UNIVERSITY OF LUZON

POZORRUBIO
ACC415
Practice Problems: BIOLOGICAL ASSETS

1. Forester company provided the following assets in a forest plantation and farm:

Freestanding trees 5,000,000

Land under trees 600,000
Roads in forests 300,000
Animals related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000
a. What is the total amount of the assets should be classified as biological assets? 7M

2. Honey Company has a herd of 10 2-year old animals on January 1, 2016. One animal aged 2.5
years was purchased on July 1, 2016 for P108, and one animal was born on July 1, 2016.
No animal were sold or disposed of during the year. The fair value less cost of disposal per unit is
as follows:

2-year old animal on January 1 100

2.5-year old animal on July 1 108
New born animal on July 1 70
2-year old animal on December 31 105
2.5-year old animal on December 31 111
New born animal in December 31 72
3-year old animal on December 31 120
0.5-year old animal on December 31 80
a. What is the fair value of the Biological assets on December 31? 1,400
b. What amount of gain from change in fair value of biological assets should be recognized in
the current year? 292
c. What is gain from change in fair value due to price change? 55
d. What is gain from change in fair value due to physical change? 237
e. Prepare all related journal entries.

Jul 1 Biological asset 70

Gain on initial recognition 70

Jul 1 Biological asset 108

Cash 108

Dec 31 Biological asset 55

Gain due to price change 55

Dec 31 Biological asset 167

Gain due to physical change 167

3. Bear Company produced milk for sale to local and national ice cream producers. The entity began
operations at the beginning of current year by purchasing 650 milk cows for P8,000,000.

The entity provided the following information for the current year:

Acquisition cost, January 1 8,000,000

Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest 250,000
Milk harvested during the year but not yet sold 400,000
a. What amount of gain on change in fair value should be recognized for biological asset in the
current year? 2,250,000
b. What amount of gain on change in fair value should be reported for agricultural produce for
current year?
 Inventory 400,000

Gain on agricultural produce 400,000

4. Salve Company is engaged in raising dairy livestock. The entity provided the following
information during the current year:

Carrying amount on January 1 5,000,000

Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of
disposal attributable to price change 400,000
Gain arising from change in fair value less cost of
disposal attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000
a. What is the carrying amount of the biological asset on December 31? 6,950,000

5. On January 1, 2017, Farm Company planted trees on its land. The entity purchased the land two
years ago at a cost of P1,000,000. The trees were considered bearer plants and had accumulated
cost of P500,000 on December 31, 2016.

By January 1, 2017, the trees had matured and were expected to bear produce for a period of 5
years.

On December 31, 2017, the trees produced fruit and the fair value less cost of disposal on such
date was P50,000. There was no harvest during 2017.

On December 31, 2018, the fruits were harvested and the fair value less cost of disposal on such
date was P75,000.

a. What is the carrying amount of the property, plant and equipment on December 31, 2017?
1,400,000
b. What is the carrying amount of the biological asset on December 31, 2017? 50,000
c. What is the carrying amount of the biological asset on December 31, 2018? 0

Practice Problems: GOVERNMENT GRANTS

1. On January 1, 2018, She Company received a cash of P4,000,000 from a local government to be
used to defray safety hazard-related costs over a five-year period. It was estimated that such costs
will total P8,000,000 over the next five years. In 2018 and 2019, actual costs of safety and other
hazard-related costs amounted to P1,000,000 and 1,200,000, respectively.
Prepare all necessary journal entries in 2018 and 2019.

Gross Net
Cash 4M Cash 4M
Deferred income-GG 4M Deferred income-GG 4M

S&H expense 1M S&H expense 1M

Cash 1M Cash 1M

Deferred income-GG 500K Deferred income-GG 500K

Income from GG 500K S&H expense 500K

S&H expense 1.2M S&H expense 1.2M

Cash 1.2M Cash 1.2M

Deferred income-GG 600K Deferred income-GG 600K

Income from GG 600K S&H expense 600K
Assuming on January 1, 2020, the government demanded payment of the P4,000,000 given as
grant in 2018. Provide the necessary entry.
 Deferred income- GG 2.9M
Loss on repayment of GG 1.1M
Cash 4M

2. On January 1, 2018, He Company received a cash of P4,000,000 from a local government to be

used in constructing a building. The building is completed on December 31, 2018 for a total cost
of 10,000,000. The building will be depreciated over 20 years.
Prepare all necessary journal entries in 2018 and 2019.

Deferred income approach Deduction from asset approach

Cash 4M Cash 4M
Deferred income-GG 4M Deferred income-GG 4M

Building 10M Building 10M

Cash 10M Cash 10M

Depex 500K Deferred income-GG 4M

AD 500K Building 4M

Deferred income-GG 200K

Income from GG 200K Depex 300K
AD 300K
Depex 500K
AD 500K
Depex 300K
Deferred income-GG 200K AD 300K
Income from GG 200K
Assuming on January 1, 2020, the government demanded payment of the P4,000,000 given as
grant in 2018. Provide the necessary entry.

Deferred income- GG 3.6M Building 4M

Loss on repayment of 400K Loss on repayment of 400K
GG GG
Cash 4M AD 400K
Cash 4M

3. On January 1, 2019, various properties of Chaos Company were destroyed due to typhoon. It was
estimated that the cost of destroyed properties amounted to P15,000,000. On July 1, 2019, Chaos
received P2,000,000 from LGU Tacloban as a financial aid.
Provide all necessary journal entries in 2019.

Loss from flood 15M

Various assets 15M
Cash 2M
Income from GG 2M

4. On January 1, 2017, Love Company was granted by the government a 3-year, zero-interest loan
of P1,000,000 payable on December 31, 2019. Prevailing interest rate of this type of loan is 12%.
Provide all necessary journal entries in 2017.

Cash 1M
Discount on LP
Loan payable 1M
Deferred income – GG

Interest expense
Discount on LP

Deferred income – GG
 Income from GG

Practice Problems: DEPLETION OF MINERAL RESOURCES

1. A natural resource property was purchased by Global Company for 5,000,000. The output was
estimated to be 1M tons. Immovable mining equipment was acquired at the cost of P8M and a
movable heavy equipment acquired at 7M with a useful life of 7 years. The immovable
equipment has a useful life of 5 years but is capable of exhausting the resource in eight years.
Production is as follows:
First year 200,000 tons
Second year 250,000 tons
Third year None
Fourth year 100,000 tons
Compute depletion and depreciation for each of the four years

Year Depletion Movable Immovable

1
2
3
4

Compute depreciation on the immovable equipment assuming its useful life is 10 years.

Year Depreciation on immovable

1
2
3
4

Practice Problems: INVESTMENT IN ASSOCIATE

1. On January 1, 2019, an entity purchased 40% of the outstanding ordinary shares of another entity
for P5,000,000 when the net assets of the investee amounted to P10,000,000.

At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee
were equal to their fair value, except for land whose the fair value was P2,000,000 greater than
carrying amount and inventory whose fair value was P1,500,000 greater than cost.
 The land was sold in 2019 and one-half of the inventory was sold during 2019. During 2019, the
investee reported net income of P8,000,000, issued 10% stock dividends and paid cash dividends
of P2,500,000.

Purchase price 5,000,000

FVNIAA (5,400,000)
Gain on BP 400,000

Book value of net assets 10,000,000

Undervaluation of inventory 1,500,000
Undervaluation of land 2,000,000
Fair value of net assets 13,500,000
Multiply by: Interest acquired 40%
FVNIAA 5,400,000

Investment in associate 5,000,000

Cash 5,000,000

Investment in associate (8M x 40%) 3,200,000

Investment income 3,200,000

Investment income 800,000

Investment in associate 800,000
*Amort of Land (2M x 40%)

Investment income 300,000

Investment in associate 300,000
*Amort of inventory (750K*40%)

Investment in associate 400,000

Investment income 400,000
*Gain on Bargain Purchase

Cash (2.5M*40%) 1,000,000

Investment in associate 1,000,000

a. What is the investment income for 2019? _________________. 2.5M

b. What is the carrying amount of the investment on December 31, 2019? _______________.
6.5M

2. On January 1, 2019, an entity acquired 30% of the outstanding ordinary shares of another entity
for P2,000,000 which was equal to the carrying amount of interest acquired. The investee
reported net income of P800,000 for 2019 and paid dividend of P500,000 on December 31, 2019.

The investee reported net income of P1,000,000 for the six months ended June 31, 2020 and
P2,500,000 for the year ended December 31, 2020 but paid dividend of P1,000,000 on October 1,
2020.

On July 1, 2020, the investor sold half of the investment for P1,500,000. The fair value of the
retained investment is P1,600,000 on July 1, 2020 and P2,000,000 on December 31, 2020. The
retained investment is to be measured at FVPL.

2019
 Investment in associate 2,000,000
Cash 2,000,000

Investment in associate (800K x 30%) 240,000

Investment income 240,000

Cash (500K*30%) 150,000

Investment in associate 150,000

2020
Investment in associate (1M x 30%) 6 mo.s 300,000
Investment income 300,000

June 30 Sale of investment

Cash 1,500,000
Investment in associate 1,195,000
Gain on sale of investment 305,000
****************
Reclassification entry:
Financial asset at FVPL (date of 1,600,000
reclassification)
Investment in associate 1,195,000
Gain on reclassification 405,000

Cash (1M*15%) 150,000

Dividend income 150,000

Financial asset at FVPL 400,000

Unrealized gain - PL 400,000

a. What is the carrying amount of the investment before the disposal on June 30, 2020?
________________. 2.39M

b. What is the gain on sale of investment that should be reported for 2020? ________________.
305K

c. What total amount of income should be reported in 2020? _______________. 1.56M

3. On January 1, 2019, an entity acquired a 10% interest in an investee for P3,000,000. The
investment was accounted for under cost method. During 2017, the investee reported net income
of P4,000,000 and paid dividend of P1,000,000.

On January 1, 2020, the entity acquired a further 15% interest in the investee for P8,500,000. On
such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair
value of the existing 10% interest was P3,500,000. The fair value of the net assets of the investee
is equal to carrying amount except for an equipment whose fair value was P4,000,000 greater
than carrying amount. The equipment had a remaining useful life of 5 years.

The investee reported net income of P8,000,000 for 2020 and paid dividend of P5,000,000 on
December 31, 2020.

Purchase price 8,500,000

FV of PHI 3,500,000
Total 25% 12,000,000
 FVNIAA (10,000,000)
Goodwill 2,000,000

Book value of net assets 36,000,000

Undervaluation of equipment 4,000,000
Fair value of net assets 40,000,000
Multiply by: Interest acquired 25%
FVNIAA 10,000,000

2019
Financial asset 3,000,000
Cash 3,000,000

Cash 100,000
Dividend income 100,000

2020
Investment in associate 8,500,000
Cash 8,500,000

Investment in associate 3,500,000

Financial asset at FVPL 3,000,000
Reclassification gain 500,000

Investment in associate 2,000,000

Investment income 2,000,000

Investment income 200,000

Investment in associate 200,000

Cash 1,250,000
Investment in associate 1,250,000

a. What amount of investment income (income from investment) should be recognized in 2019?
_________. 100K

b. What amount of investment income should be recognized in 2020? _______________. 1.8M

c. What amount of gain on reclassification is to be recorded in profit or loss? ___________.

500K

d. What amount of gain on reclassification is to be recorded in other comprehensive income?

__________. 0

e. What is the carrying amount of the investment in associate on December 31, 2020?
___________. 12.55M

Practice Problems: INVESTMENT PROPERTY AND PPE

1. JM Company is contemplating on the appropriate depreciation pattern to apply one of its
manufacturing equipment

Year Straight-line SYD Double-declining

1 74,400 124,000 160,000
2 74,400 99,200 96,000
3 74,400 74,400 57,600
4 74,400 49,600 34,560
5 74,400 24,800 23,840
a. What is the cost of the machine? 400,000

2. Jasmin Company bought a machine for 900,000 on January 1, 2014. The machine’s useful life is
10 years estimated residual value P0; and is depreciated using the straight-line method.

On January 1, 2016 Jasmin Company adopted the revalued model in reporting its machinery and
equipment. The machine, which was acquired in 2014 was determined to have a sound value of
P960,000. Further analysis indicates that the machine’s remaining useful life was 6 years from
that date.

At the end of 2018, Jasmine Company conducted a recoverability test after receiving information
that there was a reduction in the performance of the machine as reported by the operations
department. Analysis of the market for a similar machine revealed to Jasmin Company that the
net selling price was at P270,000. The value in use of the machine was determined at P288,000.

a. The revaluation surplus account at December 31, 2016 is? 200,000

b. Impairment loss included in the December 31, 2018 income statement is? 72,000
c. Assuming that the net recoverable amount of the machine exceeds its carryng amount at
December 31, 2020, what is the maximum amount that Donnie Company may include as gain
in its P&L section? 24,000

3. Matt Company has determined that its fine china division is a cash-generating unit. The carrying
amounts of assets at December 31, 2019 are as follows:

Factory P476,000
Land 204,000
Equipment 170,000
Goodwill 50,000
The value in use of the division was 710,000. The fair value less cost to sell the land is P180,000.
a. The amount of impairment charged to Land? 24,000
b. Carrying amount of the Factory account after the allocation of the impairment loss? 390,526
c. The total amount of impairment loss absorbed by the Equipment account is? 30, 526

4. On January 1, 2018 Lessette Company acquired a building which it classified as an investment

property. Lessette company paid 4,000,000 to the seller, as well as, P200,000 for taxes, legal and
professional fees. The fair value of the building was 3,900,000.
The building has a useful life of 20 years and a residential amount of 400,000.
The fair value of the building at December 31, 2018 was P4,120,000 while the estimated
transaction cost on sale was 80,000.
The fair value of the building at December 31, 2019 was P3,770,000 while the estimated
transaction cost on sale was 40,000.
a. If Lessette Company uses the cost model, the measurement at recognition of the building is?
4,200,000
b. If Lessette Company uses the cost model, the net effect in the profit or loss section for 2018
is? 190,000
c. If Lessette Company uses the cost model, the amount reported as investment property in the
December 31, 2019 statement of financial position is? 3,730,000
 5. On January 1, 2018 Lessette Company acquired a building which it classified as an investment
property. Lessette company paid 4,000,000 to the seller, as well as, P200,000 for taxes, legal and
professional fees. The fair value of the building was 3,900,000.
The building has a useful life of 20 years and a residential amount of 400,000.
The fair value of the building at December 31, 2018 was P4,120,000 while the estimated
transaction cost on sale was 80,000.
The fair value of the building at December 31, 2019 was P3,770,000 while the estimated
transaction cost on sale was 40,000.
d. If Lessette Company uses the cost model, the measurement at recognition of the building is?
4,200,000
e. If Lessette Company uses the cost model, the net effect in the profit or loss section for 2018
is? (80,000)
f. If Lessette Company uses the cost model, the amount reported as investment property in the
December 31, 2019 statement of financial position is? 3,770,000
6. On July 1, 2018 Jiesel Company transferred a property classified as inventory to investment
property (commencement of an operating lease to another entity). The carrying amount of the
property before the change in use was P2,400,000.
The corresponding fair value of the property at the time of transfer was P2,900,000 and the
estimated cost on sale is P70,000.
a. The amount in the profit or loss section as a result of the transfer under the cost model is? 0
b. The amount in the profit or loss section as a result of the transfer under the fair value model
is? 500,000
7. On July 1, 2018 Mhel Company transferred a property classified as owner-occupied to
investment property. The carrying amount of the property before the change in use was
P1,200,000.
The corresponding fair value of the property at the time of transfer was P1,500,000 and the
estimated cost on sale is P50,000.
c. The amount in profit or loss section as a result of the transfer under the cost model is? 0
d. The amount in profit or loss section as a result of the transfer under the fair value model is? 0

Practice Problems: BORROWING COST

1. Borrowing costs that are directly attributable to the acquisition, construction or production of
qualifying asset are
a. Capitalized; other borrowing costs are expensed
b. Expensed; other borrowing costs are capitalized
c. Capitalized; other borrowing costs are also capitalized
d. Expensed; other borrowing costs are also expensed

2. The capitalizable borrowing cost on specific borrowing is computed as

a. Interest expense less investment income
b. Investment income less interest expense
c. Average expenditures multiplied by capitalization rate
d. A plus c, after deducting specific borrowing from average expenditures

3. The capitalization of borrowing costs starts when the entity

a. Incurs expenditures for the asset
b. Incurs borrowing costs
c. Necessary activities are being undertaken
d. On the date when all of the activities listed above are undertaken

4. Under PAS 23, an entity shall cease capitalizing borrowing costs when
a. Substantially all the activities necessary to prepare the qualifying asset for its intended use or
sale are complete
 b. The physical construction of the asset is complete even though routine administrative work
might still continue
c. Any of these

5. On January 1, 2019, Calpito Company borrowed P20,000,000 to finance the construction of a

new building. Interest is payable on the loan at 8%. Stage payments were due throughout the
construction period and therefore excess funds were invested during that period. By the end of the
project om December 31, 2019, investment income of P600,000 had been earned. How much is
the capitalizable borrowing cost? _____________. 1M

6. On January1, 2019, Jas Inc. had the following borrowings made for general purposes and a part
of proceeds was used to finance the construction of a qualifying asset.

Loan Principal
12% short-term note P40,000,000
14% 3-year bank loan 72,000,000
16% 5-year note payable 88,000,000
Total 200,000,000
The construction of the qualifying asset was started on immediately and expenditures incurred on
the qualifying asset were as follows:

January 1 19,200,000
March 31 8,800,000
July 30 14,000,000
October 1 21,600,000
December 31 1,200,000
a. How much is the capitalizable borrowing cost? ___________. 5,362,427
b. How much interest expense should be reported in Jas’s 2019 income statement? _________
23, 597, 572
c. Use the fact pattern above, except that the total cost of construction was P72,000,000 which
was incurred evenly during the year? ____________. 5,212,800

7. On January 1, 2019, Min Company contracted for the construction of a building for 80,000,000
on a land that it had previously purchased. The building was completed on December 31, 2019.
The following payments were made to the constructor:

January 1 8,000,000
March 31 24,000,000
September 31 40,000,000
December 31 8,000,000
The following represents the borrowing of Min Company as of December 31, 2019.
 10%, P28,000,000, 4-year note dated January 1, 2019 with simple interest payable
annually, specifically borrowed to finance the construction project. Interest income
earned on the temporary investment of the proceeds is P480,000.
 12.5%, P40,000,000, 10-year note dated January 1, 2019 with interest payable annually.
 10%, P60,000,000, 10-year note dated December 31, 2016 with interest payable annually.
a. How much is the capitalizable borrowing cost? _____________. 3.2M

8. Dream Company started construction of a qualifying asset on January 1, 2017. The following
were expenditures incurred on construction:

2017
January 1 P4,000,000
May 1 1,800,000
December 1 2,880,0000

2018
January 1 3,600,000
 August 30 1,200,000

2019
July 1 2,400,000
Dream determined the capitalization rate to be 10%. The construction of the qualifying asset was
substantially completed on September 30, 2019.
a. How much is the capitalizable borrowing cost in 2017?_____________. 544,000
b. How much is the capitalizable borrowing cost in 2018? _____________. 1,322,400
c. How much is the capitalizable borrowing cost in 2019? _____________. 1,210,980
d. How much is the total cost of the constructed qualifying asset on September 30, 2019?
_____________. 18,957,380

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