Professional Documents
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BSA-2
INTACC2- Exercise 2
Aug. 31 Cost of razing old building to make room for new building 200,000
Dec. 31 Land real state tax for 6-monhs ended December 31, 2020 180,000
Required:
1. What is the cost of the land?
2. What is the cost of the new building before the depreciation?
Solution:
Fractions
Fair Value of the land during the purchase P 2,500,000 25/50
Fair Value of the building during the purchase 2,500,000 25/50
Total P 5,000,000
Land Building
Land and old building at fair value P 2,500,000 P 3,500,000
Title clearance fee 100,000
Cost of razing old building to make room for new P 200,000
building
Cost of new building completed and occupied in this 16,000,000
date
Total P 3,600,000 P 16.200.000
Exercise 2 – Land and Building Cost
Dividends 75,000
Required:
1. Among the expenditures mentioned, determine the cost of the land.
2. Among the expenditures mentioned, determine the cost of the building.
Solution:
Land Building
Purchase of land P 7,800,000
Land Survey 104,000
Fees for search of title for land 12,000
Exercise 3 – Machinery
Joestar Company purchase a new machine for an invoice price of P4,480,000 inclusive of vat of
P480,000. The purchase also had a purchase discount of P200,000 that Joestar was not able to
avail due to financing difficulties.
Required:
Compute the total cost of the new machine.
Solution:
Invoice price (P4,480,000 – P480,000 – P200,000) P3,800,000
Required:
How much should Double Deutch Company capitalize as borrowing cost?
Solution:
High Standard Company erected a building during the year 2020. All funds used in construction
were loaned for a generic purpose. The construction started on January 31 and was completed
on December 31. The following pertains to the construction:
Required:
Compute the borrowing cost capitalized. Round off all computed % to nearest one percent.
Solution:
Actual interest
January 1 P3,700,000
April 1 2,100,000
October 1 1,900,000
November 30 950,000
Required:
Compute the capitalizable borrowing cost.
(Round to the nearest one peso); for rates (nearest 1%)
Solution:
Average expenditures
Total P5,829,167
Average interest
P 1,433,100
Capitalization rate= =11.02 %
P 13,000,000
On January 1, 2018, Citimart Inc. was granted 7,000 acres of land in a village, located near the
slums outside the city limits, by a local government authority. The condition attached to this
gran was that the company should clean up this land and lay roads by employing laborers from
the village in which the land is located. The government has fixed the minimum wage payable
to the workers. The entire operation will take three years and is initially estimated to cost P320
million. The fair value of this land on the date of grant was P480 million and is expected o
increase by at least 10% annually because of the improvements o be done by the company. In
relation to the attached condition, the company incurred costs of P90 million in 2018 and P80
million in 2019. On December 31, 2019, the company estimated that it will incur additional cost
of P60 million in 2020.
Required:
1.
First year (2018) P90,000,000
Second year (2019) 80,000,000
Third year (2020) 60,000,000
P230,000,000
Lee Company received a P3,600,000 subsidy from the government to purchase manufacturing
equipment on January 2, 2020. The equipment has a cost of P7,100,000, a useful life of eight
years, and a P100,000 salvage value. Lee depreciates the equipment on a straight-line basis.
Required:
Under each of the following independent cases.
1. What is the book value of the asset on December 31, 2020?
2. What is the depreciation expense for the asset in 2020?
3. Prepare journal entries in 2020.
Solution:
Case 1 If Lee chooses to account for the grant as deferred revenue.
1. Book value
P7,100,000 – P3,600,000 – P875,000 = P2,625,000
2. Depreciation expense
Cash P 3,600,000
Deferred Grant Income P 3,600,000
To record the receipt of the grant from the government.
Case 2 If Lee chooses to account for the grant as an adjustment to the asset.
1. Book value
Net cost of the machine – Annual depreciation
P3,500,000 – P425,000 = P3,075,000
2. Depreciation expense
Equipment P 7,100,000
Cash P 7,100,000
To record the purchase of equipment.
Cash P 3,600,000
Equipment P 3,600,000
To record the receipt ofr government grant for the
machine.
Exercise 9 – Derecognition
On July 30, 2020, Sterne Corp. retired a machine used in manufacturing designer parts. The
machine was acquired May 31, 2017, Straight-line depreciation method was used computed up
to the last month before retirement. The asset had an estimated residual value of P60,000 and
a six-year life. on December 31, 2019, the balance in the accumulated depreciation is P412,300.
The machine was scrapped, and the company did not receive a single consideration.
Required:
1. The loss on retirement is: (round off to the nearest peso, if needed)
2. Prepare the journal entry to record the retirement.
Solution:
1. Loss on retirement
Months
2017 7
2018 12
2019 12
31
2. Journal Entry
Required:
The loss/gain if the asset is sold for P55,900 at the end of the fourth year is_____.
Solution:
Original cost P245,600
Salvage value 15,600
Estimated useful life 7 years
7 +1
∑ −of −the−Year s ' Digits=7 2
=28
Total P0
* The loss/gain if the asset is sold for P55,900 at the end of the fourth year is P8,986.
Cash P 55,900
Accumulated Depreciation 180,714
Loss on Disposal 8,986
Equipment P 245,600
To record the sale of partially depreciated fixed asset