Property, Plant and Equipment

1. Newcastle Ltd uses many kinds of machines in its operations. It constructs some of these machines itself and acquires others from
the manufacturers. The following information relates to machine A that it has recorded during 2014.
Cash paid for equipment, including VAT of 9,600 89,600
Cost of transporting machine – insurance and transport 3,000
Labor cost of installation by expert fitter 5,000
Labor cost of testing equipment 4,000
Insurance cost for 2014 1,500
Costs of training for personnel who will use the machine 2,500
Costs of safety rails and platforms surrounding machine 6,000
Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine to make it operate more efficiently 7,500

Determine the amount at which machine A should be recorded in the records of Newcastle Ltd?

2. Sunflower Company acquired some new equipment. The following data have been made available to you:
List price of the equipment 14,000
Cash discount available but not taken on purchase 200
Freight paid on the new equipment 250
Cost of removing the old equipment 170
Installation cost of the new equipment 430
Testing cost before the equipment was put to regular operation
(including 120 in wages of the regular equipment operator) 295
Loss on premature retirement of the old equipment 120
Estimated cost of manufacturing similar equipment in the
company's own plant including overhead 13,800

What amount should be capitalized as the cost of the new equipment?

3. White Airlines sold a used jet aircraft to Brown Company for 800,000, accepting a five-year 6% note for the entire amount.
Brown’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be 189,930. The
aircraft could have been sold at an established cash price of 651,460. The present value of an ordinary annuity of 1 at 8% for five
periods is 3.99. The aircraft should be capitalized on Brown’s books at

4. Imus Company acquired two items of machinery as follows:

* On December 30, 2014, Imus Company purchased a machine in exchange for a non-interest bearing note requiring three payments
of 1,000,000. The first payment was made on December 30, 2014, and the others due annually on December 30. The prevailing rate of
interest for this type of note at date of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 1.69 for two periods
and 2.40 for three periods. The new machine was damaged during its installation and the repair cost amounted to 50,000.
* On January 1, 2014, Imus Company acquired used machinery by issuing to the seller a three-year, non-interest bearing note for
3,000,000. In recent borrowing, Imus has paid a 12% interest for this type of note. The present value of 1at 12% for 3 years is 0.71.

What is the total cost of the machinery?

5. On September 1, 2014, Ron Corporation issued 10,000 shares of its P25 par treasury ordinary shares for a parcel of land intended as
a future plant site. The treasury shares were acquired by Ron at a cost of P30 per share. Ron’s ordinary share had a fair market value
of P40 per share on September 1, 2014. Ron received 50,000 from the sale of scrap when an existing structure on the site was razed.
At what amount should the land be carried?

6. In January 201, Bell Company exchanged an old machine, with a book value of 39,000 and a fair value of 35,000 and paid 10,000
cash for a similar used machine having a list price of 50,000. The transaction has a commercial substance. At what amount should the
machine acquired in the exchange be recorded on the books of Bell?

7. Aquator Motor Sales exchanged a car for a computer to be used as a noncurrent operating asset. The following information relates
to this exchange that took place on July 31, 2014:
Carrying amount of the car 30,000
Listed selling price of the car 45,000
Fair value of the computer 43,000
Cash difference paid by Aquator 5,000

On July 31, 2014, how much profit should Aquator recognize on this exchange?
8. Amble, Inc. exchanged a truck with a carrying amount of 12,000 and a fair value of 20,000 for a truck and 2,500 cash. The cash
flows from the new truck are not expected to be significantly different from the cash flows of the old truck. The fair value of the truck
received was 17,500. At what amount should Amble record the truck received in the exchange?

9. A used delivery truck was traded in for a new truck. Information relating to the trucks follows:
Used truck
Cost 1,600,000
Accumulated depreciation 1,200,000
Estimated current fair value 320,000
New truck
List price 2,000,000
Cash price without trade-in 1,900,000
Cash price with trade-in 1,560,000

The amount that should be capitalized as the cost of the new truck is

10. The Royal Furniture Mfg. Co. fabricated furniture and fixtures for its office use in the company’s plant during 2014. The
following data were taken from the company’s records:
Materials Direct Labor
Finished goods 100,800 151,200
Office furniture & fixtures 67,200 50,500

Factory overhead amounted to 134,000. Normal production of finished goods results to 420 units. Due to the fabrication of office
furniture and fixtures, finished goods produced totaled 294 units only in 2014. The assets are to be charged with the overhead which
would have been apportioned to the 126 units which were not produced.

What is the total cost of office furniture and fixtures?

11. On May 1, 2014, Lenny Corporation purchased for 690,000 a tract of land on which a warehouse and a office building were
located. The following data were collected concerning the property:
Current Assessed Valuation Vendor’s Original Cost
Land 280,000 180,000
Warehouse 320,000 315,000
Office Building 200,000 129,000

Determine the appropriate amount that Lenny should charge to land.

12. Altitude Company purchased a plot of land for 2,000,000 as a plant site. There was a small office building on the plot,
conservatively appraised at 700,000 which the company will continue to use with some modification and renovation. The company
constructed a new plant on the newly acquired land. Below are the items that may be included in the property, plant and equipment
accounts.

Materials and supplies 3,000,000

Excavation 100,000
Labor on construction 2,500,000
Cost of remodeling office building 200,000
Legal cost of conveying land 10,000
Imputed interest on corporation own money
used during the construction 120,000
Cash discounts on materials purchased not taken 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 140,000
Payment for claim for injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000

The land should be reported at

13. The factory building should be reported at

14. During 2014, Cavite Company made the following property, plant and equipment expenditures:
Land and building acquired from Bacoor Company 9,000,000
Repairs made to the building 300,000
Special tax assessment 50,000
Remodeling of office space including new partitions and walls 400,000

In exchange for the land and building acquired from Bacoor, Cavite issued 60,000, P100 par value, ordinary shares. On the date of
purchase, the shares had a market value of 150 per share and the land and building had a fair value of 2,000,000 and 6,000,000
respectively. During the year, Cavite also received land from a shareholder to facilitate the construction of a plant in the city. Cavite
paid 100,000 for the land transfer and charged this amount to legal expenses. The land is fairly valued at 1,500,000.

The cost of the land and building acquired should respectively be

15. During 2014, King Company made the following expenditures relating to its plant building:
Continuing and frequent repairs 40,000
Repainted the plant building 10,000
Major improvements to the electrical wiring system 32,000
Partial replacement of roof tiles 14,000

How much should be charged to repairs and maintenance expense in 2014?

16. During 2014, Dasmariñas Company installed a production assembly line to manufacture furniture. In 2014, Dasmariñas purchased
a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life
of the assembly line but it did result in significantly more efficient production. The following expenditures were incurred in
connection with this project:
Machine 5,000,000
Labor to install new machine 400,000
Parts added in rearranging the assembly line to provide future benefits 2,000,000
Labor and overhead to rearrange the assembly line 600,000

What amount of the above expenditures should be capitalized in 2014?

17. On January 1, 2014, Carmona Company received a grant of 50 million from the British government in order to defray safety and
environmental costs within the area where the enterprise is located. The safety and environmental costs are expected to be incurred
over four years, respectively: 4 million, 8 million, 12 million and 16 million. How much income from the government grant should be
recognized in 2014?

18. On January 1, 2013, Indang Company received a grant of 50 million from the US government for the construction of a laboratory
and research facility with an estimated cost of 60 million and useful life of 25 years. The facility was completed in in early 2014.
Indang Company should include in its 2014 income statement an income from the government at

19. Citimart Inc. was granted a parcel of land by a local government authority. The condition attached to this grant was that Citimart
Inc. should clean up this land and lay roads by employing laborers from the village in which the land is located. The entire operation
will take three years and is estimated to cost 100 million. This amount will be spent in this way: 20 million in each of the first and
second year and 60 million in the third year. The fair value of this land is currently 120 million. How much should be recognized as
income from government grant at the end of the first year?

20. Lively Inc. received a consolidated grant of 120 million. Three-fourths of the grant is to be utilized to purchase a college building
for students from underdeveloped or developing countries. The balance of the grant is for subsidizing the tuition costs of those
students for four years from the date of grant. The college building, which costs 100 million, will be depreciated using the straight-line
method over 10 years. Assuming that the tuition subsidy will be offered evenly over the period of 4 years, the amount that should be
recognized as income at the end of year 1 is

21. On January 1, 2014, Kontratista Corp. began construction of homes for those families that were hit by the tsunami disaster and
were homeless. The construction is expected to take 3.5 years. It is being financed by issuance of bonds for 7 million at 12% per
annum. The bonds carry a 1.5% issuance cost. The project is also financed by issuance of 3 million share capital with a 14% cost of
capital. How much should be capitalized as borrowing cost in 2014? (Use the straight-line amortization method)
22. Maragondon Company had the following borrowings during 2014. The borrowings were made for general purposes but the
proceeds were used in part to finance the construction of a new building:
Principal Interest
12% bank loan 10,000,000 1,200,000
15% long-term loan 20,000,000 3,000,000

The construction began on January 1, 2014 and was completed on December 31, 2014. Expenditures on the building were made as
follows:
January 1 8,000,000
June 30 8,000,000
December 31 4,000,000

The capitalizable borrowing costs is

23. During 2014, Grant Industries, Inc. constructed a new manufacturing facility at a cost of 12,000,000. The weighted average
accumulated expenditures for 2014 were calculated to be 5,400,000. The company had the following debt outstanding at December
31, 2014:
* 10%, five-year note to finance construction of the manufacturing facility, dated January 1, 2014, 3,600,000
* 12%, 20-year bonds issued at par on April 30, 2010, 8,400,000
* 8%, six-year note payable, dated March 31, 2013, 1,800,000

Determine the amount of interest to be capitalized by Grant Industries for 2014.

24. Lodi Department Stores, Inc. constructs its own stores. Management’s policy is to include interest as part of the cost of new store
just being completed. Additional information follows:
January 2, 2013 600,000
May 1, 2013 600,000
November 1, 2013 500,000
March 1, 2014 700,000
September 1, 2014 400,000
December 31, 2014 500,000
Total construction expenditures 3,300,000

Outstanding company debt

Mortgage related directly to new store; interest rate, 12%,
term, 5 years from beginning of construction 1,000,000

General liability
Bonds issued just prior to construction of store,
interest rate, 10% for 10 years 500,000
Bonds issued just prior to construction,
interest rate, 8%, mature in 5 years 1,000,000
Estimated cost of equity 14%

The capitalizable borrowing cost for 2013 is

25. The capitalizable borrowing cost for 2014 is

Depreciation
1. Holdaway, Inc., a small furniture manufacturer, purchased the following assets at the end of 2014
Description Cost Salvage Life
Delivery truck 24,000 5,000 5 years
Circular saws 900 130 7 years
Workbench 320 8 years
Forklift 9,000 500 5 years

The group depreciation rate is

2. Takatak, Inc. uses the group depreciation method for its furniture account. The depreciation rate used for furniture is 21%. The
balance in the furniture account on December 31, 2013 was 125,000 and the balance in Accumulated depreciation – furniture was
61,000. The following purchases and dispositions of furniture occurred in 2014 (assume that all purchases and disposals occurred at
the beginning of each year).
Assets sold
Assets purchased Cost Selling price
35,000 27,000 8,000

The depreciation for 2014 is

3. On January 1, 2012, Paete Company signed a 12-year lease for a building. Paete has an option to renew the lease for an additional
8-year period on or before January 1, 2016. During 2014, Paete made substantial improvements to the building. The cost of the
improvements was 3,600,000, with an estimated useful life of 15 years. At December 31, 2014, Paete intended to exercise the renewal
option. Paete has taken a full year’s amortization on this improvement. The carrying amount of this leasehold improvement on
December 31, 2014 should be

4. Bongabon Corporation acquired a machine in the first week of July 2013 and paid the following bills:
Invoice price 5,000,000
Freight in 50,000
Installation cost 150,000
Cost of removing the old machine 100,000

The estimated life of the machine is 8 years or a total of 100,000 working hours with no salvage value. The operating hours of the
machine totaled: 2013 – 5,000 hours; 2014 – 12,000 hours. The company follows the working hours method of depreciation. On
December 31, 2014, the carrying amount of the machine is

5. Cabiao Company purchased a machine on December 2, 2013 at an invoice price of 4,500,000 wit terms 2/10, n/30. On December
10, 2013, Cabiao paid 80,000 for delivery of the machine and on December 31, 2013, it paid 310,000 for installation and testing of the
machine. The machine was ready for use on January 1, 2014. It was estimated that the machine would have a useful life of 5 years and
a residual value of 800,000. Engineering estimates indicated that the useful life in productive units was 200,000. Units actually
produced during the first two years were 30,000 in 2014 and 48,000 in 2015. Cabioa Company decided to use the productive output
method of depreciation. What is the depreciation of the machine for 2014?

6. A factory equipment with an estimated useful life of 10 years was purchased by Carranglan Co. on December 30, 2010. The
equipment was expected to have a residual value of 5,000 at the end of its service life. The sum of the years’ digit method was used in
computing depreciation. For the year ended December 31, 2014, the depreciation applicable to this equipment was 42,000. The cost of
the factory equipment purchased on December 30, 2010 was

7. Cuyapo Company purchased a machine in January 2, 2013 for 500,000. The machine has an estimated useful life of five years and a
salvage value of 50,000. Depreciation was computed by the 150% declining balance method. The accumulated depreciation balance at
December 31, 2014 should be

8. Pantabangan Company takes a full year’s depreciation in the year of an assets acquisition and no depreciation in the year of
disposition. Data relating to one depreciable asset acquired in 2012 with residual value of 900,000 and estimated useful life of 8 years,
at December 31, 2013 are:
Cost 9,900,000
Accumulated depreciation 3,750,000

Using the same depreciation method in 2012 and 2013, how much depreciation should Pantabangan record in 2014 for this asset?

9. Bugis Corp. acquired a machine on January 1, 2006. Details of the machine at December 31, 2013 are given below:
Component Cost Depreciation basis
Engine 170,000,000 Useful life of 40,000 hours
Outer casings 510,000,000 25 years, straight line
Other components 255,000,000 12 years, straight line
756,000,000

During the year 2014, the following events took place:

I. Engine, which had run for 30,000 hours till date developed serious snags. It was replaced by a better engine with a cost of 238
million and estimated life of 50,000 hours. The new engine was used for 5,000 hours during the year.
II. Polishing and painting was done to the outer casings at a cost of 1.3 million
III. Other components were upgraded at a cost of 102 million. The remaining life of the other components is 5 years
Compute the total depreciation for the year 2014, assume that all the work mentioned above was completed at the beginning of 2014.
10. Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2008 at a cost of 10 million. The estimated useful life is 10
years. On January 1, 2014, the power train requires replacement, as further maintenance is uneconomical due to the off-road time
required. The remainder of the vehicle is perfectly roadworthy and is expected to last for the next four years. The cost of the new
power train is 4.5 million.
Assuming that the original cost of the power train is 3 million, the total depreciation expense in 2014 is

11. Assuming that the original cost of the power train is not separately identifiable and the appropriate discount rate is 5%, the total
depreciation expense in 2014 is

12. Natividad Company purchased a tooling machine in 2004 for 3,000,000. The machine was being depreciated on the straight line
method over an estimated useful life of twenty years, with no salvage value. At the beginning of 2014, when the machine had been in
use for ten years, the company paid 600,000 to overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional five years. What should be the depreciation expense recorded for the
machine in 2014?

13. Tenorio Company purchased a machine for 100,000 on January 1, 2011, with the following additional items paid or incurred
Separation pay for laborer paid off upon acquisition
of new machine 1,200
Loss on sale of machine replaced 1,300
Transportation in 1,000
Installation cost 4,000

The new machine is estimated to have useful life of 10 years and a residual value of 4,000. On January 1, 2014, new parts which cost
12,600 were added to the machine so as to reduce its fuel consumption, but with no change in its estimated life or residual value. The
annual depreciation charge on the machine for 2014 was

14. Guimba Co. purchased equipment on January 2, 2012 for 50,000. The equipment had an estimated 5-yearservice life. Guimba’s
policy for 5-year assets is to use the 200% double declining balance depreciation method for the first two years of the asset’s life and
then switch to the straight line depreciation method. In its December 31, 2014 balance sheet, what amount should Guimba report as
accumulated depreciation for the equipment?

Depletion of Wasting Asset

1. Zambales Company acquired property in 2014 which contain mineral deposit. The acquisition cost of the property was 20,000,000.
Geological estimates indicate that 5,000,000 tons of mineral may be extracted. It is further estimated that the property can be sold for
5,000,000 following mineral extraction. For 2,000,000, Zambales is legally required to restore the land to a condition appropriate for
resale. After acquisition, the following costs were incurred:
Exploration cost 13,000,000
Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000

The company extracted 600,000 tons of the mineral in 2014 and sold 450,000 tons. In the 2014 income statement, what amount of
depletion is included in cost of sales?

2. Natural Inc. embarked on a new venture in Northern Luzon in 2014. It expects to glean 2,000,000 ounces of a precious ore from its
holdings there, over several years. Relevant data follow:
Cost of the Mineral Rights 500,000
Exploration cost, 2014 (1/3 successful) 1,500,000
Extraction cost, 2014 2,000,000
Ore extracted, 2014 500,000 oz.
Ore sold, 2014 300,000 oz.

What is the depletion for 2014, using the successful efforts method of accounting for exploration costs?

3. On January 1, 2014, Major Company purchased a uranium mine for 800,000. On that date, Major estimated that the mine contained
1,000 tons of ore. At the end of the productive years of the mine, Major Company will be required to spend 4,200,000 to clean up the
mine site. The appropriate discount rate is 8% and it is estimated that it will take approximately 14 years to mine all the ore. Major
uses the productive output method of depreciation. During 2014, Major extracted 100 tons of ore from the mine. Compute the amount
of depletion for 2014.

4. Burns Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 30 years,
at which time Burns will be required to completely decontaminate the land. The purchase price for the land is 500,000. Burns knows
that the land will have to be decontaminated but isn’t sure which of the several possible approaches will be sufficient to reach the level
of decontamination necessary by law. The costs of each approach, and the estimated probability that the approach will be the one used,
follow:
Approach 1 – 10% probability of total decontamination cost of 5,000 at the end of 30 years
Approach 2 – 20% probability of total decontamination cost of 100,000 at the end of 30 years
Approach 3 – 70% probability of total decontamination cost of 1,500,000 at the end of 30 years

Assuming that the appropriate interest rate is 8%, the cost of the nuclear waste repository is

5. Botolan Company quaries limestone, crushes it and sells it to be used in road building. Botolan paid 20,000,000 for a certain quarry
on January, 1, 2013. The property can be sold for 4,000,000 after production ceases. The original total estimated reserves totaled
5,000,000 tons. Botolan quarried 500,000 tons in 2013 and 1,500,000 tons in 2014. An engineering study performed in 2014 indicated
that as of December 31, 2014, 4,500,000 tons were available. Botolan Company should record 2014 depletion at

6. Masinloc Company purchased a tract of resource land in 2013 for 39,600,000. The content of the tract was estimated at 1,200,000
units. When the resource has been exhausted, it is estimated that the land will be worth 1,200,000. Fixed installations were set up at a
cost of 9,600,000. Mining equipment was purchased on January 2, 2014 for 12,400,000. The life of the fixed installations is 8 years
and the equipment, 4 years. In 2014, 120,000 units have been extracted. This was one half of the annual extraction which can be
expected following the first year of operations. Masinloc Company should record total depreciation for 2014 at

7. Leyte Company constructed a building costing 15,000,000 on a mine property. The building has an estimated life of 6 years with no
salvage value. After all the resources is removed expectedly over 5 years, the building will be of no use. The estimated recoverable
output from the mine is 1,000,000 tons. During the first year, Leyte produced 200,000 tons but there was shut down and not output in
the second year. In the third year, Leyte resumed operations and produced 300,000 tons. Leyte Company should record depreciation of
the building in the third year at

8. ABC Company provides the following balances at the end of 2014:

Wasting asset, at cost 80,000,000
Accumulated depletion 20,000,000
Retained earnings 10,000,000
Capital liquidated 15,000,000
Depletion based on 100,000 units extracted at 50 per unit 5,000,000
Inventory of resource deposit (20,000 units) 2,000,000

Compute for the maximum amount of dividend that ABC can declare on December 31, 2014.

Revaluation Model
1. Tyke Corporation has the following information on January 1, 2014 relating to its land and building.
Land 20,000,000
Building 450,000,000
Accumulated Depreciation 75,000,000

There were no additions or disposals during 2014. Depreciation is computed using straight-line method over 15 years for building. On
June 30, 2014, the land and building were revalued as follows:
Replacement cost Depreciated replacement cost
Land 35,000,000 35,000,000
Building 600,000,000 485,000,000

The depreciation expense for the year 2014 is

2. The revaluation surplus as of December 31, 2014 is

3. Tycoon Corporation acquired a building on January 1, 2010 at a cost of 50 million. The building has an estimated life of 10 years
and residual value of 5,000,000. The building was revalued on January 1, 2014 and the revaluation revealed replacement cost of 80
million, residual value of 2,000,000 and revised total life of 12 years. The carrying amount of building as of December 31, 2014 is

4. The revaluation surplus as of December 31, 2014 is

5. On December 31, 2013, the statement of financial position of Twitter Corporation showed the following property and equipment
after charging depreciation:
Building 3,000,000
Accumulated depreciation (1,000,000) 2,000,000

Equipment 1,200,000
Accumulated depreciation (400,000) 800,000
The company has adopted the revaluation model for the valuation of property and equipment. This has resulted in the recognition in
prior periods of an asset revaluation surplus for the building of 140,000. On December 31, 2013, an independent valuer assessed the
fair value of the building to be 1,600,000 and the equipment to be 900,000. The building and equipment had remaining useful lives of
25 years and 4 years respectively as of December 31, 2013.

The amount to be recognized in 2013 profit or loss related to the revaluation of property and equipment is

6. The net amount to be recognized in comprehensive income for 2013 related to the revaluation of property and equipment is

7. The carrying amount of property and equipment as of December 31, 2014 is

8. The revaluation surplus as of December 31, 2014 is