A1 - Property, Plant, & Equipment

 In connection with your examination of the financial statements of the Maraat

Corporation for the year 2007, the company presented to you the Property, Plant and

Equipment section of its balance sheet as of December 31, 2006, which consists of the

following:

                   Land                                                 P    400,000

                   Buildings                                              3,200,000

                   Leasehold improvements                         2,000,000

                   Machinery and equipment                        2,800,000

The following transactions occurred during 2007:

1.  Land site number 5 was acquired for P4,000,000.  Additionally, to acquire the land, Maraat

Corporation paid a P240,000 commission to a real estate agent.  Costs of P60,000 were incurred

to clear the land.  During the course of clearing the land, timber and gravel were recovered and

sold for P20,000.

2.  The second tract of land (site number 6) with a building was acquired for P1,200,000.  The

closing statement indicated that the land value was P800,000 and the building value was

P400,000.  Shortly after acquisition, the building was demolished at a cost of P120,000.  The

new building was constructed for P600,000 plus the following costs:

              Excavation fees                                                               P 44,000

              Architectural design fees                                                      32,000

              Building permit fees                                                             4,000

              Imputed interest on funds used during construction                  24,000

     The building was completed and occupied on September 1, 2007.

3.  The third tract of land (site number 7) was acquired for P2,400,000 and was put on the

market for resale.

4.  Extensive work was done to a building occupied by Maraat Corporation under a lease

agreement.   The total cost of the work was P500,000, which consisted of the following:

     Particular                                                       Amount         Useful life

     Painting of ceilings                                P            40,000        one year

     Electrical work                                                140,000         Ten years

     Construction of extension to current

  working area                                           320,000         Thirty years

The lessor paid one-half of the costs incurred in connection with the extension to the current

working area.

5.  A group of new machines was purchased under a royalty agreement which provides for

payment of royalties based on units of production for the machines.  The invoice price of the

machines was P300,000, freight costs were P8,000, unloading charges were P6,000, and royalty

payments for 2007 were P52,000.

QUESTIONS:

1. Land at year-end is P 6 000 000

2. Buildings at year-end is P 3 880 000
3. Leasehold improvements at year-end is P 2 560 000
4. Machinery and equipment at year-end is P 3 114 000

 On August 1, 2010, Lisa Corporation purchased a new machine on a deferred payment

basis. A down payment of P2,000 was made and 4 annual installments of P6,000 each are

to be made beginning on September 1, 2010. The cash equivalent price of the machine was

P23,000. Due to an employee strike, Lisa could not install the machine immediately, and
 thus incurred P300 of storage costs. Costs of installation (excluding the storage costs)

amounted to P800.

The amount to be capitalized as the cost of the machine is P 23 800

 During self-construction of an asset by Richardson Company, the following were among

the costs incurred:

Fixed overhead for the year                                                                                  P1,000,000

Portion of P1,000,000 fixed overhead that would

be allocated to asset if it were normal production                                        60,000

Variable overhead attributable to self-construction                                            55,000

The amount of overhead should be included in the cost of the self-constructed asset is P 115 000

 Wilson Co. purchased land as a factory site for P600,000. Wilson paid P60,000 to tear

down two buildings on the land. Salvage was sold for P5,400. Legal fees of P3,480 were

paid for title investigation and making the purchase. Architect's fees were P31,200. Title

insurance cost P2,400, and liability insurance during construction cost P2,600.

Excavation cost P10,440. The contractor was paid P2,200,000. An assessment made by

the city for pavement was P6,400. Interest costs during construction were P170,000.

QUESTIONS:

1. The cost of the land that should be recorded by Wilson Co. is P 666 880
2. The cost of the building that should be recorded by Wilson Co. is P 2 414 240

 On January 2, 2010, York Corp. replaced its boiler with a more efficient one. The

following information was available on that date:

Purchase price of new boiler                                                                    P150,000

 Carrying amount of old boiler                                                                        10,000

Fair value of old boiler                                                                                        

4,000

Installation cost of new boiler                                                                       20,000

The old boiler was sold for P4,000. What amount should York capitalize as the cost of

the new boiler? P 170 000

 The trial balance of Aguilar Enterprises on December 31, 2006 shows P350,000 as the

unaudited balance of the Machinery account.  On April 1, 2006, a Jucuzzi machine

costing P40,000 with accumulated depreciation of P30,000 was sold for P20,000, which

proceeds was credited to the Machinery account.  On June 30, 2006, a Goulds machine,

costing P50,000 and with accumulated depreciation of P22,000 was traded in for a new

Pioneer machine with an invoice price of P100,000.  The cash paid of P90,000 for the

Pioneer machine (P100,000 less trade-in allowance of P10,000 was debited to the

Machinery account).

Company policy on depreciation which you accept, provides an annual rate of 10% without

salvage value.  A full year’s depreciation is charged in the year of acquisition and none in the

year of disposition.

QUESTIONS:

1.  The adjusted balance of the Machinery account at December 31, 2006 is P 290 000
2.  The correct depreciation expense for the machinery for the year ended December 31, 2006 is

P 29 000
 Two independent companies, KAYA and MUYAN, are in the home building business.

Each owns a tract of land for development, but each company would prefer to build on

the other’s land.  Accordingly, they agreed to exchange their land.  An appraiser was

hired and from the report and the companies records, the following information was

obtained:

                                                KAYA Co.’s Land                 MUYAN Co.’s Land

Cost (same as book value)              P   800,000                           P 500,000

Market value, per appraisal              1,000,000                               900,000

The exchange of land was made and based on the difference in appraised values, MUYAN

Company paid P100,000 cash to KAYA Company.

Questions:

1. For financial reporting purposes, KAYA Company would recognize a pretax gain on the
exchange in the amount of P 200 000
2.  For financial reporting purposes, MUYAN Company recognize a pretax gain on the
exchange in the amount of P 400 000
3.  After the exchange, KAYA Company record its newly acquired land at P 900 000
4.  After the exchange, MUYAN Company record its newly acquired land at P 1 000 000