1.

On January 2, 2020, VSG purchased a transportation equipment costing

P2,400,000. The new asset has an estimated useful life of 8 years with no salvage
value. VSG depreciates this type of asset using the straight-line method. On
January 1, 2022, VSG determined that the machine had a remaining useful life of
6 years from the date of acquisition with no salvage value.
 
How much is the revised depreciation for 2022?
2,400,000 x 2/8 = 600,000
2,400,000 – 600,000 = 1,800,000
1,800,000 x ¼ = 450,000

2. MAGANDANGEHEMPLO, Inc. obtained a land with an old building, that will be

accounted for under property, plant and equipment. The Company intends to
demolish the old building, to build a new building and will not use the old building
prior to its demolition. The following information relates to the land and building:
 
Purchase price of the land and building                                P3,500,000
Fair value:
            Land                                                                                3,000,000
            Old building                                                                    2,000,000
Historical cost
            Land                                                                                2,000,000
            Old building                                                                   6,000,000
Demolition costs                                                                           700,000
Construction cost of the new building                                  15,000,000
 
Which of the following statements are true?
The cost of the new building is P17,100,000 million.

The cost of land is deemed to be P2,800,000.

The amount of expense to be recognized is P2,100,000. Which is the demolition

costs and the carrying value of the old building.
The Company will recognize P1,400,000 as part of its buildings, under property,
plant and equipment, prior to demolition.

WHEN ASSETS ARE PURCHASED AS A BUNDLE THEN THE PURHCASE COST IS

ALLOCATED ON THE BASIS OF THE FAIR VALUE OF THE ASSET. THE PROPORTION
OF THE ASSET IS MULTIPLIED BY THE BUNDLED PURCHASE COST TO FIND THE
ALLOCATED VALUE.

3. On April 27, 2021, BatoBatoPik purchased for P6,000,000 a warehouse building

and the land on which it is located. The following data were available concerning
the property:
 
  Current Appraised Value Original Cost
Land P2,200,000 P1,800,000
Warehouse P3,300,000 P3,000,000
Total P5,500,000 P4,800,000
 
At what amount should the warehouse be recorded?
= 3,300,000 x (6,000,000 / P5,500,000)
= P3,600,000

4. An equipment was acquired on December 31, 2016 for P5,000,000 and is

expected to have a 10-year useful life. The straight-line method was used. On
January 1, 2020, the asset was deemed to have a sound value of P4,800,000. On
January 1, 2023, the replacement cost of the asset was P3,500,000.
 
How much should be taken to profit or loss for the period ended December 31,
2023?
5,000,000 / 10 = 500,000
5,000,000 – (500000 x 3) = 3,500,000
Fair value as of January 1 2020 = 4,800,000
Remaining life               =7 years
New depreciable value             =4,800,000
Depreciation annual    = 4800000/ 7
                                           =685714
Carrying value on January 1 2023        = 4800000 – (685,714 x 3)
                                                                        = 2742857
Fair value on January 1 2023 = 3,500,000

New carrying value      =3,500,000

Remaining life               =4 years
Annual depreciation    = 3,500,000 / 4
                                           = 875000
5. On July 1, 2021, PAOLO exchanged its non-monetary asset (equipment) with
YEN’s non-monetary asset (machinery). The following data were made available:
 
PAOLO:
Equipment                                           P4,400,000
Accumulated depreciation                  2,000,000
Cash received from Gerald                     500,000
 
YEN:
Machinery                                           P3,700,000
Accumulated depreciation                  1,800,000
Cash paid to Julia                                    500,000
 
The transaction lacks commercial substance.
 
How much is cost of the new asset of PAOLO?
= 4,400,000 – 2,000,000
= 2,400,000
6. On February 5, 2020, Diamond Company purchased a new machine on a
deferred payment basis. A down payment of P100,000 and P250,000 four equal
annual installments will be made every February 1, starting next February 1, 2021.
The cash equivalent price of the machine is P950,000. The imputed discount rate
is 6.83%. Diamond also incurred P30,000 in installation costs.
 
How much should be capitalized as cost of the machine?
950,000
980,000
900,000
1,100,000

= 950,000 + 30,000
= 980,000

7. On January 2020, Mina Company paid the national government a fee in the
amount of P129,000,000 for an area of interest with removable ore estimated by
geological surveys at 10,000,000 tons. Mina is required by the national
government to restore the area of interest after the extraction of the estimated
units of reserves, Mina Company estimates that it will take 10 years to fully
extract the reserves and estimates its restoration cost to be P10,000,000.  The
relevant discount rate is 10% (use 3 decimal places to round off the present
value factor).
 
The Company also incurred P2,150,000 of development costs in preparing the
property for the extraction of the ore. During 2020, 540,000 tons were mined.
 
How much is the depletion/amortization expense for the year ended December
31, 2020?
7,082,100
6,966,000
7,173,900
7,290,000
= 129,000,000 + 3,850,000 + 2,150,000
= 135,000,000

=135,000,000 / 10,000,000
= 13.5
= 13.5 x 540,000
= 7,290,000

8. NANGUTANG started constructing a building for its own use on January 1, 2020.
NANGUTANG provided the following information related to the construction:
 
Outstanding loans of the Company at January 1, 2020:       
Interest Rate Amount of loan Interest Cost
5% P10,000,000 P   500,000
10% 20,000,000 2,000,000
 Total P30,000,000 P2,500,000
 
Construction expenditures:
July 1, 2020 7,000,000
November 31,2020 3,000,000
December 31, 2020 1,000,000
 
The amount of borrowing cost that should be charged to profit or loss for the
period is?
= (2,500,000 / 30,000,000) x 100
= 8.33%

= (7,000,000 x 6/12)
= 3,750,000 x 8.33%
= 312,500

= 2,500,000 – 312,000
= 2,187,500

9. On January 5, 2021, Lighter Company acquired a building. The building had an

estimated useful life of 10- years and an estimated salvage value of P50,000. The
depreciation applicable to this building was P240,000 for 2023 computed under
the sum-of-the year’s digit method.
 
How much is the carrying value of the building as of December 31, 2022??
Depreciation fraction for 2021 = 10/55
Depreciation fraction for 2022 = 9/55
Depreciation fraction for 2023 = 8/55

= Depreciation expense of 2023 / Depreciation fraction for 2023

= (8/55) x 240,000
= 1,650,000

Accumulated depreciation, December 31, 2022

= (19/55) x 1,650,000
= 570,000

Carrying value, December 31, 2022

= (Depreciable cost + Salvage value) - Accumulated depreciation
= (1,650,000 + 50,000) – 570,000
= 1,130,000

10. An asset was acquired on January 1, 2020 for P800,000 and is expected to
have a 5-year useful life. The straight-line method was used. On January 1, 2022,
the asset was deemed to have a sound value of P720,000. 
 
How much is the revaluation surplus for the period ended December 31, 2022?

Annual depreciation on Equipment= (cost of the assets - residual value) / life of

the assets
= 800,000 / 5
= 160,000

= 800,000 – (160,000 x 2)
= 480,000

Revaluation surplus = Value - Net book value

= 720000- 480000
= 240000

Excess depreciation=Revaluation surplus / remaining life of the assets

= 240000/3 years
= 80000
Revaluation surplus for the period ended December 31, 2022 = Revaluation
surplus - Excess depreciation
= 240000 - 80000
= P160,000
11. An asset was acquired on January 1, 2020 for P800,000 and is expected to
have a 5-year useful life. The straight-line method was used. On January 1, 2022,
the asset was deemed to have a sound value of P720,000. The company uses the
elimination method in accounting for any revaluation surplus.
 
The replacement cost of the asset at January 1, 2022 is
= 800,000 / 5
= 160,000

Depreciation for 2 years

= 160,000 x 2
= 320,000

Carrying value
= 800,000 – 320,000
= 480,000

After 2 years, the value of the asset = 720,000

= 720,000 – 480,000
= 240,000
Replacement cost of the Asset as on 1st January, 2022
The current Value of the Asset = 720,000

12. On January 2, 2020, VSG purchased a transportation equipment costing

P2,400,000. The new asset has an estimated useful life of 8 years with no salvage
value. VSG depreciates this type of asset using the straight-line method. On
January 1, 2022, VSG determined that the machine had a remaining useful life of
6 years from the date of acquisition with no salvage value.
 
How much is the revised depreciation for 2022?
Accumulated depreciation, December 31, 2022
= 2,400,000 x (2/8)
= 600,000

Carrying value, December 31, 2022

= 2,400,000 – 600,000
= 1,800,000

Depreciation expense for 2022

= 1,800,000 x (1/4)
= 450,000

13. The following costs were incurred by ABCDEFGH, Inc.. during 2020:
 
July 1 Organization fees P120,000
July 2 Land site and old building 1,890,000
July 3 Option payments 250,000
July 20 Broker’s fees on property acquired 110,400
July 30 Cost of remodeling the building 60,000
August 30 Salaries of executives 360,000
December 21 Real property taxes 240,000
 
Additional information:
 The building acquired had a fair value of P450,000 while the land was
currently appraised at P1,800,000
  P50,000 of the option money paid were for properties not acquired.
 The executives had no participation on the remodeling of the building
 The property taxes were for the 2020 calendar year.
 
How much is the cost of land?
Particulars Land Building Total
Fair Value 1800000 450000 2250000
Ratio 80% 20% 100%
Allocated purchase cost (ratio x 1,890,000) 1512000 378000 1890000
Add: Option fee paid for acquired Land [(250,000 - 50,000) x ratio] 160,000 40,000 200,000
Add: Brokerage cost (110,400 x ratio) 88320 22080 110400
Add: Organization fee (120,000 x ratio) 96000 24000 120000
Add: Cost of remodeling the building 0 60,000 60,000
1856320 524080 2380400

1,856,320

14. PINAUTANG started constructing a building for its own use in March 1, 2020.
PINAUTANG provided the following information related to the construction:
 
Outstanding loans of the Company at January 1, 2020:       
Interest Rate Amount of loan Interest Cost
5% P10,000,000 P   500,000
10% 20,000,000 2,000,000
 Total P30,000,000 P2,500,000
 
On January 1, 2020, PINAUTANG also borrowed P3,000,000 at 15% per annum, to
specifically fund its expected construction on March 1, 2020.
 
March 1, 2020 P1,000,000 February 1, 2021 P3,000,000
May 31, 2020 8,000,000 March 31, 2021 2,000,000
July 1, 2020 7,000,000    
November 31,2020 4,000,000    
December 31, 2020 1,000,000    
 
How much is the total cost of the constructed asset as of December 31, 2020?
Date of investing fund Amount to be fund used Period in months Interest rate E
Mar-01 1000000 10 15%
31-May 2000000 7 15%
31-May 6000000 7 5%
1-Jul 4000000 6 5%
1-Jul 3000000 10 10%
30-Nov 4000000 1 10%
Nov-31 1000000 0 10%
TOTAL INTEREST 21000000

21858333.33 or 21858333

15. On July 1, 2020, Youth Corporation purchased a machine at a cost of

P300,000. This machine was estimated to have a useful life of 5-years with no
salvage value and was depreciated using the straight-line method. On January 2,
2023, Youth determined that this machine could no longer work efficiently, that
its value had been permanently impaired, and that P90,000 could be recovered
over the remaining useful life of the machine.
 
In its December 31, 2021 statement of financial position, how much should Youth
report as carrying value of the machine?

Annual depreciation
= 300,000 / 5
= 60,000

Net book value on January 2, 2023

= 150,000 - 90,000 
= 60,000
Carrying value of the machine on December 31, 2023
= 150,000 - 60,000
= 90,000
Carrying value of the machine on December 31, 2021
= 300000 – (60000 x 1.5)
= 210,000

16. Shellfish Company determined that, due to the obsolescence, equipment with
an original cost of P180,000 and accumulated depreciation at January 1, 2020 of
P84,000 had suffered permanent impairment, and as a result should have fair
value of only P60,000 as of the beginning of the year. Additionally, the remaining
useful life of the equipment was reduced from eight years to three years.

If the company's policy is to credit accumulated depreciation when a PPE is

impaired, how much should selfless report as accumulated depreciation in its
December 31, 2020 statement of financial position?

Bok value of equipment at January 1, 2020

= 180,000 - 84,000
= 96,000

Impairment loss
= 96,000 - 60,000
= 36,000

New book value of the equipment

=180,000 - 84,000 - 36,000
= P60,000

The remaining useful life of the asset = 3 years

Depreciation
=60,000/3
= 20,000
Accumulated depreciation at December 31, 2020
= 84,000 + 20,000
= 104,000

17. Faithful Company purchased an equipment on January 2, 2021 for P3,000,000.

The equipment had an estimated useful life of 5 years. It is the company’s policy
to use the double declining method in its first two years and then switch to the
straight-line method for the remaining useful life of the asset.
 
How much is the balance of the accumulated depreciation account pertaining to
the equipment as of December 31, 2023?
Double declining depreciation rate
= (1/5) x 2
= 40%

Depreciation expense Year 2021

= 3,000,000 x 40%
= 1,200,000
Depreciation expense Year 2022
= (3,000,000 - 1,200,000) x 40%
= 720,000

Net book value on Dec 31, 2022

= 3,000,000 - 1,200,000 - 720,000
= 1,080,000

Remaining useful life 

=5-2
= 3 years

Year 2023 depreciation

= (1,080,000 - 0)/3
= 360,000

Accumulated depreciation on Dec 31, 2023

= 1,200,000 + 720,000 + 360,000
= 2,280,000

18. On December 31, 2021, Purple Company sold a building, receiving as a

consideration a P4,000,000 non-interest-bearing note due in three years. The
building costs P3,800,000 and the accumulated depreciation was P1,600,000 at
the date of sale. The prevailing rate of interest for a note of this type was 12%.
 
How much gain or loss should purple report on the sale of the asset?
Carrying value of asset 
= 3,800,000 - P1,600,000
= 2,200,000

Discounted value of non-interest-bearing notes

= 4,000,000 / (1.12)3  
= 2,847,121

Gain on sale of asset

= 2,847,121 - 2,200,000
= 647,121

19. At 1 January 2020, the revaluation surplus of Bloxden was P1,257,000. This
was in respect of the company’s head office. During the year to 31 December
2020, the value of the head office increased by a further P82,000. In the same
period, the company’s factory suffered an impairment of P90,000. What is the
value of the revaluation surplus at 31 December 2020?

= 1,257,000 + 82,000 – 90,000

= 1,249,000
20. During the current year an entity sold a piece of equipment used in
production. The equipment had been accounted for using the revaluation method
and details of the accounts and sale are presented below:

Sales price P100,000

Equipment carrying amount (net) 90,000

Revaluation surplus 20,000

Which of the following is correct regarding recording the sale?

The gain that should be recorded in profit and loss is P10,000; the P20,000
revaluation surplus may be transferred to retained earnings.

21. Faithful Company purchased an equipment on January 2, 2021 for P3,000,000.

The equipment had an estimated useful life of 5 years. It is the company’s policy to
use the double declining method in its first two years and then switch to the straight-
line method for the remaining useful life of the asset.
 
How much is the balance of the accumulated depreciation account pertaining to the
equipment as of December 31, 2023?

DOUBLE DECLINING BALANCE RATE

= 2/Useful life = 2/5 = 40%

Depreciation expense for 2021

= 3,000,000 x 40%
= 1,200,000

Depreciation expense for 2022

= (3,000,000-1,200,000) x 40%
= 720,000

Carrying value, December 31, 2022

= 3,000,000 - 1,200,000 - 720,000
= 1,080,000

Depreciation expense for 2023

= 1 080,000 / 3 years
= 360,000

Accumulated depreciation, December 31, 2023

= 1,200,000 +720,000 + 360,000
= 2,280,000
22. Laur Company uses the composite method of depreciation and has a composite
rate of 25%. During 2020, it sold assets with an original cost of P100,000 and residual
value of P20,000 for P80,000 and acquired P60,000 worth of new assets with residual
value of P10,000.  The original group of assets had the following characteristics:
Total cost                                     P250,000
Total residual value                     30,000
 
The above original group includes the assets sold in 2020 but not the assets purchased
in 2020.  What was the depreciation in 2020?
25% = DEPRECIATION EXPENSE / (250000-100000+60000)
25% = DEPRECIATION EXPENSE / 210000 

= 210000 *25% 
= 52500