PPE INITIAL MEASUREMENT

ASSIGNMENT

1. Roger has the following assets as of year-end.

Land held for capital appreciation 3,600,000

Manufacturing equipment purchased under installment basis 3,000,000
Patents 400,000
Land used in business 5,000,000
Land held for resale 2,200,000
Building owned, used as warehouse 1,500,000
Servicing equipment – used in building maintenance; estimated to have a 20-year 3,000,000
useful life
Small tools and minor spare parts – used in equipment maintenance 200,000
Safety and environmental equipment – required for ISO and DENR accreditation 450,000
How much is total PPE?

2. Roger Co. acquired an item of PPE at the beginning of the year. The invoice price is
Php 2,500,000 subject to a prompt discount of 3% which was not taken. Necessary installation
costs amounted to Php 50,000. Legislation requires that Roger decommission the asset at the end
of the asset’s useful life of 10 years. Decommission costs amount to Php 200,000. The rate current
as of acquisition date is 12%. How much is PPE?

3. On December 30, 2008, Roger Co. purchased a machine from Ming Inc. in exchange for a
noninterest bearing note requiring eight payments of Php 200,000. The first payment was made on
December 30, 2008, and the others are due annually on December 30. At date of issuance, the
prevailing rate of interest for this type of note was 11%. How much is the cost of the machine?

4. Roger Co. purchased land as a factory site for Php 1,000,000. An old building stands on the
purchased land. The land and the old building have fair values of Php 1,100,000 and Php 100,000,
respectively. Roger paid Php 40,000 to tear down the building. Salvage materials were sold for Php
5,400. Legal fees of Php 3,480 were paid for title investigation and making the purchase.
Architect’s fees were Php 41,200. Title insurance cost of Php 2,400 and liability insurance during
construction cost Php 2,600. Excavation cost Php 10,440. The contractor was paid Php 2,400,000.
An assessment made by the city for pavement was Php 6,400. Interest costs during construction
were Php 170,000. The interest costs qualify for capitalization.
Compute for:
a. Cost of land
b. Cost of the new building

5. Roger and Ming exchanged ownership of 1,200 wine barrels. Roger paid Ming Php 300,000 to
compensate for the difference in the quality of the barrels. The carrying amounts and fair values on
the date of the exchange were as follows:

Roger Ming
Carrying amount 1,000,000 1,400,000
Fair value 1,200,000 1,500,000

a. Provide the journal entries in each of the books of Ming assuming the transaction has
commercial substance.

b. Provide the journal entries in each of the books of Roger assuming the transaction has no
commercial substance.

6. On January 22, 20x1, Roger Co. traded in an old machine for a new model. Data relative to the
old and new machines follow:
Old machine
Historical cost 800,000
Accumulated depreciation as of January 2, 20x1 600,000
Average published retail value 170,000

New machine
List price 1,000,000
Cash price without trade in 900,000
Cash paid with trade in 780,000
Compute for the initial measurement of the new machine.

1
7. Roger Co. acquired land and paid for it in full by issuing Php 600,000 of its 10 percent bonds
payable and 40,000 shares of its common stock, par Php 10. The stock was selling at Php 19 per
share and the bonds were trading at 102. The fair value of the land is not readily determinable.
What amount should Roger record as cost of the land?

8. On February 1, 2001, Roger Co. purchased a parcel of land as a factory site for
Php 320,000. An old building on the property was demolished and construction begun on a new
warehouse that was completed April 15, 2002. The fair values of land and old building on
acquisition date were Php 297,000 and Php 33,000, respectively. Costs incurred on the
construction project are listed below:

Demolition of old building 21,000

Architect’s fees 31,700
Legal fees – title investigation 4,100
Construction costs 950,000
Imputed interest based on stock financing 14,000
Landfill for building site 19,300
Clearing of trees from building site 9,600
Temporary buildings used for construction activities 29,000
Land survey 4,000
Excavation for basement (Salvage materials from demolition sold for Php 13,200
1,800; Timber sold for Php 3,300)

Determine the cost of the land and new building.

9. Roger purchased a lot for Php 2,000,000. Immediately after the purchase, Roger started
construction of a new building on the lot. The following were additional costs incurred by Roger.
Legal cost of conveying land 10,000
Special assessment 5,000
Survey costs 15,000
Materials, labor and overhead costs 5,500,000
Cash discounts on materials purchased not taken 30,000
Clerical and other expenses related to construction 14,000
Excavation costs 100,000
Architectural fees and building permit 60,000
Supervision by management on construction 12,000
Insurance premiums paid for workers 130,000
Payment for claim for injuries not covered by insurance 45,000
Savings on construction 200,000
Cost of changes to plans and specifications due to inefficiencies 140,000
Paving of streets and sidewalk (not included in blueprint) 10,000
Income earned on a vacant space rented as parking lot during construction 9,000

Compute for the cost of:

a. Land
b. Land improvement
c. New building

MIAW