PACIFIC SOUTHBAY COLLEGE, INC.

Purok Carmenville, Calumpang, General Santos City

 

Acctg 24
Name: Louie Jay J. Bialan_BSA 2
MODULE 1 & 2: LAND AND BUILDING; MACHINERY

Problem 28-1 (AICPA Adapted)

Bastard Company
Answer:

1. A

Architect fee P 950,000

New building construction cost 8,000,000
Cost of razing old building 300,000
Cost of factory building P9,250,000

2. A

Purchase price P4,500,000

Title insurance and legal fees to purchased land 200,000
Cost of land P 4,700,000

Problem 28-2 (AICPA Adapted)

Chameleon Company
Answer: A

Purchase price P 4,000,000

Legal fees 150,000
Title insurance 50,000
Total cost of land P 4,200,000

Problem 28-3 (AICPA Adapted)

Dauntless Company
Answer:

1. B
2. B
 Land Building
Purchase price of land P 600,000
Legal fees for contract 20,000
Architect fee P 80,000
Demolition of old building 50,000
Sale of scrap ( 30,000)
Construction cost 3,500,000
Total cost P 620,000 P3,600,000

Problem 28-4 (IAA)

Newman Company
Answer:

1. A
Land Building
Purchase price of land P 1,000,000
Demolition P 100,000
Architect fee 175,000
Legal fee 25,000
Construction cost 5,450,000
Salvaged materials ( 50,000)
Total cost P 1,025,000 P5,675,000

Problem 29-1 (IFRS)

Wisdom Company
Answer: A

Cost of equipment P 2,500,000

Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultants used for advice 700,000
Estimated dismantling cost 300,000
Total cost P 4,300,000

The interest change is not capitalized because the equipment is ready for the
intended use when acquired.

The estimated dismantling cost is capitalized because it is required by contract.

Problem 29-2 (IFRS)
Repertoire Company
Answer: C

Cash paid (896,000-96,000) P 800,000

Cost of transporting machine 30,000
Installation cost 50,000
Testing cost 40,000
Safety rails and platform 60,000
Water device 80,000
Cost of adjustment 75,000
Estimated dismantling cost 65,000
Total cost of machine P1,200,000

The recoverable VAT or value added tax is not capitalizable.

The cost of training personnel who will operate the machine should be treated as
expense.
Note that the estimated dismantling cost is capitalized because the entity has a
present obligation as required by contract.

In the absence of a present obligation, the estimated dismantling cost is not

capitalized

Problem 29-3 (IAA)

Sacrosanct Company
Answer: A

Second hand market value P 2,400,000

Overall and repairs 150,000
Installation 80,000
Testing 110,000
Handling 10,000
Safety device 250,000
Total cost of the second hand machine P 3,000,000