Ppe Recognition PDF

A B. C. D.
Use the following information for the next three (3) questions:
Yellow Jack Corporation owned a power plant which consisted of the following, all acquired on January 1,
2024:
Cost Salvage value Life in years
Building 6,100,000 100,000 20
Machinery 2,550,000 50,000 5
Equipment 1,030,000 30,000 10
1) What is the composite rate of depreciation?

A 9.50% B. 9.48% C. 9.47% D. 9.30%
.
2) What is the composite life?

A 10.56 years B. 10.76 years C. 10.90 years D. 11 years
.
3) What is the depreciation expense in 2024?

A 884,000 B. 900,000 C. 950,000 D. 1,000,000
.
Hot Issue, Inc. uses hand tools in its manufacturing activities. On January 1, 2024, there are 800 of such tools
on hand at a cost of P40 each. Acquisition and retirement in the years 2024 and 2025 are:
Year Acquisition and Retirement and proceeds Estimated value of tools at year-
cost end
2024 400 @ P60 300 @ P10 P40,000
2025 900 @ P80 700 @ P14 P35,000
4) What is the depreciation in 2024 and 2025, using the retirement method?
2024 2025 2024 2025
A. 12,000 32,000 C. 9,000 18,200
B. 9,000 22,200 D. 12,000 22,200
5) What is the depreciation in 2024 and 2025, using the replacement method?
2024 2025 2024 2025
A. 18,000 56,000 C. 15,000 56,000
B. 18,000 46,200 D. 15,000 46,200
6) What is the depreciation in 2024 and 2025, using the inventory method?
2024 2025 2024 2025
A. 13,000 50,000 C. 13,000 67,200
B. 16,000 67,200 D. 16,000 50,000
Use the following information for the next two (2) questions:
Elite Company acquired 20 machines on January 1, 2022 for P900,000. The machines have an average useful
life of five years. Machines acquisition and retirement from service as follows:
End of year Acquisition Machines retired and sold Proceeds on sale
2025 20 @ P50,000 each 4 machines 10,000
2026 12 @ P46,500 each 14 machines 15,000
2027 2 @ P45,000 each 2 machines 2,000
1) Using the retirement method of depreciation, what is the depreciation expense of Elite Company?
2025 2026 2027 2025 2026 2027
A. 170,000 615,000 88,000 C. 170,000 558,000 90,000
B. 180,000 615,000 90,000 D. 820,000 543,000 88,000
2) Using the replacement method of depreciation, what is the depreciation expense of Elite Company?
2025 2026 2027 2025 2026 2027
A. 190,000 643,000 88,000 C. 190,000 636,000 88,000
B. 180,000 543,000 90,000 D. 200,000 21,000 90,000
3) Using the inventory method of depreciation, what is the depreciation expense of Elite Company to be
reported in the Company’s 2025 statement of comprehensive income if the ending inventory was valued
at P1,455,000?
A 465,000 B. 445,000 C. 455,000 D. 435,000
.
1. 4 x 45,000 180,000
Selling price (10,000)
Depreciation, 2025 170,000
14 x 45,000 630,000
2 x 45,000 90,000
Depreciation, 2027 88,000 A
2. 4 x 50,000 200,000
12 x 46,500 558,000
2 x 45,000 90,000
Total 648,000
2 x 45, 90,000
Depreciation, 2027 88,000 A
3. Inventory, 1/1/25 900,000

Purchases, 20 x 50,000 1,000,000
Depreciation, 2025 Squeeze 435,000 D
Inventor, 12/31/25 1,455,000
1) Jake Company purchased equipment on January 1, 2025 at an invoice price of P800,000, with credit terms
5/10, n/30. Freight in costs of P25,000, testing and installation costs of P40,000 and labor costs during
regular operations of P20,000 were also incurred before the payment of the invoice on January 20, 2025. It
was expected that the machine could be used for 10 years, after which the residual value would be zero.
The entity intends to use the machine for only 8 years, however, after which it expects to be able to sell it
for P50,000. The straight line method is used. What is the carrying amount of this equipment on December
31, 2025?
A 745,625 B. 728,125 C. 742,500 D. 760,500
.
ANSWER: C
Invoice prince 800,000
Discount 800,000 x 5% (40,000)
Freight 25,000
Installation 40,000
Initial cost 825,000
Residual value (50,000)
Depreciable cost 775,000
Useful life /8
Depreciation 96,875

Depreciation 96,875
Carrying amount, December 31, 2025 728,125
2) Cane Company acquired equipment by exchanging used equipment with the following data:
Equipment 3,900,000
Accumulated depreciation 4,000,000
Fair value of equipment given in exchange 1,200,000
Cash received on exchange 500,000
What is the cost of the new equipment received by Cane?

A 1,200,000 B. 1,700,000 C. 700,000 D. 500,000
.
4. Fair value of asset given up 1,200,000

Cash received (500,000)
Initial measure 700,000 C
Use the following information for the next five (5) questions:
Dubai Corporation had the following items incurred in its “Property, Plant and Equipment” & Research and
Development activities as at December 31, 2025:
Cash paid to purchase a land with an old building at the beginning of the year 660,000
Mortgage assumed on the land purchased 240,000
Commission paid to real estate agent 150,000
Cost of razing the old building 120,000
Special assessment for public improvement 25,000
Cost of option paid for land not acquired 80,000
Building construction labor costs 800,000
Building construction materials 672,000
Cost of temporary fencing the property during the construction 28,000
Architect’s fees 112,500
Cost of paving driveway and parking lot 70,000
Excavation expenses 135,000
Fixed overhead charged to the building 300,000
Construction gain 360,000
Property taxes on land covering the period 2023 – 2025 240,000
Interest expense on construction loan during construction 150,000
Invoice cost of machinery acquired 381,000
Freight, unloading, and delivery charges 22,500
Cost of testing and trial run 20,000
Salvage proceeds from demolished building 15,000
Proceeds from sale of produce of the machinery test runs 3,500
Searching for applications of new research findings 57,000
Trouble-shooting in connection with breakdowns during commercial production 87,000
Adaptation of an existing capability to a particular requirement or customer’s need as part
of continuing commercial activity 39,000
Engineering follow-through an early phase of commercial production 45,000
Laboratory research aimed at discovery of new knowledge 204,000
Testing for evaluation of new products 72,000
Quality control during commercial production, including routine testing of products 174,000
Materials consumed in research and development projects 177,000
Consulting fees paid to outsiders for research and projects 300,000
Personnel costs of persons involved in research and development projects 384,000
Routine and on-going efforts to refine, enrich, or otherwise, improve upon the quantities of
an existing product 750,000
1) What is the adjusted balance of land?

A 1,315,000 B. 1,235,000 C. 1,355,000 D. 1,395,000
.
2) What is the adjusted balance of building?

A 2,332,500 B. 2,302,500 C. 2,017,500 D. 2,197,500
.
3) What is the adjusted balance of machinery?
A 435,000 B. 427,000 C. 400,000 D. 420,000
.
4) What is the adjusted balance of land improvement?

A 70,000 B. 135,000 C. 98,000 D. 233,000
.
5) What is the adjusted balance of research and development expense?

A 1,122,000 B. 1,194,000 C. 1,872,000 D. 1,578,000
.
1. Cash paid to purchase a land with an old building 660,000

Property taxes on land covering the period 2023 – 160,000
2025
Total 1,235,000 B
2. Building construction labor costs 800,000

Cost of temporary fencing the property 28,000
Architect’s fees 112,500
Excavation expenses 135,000
Interest expense on construction loan during 150,000
construction
Cost of razing the old building 120,000
Salvage proceeds from demolished building (15,000)
Total 2,302,500 B
3. Invoice cost of machinery acquired 381,000

Proceeds from sale of produce of the machinery test (3,500)
runs
Total 420,000
4. Cost of paving driveway and parking lot 70,000 A
5. Searching for applications of new research findings 57,000

Laboratory research aimed at discovery of new knowledge 204,000
Testing for evaluation of new products 72,000
Materials consumed in research and development projects 177,000
Consulting fees paid to outsiders for research and projects 300,000
Personnel costs of persons involved in research and development 384,000
projects
Total 1,194,000 B
Body Company purchased land as factory site and contracted with a contractor to construct a factory. Body
made the following expenditures related to the acquisition of the land, building and machinery:
Purchase price of the land 1,200,000

Demolition and removal of old building 80,000
Clearing and grading the land before construction 150,000
Various closing costs in connection with acquiring the land 40,000
Architect fee for the plans for the new building 50,000
Payment to contractor for building construction 3,250,000
Machinery purchased 850,000
Freight charges on machinery 30,000
Trees, plants and other landscaping 45,000
Installation of sprinkle system for the landscaping 5,000
Cost to build special platform and install wiring for the machinery 10,000
Cost of trial runs and ensure proper installation of the machinery 20,000
Fire and theft insurance on the factory for the first year of use 60,000
1) What is the cost of the land?

A 1,390,000 B. 1,470,000 C. 1,440,000 D. 1,550,000
.
2) What is the cost of the building?

A 3,300,000 B. 3,380,000 C. 3,450,000 D. 3,530,000
.
3) What is the cost of the machinery?

A 970,000 B. 900,000 C. 910,000 D. 960,000
.
1. Purchase price of the land 1,200,000

Clearing and grading the land before construction 150,000
Various closing costs in connection with acquiring the 40,000
land
1,390,000 A
2. Demolition and removal of old building 80,000

Architect fee for the plans for the new building 50,000
Payment to contractor for building construction 3,250,000
3,380,000 B
3. Machinery purchased 850,000

Freight charges on machinery 30,000
Cost to build special platform and install wiring for the machinery 10,000
Cost of trial runs and ensure proper installation of the machinery 20,000
910,000 C
Use the following information for the next four (4) questions:
Paradise Company incurred the following costs during the current year in relation to property, plant and
equipment:
Cash paid for purchase of land 2,500,000
Mortgage assumed on the land purchased, including interest accrued 1,000,000
Realty commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the land acquired 100,000
Cost of tearing down an old building on the land to make room for construction of new building 200,000
Salvage value of the old building demolished 50,000
Cost of fencing the property after completion of construction 250,000
Amount paid to the contractor for the building constructed 5,000,000
Building permit fee 50,000
Excavation 50,000
Architect fee 200,000
Interest that would have been earned had the money used during the period of construction 150,000
been invested
Invoice cost of machine acquired 2,000,000
Freight, unloading and delivery charges on the machine acquired 60,000
Custom duties and other charges on the machine acquired 140,000
Allowances and hotel accommodation paid to foreign technicians during installation and test run 400,000
of machine
Trees, shrubs and other landscaping 200,000
Parking bays 350,000
1) What amount should be capitalized as cost of land?

A 3,950,000 B. 4,100,000 C. 3,850,000 D. 3,800,000
.
2) What amount should be capitalized as cost of building?

A 5,300,000 B. 5,550,000 C. 5,450,000 D. 5,700,000
.
3) What amount should be capitalized as cost of machine?

A 2,600,000 B. 2,000,000 C. 2,200,000 D. 2,400,000
.
4) What amount should be capitalized as land improvement?

A 600,000 B. 450,000 C. 550,000 D. 800,000
.
1. Cash paid for purchase of land 2,500,000

Realty commission 300,000
Amount paid to relocate persons squatting on the land acquired 100,000
Total 3,950,000 A
2. Cost of tearing down an old building on the land to make room for 200,000
construction
Salvage value of the old building demolished (50,000)
Excavation 50,000
Total 5,450,000
3. Invoice cost of machine acquired 2,000,000

Freight, unloading and delivery charges on the machine acquired 60,000
Custom duties and other charges on the machine acquired 140,000
Allowances and hotel accommodation paid to foreign technicians during 400,000
installation
Total 2,600,000 A
4. Trees, shrubs and other landscaping 200,000

Parking bays 350,000
Total 800,000 D
A. C.
B. D.
1) Poling Dawn, Inc. has three machines. Information for the said machines are as follows:
Machine 1 Machine 2 Machine 3
Acquisition cost 8,000,000 3,900,000 800,000
Residual value 400,000 390,000 100,000
Useful life 25 10 12
Poling Dawn uses the straight-line method of depreciation. Determine the composite life and composite
rate:
A. 17.80 years and 5.62% C. 16.56 years and 5.62%
B. 17.80 years and 5.99% D. 16.56 years and 5.00%
1) During the year, Bortah constructed equipment for use in operation with the following information:
Materials and parts purchased subject to a 2% discount that was not taken 2,000,000
Imputed interest relating to stock financing on funds used during construction 140,000
Labor cost 1,900,000
Allocated overhead cost 500,000
Profit on self-construction 300,000
Installation cost 40,000
What is the total cost of the equipment?

A 4,100,000 B. 4,400,000 C. 4,440,000 D. 4,540,000
.
1. Materials and parts purchased subject to a 2% discount that was not taken (2M x 1,960,000
98%)
Labor cost 1,900,000
Allocated overhead cost 500,000
Installation cost 40,000
Total 4,400,000 B
2) On March 30, 2021, XXL Company purchased an equipment for P4,290,000. This equipment has 5 years
estimated useful life and P390,000 salvage value. Using the sum of year’s digit method of depreciation,
how much were the charges to income from use of this machine in 2022?
A 2,340,000 B. 2,080,000 C. 1,105,000 D. 780,000
.
3) On January 1, 2021, Piling Company has Land, Building and Machinery with brought forward balances from
the previous year of P325,000, P2,535,000 and P8,450,000 respectively, and total accumulated depreciation
using straight line method of P4,160,000. Annual depreciation charged to income at each year-end were
P650,000.
During 2022, Piling purchased additional machine and retired an old one. The new machine, costing
P585,000, increased the annual depreciation by 10%. By December 31, 2022, the accumulated depreciation
account has ending balance of P5,200,000.
What amount was debited to accumulated depreciation account upon retirement of the old machinery?
A 520,000 B. 325,000 C. 260,000 D. 130,000
.
4) On January 1, 2021, Ding Company acquired an equipment with useful life of 8 years and P390,000 residual
value. using the double-declining balance method, the 2022 depreciation expense on this equipment was
P1,170,000. What was the book value of this equipment on December 31, 2023?
A 3,412,500 B. 2,730,000 C. 2,242,500 D. 2,632,500
.
5) Hips Company purchased an asset with a list price of P130,000 to be delivered on July 1, 2021 with the
following payment terms:
 A deposit of P26,000 is due on June 1, 2021 and cash on delivery of P26,000 is due on July 1, 2021.
 Three annual payments of P26,000 starting July 1, 2022 and thereafter.
 The seller waived its normal interest charge of 6% per year.
The equipment is expected to last 5 years, with a residual value of P26,000. Hips has a December 31 year-
end. What should be the depreciation expense for the year ended December 31, 2021?
A 9,550 B. 11,141 C. 12,150 D. 19,100
.
6) On January 1, 2021, Feista Company acquired a depreciable asset for P3,300,000 and it this same date, it
received a government grant of P300,000 which was deducted from the cost of the asset acquired. The
asset has 10-year useful life and residual value of P250,000. Feista failed to comply with the conditions of
the grant and on January 1, 2023, the grant became repayable. What is the depreciation in 2023?
A 300,000 B. 305,000 C. 365,000 D. 390,000
.
Secrets Inc. was incorporated on January 1, 2021. The following items relate to Secrets, Inc.’s property, plant
and equipment:
Cost of land, which included an old apartment building 6,160,000
Delinquent property taxes assumed by Secrets, Inc. 60,000
Payments to tenants to vacate the apartment building 40,000
Cost of razing the apartment building 80,000
Architects fee for new building 120,000
Building permit for new construction 80,000
Fee for title search 50,000
Survey costs 40,000
Excavation before construction of new building 200,000
Payment to building contractor 20,000,000
Assessment by city for drainage project 30,000
Cost of grading and leveling 100,000
Temporary quarters for construction crew 160,000
Temporary building to house tools and materials 100,000
Cost of changes during construction to make new building more energy efficient 180,000
Interest cost on specific borrowing incurred during construction 720,000
Payment of medical bills of employees injured while inspecting building construction 36,000
Cost of installing lights in parking lot 24,000
Premium for insurance on building during construction 60,000
Cost of open house party to celebrate opening of new building 100,000
Cost of windows broken by vandals distracted by the celebration 24,000
7) What is the cost of land?

A 5,960,000 B. 6,440,000 C. 6,540,000 D. 6,410,000
.
8) What is the cost of building?

A 21,740,000 B. 21,750,000 C. 21,790,000 D. 21,720,000
.
Blackpink Company purchased land with a building on it, for P2,280,000. It was reliably determined that the
building is worth twice as much as the land. Blackpink has the intention of using the old building hence,
necessary remodeling at a cost of P800,000 were initiated. Also, Blackpink constructed driveways and
sidewalks amounting to P204,000, fences of P100,000, and water system of P64,000.
During the year, Blackpink also purchased machinery with a list price of P700,000. Freight on machinery
purchased amounted to P8,000 while repairs to machinery due to damage during shipment amounted to
P4,600. The manufacturer offered Blackpink 2% cash discount for the said machine, but due to cash constraint,
it was not availed.
9) How much is the adjusted balance of the building?

A 1,520,000 B. 1,724,000 C. 2,320,000 D. 2,524,000
.
10) How much is the initial cost of the machine?

A 694,000 B. 698,600 C. 708,000 D. 712,600
.
11) Explosib, Inc. acquired two units of equipment on December 31, 2021. The first equipment was purchased
in exchange for a ten-year non-interest bearing note requiring annual payment of P1,000,000 every
December 31 starting December 31, 2022. The second equipment was acquired by issuing a two-year
P6,000,000 non-interest bearing note. The prevailing rate for notes of these types on December 31, 2021
was 12%. What is the total cost of the two units of equipment? Present value factor round to two (2)
decimal places
A 10,130,000 B. 10,450,000 C. 11,130,000 D. 16,470,000
.
On July 1, 2021, Bulkeyno Inc. exchanged machine with Mawnteyn Company. Bulkeyno’s cost to the machine
was P576,000 with related accumulated depreciation of P270,000. Its fair market value was P54,000 higher than
its book value.
Mawnteyn, on the other hand purchased the machine for P660,000. Carrying value as of the date of exchange
was P348,000. Bulkeyno paid Mawnteyn P90,000 for the difference in fair values of the two machines.
12) If the transaction had commercial substance, what was the amount to be recorded by Bulkeyno as the cost
of the asset acquired through exchange?
A 450,000 B. 396,000 C. 306,000 D. 258,000
.
13) If the transaction was one without commercial substance, what was the amount recorded by Mawnteyn as
the cost of the asset acquired through exchange?
A 450,000 B. 396,000 C. 306,000 D. 258,000
.
1) Leonicus Corp. has recently acquired a computer system for its central office in Cebu City. Determine the
acquisition cost of the new computer system given the following costs:
List price P152,000
Trade discount taken 56,000
Removal of old computer 16,000
Concrete slab poured as a base for the computer 43,200
Insurance in transit 1,920
Repairs incurred while in transit 4,800
Transportation costs 6,400
Purchase discount not taken 2%
A 145,600 B. 166,400 C. 160,800 D. 161,600

.
1) Tilt Company acquired land from Display Company which will be used as a plant site in exchange for
20,000 newly issued shares of Tilt’s ordinary shares. At the date of acquisition, Tilt’s ordinary shares had
a par value of P20 per share and a fair value of P30 per share. the fair value of the land was P500,000 when
Cooper acquired this 2 years ago. How much is the initial cost of the newly acquired land?
A 400,000 B. 500,000 C. 600,000 D. 200,000
.
1) A piece of machinery has marked price of P550,000. It was purchased under the term 15%, 10%, and 5%
discounts. The cost of freight and installation after deducting the P8,000 sales proceeds of the old
machinery which was replaced is P12,000. The new machinery shall be recorded at a cost of
A 411,712 B. 405,000 C. 419,712 D. 397,000
.
2) During the current year, Benguet Company purchased a secondhand machine at a price of P300,000. A
cash down payment of P50,000 was made and a two-year, non interest bearing note was issued for the
balance. Recent transactions involving similar machinery indicate that the used machine has a secondhand
market value of P240,000. A new machine would cost P400,000. The following costs were incurred on the
machine during the year:
Cost of removing the old machine 2,000

Cash proceeds form the sale of the old machine 1,200
Cost of spare parts purchased and set aside from breakdowns during the first two years of
normal use of the machine 20,000
Cost of labor to install the machine 4,000
Cost of testing the machine prior to use 1,800
Cost of hauling the machine from the vendor’s place of business to the company’s premises 5,000
Cost of repairing the damage to the machine when it was dropped during the installation 3,000
Repairs incurred during the first year of operations 6,000
Safety devices added to the machine to comply with the terms of the collective bargaining
agreement entered into with the employees’ union 12,000
Cost of training workers to operate the machine 1,500
Determine the amount to be capitalized as cost of the machine

A 292,800 B. 280,800 C. 272,800 D. 262,800
.
3) A machine has a cost of P60,000, has an annual depreciation of P12,000 and has accumulated depreciation
of P30,000 on December 31, 2021. On April 1, 2022, when the the machine has a fair value of P24,000, it
exchange for a similar machine with a fair value of P72,000 and the proper amount of cash is paid. The loss
to be recognize on exchange is
A 6,000 B. 3,000 C. 21,000 D. 0
.
4) Luka Company acquired land an an old building. Luka acquired the land and building by providing 40,000
of its shares that were trading on the Stock Exchange at price of P13 per share, and by paying off the
existing mortgage of P30,000 and back taxes on the old building of P5,000. Luka also paid P20,000 to
demolish the old building on the land, P30,000 to an architect to design a new building, and P220,000 to a
contractor to build the building. How much is the cost of the new building in accordance with PIC Q & A
2012-2?
A 250,000 B. 270,000 C. 300,000 D. 305,000
.
5) In January 2022, Utah Corporation entered into a contract to acquire a new machine for its factory. The
machine, which had a cash price of P2,000,000, was paid for as follows:
Down payment 300,000

5,000 ordinary shares of Utah with an agreed-upon value of P370 per share 1,850,000
2,150,000
Prior to the machine’s use, installation costs of P70,000 were incurred. The machine has an estimated
useful life of 10 years and an estimated salvage value of P100,000. The straight line method of depreciation
is used. The depreciation to be recognized in 2022 is
A 212,000 B. 190,000 C. 182,000 D. 197,000
.
6) Wan Company purchased a machine on December 2, 2020 at an invoice price of P4,500,000 with terms
2/10, n/30. On December 10, 2020, Wan paid the required amount for the machine. On December 2, 2020,
Wan paid P80,000 for delivery of the machine and on December 31, 2020, it paid P310,000 for installation
and testing of the machine. The machine was ready for use on January 1, 2021. It was estimated that the
machine would have a useful life of 5 years, and a residual value of P800,000. Engineering estimates
indicated that the useful life in productive units was 200,000. Units actually produced during the first two
years were 30,000 in 2021 and 48,000 in 2022. Wan Company decided to use the productive output
method of depreciation. What is the depreciation of the machine for 2022?
A 1,560,000 B. 720,000 C. 960,000 D. 600,000
.
Use the following information for the next four (4) questions:
January 1, 2023, Madison Square Garden Company (MSG) disclosed the following balances:
Land 4,000,000
Land improvements 1,300,000
Building 20,000,000
Machinery 8,000,000
During the current year, the following transactions occurred:

 A tract of land was acquired for P2,000,000 cash as a building site.
 A plant facility consisting of land and building was acquired in exchange for 200,000 shares of MSG. On the
acquisition date, each share had a quoted price of P45 on a stock exchange. The plant facility was carried
on the seller’s books at P1,600,000 for land and P5,400,000 for the building at the exchange date.
Current appraised values for the land and the building, respectively, are P2,000,000 and P8,000,000. The
building has an expected life of 20 years with a P200,000 residual value.
 Machinery was purchased for P4,000,000. Additional costs incurred were freight and unloading P100,000
and installation P300,000. The machinery had a useful life of 10 years with no residual value.
 Expenditures totaling P1,200,000 were made for new parking lot, street and sidewalks at MSG’s various
plant locations. Theses expenditures had an estimated useful life 15 years.
 Research and development costs totaled P1,100,000 for the year.
 A machine costing P200,000 on January 1, 2015 was scrapped on June 30, 2023. Straight line depreciation
had been recorded on the basis of a 10-year life with no residual value.
 A machine was sold for P5000,000 on July 1, 2023. Original cost of the machine sold was P700,000
1) What is the total cost of land on December 31, 2023?
A 7,800,000 B. 7,600,000 C. 8,000,000 D. 6,800,000
.
2) What is the total cost of land improvement on December 31, 2023?

A 1,200,000 B. 3,600,000 C. 1,300,000 D. 2,500,000
.
3) What is the total cost of building on December 31, 2023?

A 28,000,000 B. 25,400,000 C. 27,200,000 D. 27,000,000
.
4) What is the total cost of machinery on December 31, 2023?

A 12,400,000 B. 11,500,000 C. 11,000,000 D. 11,700,000
.
Use the following for the next two (2) questions:

On January 1, 2022, Romania Company purchased a specialized factory equipment for cash at a purchase price
of P700,000. The company incurred P20,000 freight cost and handling costs of P10,000. The company expects
that it will incur dismantling cost amounting to P80,000 at the end of the equipment’s 5-year useful life. The
prevailing market interest rate during the transaction date was 6%.
The present value factor of P1 at 6% for 5 periods is at 0.747
The present value factor of P1 ordinary annuity for 5 periods is at 4.212
1) How much is the initial cost of the equipment?

A 730,000 B. 810,000 C. 1,066,960 D. 789,760
.
2) Assuming the company is using the straight line method, how much is the total expenses for the year
ended December 31, 2022?
A 171,952 B. 157,952 C. 161,538 D. 175,538
.
3) On April 1, 2022 Brazil Company purchased and installed several furniture and fixtures items from a local
furniture manufacturer and dealer under the terms 3/10, n/30. The invoice price of the furniture and
fixtures was P2,200,000. Brazil settled the account on April 12, 2022. In addition, the company incurred
freight and installation cost amounting to P5,000 and P8,000 respectively. Assuming an estimated useful
life of 5 years and a 10% salvage value, what is the depreciation expense for the year 2022 under the
double declining balance method?
A 858,800 B. 644,100 C. 772,920 D. 579,690
.
4) On May 1, 2022, Cuba Company purchased factory machinery having an installment price of P4,000,000.
The company made a P1,000,000 down payment and issued 6-year, non-interest bearing note for the
balance payable every May 1, starting next year. There is no cash equivalent price for the factory
machinery. The prevailing interest rate for similar note is at 6%.
The present value factor of P1 at 6% for 6 periods is at 0.7050
The present value factor of P1 ordinary annuity for 6 periods is at 4.9173
Assuming an estimated useful life of 9 years with a 10% salvage value based on cost, what is the book
value of the factory machinery at December 31, 2022 under the sum-of-years digit method?
A 2,016,093 B. 2,163,612 C. 3,043,612 D. 2,836,093
.
1) Kisses Company had the following property acquisitions of machineries during the current year:
(a) During the early part of current year, the entity purchased a machine for P500,000 down and four
monthly installments of P1,250,000. The cash price of the machine was P4,700.000.
(b) At the beginning of current year, the entity purchased a machine for P2,000,000 in exchange for a non
interest bearing note requiring four payments of P500,000. The first payment was made at the end of
current year. The rate of interest for this note at date of issuance was 10%. The present value of
ordinary annuity of 1 at 10% is 3.17 four four periods. The present value of annuity of 1 in advance at
10% is 3.49 for four periods.
(c) At the beginning of current year, the entity acquired a machine by issuing a four-year, non interest
bearing note for P2,000,000. The entity has a 10% interest for this type of note. The present value of 1
at 10% for 4 years is 0.68.
(d) During the year, the entity exchanged an old machine, costing P3,000,000 and 50% depreciated, for a
used machine and paid a cash difference of P500,000. The fair value of the old machine was determined
to be P1,800,000.
What is the total cost of machineries acquired?

A 9,445,000 B. 9,945,000 C. 9,645,000 D. 9,465,000
.
1) Cute Corporation owns the following properties at 1 January 2020:
Property A
An office building used by Cute for administrative purposes with a depreciated historical cost of P2 million.
At 1 January 2020 it had a remaining life of 20 years. After a re-organization on 1 July 2020, the property
was leased to a third party and reclassified as an investment property applying Cute’s policy of the fair
value model. An independent valuer assessed the property to have a fair value of P2.3 million at 1 July
2020, which had risen to P2.34 million at 31 December 2020.
Property B
Another office building sub-leased to a subsidiary of Cute. At 1 January 2020, it had a fair value of P1.5
million which had risen to P1.65 million at 31 December 2020. At 1 January 2020 it had a remaining life of
15 years.
In relation to these properties, the net amount to be recognized in profit or loss in the entity’s separate
financial statements for the year ended December 31, 2020 is
A 540,000 B. 490,000 C. 190,000 D. 140,000
.
2) On April 1, 2020, the new machinery was ordered at a quoted price of P56,000. On July 1, 2020, it arrived
at Dodik Corp.’s plant with an actual invoice price of P58,000, which it paid immediately. During July
2020, a new concrete platform was constructed at a cost of P4,000 to properly install the machine. In
August 2020, testing was performed at a cost of P7,000 to ensure the machine was operating properly. On
August 31, 2020, the machine was entered into service. Minor repairs and maintenance costs on the new
machine amounted to P3,000 in September 2020. No other costs were incurred prior to December 31,
2020. Similar machinery is depreciated on a straight-line basis over 10 years and typically has no residual
value. The depreciation expense for the year ended December 31, 2020 is
A 2,300 B. 2,233 C. 2,875 D. 3,350
.
3) Roxanne Co. purchased equipment for P500,000. The equipment had an estimated 10-year service life.
Roxanne’s policy for 10-year assets is to use the 150% declining balance depreciation method for the first
five years of the asset’s life and then switch to the straight-line depreciation method. What amount
should Roxanne report as accumulated depreciation for equipment at the end of the sixth year?
A 300,000 B. 322,518 C. 278,147 D. 311,425
.
1) Carnage Company purchased a boring machine on January 1, 2020 for P81,000. The useful life of the
machine is estimated at 3 years with a residual value at the end of this period of P6,000. During its useful
life, the expected units of production from the machine are:
2020 12,000 units
2021 7,000 units
2022 5,000 units
What should be the depreciation expense for the year ended December 31, 2021, using the most
appropriate depreciation method permitted by PAS 16 – Property, Plant and Equipment
A 27,000 B. 21,875 C. 23,625 D. 25,000
.
2) A factory equipment with an estimated useful life of 10 years was purchased by Ginobili Company on
December 30, 2017. The equipment was expected to have a residual value of P5,000 at the end of its
service life. The sum of the years-digit method was used in computing depreciation. For the year ended
December 31, 2021, the depreciation applicable to this equipment was P42,000. The cost of the factory
equipment purchased on December 30, 2017 was
A 325,000 B. 293,750 C. 335,000 D. 330,000
.
3) Shogun Company purchased a non-current asset with a useful life of 12 years on January 1, 2021 for
P6,500,000.
At its year end of December 31, 2021, the amount the company would receive from the disposal of the
asset if it was already of the age and in the condition expected at the end of its useful life was estimated at
P700,000. Inclusive of inflation the actual amount expected to be received on disposal was estimated at
P900,000.
The depreciation charge under PAS 16 – Property, Plant and Equipment, for the year ended December 31,
is
A 483,333 B. 466,667 C. Zero D. 541,667
.
4) Souring Falcons Company acquired a drilling machine on October 1, 2018 at a cost of P25,000 and
depreciated it at 25% per annum on a straight line basis. On October 1, 2020, P5,000 was spent on an
upgrade to the machine in order to improve its efficiency and increase the inflow of economic benefits
over the machine’s remaining life.
According to PAS 16 – Property, Plant and Equipment, what depreciation expense should be recognized in
profit or loss for the year ended September 30, 2021?
A 8,750 B. 6,250 C. 7,500 D. 11,250
.
5) Sad Reacts Only Company is purchased a second-hand polishing machine from a competitor who has gone
bankrupt. It incurred the following costs:
Agreed price paid to vendor 800,000
Dismantling the machine at its current location 40,000
Transportation to Sad Reacts Only’s factory 35,000
Machine refurbishment costs prior to re- 17,500
installation
Re-installation 12,500
Under PAS 16 – Property, plant and equipment, the total included in non-current assets in respect of the
machine is
A 887,500 B. 905,000 C. 812,500 D. 865,000
.
6) On January 1, 2020, Sweldo Company received a grant of P50,000,000 from a foreign government for the
construction of a laboratory and research facility with an estimated cost of P60,000,000 and useful life of 25
years. The facility was completed in early 2021. Company policy is to treat the grant as a reduction in the
cost of the asset. What should be the depreciation expense in respect of this facility for the year ended
December 31, 2021, assuming that depreciation is calculated on a straight line basis?
A Zero B. 2,400,000 C. 2,000,000 D. 400,000
.
1) JPIA Motors exchange a car from its inventory for a computer to be used as a noncurrent operating asset.
The following information relates to this exchange that took place on July 31, 2022:
Carrying amount of the car 30,000
Listed selling price of the car 45,000
Fair value of the computer 43,000
Cash difference paid by JPIA Motors 5,000
On July 31, 2022, how much gain or loss should JPIA recognize on this exchange?
A 15,000 gain B. 13,000 gain C. 18,000 gain D. 8,000 gain
.
1) The Rachelle Company purchased an investment property on January 1, 2019 for a cost of P220,000. The
property had a useful life of 40 years and at December 31, 2021 had a fair value of P300,000. On January 1,
2022 the property was sold for net proceeds of P290,000. Rachelle uses the fair value model to account for
investment properties.What is the gain or loss to be recognized in the profit or loss for the year ended
December 31, 2022 regarding the disposal of the property?
A 86,500 gain B. 81,000 gain C. 10,000 loss D. 92,000 gain
.
2) Libras Corporation purchased a machine on July 1, 2019, for P500,000. The machine was estimated to have
a useful life of 10 years with an estimated residual value of P28,000. During 2022, it became apparent that
the machine would become uneconomical after December 31, 2026 and that the machine would have no
scrap value. What should be the charge for depreciation in 2022?
A 70,800 B. 82,000 C. 76,400 D. 95,500
.
3) Scorpius Corporation, which has a calendar year accounting period, purchased a new machine for P80,000
on April 1, 2022. At that time Scorpius expected to use the machine for nine years and then sell it for
P8,000. The machine was sold for P44,000 on Sept. 30, 2022. Assuming straight-line depreciation, no
depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to
be recognized at the time of sale would be
A 8,000 B. 6,000 C. 4,000 D. -0-
.
4) On July 1, 2022, Piscor Corporation purchased factory equipment for P450,000. Residual value was
estimated to be P12,000. The equipment will be depreciated over ten years using the double-declining
balance method. Counting the year of acquisition as one-half year, Piscor should report depreciation
expense for 2023 on this equipment of:
A 90,000 B. 81,000 C. 78,840 D. 72,000
.
Marissa incurred the following cost during the current year in relation to the property, plant and equipment:
Realtor commission 300,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land to make room for construction of new building 200,000
Salvage value of the old building demolished 50,000
Excavation fee 50,000
Interest that would have been earned had the money used during the period of constructed been 150,000
invested
Freight unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation, paid to foreign technicians during installation and test run 400,000
of machine
2) What amount should be capitalized as cost of land?

A 3,950,000 B. 4,100,000 C. 3,850,000 D. 3,800,000
.
3) What amount should be capitalized as cost of building

A 5,300,000 B. 5,410,000 C. 5,450,000 D. 5,560,000
.
4) What amount should be capitalized as cost of machine?

A 2,600,000 B. 2,000,000 C. 2,200,000 D. 2,560,000
.
ANSWER: A, C, A
Land Building Machine
Mortgage assumed on the land purchased, including interest 1,000,000
accrued
Realtor commission 300,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land 200,000
Salvage value of the old building demolished (50,000)
Cost of fencing the property after completion of construction
Excavation fee 50,000
Interest that would have been earned had the money
Freight unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation 400,000
Total 3,950,000 5,450,000 2,600,000
At the beginning of the current year, EZE Company reported land P3,200,000 and building P7,500,000. During
the current year, the following transactions occurred:
 A piece of land was acquired for P1,600,000. To be able to acquire the land, P200,000 was paid to a real
estate agent, and P100,000 was incurred to clear the land. During the course of clearing the land, timber
and gravel were recovered and sold for P75,000
 A second piece of land with a building was acquired for P5,400,000. The appraiser valued the land at
P2,000,000 and the building at P1,000,000. Shortly after acquisition, the building was demolished at a cost
of P100,000. A new building was constructed at a cost of P5,000,000 plus excavation fee P80,000, architect
fee P120,000 and building permit P70,000.
 A third piece of land was acquired for P2,000,000 and was held for undetermined use.
2) What total cost of land should be reported under property, plant and equipment?
A 10,625,000 B. 8,725,000 C. 10,425,000 D. 8,625,000
.
3) What is the total cost of the building?

A 14,670,000 B. 14,570,000 C. 12,870,000 D. 12,770,000
.
1) Olivia Company was installing new equipment at its production facility and incurred the following costs:
Cash price of the equipment, VAT inclusive of 12% 2,800,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultant used for advance on the acquisition of equipment 700,000
Interest charges paid to supplier for deferred credit 200,000
Estimated dismantling cost that may be incurred upon retirement 300,000
Operating losses before commercial production 400,000
What amount should be capitalized as cost of equipment?

A 4,300,000 B. 4,000,000 C. 4,200,000 D. 3,300,000
.
1) Tillman Company owned a machine that was bought on January 1, 2021 for P7,520,000. The machine was
estimated to have a useful life of five years and a residual value of P480,000. The entity used the sum of the
years’ digit method of depreciation. At the beginning of 2024, the entity determined that the total useful
life of the machine should have been four years and the residual value P704,000. What is the depreciation
expense for 2024?
A 1,184,000 B. 1,408,000 C. 888,000 D. 755,200
.
2) Shantal Company is installing a new equipment and incurred the following costs:
Cost of equipment per supplier’s invoice 2,500,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultants used for advance on the acquisition of equipment 700,000
Interest charged paid to supplier for deferred credit 200,000
Estimated dismantling cost to be incurred as required by contract 300,000
Operating losses before commercial production 400,000
What total amount should be capitalized as cost of the equipment?

A 4,300,000 B. 4,000,000 C. 4,200,000 D. 4,500,000
.
1) Madel Corporation was established on January 1, 2009. On January 1, 2011, the Company purchased plant
equipment at a cost of 3,500,000 for its expanding provincial operations. It is the Company policy that this
equipment should be depreciated on the straight line method over a five-year period with no residual
value. In the year 2011, the newly hired accountant made an error not to recognize depreciation in the
Company’s financial statements. During the preparation of the Company’s 2012 financial statements,
the error was discovered by the auditors. What should be the Depreciation expense on this machine for the
year 2012?
A 350,000 B. 2,100,000 C. 1,400,000 D. 700,000
.
2) On January 1, 2012, the management of Milan Company determined that a revision in the estimate
associated with the depreciation of plant facilities was necessary. The facilities, purchased on January 1,
2010, for 7,500,000, had been depreciated using the straight-line method with an estimated residual value
of 500,000 and an estimated useful life of 15 years. Management has determined from recent appraisal
reports that the expected remaining useful life of the facilities is only 10 years and the estimated residual
value should be increased by 200,000. What is the depreciation expense that should be recognized for the
year 2012?
A 536,667 B. 633,333 C. 293,333 D. 586,667
.
3) Marangal Furnitures Corporation was incorporated on January 1, 2019. In its audited financial statements
for the year ended December 31, 2021, the Company used the following original cost and useful lives for
its property plant and equipment.
Building 12,000,000 12 years
Machinery 9,000,000 10 years
Furniture 3,000,000 6 years
On January 1, 2022 the company decided to review the useful lives of the property, plant and equipment
and consequently hired independent valuation experts who can certify the remaining useful lives of the
property, plant and equipment. The results are as follows: Building 10 years Machinery 7 years Furniture 4
years The Company uses the straight line method of depreciation. What is the amount of depreciation
expense for 2022?
A 2,400,000 B. 2,175,000 C. 2,528,571 D. 5,742,857
.
4) Mirageme Holdings, Inc. provided the following numbers for the preparation of the 2012 financial
statements.
December 31 January 1
Fixed Assets 1,200,000 1,050,000
Accumulated depreciation 300,000 450,000
The company purchased new equipment during the year. Also during the year, an equipment with original
cost of P300,000 was disposed of for a gain of P50,000. Depreciation charged for the current year was
P200,000. The company has a policy to depreciate all their assets in 5 years.What is the amount of newly
acquired fixed assets during the year?
A 400,000 B. 450,000 C. 150,000 D. 500,000
.
5) During 2022, Dinara Company made the following property, plant and equipment expenditures:
Land and building acquired from Samantha Company 7,000,000
Repairs and reconditioning cost made to the building 250,000
Reconstruction of sidewalk and fences 100,000
Special tax assessment 50,000
Remodeling of office space including new partitions and walls 400,000
In exchange for the land and building acquired from Samantha, Dinara issued 50,000 ordinary shares of its
P100 par value ordinary shares. On the date of purchase, the shares had a market value of P140 per share
and the land and building had a fair value of P2,000,000 and P6,000,000 respectively. During the year,
Dinara also received land from a shareholder to facilitate to relocation of its main offices in the city. Dinara
paid P50,000 for the donated land transfer. The donated land is fairly valued at P1,800,000. What is the
total cost of the land acquisition?
A 4,100,000 B. 3,900,000 C. 3,850,000 D. 3,600,000
.
FV of land acquired by issuing of shares 2,000,000

Special assessment 50,000
FV of donated land 1,800,000
Total cost 3,850,000
6) Lene Company uses straight line depreciation for its property, plant and equipment. Balances of the
property, plant and equipment and related accumulated depreciation accounts on January 1, 2009 are
P25,000,000 and P5,000,000 and on December 31, 2009 are P20,000,000 and P6,200,000. Lene did not
purchase property, plant and equipment during 2009. However, machinery was sold for P3,000,000 that
resulted in a P400,000 loss. What is the depreciation expense for 2009?
A 1,200,000 B. 2,800,000 C. 3,600,000 D. 2,200,000
.
Accum. Depn. 1/1 5,000,000

Accum. Depn. From sold equipment (5M – (3M + 400) (1,600,000)
Depreciation expense (SQUEEZE) 2,800,000
Accum. Depn. 12/31 6,200,000
7) Marla Company acquired new equipment on account on March 1, 2009 with a 5% discount if paid with in
15 days. The following information is available:
List price 3,500,000
Trade discount 20%
Removal of old equipment 100,000
Cost of installation 50,000
Cost of redecoration of office in connection with the purchase 250,000
Insurance taken during delivery 20,000
Repairs incurred while in transit 10,000
Transportation costs 30,000
If the invoice was paid on March 31, 2009, what should be the cost of equipment?
A 2,760,000 B. 3,425,000 C. 2,900,000 D. 3,010,000
.
Purchase price net of discount (2,800 -140) 2,660,000

Direct cost (50 + 20 + 30) 100,000
Total cost 2,760,000
Two independent companies, Buster Co. and Biter Co., are in the home building business. Each owns a tract of
land held for development, but each would prefer to build on the other’s land. They agree to exchange their
land. An appraiser was hired, and from her report and the company’s records, the following information was
obtained:
Buster Co. Biter Co.
Cost and book value 192,000 120,000
Fair value based upon appraisal 220,000 210,000
The exchange was made, and based on the difference in appraised fair values, Biter Co. paid P10,000 to Buster
Co. The exchange has commercial substance.
1) For financial reporting purposes, Buster should recognize gain on this exchange of
A. 0 B. 10,000 C. 28,000 D. 90,000
2) The new land should be recorded on Buster’s books at

A. 168,000 B. 192,000 C. 210,000 D. 240,000
3) The new land should be recorded on Biter’s books at

A. 120,000 B. 150,000 C. 210,000 D. 220,000
ANSWER: C, C, D
Fair value of asset given up 220,000
Carrying amount of asset given up 192,000
Gain on exchange 28,000

Minus cash received (10,000)
Initial cost of the new PPE 210,000

Plus cash paid 10,000
Initial cost of the new PPE 220,000
4) Depreciation expense for the most recent fiscal year of Pingson Company on equipment purchased a few
years ago is P10,000. The balance sheet at the end of the same year disclosed the following:
Equipment 300,000
Accumulated depreciation (40,000)
Book value 260,000
The asset is not expected to have a salvage value and the firm depreciates the asset on the straight line
basis. In January of the next year (year of change), the firm decided to reduce the original total useful life
by 20% and that salvage value of P30,000 is reasonable estimate. What is depreciation in the year of the
change of Pingson Company?
A 10,000 B. 11,500 C. 12,000 D. 12,500
.
ANSWER: B
Carrying amount at the date of change 260,000
Remaining useful life[(300,000/10,000) x 80%] – 4 years 20
Depreciation 11,500
1) Loneliness Company acquired new manufacturing equipment on January 1, 2021, on installment basis. The
deferred payment contract provides for a downpayment of P300,000 and an 8-year note for P3,104,160.
The note is to be paid in 8 equal annual installment payment of P388,020, including 10% interest. The
payments are to be made on December 31 of each year, beginning December 31, 2021. The equipment has
a cash price equivalent of P2,370,000. Loneliness financial year-end is December 31. The amount of interest
expense to be recognized in 2022 is
A 310,416 B. 188,898 C. 207,000 D. 0
.
2) Four years ago on January 2, One Last Time Co. purchased a long-lived asset. The purchase price of the
asset was P2,500,000. With no salvage value. The estimated useful life of the asset was 10 years. One Last
Time used the straight-line method to calculate depreciation expense. An impairment loss on the asset of
P300,000 was recognized on December 31 of the current year. The estimated useful life of the asset at
December 31 of the current year did not change. What amount should One Last Time report as
depreciation expense in its income statement for the next year?
A 200,000 B. 220,000 C. 250,000 D. 300,000
.
3) On March 31, 2022, Sleep Company traded in an old machine having a carrying amount of P168,000, and
paid a cash difference of P60,000 for a new machine having a total cash price of P205,000. The cash flows
from the new machine are expected to be significantly different than the cash flow from the old machine.
On March 31, 2022, what amount of loss should Sleep recognize on this exchange?
A 60,000 B. 37,000 C. 23,000 D. 0
.
4) Boy Company takes full year’s depreciation expense in the year of an asset’s acquisition. Data relating to
one of Boy’s depreciable assets at December 31, 2021, are as follows:
Acquisition year 2019 Accumulated 72,000
depreciation
Cost P110,000 Estimated useful life 5 years
Residual value 20,000
Using the same depreciation method as used in 2019, 2020, and 2021, how much depreciation expense
should Boy record in 2022 for this asset?
A 12,000 B. 18,000 C. 22,000 D. 24,000
.
1) On January 1, 2021, Vanessa Company acquired equipment to be used in its manufacturing operations. The
equipment has an estimated useful life of 10 years and an estimated residual value of P50,000. The
depreciation applicable to this equipment was P240,000 for 2023 computed under the sum of years’
digits. What was the acquisition cost of the equipment?
A. 1,650,000 B. 1,700,000 C. 2,400,000 D. 2,450,000
On December 31, 2015, My Chemical Romance (MCR) Company acquired a piece of equipment Doug
Company by issuing a P1,200,000 note, payable in full on December 31, 2017. MCR’s credit rating permits it
to borrow funds from its several lines of credit at 10%. The equipment is expected to have a 5-year life and a
P150,000 salvage value. The present value of 1 at 10% for 4 periods is 0.68301.
1) What is the equipment’s book value on December 31, 2017?

A. 551,767 B. 630,000 C. 491,767 D. 341,767
2) What is the carrying amount of the note at December 31, 2017?

A. 1,090,903 B. 991,730 C. 1,200,000 D. 819,612
Taylor Swift (TS) Company purchased machinery on December 31, 2015, paying P80,000 down and agreeing to
pay the balance in four equal installments of P60,000 payable each December 31. Implicit in the purchase price
is an assumed interest of 12%. The following data are abstracted from the present value tables:
Present value of 1 at 12% for 4 periods 0.63552
Present value of an ordinary annuity of 1 at 12% for 4 3.03735
periods
3) What is the cost of the machinery purchased on December 31, 2015?

A. 233,083 B. 320,000 C. 262,241 D. 290,842
4) Interest expense should be reported on TS Company’s income statement for the year ended December
31, 2016 is
A. 38,131 B. 21,869 C. 17,293 D. 42,707
5) What is the carrying amount of the note at December 31, 2017?

A. 120,000 B. 144,110 C. 99,310 D. 101,403
What’s Up Corporation had the following items incurred in its “Property, Plant and Equipment” & Research
and Development activities as at December 31, 2015:
Cash paid to purchase a land with an old building at the beginning of the 660,000
year
Cost of razing the old building at January 1 120,000
Cost of option paid for land not acquired 80,000
Building construction labor costs 800,000
Cost of temporary fencing the property during the construction 28,000
Architect’s fee 112,500
Excavation expense 135,000
Construction gain 31,500
Interest expense on construction loan during construction 150,000
Invoice cost of machinery acquired 381,000
Salvage proceeds from demolished building 15,000
Proceeds from sale of produce of the machinery test runs 3,500
6) Building
A. 2,334,000 B. 2,349,000 C. 2,229,000 D. 2,306,000
7) Machinery
A. 381,000 B. 423,500 C. 420,000 D. 386,000
Versace Company commenced operations on July 1, 2015. During the following year, the company acquired a
tract of land, demolished the building on the land and build a new factory. Equipment was acquired for the
factory and, in March 2016, the plant was ready to commence operation. During this period, the following
inflows and outflows occurred:
While searching for a suitable block of land, Versace Company placed an option to buy with three
real estate agents at a cost of P1,000 each. One of these blocks of land was later acquired.
Payment of option fees 3,000
Receipt of loan from bank 4,000,000
Payment to settlement agent for title search, stamp duties and settlement fees 100,000
Payment of arrears in rates on building and land 50,000
Payment for land 1,000,000
Payment for demolition of current building on land 120,000
Proceeds from sale of materials from old building 55,000
Payment to architect 230,000
Payment to council for approval of building construction 120,000
Payment for safely fence around construction site 34,000
Payment to construction contractor for factory building 2,400,000
Payment for external driveways, parking bays and safety lighting 540,000
Payment for safe inspection on building 30,000
Payment for equipment 540,000
Payment for freight and insurance costs on delivery of equipment 56,000
Payment of installation costs on equipment 120,000
Payment for safely equipment surrounding equipment 110,000
Payment for removal of safety fence 20,000
Payment for new fence surrounding the factory 80,000
Payment for advertisements in the local paper about the forthcoming factory and its benefits to
the local community 5,000
Payment for opening ceremony 60,000
Payments to adjust equipment to more efficient operating levels subsequent to initial operation 33,000
Compute the cost of the following:

1) Land
A. 1,216,000 B. C. D.
2) Land improvement
A. 620,000 B. C. D.
3) Building
A. 2,834,000 B. C. D.
4) Equipment
A. 959,000 B. C. D.
8) Everdeen Company installed a production assembly line to manufacture furniture. In the current year, the
entity purchased a new machine and rearrange the assembly line to install this machine. The
rearrangement did not increase the established useful life of the assembly line, but it did result in
significant more efficient production. The following were incurred in connection with this project:
Machine 3,000,000
Labor to install machine 600,000
Parts added in rearranging the assembly line 1,600,000
Labor and overhead to rearrange the assembly 900,000
line
What total amount of the expenditure should be capitalized?

A. 6,100,000 B. 3,600,000 C. 2,500,000 D. 3,000,000
9) Quezon Company acquired new equipment by exchanging used equipment with the following data:
Equipment 5,000,000
Fair value 1,200,000
The old and new equipment had significantly different cash flows. What amount of gain or loss should
Quezon recognize as a result of the exchange?
A. 500,000 loss B. 500,000 gain C. 200,000 loss D. 200,000 gain
10) During 2014, the controller of the Highschool Kids Corporation asked you to prepare correcting journal
entries for the following three situations:
 Machine A was purchased for P30,000 on January 1, 2012. It had an estimated residual value of P5,000
and an estimated service life of 10 years. It had depreciated under double declining balance method
for 2 years. Now, at the beginning of the year year, Highschool Kids has decided to change to the
straight line method.
 Machine B was purchased for P50,000 on January 1, 2009. Straight-line depreciation has been
recorded for 5 years, and the Accumulated depreciation account has a balance of P25,000. The
estimated residual value remains at P5,000, but the service life is not estimated to be 2 year longer
than estimated originally.
 Machine C was purchased for P20,000 on January 1, 2013. Double declining balance depreciation has
been recorded for the year. The estimated residual value of the machine is P2,000 and the estimated
service life is 5 years. The computation of the depreciation erroneously included the estimated
residual value.
What are the correct depreciation expenses for each of the machinery for the year 2014?
Machine A Machine B Machine C
A. 2,400 4,167 8,000
B. 1,775 3,333 4,800
C. 1,725 2,167 4,000
D. 1,400 1,333 4,000
11) Lightning Ltd. uses many kinds of machines in its operations. It constructs some of these machines itself
and acquires others from the manufacturers. The following information relates to machine A that it has
recorded in during 2017.
Cash paid for equipment, including VAT of P9,600 89,600
Costs of transporting machine – insurance and transport 3,000
Labor costs of installation by expert fitter 5,000
Labor costs of testing equipment 4,000
Insurance costs for 2017 1,500
Costs of training for personal who will use the machine 2,500
Costs of safety rails and platforms surrounding machine 6,000
Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine to make it operate more 7,500
efficiently
Determine the amount at which machine A should be recorded in the records of Lightning Ltd.
A 105,500 B. 116,000 C. 113,500 D. 121,200
.
12) Shin Min Ah Company acquired some new equipment. The following data have been made available for
you:
List price of the equipment 14,000
Cash discount available but not taken on purchase 200
Freight paid on the new equipment 250
Cost of removing the old equipment 170
Installation costs of the new equipment 430
Testing cost before the equipment was put to regular operation 295
Loss on premature retirement of the old equipment 120
Estimated cost of manufacturing similar equipment in the company’s own plant, including 13,800
overhead
What amount should be capitalized as the cost of the new equipment?

A 14,775 B. 28,865 C. 14,975 D. 15,065
.
5) Doug Airlines sold used jet aircraft to Adele Company for P800,000, accepting a five-year 6% note for the
entire amount. Adele’s incremental borrowing rate was 14%. The annual payment of principal and interest
on the note was to be P189,930. The aircraft could have been sold at an estimated cash price of P651,460.
The present value of an ordinary annuity of P1 at 8% for five periods is 3.99. The air craft should be
capitalized on Adele’s books at
A 949,650 B. 800,000 C. 757,820 D. 651,460
.
ANSWER: D
Purchase through issuance of note, the cost is the present value of principal and nominal interest or the cash
price.
13) Afrojack Company acquired two items of machinery as follows:
 On December 30, 2017, Afrojack Company purchased a machine in exchange for a noninterest
bearing note requiring three payments of P1,000,000. The first payment was made on December 31,
2017, and the others are due annually on December 30. The prevailing rate of interest for this type of
note at date of issuance was 12%. The present value of an ordinary annuity of P1 at 12% is 1.69 for
two periods and 2.40 for three periods. The new machine was damaged during its installation and the
repair cost amounted to P50,000.
 On January 1, 2017, Afrojack Company acquired used machinery by issuing to the seller a three-year,
noninterest bearing note for P3,000,000. In recent borrowing, Afrojack has paid a 12% interest for this
type of note. The present value of P1 at 12% for 3 years is 0.71.
What is the total cost of the machinery?

A 4,820,000 B. 4,580,000 C. 4,530,000 D. 4,870,000
.
14) On September 1, 2017, Aerosmith Corporation issued 10,000 shares of its P25 par treasury shares for a
parcel of land intended as a future plant site. The treasury shares were acquired by Aerosmith at a cost of
P30 per share. Aerosmith’s ordinary share had a fair market value of P40 per share on September 1, 2017.
Aerosmith received P50,000 from the sale of scrap when an existing structure on the site was razed. At
what amount should the land be carried?
A 400,000 B. 350,000 C. 300,000 D. 250,000
.
15) On October 31, 2017, Scottish Fold company reissued 150,000 treasury shares with a P20 par value for land
to be held as future plant site. The treasury shares were acquired at a cost of P25 per share. The treasury
shares had a market value of P35 per share on October 31, 2017 and the entity received P50,000 from the
sale of scrap materials when the building on the land was razed at a cost of P250,000. No new building was
constructed and the land will be held for capital appreciation. What is the initial measurement of the land?
A 5,450,000 B. 5,250,000 C. 2,950,000 D. 3,750,000
.
16) In January 2017, Kardinal Company exchanged an old machine, with a book value of P39,000 and a fair
value of P35,000, and paid P10,000 cash for a similar used machine having a list price of P50,000. The
transaction has commercial substance. At what amount should the machine acquired in the exchange be
recorded on the book of Kardinal?
A 45,000 B. 46,000 C. 49,000 D. 50,000
.
17) Akon Motor exchanged a car for a computer to be used as a noncurrent operating asset. The following
information relates to this exchange that took place on July 31, 2017:
Carrying amount of the car 30,000
Listed selling price of the car 45,000
Fair value of the computer 43,000
Cash difference paid by Akon 5,000
On July 31, 2017, how much profit should Akon recognize on this exchange?
A 13,000 B. 10,000 C. 8,000 D. 0
.
18) Colby Inc. exchanged a truck with a carrying amount of P12,000 and fair value of 20,000 for a truck and
P2,500 cash. The cash flows from the new truck are not expected to be significantly different from the cash
flows of the old truck. The fair value of the truck received was P17,500. At what amount should Colby
record the truck received in the exchange?
A 7,000 B. 9,500 C. 10,500 D. 17,500
.
19) Doug Company owned a tract of land that it purchased in 2015 for P2,000,000. The land was held as a
future plant site and had a fair value of P2,800,000 on July 1, 2017. Siberian Company also owned a tract of
land held as a future plant site. Siberian paid P3,600,000 for the land early in 2017 and the land had a fair
value of P3,800,000 on July 1, 2017. On this date, Doug exchanged its land and paid P1,000,000 cash for
the land owned by Siberian. The exchange had commercial substance. At what amount should Siberain
record the land acquired in the exchange?
A 2,800,000 B. 3,000,000 C. 3,200,000 D. 3,800,000
.
20) A used delivery truck was traded for a new truck. Information relating to the trucks follows:
Used truck:
Cost 1,600,000
Estimated current fair value 320,000
New truck:
List price 2,000,000
Cash price without trade-in 1,900,000
Cash price with trade-in 1,560,000
The amount that should be capitalized as the cost of the new truck is
A 1,560,000 B. 1,900,000 C. 1,880,000 D. 1,960,000
.
21) Speckled Company acquired equipment by exchanging used equipment with the following data:
Equipment 5,000,000
Fair value of equipment given in exchange 1,200,000
What is the cost of the new equipment received by Speckled?

A 1,200,000 B. 1,700,000 C. 700,000 D. 500,000
.
22) Tiger Snake Company purchased equipment on January 1, 2017 at an invoice price of P800,000 with credit
terms 5/10, n/30. Freight in costs of P25,000, testing and installation costs of P40,000 and labor costs
during regular production operations of P20,000 were also incurred before the payment of the invoice on
January 20, 2017. It was expected that the machine could be used for 10 years, after which the residual
value would be zero. The entity intends to use the machine for only 8 years, however, after which it expects
to be able to sell it for P50,000. The straight-line method is used. What is the carrying amount of this
equipment on December 31, 2017?
A 746,625 B. 728,125 C. 742,500 D. 760,500
.
23) The Abyssinian Manufacturing Corporation fabricated furniture and fixtures for its office use in the
company’s plant during 2017:
Materials Direct labor
Finished goods 100,800 151,200
Office furniture and fixtures 67,200 50,500
Factory overhead amounted to P134,000. Normal production of finished goods results to 420 units. Due to
the fabrication of office furniture and fixtures, finished goods produced totaled 294 units only in 2017. The
assets are to be charged with the overhead which would have been apportioned to the 126 units which
were not produced. What is the total cost of office furniture and fixtures?
A 117,600 B. 157,900 C. 175,029 D. 251,600
.
24) Devon Company entered into an P8,000,000 fixed contract with certain contractor on January 1, 2017 for
the construction of a new building. On January 1, 2017, the entity obtained a loan of P8,000,000 at an
interest rate of 12% to finance specifically the construction. Availments from the loan may be made
quarterly at unequal amounts. Actual interest incurred for 2017 was P500,000. Prior to their disbursement,
the proceeds from the loan were temporarily invested and earned interest income of P50,000. The building
was completed on December 31, 2017. Additional costs incurred during the construction were P100,000 for
plans, specifications and blueprints, and P250,000 for architectural design and supervision. What is the cost
of the building on December 31, 2017?
A 8,800,000 B. 8,450,000 C. 8,350,000 D. 8,850,000
.
On July 1, 2017, Bonnie Bailey Incorporated accepted several office equipment from a shareholder with
original cost of P2,000,000. On the same date, the items had aggregate market value totaling to P1,500,000.
No entry has been made by Bonnie Bailey since no consideration was given up for these items. Moreover, cost
incurred to recondition the donated items amounted to P100,000 and were charged to operations during the
period.
6) How much should the property be initially recognized?
A 0 B. 1,500,000 C. 1,600,000 D. 2,000,000
.
7) The entries to record the donation involves a net credit to:

A. Donated capital at P2,000,000 C. Donated capital at P1,500,000
B. Donated capital at P1,400,000 D. Gain from grants at P1,500,000
8) Assuming an estimated useful life of 5 years with a 10% salvage value, what is the depreciation expense for
the first year under SYD?
A 240,000 B. 225,000 C. 250,000 D. 266,666
.
ANSWER: C, C, A
Initial cost = 1,500,000
Office equipment 1,500,000

Cash 100,000
Share premium – DC 1,400,000
Initial cost 1,500,000

Residual value ( 150,000)
Depreciable amount 1,350,000
Fraction 5/15
Annual depreciation 450,000
Jul. 1 – Dec. 31 6/12
Depreciation 225,000
25) During 2017, Boyz II Men Company made the following expenditures relating to its plant building:
Continuing and frequent repairs 50,000
Repainted the plant building 100,000
Major improvements to the electrical wiring 70,000
system
Partial replacement of roof tiles 30,000
How much should be charged to repairs and maintenance expense in 2017?

A 50,000 B. 150,000 C. 180,000 D. 250,000
.
26) On June 18, 2017, Boys Like Girls Company incurred the following costs for one of its printing presses:
Purchase of collating and stapling attachment 900,000
Installment of attachment 300,000
Replacement parts for overhaul press 400,000
Labor and overhead in connection with 100,000
overhaul
The overhaul resulted in a significant increase in production. Neither the attachment nor the overhaul
increased the estimated useful life of the press. What amount of the costs should be capitalized?
A 1,200,000 B. 1,300,000 C. 1,600,000 D. 1,700,000
.
9) A schedule of plant assets owned by Bobtail Corporation is presented below:

Cost Residual Value Depreciable cost Useful life Annual Depreciation
Building 2,200,000 200,000 2,000,000 20 years 100,000
Machinery 800,000 80,000 720,000 15 years 48,000
Equipment 160,000 --- 160,000 5 years 32,000
Total 3,160,000 280,000 2,880,000 180,000
Bobtail computes depreciation on the straight line method. The composite life of the asset should be:
A 19.80 B. 18.00 C. 17.56 D. 16.00
.
ANSWER: D
Depreciable amount = 2,880,000
Annual depreciation 180,000
Composite life 16
10) On January 1, 2020, Wirehair Company signed an eight-year lease for office space. Wirehair has the option
to renew the lease for an additional six-year period on or before January 1, 2028. During January 2022,
Wirehair incurred the following costs:
General improvement to the lease premises with useful life of 10 5,400,000
years
Office furniture and equipment with useful life of 8 years 2,400,000
Moveable assembly line equipment with useful life of 5 years 1,800,000
At December 31, 2022, Wirehair’s intention as to the exercise of the renewal option is uncertain. A full
year depreciation of leasehold improvement is taken for year 2022. In Wirehair’s December 31, 2022
statement of financial position, accumulated depreciation of leasehold improvement should be:
A 1,200,000 B. 540,000 C. 1,300,000 D. 900,000
.
ANSWER: D
General improvement to the lease premises with useful life of 5,400,000
10 years
Shorter between (6 years and 10 years) 6 years
Annual depreciation 450,000
Age 4
Accumulated depreciation 900,000
27) Ocicat Cat Company completed leasehold improvement costing P4,800,000 on December 31, 2014. The
improvements had an estimated useful life of 10 years. The related lease, which would have terminated on
December 31, 2022, was renewable for an additional four-year term, and exercisable until December 31,
2017. On December 31, 2017, Ocicat Cat exercised the renewable option. What is the depreciation of the
improvement for 2017?
A 450,000 B. 400,000 C. 360,000 D. 480,000
.
11) Balinese Inc. acquired an asset that had a cost of P130,000. The asset is being depreciated over a 5-year
period using sum-of-years’ digit method. It has a salvage value estimated at P10,000. The loss/gain if the
asset is sold for P38,000 at the end of third year is
A 4,000 gain B. 20,000 loss C. 68,000 loss D. 92,000 loss
.
ANSWER: A
Initial cost of the asset 130,000
Residual value ( 10,000)
Depreciable cost 120,000
Fraction depreciated 12/15
Accumulated depre. 96,000
Initial cost of the asset 130,000

Accumulated depre. 96,000
Carrying amount 34,000
Selling price 38,000
Gain on sale 4,000
12) On January 1, 2018, Bengal Company purchased machinery for P4,000,000. On the date of installation, it
was estimated that the machinery has a 10-year useful life and P400,000 residual value. At the beginning of
2022, Bengal revised its useful life to 8 years from acquisition date and increased the residual value by
P60,000. What is the depreciation of the machinery in 2022?
A 625,000 B. 450,000 C. 525,000 D. 312,500
.
ANSWER: C
4,000,000 – 400,000
360,000 X 4 1,440,000
10 years
*From the acquisition date – to – January 1 of year of change.
Original cost 4,000,000

Accumulated depreciation (1,440,000)
Carrying amount at beg. year of change 2,560,000
2,560,000 – 460,000 525,000

8 yrs – 4 years
lapsed
13) Birman Company purchased equipment on January 1, 2020 for P9,000,000. The equipment had a useful life
of 5 years and residual value of P600,000. The company’s policy is to depreciate the assets using the
200% declining balance method for the first two years and then switch to straight life. In its December 31,
2022 balance sheet, what amount should Birman report as accumulated depreciation?
A 6,640,000 B. 6,384,000 C. 5,400,000 D. 5,040,000
.
ANSWER: A
Cost 9,000,000
Accumulated depreciation 0
Carrying amount 9,000,000
Depreciation rate (2 5) 40%
Depreciation expense 3,600,000
Cost 9,000,000
Accumulated depreciation (3,600,000)
Carrying amount 5,400,000
Depreciation rate (2 5) 40%
Depreciation expense 2,160,000
Carrying amount at date of change 9,000,000 – 3,600,000 – 2,160,000 = 3,240,000

3,240,000 – 600,000
880,000
3 years
Accumulated depreciation Year 1 3,600,000

Accumulated depreciation Year 2 2,160,000
Accumulated depreciation Year 3 880,000
Total 6,640,000
28) On January 1, 2017, the accumulated depreciation account of Exotic Cat Company showed a balance of
P3,700,000. At the end of 2017, after adjusting entries were posted, it showed a balance of P3,950,000.
During 2017, one of the machines with cost of P1,250,000 was sold for P605,000 cash. This resulted in a
loss of P40,000. No other assets were disposed of during the year. How much was the depreciation
expense for 2017?
A 855,000 B. 935,000 C. 250,000 D. 605,000
.
14) On January 1, 2020, Japanese Bobtail Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated residual value of
P50,000. The depreciation applicable to this equipment was P240,000 for 2022 computed under the sum-
of-years’ digit. What was the acquisition cost of the equipment?
A 1,650,000 B. 1,700,000 C. 2,400,000 D. 2,450,000
.
ANSWER: B
Cost 1,700,000 squeeze
Residual value (50,000)
Depreciable amount 1,650,000
Fraction of depreciation 8/55
Depreciation expense 240,000
Turkish Van has purchased land in Taytay Rizal for construction of new building. The following costs were
incurred in purchasing the property and constructing the building.
Land and building purchase price 2,500,000
Fair value of the old building on the land 300,000
Payment of delinquent property taxes 100,000
Transfer taxes and legal fees 30,000
Title search and insurance 50,000
Special assessment for water and sewer city improvement 150,000
Building permit 30,000
Cost to destroy existing building (P10,000 worth salvaged material sold as 60,000
scrap)
Contract cost of new building 7,000,000
Land improvement 500,000
Sidewalk and parking lot 200,000
The depreciated value of the old building on the books of the company from which the land was purchased
was P300,000. The old building was never used by Turkish Van.
29) What is the initial measurement of the land?

A 2,530,000 B. 2,830,000 C. 2,380,000 D. 2,200,000
.
30) What is the cost of the new building if classified as inventory?
A 7,390,000 B. 7,380,000 C. 9,910,000 D. 7,580,000
.
31) What is the cost of the new building if classified as investment property?
A 7,080,000 B. 6,780,000 C. 7,780,000 D. 7,000,000
.
32) In 2018, Cymric Company recorded depreciation of P144,320 for an asset on the final year of the useful life.
The asset with a P400,000 residual value originally had an 5-year useful life and was depreciated using the
double declining balance method of depreciation. Cymric Company acquired the asset on January 1, 2014.
What was the acquisition cost of the equipment?
A 4,200,000 B. 3,800,000 C. 4,600,000 D. 1,113,580
.
On January 3, Mojave Company purchased a specialized factory equipment at a purchase price of P1,000,000
plus 12% value-added tax. The company incurred P30,000 in freight and P70,000 installation cost. The
company expects that it will incur dismantling cost amounting to P133,815 at the end of the equipment’s 5-
year life. The prevailing market interest rate during the transaction date was 6%.
The present value factor of P1 at 6% for 5 periods 0.7473
The present value factor of P1 ordinary annuity at 6% for 5 4.2124
periods
33) How much should the equipment be initially recognized?

A 1,000,000 B. 1,100,000 C. 1,200,000 D. 1,220,000
.
34) Assuming an estimated useful life of 5 years and a 10% salvage value, what is the depreciation expense for
the first year under the straight-line method?
A 216,000 B. 219,600 C. 240,000 D. 244,000
.
On April 1, 2022, Pacific Corporation purchased for P2,700,000 a tract of land, a warehouse and an office
building. The following data were collected regarding the property.
Appraised values Vendors’ book
value
Land 875,000 700,000
Warehouse 375,000 400,000
Office building 1,000,000 975,000
15) What are the appropriate amounts that Pacific should record for the land, warehouse and office building,
respectively?
Land Warehouse Office Land Warehouse Office
building building
A. 700,000 400,000 900,000 C. 945,000 540,000 1,215,000
B. 875,000 375,000 1,000,000 D. 1,050,000 450,000 1,200,000
16) Assume an estimated useful life of 10 years for the warehouse & office building and an estimated salvage
value of 10%, what is the depreciation expense for the warehouse and office building in 2022 under sum-
of-years’ digits method?
Warehouse Office building Warehouse Office building
A. 81,818 218,182 C. 73,636 196,364
B. 61,364 290,909 D. 55,227 147,273
ANSWER: D, D
Land Warehouse Office building
Purchase price 2,700,000 2,700,000 2,700,000
Relative FV ratio 875/2,250 375/2,250 1,000/2,250
Cost allocated 1,050,000 450,000 1,200,000
Residual value (45,000) (120,000)
Depreciable amount 405,000 1,080,000
Fraction 10/55 10/55
Months depreciated 9/12 9/12
Depreciation expense 55,227 147,273
On May 1, Black Racer Company purchased factory machinery having an installment price of P5,000,000 and a
list price of P4,500,000. The company made a P1,000,000 down payment and issued a 4-year, P4,000,000 non
interest bearing note payable P1,000,000 every May starting next year. The prevailing interest rate for similar
note is at 6%.
The present value factor of P1 ordinary annuity of 6% for 4 3.4651
periods
17) How much should be the factory machinery be initially recognized?

A 3,465,100 B. 4,465,100 C. 4,500,000 D. 5,000,000
.
18) Assuming an estimated useful life of 5-years with a 10% salvage value based on cost, what is the
depreciation expense for the first year under the 150% declining balance method?
A 1,350,000 B. 1,339,530 C. 900,000 D. 893,020
.
ANSWER: B, D
Face amount of the note per period 1,000,000
PVF 3.4651
Present value of the principal 3,465,100
Down payment made 1,000,000
Total 4,465,100
Depreciation rate 150% / 5 years 30%
Annual depreciation 1,339,530
May 1 – Dec. 31 8/12
Depreciation first year 893,020
On July 1, 2017, Banded Water Company traded in an old machine with a carrying amount of P10,000 for a
similar new machine having a cash price of P32,000, and paid a cash difference of P19,000.
19) How much should the property be initially recognized?

A 32,000 B. 29,000 C. 22,000 D. 19,000
.
20) How much is the gain or loss from the trade in transactions?
A None B. 3,000 C. 7,000 D. 10,000
.
ANSWER: A, B
1. Fair value of asset given
Less: cash received
Plus: cash paid (first priority) NOT GIVEN
or
2. Fair value of asset received (second priority) = 32,000
Cash price or Fair value of asset received 32,000

Minus cash paid (19,000)
Assumed fair value of asset given up 13,000
Fair value of the PPE given up 13,000

Carrying amount of the PPE given up (10,000)
Gain or (loss) on exchange transaction 3,000
35) On December 31, 2022, Rosy Company purchased a machine in exchange for a noninterest bearing note
requiring eight payment of P200,000. The first payment was made on December 31, 2022, and the other
are due annually on December 31. At date of issuance the prevailing rate of interest for this type of note
was 11%. Present value factors are as follows:
PV of an ordinary annuity of 1 at 11% for 8 periods 5.146

PV of an annuity of 1 in advance at 11% for 8 periods 5.712
What amount should be recorded as initial cost of the machine?

A 1,600,000 B. 1,029,200 C. 1,400,000 D. 1,142,400
.
36) Jamaican Boa Company purchased a P4,000,000 tract of land for a factory site. The entity razed an old
building on the property to make room for the construction of new building and sold the materials
salvaged from the demolition. The entity incurred additional costs and realized salvaged proceeds as
follows:
Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording 150,000
ownership
Title guarantee insurance 50,000
What is the initial carrying amount of the land?

A 4,200,000 B. 4,150,000 C. 4,050,000 D. 4,400,000
.
37) On January 1, 2017, Abyssal Company purchased several machineries that will be used in the production of
goods at a purchase price of P1,000,000. Abyssal company paid import duties of P10,0000 and non-
refundable purchase taxes of P5,000. Abyssal company also incurred a P30,000 installation and assembly
cost. The company expects that it will incur dismantling cost amounting to P132,275 at the end of the
equipment’s 5-year useful life. The prevailing market interest rate during the transaction date was 12%.

periods
How much should the Machineries be initially recognized?

A 1,045,000 B. 1,177,275 C. 1,120,000 D. 1,521,825
.
38) On March 1, 2017, Acolyte Company purchased an Equipment from a local equipment dealer under the
term 3/15, n/30 for P3,000,000. Acolyte Company incurred cost of testing the equipment and installation
costs amounting to P5,000 and P10,000, respectively. As a result of testing the equipment, samples
produced can be sold at P1,000. In addition, Acolyte incurred advertising and promotion amounting to
P20,000 and incurred initial operating losses of P12,000. Acolyte settled the account on March 20, 2017.
How much is the cost of Equipment that should be recorded on the date of acquisition?
A 2,924,000 B. 3,015,000 C. 2,925,000 D. 3,014,000
.
39) Alacrity Corporation purchased a new machine on November 1, 2017. A P2,000 down payment was made
and two annual installments of P4,000 each are to be made beginning on November 1, 2018. The machine
has no cash price equivalent but the prevailing interest rate for this type of note is 10%.

periods
The amount to be capitalized as the cost of the machine on November 1, 2017 would be
A 10,000 B. 8,942 C. 6,942 D. 8,000
.
Below is the information relative to an exchange of asset by Mimz Bernanz Company. The exchange has
commercial substance in Case 1 and without commercial substance in Case 2:
Old Equipment
Book value Fair value Cash paid
Case 1 75,000 85,000 15,000
Cash 2 50,000 75,000 7,000
21) Which of the following would be correct for Mimz Bernanz to record in Case 1?
Record Equipment Record a gain or loss Record Equipment Record a gain or loss
at of at of
A. 90,000 Nil C. 75,000 5,000 loss
B. 100,000 10,000 gain D. 90,000 10,000 gain
22) Which of the following would be correct for Mimz Bernanz to record in Case 2?
Record Equipment Record a gain or loss Record Equipment Record a gain or loss
at of at of
A. 57,000 Nil C. 82,000 25,000 gain
B. 75,000 25,000 gain D. 50,000 Nil
ANSWER: B, A
Case 1Fair value of asset given 85,000
Plus: cash paid 15,000

Carrying amount of the PPE given up 75,000
Case 2:Carrying amount of asset given 50,000

Plus: cash paid 7,000
Initial cost 57,000
No gain or loss if the transaction is without commercial substance.
On February 1, 2017, Exile Company traded in an old machine with a book value of P8,000 for a similar new
machine having a cash price of P35,000 and a list price of P40,000. Exile paid P25,000 as a result of trade-in.
The fair value of the asset given up is not determinable.
23) How much should the new machine be initially recognized?

A 35,000 B. 40,000 C. 60,000 D. 25,000
.
24) How much is the gain or loss from the trade in transaction?
A Nil B. 2,000 C. 7,000 D. 17,000
.
ANSWER: A, B
1. Fair value of asset given
Less: cash received
Plus: cash paid (first priority) NOT GIVEN
or
3. Fair value of asset received (second priority) = 35,000
Cash price or Fair value of asset received 35,000

Minus cash paid (25,000)
Assumed fair value of asset given up 27,000

Carrying amount of the PPE given up ( 8,000)
40) On July 1, 2017, Apprentice Company accepted an office equipment from a stockholder which originally
cost the stockholder P5,000,000. On the same date, the equipment had a fair market value amounting to
P3,300,000. The company paid P200,000 for payment of registration and legal fees related to the
transaction.
A 5,000,000 B. 3,300,000 C. 3,500,000 D. 0
.
The cost of leasehold amounting to P1,000,000 was recorded initially on January 1, 2020. The original lease
term is 8 years while the leasehold improvements were completed on December 31, 2021 amounting to
P500,000 with an estimated useful life of 10 years.The related lease, which would have expired on December
31, 2027, was renewable for an additional 6-year term. You noted that the cost of leasehold was considered to
be material.
25) Assuming the renewable option is highly probable/certain, how much is the correct depreciation expense
to be recognized for the year 2022?
A 35,714 B. 62,500 C. 50,000 D. 41,667
.
26) Assuming the renewal option is uncertain, how much is the depreciation expenses to be recognized for the
year 2022?
A 62,500 B. 83,333 C. 50,000 D. 41,667
.
ANSWER: C, B
Case 1
500,000
50,000
10
Case 2
500,000
83,333
6
On April 1, 2015, Assassin Company acquired an equipment worth P2,500,000 for its operations. The
equipment has an estimated useful life of 10 years with P300,000 residual value. It’s company’s policy to
depreciate all equipment using the SYD method.
41) How much is the depreciation expense for the year 2016?
A 300,000 B. 370,000 C. 360,000 D. 420,455
.
42) How much is the accumulated depreciation on December 31, 2016 assuming the method is double
declining balance method?
A 875,000 B. 800,000 C. 770,000 D. 704,000
.
43) On January 1, 2014, Astrolabe Company acquired an equipment worth P2,050,000 for its operations. The
equipment has an estimated useful life of 8 years and an estimated salvage value of P50,000. It’s
company’s policy to depreciate all the equipment using the straight-line basis. On January 1, 2016,
Astrolabe Company made a revision of the useful life of the equipment and determined that the total
revised useful life of the equipment is 5 years from the date of acquisition. What amount of depreciation
expense should the company recognize in 2017?
A 500,000 B. 300,000 C. 310,000 D. 516,667
.
Beastheart Corporation incurred the following expenditures which it had charged to property, plant and
equipment account at the beginning of 2022:
Cash paid on purchase of land 220,000
Demolition of a building erected on the purchased land 100,000
Legal fees for the land acquisition 25,000
Interest on loan for construction 27,000
Labor and materials for construction of the building 500,000
Architect’s fees for the building 37,000
Cost of temporary safety fence 50,000
Insurance on building during the construction 10,000
Payment to squatters to vacate the premises 30,000
Cost of temporary quarters for construction crew 50,000
Special assessments 25,000
Cost of option paid to buy the land 15,000
Landscaping cost 40,000
Proceeds from sale of salvage materials 30,000
Profit on construction, equal to the difference between the appraised value and actual 120,000
construction costs
27) What is the correct land balance for 2022?

A 565,000 B. 585,000 C. 605,000 D. 625,000
.
28) What is the correct building balance for 2022?

A 919,000 B. 949,000 C. 869,000 D. 819,000
.
ANSWER: A, A
Land Building
Cash paid on purchase of land 220,000
Demolition of a building erected on the purchased 100,000
land
Legal fees for the land acquisition 25,000
Interest on loan for construction 27,000
Labor and materials for construction of the 500,000
building
Architect’s fees for the building 37,000
Cost of temporary safety fence 50,000
Insurance on building during the construction 10,000
Payment to squatters to vacate the premises 30,000
Cost of temporary quarters for construction crew 50,000
Property taxes on land covering the period 2019 – 60,000
2022
Special assessments 25,000
Cost of option paid to buy the land 15,000
Landscaping cost
Cost of paving driveway and parking lot
Proceeds from sale of salvage materials (30,000)
Total
On June 1, Thick Company acquired a real property by issuing 35,360 shares of its P100 par value ordinary
shares. The shares were selling on the same date at P125. A mortgage of P4,000,000 was assumed by Thick on
the purchase. Moreover, the company paid P180,000 of real property taxes in the prior years. Twenty percent
of the purchase price should be allocated to the land and the balance to the building.
In order to make the building suitable for the use of Thick, remolding costs had to be incurred in the amount
of P900,000. This however necessitated the demolition of a portion of the building, which resulted in recovery
of salvage material sold for P30,000.
Parking lot cost the company a total of P320,000 while repairs in the main hall were incurred at P45,000 prior
to its use.
29) The correct cost of the land should be

A 1,664,000 B. 1,720,000 C. 2,040,000 D. 2,400,000
.
30) The correct cost of the building should be

A 6,330,000 B. 7,795,000 C. 7,750,000 D. 7,570,000
.
ANSWER: B, B
Cost Building
Cost 35,360 x 125 = 4,420,000 884,000 3,536,000
Mortgage 800,000 3,200,000
Real property taxes 36,000 144,000
Remolding 870,000
Repairs prior to use . 45,000
Total 1,720,000 7,795,000
1) On April 1, 2016, Jack Company purchased a land and building by paying P10,000,000 and assuming a
mortgaged of P2,000,000. The land and building have a fair value of P5,000,000 and P10,000,000,
respectively. The building will be used by Jack as its new office.
Additional cost relating to the purchase include the following:
Legal cost of conveying and registering title to land 8,000
Payment to tenants to vacate premises 9,000
Option paid on the land and building 6,000
Option paid on similar land and building not acquired 3,000
Broker’s fee on the land and building 15,000
Unpaid real estate taxes prior to April 1, 2016 assumed by Jack, assessed on 30,000
the land
Real estate taxes after April 1, 2016 20,000
Repairs and renovation costs before the building is occupied 40,000
Repair costs after the building is occupied 50,000
What amount should be capitalized as land and building respectively?

Land Building
A. 4,048,000 8,060,000
B. 4,068,000 8,040,000
C. 5,048,000 7,060,000
D. 5,068,000 8,040,000
2) On June 1, Thick Company acquired a real property by issuing 35,360 shares of its P100 par value ordinary
shares. The shares were selling on the same date at P125. A mortgage of P4,000,000 was assumed by Thick
on the purchase. Moreover, the company paid P180,000 of real property taxes in the prior years. Twenty
percent of the purchase price should be allocated to the land and the balance to the building.
In order to make the building suitable for the use of Thick, remolding costs had to be incurred in the
amount of P900,000. This however necessitated the demolition of a portion of the building, which resulted
in recovery of salvage material sold for P30,000.
Parking lot cost the company a total of P320,000 while repairs in the main hall were incurred at P45,000
prior to its use.
What is the correct cost of the land and building?

Land Building
A. 1,664,000 6,330,000
B. 1,720,000 7,795,000
C. 2,040,000 7,750,000
D. 2,400,000 7,570,000

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A B. C. D.

1) What is the composite rate of depreciation?

2) What is the composite life?

3) What is the depreciation expense in 2024?

3. Inventory, 1/1/25 900,000

Initial cost 825,000

What is the cost of the new equipment received by Cane?

4. Fair value of asset given up 1,200,000

1) What is the adjusted balance of land?

2) What is the adjusted balance of building?

4) What is the adjusted balance of land improvement?

5) What is the adjusted balance of research and development expense?

1. Cash paid to purchase a land with an old building 660,000

2. Building construction labor costs 800,000

3. Invoice cost of machinery acquired 381,000

4. Cost of paving driveway and parking lot 70,000 A

5. Searching for applications of new research findings 57,000

Purchase price of the land 1,200,000

1) What is the cost of the land?

2) What is the cost of the building?

3) What is the cost of the machinery?

1. Purchase price of the land 1,200,000

2. Demolition and removal of old building 80,000

3. Machinery purchased 850,000

1) What amount should be capitalized as cost of land?

2) What amount should be capitalized as cost of building?

3) What amount should be capitalized as cost of machine?

4) What amount should be capitalized as land improvement?

1. Cash paid for purchase of land 2,500,000

3. Invoice cost of machine acquired 2,000,000

4. Trees, shrubs and other landscaping 200,000

What is the total cost of the equipment?

7) What is the cost of land?

8) What is the cost of building?

9) How much is the adjusted balance of the building?

10) How much is the initial cost of the machine?

A 145,600 B. 166,400 C. 160,800 D. 161,600

Cost of removing the old machine 2,000

Determine the amount to be capitalized as cost of the machine

Down payment 300,000

During the current year, the following transactions occurred:

 Research and development costs totaled P1,100,000 for the year.

2) What is the total cost of land improvement on December 31, 2023?

3) What is the total cost of building on December 31, 2023?

4) What is the total cost of machinery on December 31, 2023?

Use the following for the next two (2) questions:

1) How much is the initial cost of the equipment?

What is the total cost of machineries acquired?

1) Cute Corporation owns the following properties at 1 January 2020:

2) What amount should be capitalized as cost of land?

3) What amount should be capitalized as cost of building

4) What amount should be capitalized as cost of machine?

3) What is the total cost of the building?

What amount should be capitalized as cost of equipment?

What total amount should be capitalized as cost of the equipment?

FV of land acquired by issuing of shares 2,000,000

Accum. Depn. 1/1 5,000,000

Purchase price net of discount (2,800 -140) 2,660,000

2) The new land should be recorded on Buster’s books at

3) The new land should be recorded on Biter’s books at

Fair value of asset given up 220,000

Fair value of asset given up 210,000

1) What is the equipment’s book value on December 31, 2017?