Problem 1

On an audit engagement for calendar year 2008, you handled the audit of Fixed Assets of
Blame Corporation.

Plant assets consists of:

Land P 100,000
Leasehold improvements 190,000
Equipment 450,000
Total per WBS P 740,000

The land was acquired on October 1, 2008, at a cost of P500,000. Blame Corporation made
a cash downpayment of P100,000 and signed a 18% mortgage note payable in four equal
annual installments of P100,000. The first interest and principal payment is due on October
1, 2004. No interest has been accrued as of December 31, 2008.

In October 1, 2008, a lawyer was engaged to title the property at a fee of P10,000 which
was charged to operating expenses.

You ascertained that due to obsolescence, computer equipment with an original cost of
P80,000 and accumulated depreciation of P16,000 at January 1, 2008
had suffered a permanent impairment in value and, as a result, should have a carrying
value of only P40,000 at the beginning of the year. In addition, the remaining useful life of
the
equipment was reduced from 4 to 2 years.

No entry has yet been made in the books. For

2003, the company recorded depreciation of P16,000 for the said equipment At present,
Crame Corporation’s office and warehouse are located in a rented building. The
rental contract was signed on July 1, 2008 and has a term of five (5) years renewable for
another five (5) years. On October 1, 2008, Blame Corporation spent P190,000 to install
walls and fixtures. The leasehold improvements have a useful life of five years. No
amortization has been booked as of December 31, 2008.

Questions
1. The adjusted cost of land amounted to:

2. The carrying value of leasehold improvements as of December 31, 2008 amounted to:
3. Audit adjustments will increase depreciation/amortization expense by:

4. Loss due to impairment in value amounted to: