NFCPAR- Auditing Problems

Solution Guide Property, Plant, and Equipment

CASE 2 LAND BLDG LI NOTES

7,500,000 - (1)
1. Cost of survey 50,000 (2)
2. Cost of paving parking lost adjoining building 50,000 (3)
3. Cost of option of the land not acquired - - - (4)
4. Broker’s fee on the properties acquired 10,000 (2)
5. Cost of relocating and reconstructing the property (2)
23,000
belonging to others in order to acquire the property
6. Payment to real estate agent 40,000 (2)
7. Registration fees and transfer of title 13,000 (2)
8. Title insurance 15,000 (2)
9. Real Property taxes on the land accrued after acquisition - - - (4)
10. Cost of shrubs, trees, and other landscaping 53,000 (3)
11. Unpaid real property taxes up to the date of acquisition 14,000 (2)
12. Driveway, parking bay, and safety lighting 19,000 (3)
13. Payment for claim for injuries not covered by - - (5)
-
insurance
14. Cost of removing trees from the land 70,000 (2)
15. Salvage value of the timber recovered from the land (5,000) (6)
16. Renovation cost of the building 400,000 (2)
17. Payment of medical bills of employees accidentally (5)
- - -
injured during building renovation
TOTAL 7,730,000 400,000 122,000

NOTES

1. Contrary to PFRS 3, paragraph 2-b, in this case, the old building has a minimal fair value
which is undeterminable as well therefore, the cost shall solely be charged to the land account.
2. PAS 16, paragraph 16-b: The cost of an item of PPE includes any cost directly attributable
to bringing the asset to the location and condition necessary for it to be capable of operating in
the manner intended by management should be capitalized as part of the cost of the asset. The
example of directly attributable costs presented in PAS 16, paragraph 17 includes “costs of
site preparation.
3. Depreciable land improvements not part of the blueprint of the building shall not form part of
the cost of the building and shall rather be classified as land improvements.
4. Only the cost of the option of the land acquired shall be capitalized. On the other hand, only
unpaid real property taxes up to the date of acquisition assumed by the shall form part of the
cost of the land.
5. PAS 16, paragraph 16-b: The cost of an item of PPE includes any cost directly attributable
to bringing the asset to its intended location and condition. The cost of insurance is charged to
the building because it is a necessary and reasonable cost of bringing the building into
existence. However, in this instance where claims for damages are not covered by insurance,
these should be expensed outright.
6. The salvage value shall be deducted from the cost of the land because this shall be recovered
only when sold.

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