Professional Documents
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16 Property Plant and Equipment
16 Property Plant and Equipment
1. During 2005, 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
shares of its P100 par value common stock. On the date of purchase, the stock had a
market value of P150 per share and the land and building had fair value of P2,000,000
and P6,000,000 respectively.
During the year, Cavite also received land from a shareholder to facilitate the
construction of a plant in the city. Cavite paid P100,000 for the land transfer and
charged this amount to legal expenses. The land is fairly valued at P1,500,000.
4. In December 2005, Kawit Company exchanged an old machine, with a cost P6,000,000
and 50% depreciated, for a dissimilar used machine and paid a cash difference of
P1,500,000. The fair value of the old machine was determined to be P2,000,000.
Kawit should record the machine at
a. 6,000,000
b. 2,000,000
c. 3,500,000
d. 3,000,000
5. Romblon Company and Looc Company are fuel oil distributors. To facilitate the
delivery of oil to customers. Romblon and Looc exchanged ownership of 5,000 barrels
of oil without physically moving the oil. Romblon paid Looc P9,000,000 to compensate
for a difference in the grade of oil. On the date of exchange, cost and fair value of oil
were:
Romblon Company Looc Company
Cost 45,000,000 40,000,000
Fair value 51,000,000 60,000,000
3. In Looc’s income statement, what amount of gain should be reported from the
exchange of oil?
a. 20,000,000
b. 6,000,000
c. 3,000,000
d. 0
Equipment 10,000,000
Accumulated depreciation 3,500,000
Fair value 8,000,000
Cash received on exchange 2,000,000
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