FINACC4

ASSIGNMENT 3
PROPERTY, PLANT AND EQUIPMENT, PART 3

Submit all your answers in an Excel File. Use one worksheet (not file) for each problem.

1. ABC Inc. purchased a polishing machine for P6,600,000 on January 1, 2016 and
received a government grant of P600,000 towards the capital cost. The machine was to
be depreciated on a straight-line basis over 10 years and was estimated to have a
residual value of P500,000 at the end of this period.

Required
a. Prepare the journal entries from 2016 to 2017 using the two methods of
accounting for government grants.
b. Compute for the income from government grant that will be recognized at the end
of 2016 if the grant is initially treated as deferred income.
c. Compute for the depreciation expense that will be recognized at the end of 2016
if the grant is initially treated as reduction of the machine's cost.
d. Compute for the depreciation expense that will be recognized at the end of 2018
if the grant became repayable on January 1, 2018. Assume that the grant is
initially treated as reduction of the machine's cost. Prepare the journal entries for
2018.

2. Marissa Company had the following outstanding obligations from periods 2014-2017:
 Construction loan - P2,000,000, with interest of 15% per annum, payable at the end
of 2019. Some of the proceeds were temporarily invested on short-term investments,
which earned interest income amounting to P50,000.
 Bonds payable - P8,000,000, with interest of 12% per annum, payable at the end of
2020
 Note payable to bank - P3,000,000, with interest of 10% per annum, payable at the
end of 2017
 Note payable to a certain creditor – P4,000,000, with interest of 8% per annum,
payable at the end of 2019. Some of the proceeds were temporarily invested, which
resulted to income amounting to P60,000.

The entity began the self-construction of a building on January 1, 2016 and was completed on
December 31, 2017. The building was classified as a qualifying asset, subject to capitalization
of borrowing costs. The following expenditures (pertaining to cost of materials, labor and
overhead incurred during construction) were made:
January 1, 2016 P2,000,000
July 1, 2016 4,000,000
November 1, 2016 3,000,000
July 1, 2017 1,000,000

P10,000,000

Required
a. Compute for the total cost of the building on the date construction is completed.
b. Compute for the total cost of the building assuming it was finished on August 31, 2017.
 3. In 2017, GREEN CORPORATION acquired a silver mine in Benguet. Because the mine
is located deep in the Benguet mountains, Green was able to acquire the mine for the
low price of P50,000.

In 2018, Green constructed a road to the silver mine costing P5,000,000. Improvements
to the mine made in 2018 cost P750,000. Because of the improvements to the mine and
the surrounding land, it is estimated that the mine can be sold for P600,000 when the
mining activities are complete.
During 2019, five buildings were constructed near the mine site to house the mine
workers and their families. The total cost of the five buildings was P1,500,000. Estimated
residual value is P250,000. In 2017, geologists estimated 4 million tons of silver ore
could be removed from the mine for refining.

During 2020, the first year of operations, only 5,000 tons of silver ore were removed from
the mine. However, in 2021, workers mined 1 million tons of silver. During that same
year, geologists discovered that the mine contained 3 million tons of silver ore in addition
to the original 4 million tons. Improvements of P275,000 were made to the mine early in
2021 to facilitate the removal of the additional silver.

Early in 2022, an additional building was constructed at a cost of P225,000 to house the
additional workers needed to excavate the added silver. This building is not expected to
have any residual value.

In 2022, 2.5 million tons of silver were mined and costs of P1,100,000 were incurred at
the beginning of the year for improvements to the mine.

Requirements:
a. Depletion from 2020 to 2022.
b. Depreciation from 2020 to 2022.