method 3 -

b.

5-19.

## 0.80 x 40,000 units = 32,000

720,000 x 8/36 x 9/12 = 120,000
2/8 = 25%
25% x 800,000 x 9/12=150,000
1.5/8 = 18.75%
18.75% x 800,000 x 9/12= 112,500

## 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.

800,000
800,000
800,000
800,000
800,000
800,000

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

157,500
72,000
80,000
265,000
312,500
241,406

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)

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

(Real Company)
a.
2/5 = 40%; 26,400 40% = 66,000
b.
12,000 x 5 years = 60,000; 66,000 60,000 = 6,000
c.
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)

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

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 2013
2010: 25% x 800,000 x 1/2
2011: 25% x (800,000 100,000)
2012: 25% x (800,000 275,000)
2013: 25% x (800,000 406,250)

41

P100,000
175,000
131,250

P98,437.50

b.

5-21.

## (or 800,000 x 87.5% x 75% x 75% x 25%

Sales price
Carrying value on November 30, 2013
Cost
Less accumulated depreciation
720,000 x (3.75/8)
Loss on sale

337,500

19,200

5,000
12,800
200

(c)

Equipment
Cash

20,000

(d)

## Depreciation Expense Equipment

Accumulated Depreciations Equipment

19,200

## Depreciation Expense Equipment

Accumulated Depreciation Equipment

20,000

Components 1 3 =
Component 4 = 20,000/5
Total depreciation for

462,500
P162,500

19,200

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

(e)

18,000

20,000

19,200

20,000

P16,000
4,000
P20,000

(Total Company)
a.

b.

c.

5-23.

P800,000

(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)

5-22.

P98,437.50
P300,000

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

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

## Revised depreciation for the 5th year

(760,000 60,000) / 5 years

P 140,000

## Revised depreciation for the 5th year

760,000 / 4 years

P 190,000

(Standard Company)
Cost

P500,000

42

## Chapter 5- Property, Plant and Equipment

Less accumulated depreciation:
2009
20% x 500,000
100,000
2010
20% x 400,000
80,000
2011
20% x 320,000
64,000
2012
20% x 256,000
51,200
Carrying amount, January 1, 2013
Depreciation expense for 2013
204,800 10,000 = 194,800; 194,800 5 years

5-24.

(b)

## Depreciation for 2013

January 1 to August 1
(378,000 35,000)/5 x 7/12
August 1 to December 31
(320,800 50,000) / (5 2) + 2 = 270,800
270,800 / 5 x 5/12
Total
Cost
Less: Accumulated Depreciation (378,00035,000)/5 x 2
Carrying value, August 1, 2013
Capitalized overhaul costs
Carrying value after overhaul
Depreciation, August 1 December 31, 2013 (see above)
Carrying value, December 31, 2013

P40,017

22,567
P62,584
P378,000
137,200
P240,800
80,000
P320,800
22,567
P298,233

(Chu, Inc.)
Accum, depreciation balance, January 1, 2013 (528,000 x 4/8)
Revised depreciation expense for 2013
528,000 264,000 = 264,000
264,000/ 2 yrs.
Accumulated depreciation balance, December 31, 2013

5-26.

P 38,960

(Carmi Company)
(a)

5-25.

295,200
P204,800

(a)
Accumulated Depreciation
137,500
Loss on Disposal of Machine Parts
112,500
Machinery
To remove the carrying value of
the replaced engine block.
250,000/10 years = 25,000
25,000 x 5.5 years = 137,500
Machinery
Cash

P264,000

132,000
P396,000

250,000

320,000
To capitalize the cost of replacement.

Depreciation Expense
Accumulated Depreciation

320,000

82,875
82,875

43

## Chapter 5- Property, Plant and Equipment

To record depreciation for 2013.
January 1 July 1, 2013 (prior to replacement)
(1,000,000/10 years) x 6/12
July 1 December 31, 2013 (after replacement)
Carrying value, July 1
(1M/10) x 4.5 years
450,000
CV of old engine block
(112,500)
Cost of new engine block
320,000
Depreciable carrying value
657,500
Remaining life
10 yrs
Revised annual depreciation
65,750 x
Total depreciation expense for 2013

Alternative computation:
New engine block
320,000/10 = 32,000; 32,000 x 6/12
Replaced engine block
25,000 x 6/12
Remaining parts of machinery
1,000,000 250,000 = 750,000
(750,000/10) x 6/12
(750,000/10 years) x 4.5 = 337,500
(337,500/10 years) x 6/12
Total depreciation expense for 2013

(b)

Accumulated Depreciation
Loss on Disposal of Machine Parts
Machinery
320,000/10 years = 32,000
32,000 x 5.5 years = 176,000

176,000
144,000

Machinery
Cash

320,000

Depreciation Expense
Accumulated Depreciation

81,300

## January 1 July 1, 2013 (prior to replacement)

(1,000,000/10 years) x 6/12
July 1 December 31, 2013 (after replacement)
Carrying value, July 1
(1M/10) x 4.5 years
450,000
CV of old engine block
(144,000)
Cost of new engine block
320,000
Depreciable carrying value
626,000

44

50,000

32,875
82,875

16,000
12,500

37,500
16,875
82,875

320,000

320,000

81,300

50,000

## Chapter 5- Property, Plant and Equipment

Remaining life
Revised annual depreciation
Total depreciation expense for 2013
5-27.

(Remedios Company)
(a)
Cost of Leasehold Improvements
Less Accumulated Depreciation
1,200,000/10 years = 120,000 x 4 years
Lease term is 10 years; Useful life is 12 years
Shorter period is 10 years
Carrying value, December 31, 2012
(b)

5-28.

(c)

480,000
P 720,000

## Carrying value, December 31, 2012

Revised remaining lease term is 11 years
(10 4 + 5)
Remaining useful life is 8 years
(12 4)
Shorter period is
Depreciation expense for 2013

P 720,000

8 years
90,000

P420,000

## Carrying value of the asset, December 31, 2013

Cost
P860,000
Less accumulated depreciation
(810,000/9) x 4 years
360,000
Recoverable amount (see a)
Impairment loss

P500,000
420,000
P 80,000

420,000/5 years

P 84,000

## (Island Souvenirs, Inc.)

(a)
Value in use (1,500,000 700,000) x 3.7908
Residual value (500,000 x 0.6209)
Total

P3,032,640
310,450
P3,343,090

(b)

P7,500,000

(d)

5-30.

31,300
81,300

P1,200,000

(Joice Company)
(a)
Recoverable amount is the higher of fair value less cost to sell
and the assets value in use
Fair value less cost to sell (450,000 30,000)
P420,000
Value in use
100,000 x 3.7908
P379,080
20,000 x 0.6209
12,418
P391,498
(b)

5-29.

10 yrs
62,600 x

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

Recoverable amount (higher between P3,200,000 and
P3,343,090)
Impairment loss
Revised annual depreciation
(3,343,090 500,000) / 5 years

(Lu Company)
Depreciation Expense

P 568,618

56,250

45

3,343,090
P4,156,910

## Chapter 5- Property, Plant and Equipment

Accumulated Depreciation
To record depreciation expense for 2012
(500,000 50,000) / 8

56,250

Impairment Loss
131,250
Accumulated Depreciation
131,250
To record impairment loss.
Carrying value 500,000 (56,250 x 3 years)
P331,250
Recoverable value
200,000
Impairment loss
P131,250
Depreciation Expense
90,000
Accumulated Depreciation
To record depreciation expense for 2013.
(200,000 20,000) / 2 years
5-31.

90,000

(a)

Depreciation expense
5,600,000 / 16 years

2011
350,000

(b)

## December 31, 2013

Depreciation Expense
Accumulated Depreciation

350,000
350,000

Accumulated Depreciation
Recovery of Previous Impairment

(c)

2,100,000

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
Cost
Accumulated depreciation (4,400,000 + 700,000 2,100,000)
Carrying amount, December 31, 2013

5-32.

2,100,000
7,500,000
4,900,000
2,600,000
2,400,000
300,000
2,100,000
10,000,000
3,000,000
7,000,000

## To check: Limit on carrying value without impairment

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

2012
350,000

7,000,000

## Depreciation expense for 2014

7,000,000 / 14 years

500,000

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

46

P300,000
( 60,000)
P240,000
192,000
P 48,000

(b)

## Carrying value 12/31/12 after impairment

2013 depreciation (192,000/8)
Carrying amount 12/31/13 before recovery

P192,000
( 24,000)
P168,000

(c)

## Carrying amount before recovery of impairment

P168,000
New recoverable amount
222,000
Increase in value
P 54,000
Limit on recovery
Previous impairment
P48,000
Recovered in 2013 (30,000 24,000)
(6,000)
Limit on recovery
P42,000
Impairment recovery to be recognized at 12/31/13

P 42,000

5-33.
a.
01/01/11

b.
12/31/11

Equipment

2,000,000

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

1,200,000
800,000

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

600,000

12/31/11

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

200,000

12/31/12

Depreciation Expense
Accumulated Depreciation-Equipment

600,000

12/31/12

Revaluation Surplus
Retained Earnings

200,000

Accumulated Depreciation-Equipment
Revaluation Surplus

600,000
400,000

c.
01/01/13

200,000

600,000

200,000

Equipment
12/31/13

600,000

1,000,000

Depreciation Expense
Accumulated Depreciation-Equipment

500,000
500,000

## 2,000,000 4 yrs = 500,000

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

1/1/11

1/1/11

2011
and
2012

47

12/31/12

1/1/13

100,000

1/1/13

100,000

12//31/13

## Chapter 5- Property, Plant and Equipment

Cost
Accum
CV

5-34.

4.000M
1.600M
2.400M

+2.00M
+0.80M
+1.20M

6.000M
2.400M
3.600M

+1.20M
-1.20M

6.00M
3.60M
2.40M

-1.00M
-0.60M
-0.40M

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

12/31/09

3,600,000

## Depreciation Expense (3,600,000/10)

Accumulated Depreciation

360,000

Depreciation Expense
Accumulated Depreciation

360,000

Machinery

300,000

Accumulated Depreciation
Revaluation Surplus
Machinery
Accumulated Depreciation
Net
12/31/10

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

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

Accumulated Depreciation

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

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

12/31/11

12/31/12

12/31/13

12/31/13

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

Revalued
3,900,000
780,000
3,120,000
390,000

360,000

60,000
240,000
Increase
300,000
60,000
240,000

390,000

30,000
390,000

390,000

30,000
30,000
220,000
180,000
150,000
Ledger Bal
3,900,000
1,560,000
2,340,000
335,000

Depreciation Expense
Accumulated Depreciation

335,000

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

335,000

335,000

1,150,000

48

3,600,000

30,000

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

Accumulated Depreciation

Machinery

5.00M
3.50M
1.50M

360,000

Revaluation Surplus
Retained Earnings (390,000 360,000)
12/31/11

5.00M
3.00M
2.00M

## Chapter 5- Property, Plant and Equipment

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
New Rev
4,500,000
2,700,000
1,800,000

Machinery
Accumulated Depreciation
Net
Check:

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

100,000
360,000

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

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

## Carrying value based on cost (no revaluation loss)

(3,600,000 x 4 years) / 10 years
Revalued amount, 12/31/12
Revaluation Surplus
12/31/14

## Depreciation Expense 1,800,000/4

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

5-35.

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

1,440,000
1,800,000
360,000
450,000

90,000

P100,000
( 10,000)
90,000
112,500
P 22,500

(b)

## Carrying amount 12/31/12 (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

P 87,500
67,375
P 20,125
( 17,500)
P 2,625

(c)

As of 1/1/13
Depreciation expense for 2013 (67,375/7)
Net before revaluation on 12/31/13
Revalued amount
Increase in value
Unrecovered impairment loss (2,625 x 6/7)
Revaluation surplus, December 31, 2013

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, 2013
Revalued amount, December 31, 2013

P60,000
13,000
P73,000

49

450,000

90,000

## Chapter 5- Property, Plant and Equipment

5-36.

5-37.

5-38.

(Allied Company)
Purchase price
Residual value
Development costs incurred and capitalized during 2010
Depletable cost 1/1/12
Estimated supply of mineral resources
Depletion expense per ton in 2012
Number of tons removed during 2012
Depletion expense for 2012

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, 2012 (see above)

Less depletion expense for 2012
Add development costs incurred and capitalized during 2013
Depletable cost for 2013
Revised estimated supply of mineral resource, 2013
Revised depletion rate per ton
Number of tons removed during 2013
Depletion expense for 2013

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 2012
Depletion expense for 2012

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, 2012 (see above)

Depletion expense for 2012
Development costs in 2013
New depletable cost for 2013
Remaining number of metric tons (9,250,000-1,000,000)
Revised depletion per metric ton (rounded)
Number of metric tons removed during 2013
Depletion expense for 2013

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

## (Family Mining Company)

Depletion rate per ton:
4,000,000 + 400,000 200,000
1,400,000 tons

P3.00

50

## Chapter 5- Property, Plant and Equipment

Depreciation expense per ton:
300,000 20,000
1,400,000 tons
a.

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, 2013

b.

## Cost of goods sold

18,000 units x 6 months
Production cost per unit
Cost of goods sold for 2013

c.

## Depletable cost in 2013

Less depletion expense for 2013
20,000 units x 6 months
Depletion rate per ton
New depletable cost for 2014
Revised estimated recovery at January 1, 2014
Revised depletion rate for 2014

12,000
x 11.20
P134,400

108,000
x 11.20
P1,209,600

P4,200,000
120,000
x 3.00

## Depreciable cost in 2013

Less depreciation expense for 2013 (120,000 units x 0.20)
Depreciable cost for 2014
Revised estimated recovery at January 1, 2014
Revised depreciation rate for 2014
5-39.

## (Yap Machine Shop)

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

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

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

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

3.

Equipment
Cash

298,000

4.

Land
Income from Donated Asset

400,000

298,000

8,000,000
7,800,000

51

Cash
5.

## Income from Donated Asset

Cash

240,000

6.

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

150,000
15,000

7.
b.

Building
Cash

Beginning balance
(3)
(4)
(6)
(7)
Total
Balance

5-40.

200,000

240,000

22,000
40,000
103,000

28,000,000
28,000,000
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, 2013
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%)
P900,000
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
P180,000
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)
Machine destroyed by fire
Insurance recovery

52

P 40,000
54,000
P155,000

P(14,000)

## Chapter 5- Property, Plant and Equipment

Book value of machine (230,000 x 4/10 )
Net gain from disposal of assets

92,000

63,000
P 49,000

Theory
MC1

MC11

MC2

MC12

MC3

MC13

MC4

MC14

MC5

MC15

MC6

MC16

MC7

MC17

MC8

MC18

MC9

MC19

MC1
0

MC20

Problems
MC36
MC37
MC38
MC39
MC40

D
C
D
D
C

MC41

MC42

MC43

MC44

MC45

MC46
MC47

B
A

MC48

MC49

MC2
1
MC2
2
MC2
3
MC2
4
MC2
5
MC2
6
MC2
7
MC2
8
MC2
9
MC3
0

D
B
D
B
D

MC3
1
MC3
2
MC3
3
MC3
4
MC3
5

D
C
C
C
D

D
C
A
C
B

## 14,400,000 x 5/20 = 3,600,000

200,000 + 3,000 + 6,000 = 209,000
Cost of equipment is the fair value of FVPL exchanged
(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;7 00,000 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
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
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

53

MC50
MC51

C
A

MC52

MC53

MC54
MC55

B
A

MC56

MC57
MC58
MC59
MC60

A
D
D
C

MC61
MC62

C
A

MC63

MC64

MC65

MC66

MC67
MC68
MC69
MC70

D
C
B
B

MC71

MC72
MC73

D
C

MC74

MC75

## 77,000 x 6/36 = 12,833

240,000 12,000 = 228,000; 228,000 120 mos = 1,900; 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
240,000 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400
90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD
90,000 x 2/15 = 12,000
160,000/4 = 40,000; 400,000/40,000 = 10 years
240,000 40,000 = 200,000; 200,000 65,000 = 135,000
900,000 420,000 = 480,000; 480,000 300,000 = 180,000
(900,000 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000
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
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
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
P0 for Quarry No. 1 since the asset is not owned.
1M 300,000 = 700,000; 700,000 100 M = 0.007/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
(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; 4M 1.6M = 2.4M; 3,240,000 2,400,000 = 840,000
4,000,000 160,000 = 25 years; 25 10 = 15 years; 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
160,000128,750=31,250; 500,00031,250 =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

54