Chapter 15

Property, Plant and Equipment (Part 1)

PROBLEM 1: TRUE OR FALSE

FALS
TRUE
1. E 6.
FALS FALS
2. E 7. E
FALS
TRUE
3. 8. E
FALS
TRUE
4. 9. E
FALS
TRUE
5. E 10.

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. B

2. Solution:
Manufacturing equipment purchased under installment 3,000,00
basis 0
5,000,00
Land used in business
0
1,500,00
Building owned
0
Servicing equipment – used in building maintenance
3,000,000
Safety and environmental equipment
450,000

Total PPE 12,950,000

3. Solution: (2.5M x 97%) + 50K + (200K x PV of 1 @12%, n=10) =

2,539,395

4. Solution: 200,000 x PV of an annuity due @11%, n=8 = 1,142,439

5. Solutions:
  Land Building Machinery
Acquisition price
(7.2M x 1/3); (7.2M x 2/3) 2,400,000 4,800,000

1
Options (180K x 1/3); (180K x 2/3) 60,000 120,000
Machinery purchased (1.5M x
1,470,000
98%)
Freight on machinery purchased 50,000
Repair to machinery -
Cost of removing old machinery -
Driveways and sidewalks -
Building remodeling 500,000
Utilities paid since acq’n. of bldg.. - -
Total costs 2,460,000 5,420,000 1,520,000

6. C

7. Solutions:
Requirements (a) and (b):
  Land Old bldg. New bldg.
Purchase price 916,66
(1M x 1.1/1.2); (1M x .1/1.2) 7 83,333
Demolition costs 40,000
Salvage (5,400)
Legal fees 3,480
Architect's fees 41,200
Title insurance cost 2,400
Liability insurance cost 2,600
Excavation costs 10,440
Contractor's fee 2,400,000
Special assessment 6,400
Interest costs 170,000
928,94
Total costs 7 83,333 2,658,840

Requirement (c):

Land 916,667
Building – old 83,333
Cash 1,000,000
to record the lump sum purchase of land with old building

Land (928,947 – 916,667) 12,280

Cash 12,280
to record the additional costs of land

2
Building – new 2,658,840
Cash 2,658,840
to record the costs of the new building

Loss on derecognition of asset 83,333

Building – old 83,333
to record the allocated costs of the old building demolished as loss

8. B

9. Solutions:
Requirement (a):
Ima’s books:
Wine barrels – new (1.2M + 300K) 1,500,000
Wine barrels – old 1,000,000
Cash` 300,000
Gain on exchange 200,000

Saka’s books
Wine barrels – new (1.5M - 300K) 1,200,000
Cash 300,000
Wine barrels – old 1,400,000
Gain on exchange 100,000

Requirement (b):
Ima’s books:
Wine barrels – new (1M + 300K) 1,300,000
Wine barrels – old 1,000,000
Cash` 300,000

Saka’s books
Wine barrels – new (1.4M - 300K) 1,100,000
Cash 300,000
Wine barrels – old 1,400,000

10. Answer: 900,000 – cash price without trade in – fair value of the asset
received because the fair value of the asset given up is not given

11. (600,000 x 102%) + (40,000 x 19) = 1,372,000

12. D

3
PROBLEM 6: MULTIPLE CHOICE: COMPUTATIONAL
1. A (120,000 + 10,000) = 130,000

2. D (200,000 + 2,000 appraisal cost) = 202,000 total cost

Machine 1: (202,000 x 60/240) = 50,500
Machine 2: (202,000 x 80/240) = 67,333
Machine 3: (202,000 x 100/240) = 84,167

3. A

Office Factory
  Land bldg. bldg. Others
1,300,00
Lump sum price 0 700,000
Materials and sup. 3,000,000
Excavation 100,000
Labor on
2,500,000
construction
Cost of remodeling 200,000
Legal cost 10,000
Imputed interest ignored
Cash discounts (60,000)
Supervision by
70,000
mgmt.
Comp. ins. prem. 20,000
Clerical and other 30,000
land
Paving of st.
improvement
Plans &
140,000
specifications
Payment for claim expensed
Legal cost of injury expensed
Saving ignored
1,310,0
Totals 00 900,000 5,800,000

4. B see solution above

5. C see solution above

6. B
Solution:

4
 Old New
  Land bldg. bldg.
Purchase price 360,00
(400K x 450/500); (400K x 50/500) 0 40,000
Demolition costs 25,000
Salvage (10,000)
Architect's fees 35,000
Legal fees 5,000
Construction costs 890000
365,00
Total costs 0 40,000 940,000

7. A (700,000 + 5,000 + 8,000) = 713,000

8. D The fair value of the asset received (Trent contract) because the fair
value of the asset given up (Vance contract) is not determinable.

9. A (1,200,000 + 150,000 cash paid) = 1,350,000

10. C= FV of given up + cash payment = 400,000 + 1,000,000 = 1,400,000

11. C – the fair value of the asset received

12. D
Equipment – new (FV of asset received) 40,000
Accumulated depreciation 25,000
Cash` 10,000
Equipment – old 55,000
Gain on exchange 20,000

13. A – fair value of asset received because the fair value of the asset given
up is not available.