Problem #1

On April 1 2017, ABC Co. purchased land and bldg. to be leased out under an operating lease.
The following costs were incurred:
Purchase Price – P 10,000,000
Legal Fees - 50,000
Property Taxes from 2015 to 2017 (P 20,000 * 3) - 60,000

Immediately, the bldg. was remodelled at a cost of P 315,000 which was completed on May 31,
2017. The estimated useful life of the bldg. is 20 years. On Dec. 31, 2019, the board of directors
passed a resolution authorizing the use of the land and bldg. as administrative bldg.

Required: Give the journal entries from April 1, 2017 to Dec. 31, 2019 using:
A. Cost Model. Allocation of land and bldg. is 6:4 respectively
B. Fair Value Model. Assume the ff. fair value;
Dec.31, 2017- P 10,800,000
Dec. 31, 2018- 11,000,000
Dec. 31, 2019- 11,200,000

Problem #2
On Jan. 1, 2016, ABC Corp.’s board of directors passed a resolution authorizing the construction
of a factory building. Construction will start on Jan. 1, 2019 at an estimated cost of P 5,000,000.
Subsequently a contract was entered into with a local bank whereby ACB Corp. shall make
contributions to a fund on Jan 1, 2016, Dec. 31, 2016, and Dec. 31, 2017 which will total
P 5,000,000 on Dec 31, 2018. The local bank was offering a 12% interest compounded annually.
The building was completed on March 31, 2019 at a total cost of P 5,500,000.

Required:
1. Show computation of annual contribution and prepare the table.
2. Give the journal entries from Jan. 1, 2016 to March 31, 2019.

Problem #3
You are provided with the ff. information regarding Monica Co. on Dec. 31, 2019
Carrying Amount Fair Value
Total Assets P 8,380,000 P 10,080,000
Total Liabilities 2, 350,000 2,350,000
Shareholders’ Equity:
Share Capital 3,000,000 4,700,000
Retained Earnings:
Net Income- 2015 to 2019 4,230,000 4,230,000
Dividends paid – 2015 to 2019 (1,200,000) (1,200,000)
Balance 3,030,000 3,030,000
Total Shareholders’ Equity 6,030,000 6,030,000
Total Liabilities & Shareholders’ Equity P 8,380,000 P 10,
080,000

Required:
A. If you purchased Monica Co. for P 8,000,000. How much goodwill should be
recognized?
B. Give the journal entry assuming you purchased Monica Co. for P 7,500,000.
C. Compute the purchase price assuming goodwill is measured at average excess earnings
for 5 years. Assume a normal rate of return of 10% in the industry.

Problem #4
On August 1, 2019, ABC Co. signed a contract with XYZ Co. whereby ABC shall operate as a
franchise of XYZ for 15 years at an initial franchise fee of P 3,000,000. ABC paid P 1,000,000
on Aug. 1, 2019 and issued a P 2,000,000, non-interest bearing, promissory note which is
payable on Aug. 1, 2020 and Aug. 1, 2021. The prevailing market rate of interest for such note
was 12%. In addition, XYZ Co. shall have a share of 5% of the net income of ABC Co. every
year, payable every Feb. 15 of the following year. On Jan. 1, 2022, it was determined that the
remaining useful life of the franchise was only 4 years because recent developments in the
market indicated that the products covered by the franchise will be obsolete by then. On this
date, the fair value less cost to sell of the franchise is P 800,000. In view of the declining
projected net income, ABC. Co. decided to apply the double- declining balance method in the
amortization of franchise.

Additional Information:
Net income of ABC Co. : 2019- P 300,000
2020- 800,000
2021- 1,200,000
Projected Net Income of ABC Co. : 2022- P 1,000,000
Note: Applicable discount rate is 10% 2023- 600,000
2024- 300,000
2025- 100,000

Required:
A. Journal entries from Aug. 1, 2019 to Dec. 31, 2022
B. Show supporting computations for the following:
1. Cost of Franchise
2. Schedule of interest amortization
3. Value in use
4. Impairment loss