Assessment Tsk 7.1 (Bazley et al.

, 2010)
1. Reveille, Inc., purchased Machine #204 on April 2021, and placed the machine into production on April 3, 2021. Thefollowing
information is relevant to Machine #204:

Price P60,000
Freight-in costs 2,500
Preparation and installation costs 3,900
Labor costs during regular production operation 10,200
Credit Terms 2/n, n/30
Total productive output 138,500 units

The company expects that the machine could be used for 10 years, after which the salvage value would be zero. However,Reveille,
Inc., intends to use the machine only eight years, after which it expects to be able to sell it for P9,800. The invoicefor Machine #204 was
paid April 10, 2021. The number of units produced in 2021 and 2022 were 23,200 and 29,000, respectively. Reveille computes
depreciation to the nearest whole month.
Required Compute the depreciation for the years indicated, using the following methods (round your answer to the nearest peso):
1. 2021: Units of productions
2. 2022: Sum-of-the-years’- digits method

2. The Nickle Company purchased an asset for P17,000 on January 2, 2021. The asset has an expected residual value P1,000. The
depreciation expense for 2021 and 2022 is shown next for three alternative depreciation methods:

Year Method A Method B Method C

2021 P4,000 P6,400 P6,375
2022 4,000 4,800 3,984
Required
1. Which depreciation method is the company using in each example?
2. Compute the depreciation expense for 2023 and 2024 under each method

3. On January 1, 2021 the Emming Corporation purchased some machinery. The machinery has an estimated life of 10years and an
estimated residual value of P5, 000. The depreciation on this machinery was P20,000 in 2023.
Required Compute the acquisition cost of the equipment under the following depreciation methods:
1. Straight-line
2. Sum-of-the-years’-digits
3. Double-declining-balance

4. The Loban Company purchased four cars for P 9,000 each, and expects that they would be sold in three years for P1,500each. The
company uses group depreciation on a straight-line basis.
Required
1. Prepare journal entries to record the acquisition and the first year’s depreciation.
2. If one of the cars is sold at the beginning of the second year for P 7,000, what journal entry is required?

5. The Wilcox Company acquires four machines that have the following characteristics:

Machine Cost Estimated Residual Value Estimated Service Life

A P26,000 P2,000 6 years
B 19,000 1,000 9
C 30,000 5,000 5
D 28,000 7
Required
1. Prepare journal entries to record the acquisition and the first year’s depreciation, assuming that the composite
method is used on a straight-line basis.
2. If the company sells machine B after four years for P 10,000 prepare the journal entry.
6. On May 10, 2021, the Horan Company purchased equipment for P 25,000. The equipment has an estimated service lifeof five years
and zero residual value. Assume that straight- line depreciation is used.
Required Compute the depreciation for 2021 for each of the following four alternatives:
1. The company computes depreciation to the nearest day. (Use 12 months of 30 days each.)
2. The company computes depreciation to the nearest month. Assets purchased in the first half of the month areconsidered
owned for the whole month.
3. The company computes depreciation to the nearest whole year. Assets purchased in the first half of the monthare considered
owned for the whole year.
4. The company records one-half year’s depreciation on all assets purchased during the year.

7. On January 1, 2022, the Vallahara Company purchased machinery for P 650,000 which it installed in a rented factory. It is depreciating
the machinery over 12 years by the straight-line method to a residual value of P 50,000. Late in 2026, because of increasing competition
in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it
estimates the asset will produce total cash inflows of P 1,000,000 and willincur total cash outflows of P 825,000. The cash flows are
independent of the company’s other activities and will occur evenly each year. The company is not able to determine the fair value based
on a current selling price of the machinery. The company’s discount rate is 10%.
Required
1. Prepare schedules to determine whether, at the end of 2022, the machinery is impaired and, if so, the impairmentloss to be
recognized.
2. If the machinery is impaired, prepare the journal entry to record the impairment.

8. The Bailand Company purchased a building for P 210,000 that had an estimated residual value of P10,000 and an estimated service
life of 10 years. The company purchased the building four years ago and has used straight-line depreciation. At the beginning of the fifth
year (before it records depreciation for the year), the following independent situations occur:
1. The company estimates that the asset has eight years’ life remaining (for a total of 12 years).
2. The company changes to the sum-of-the-years’-digits method.
3. The company discovers that the estimated residual value has been ignored in the computation of the depreciation.
Required: For each of the independent situations, prepare all the journal entries relating to the building for the fifth year.Ignore income
taxes.

Assessment Task 8.1 (Bazley et al., 2010)

1. The Fairy Company purchased a site for limestone quarry for P 100,000 on January 2, 2020. It estimates that the quarry will yield
400,000 tons of limestone. It estimates that its retirement obligation has a fair value of P 20,000 after which theland can be sold for P
10,000. In 2020, 80,000 tons were quarried and 60,000 tons sold. Cost of production (excluding depletion) are P4 per ton.
Required:
a) Compute the depletion cost per ton.
b) Compute the total cost of inventory at December 31, 2020.
c) Compute the total cost of goods sold for 2020.

2. Cooler Company acquired a tract of land containing an extractable natural resource. Cooler is required by the purchase contract to
restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that
the recoverable reserves will be 5,000,000 tons and that the land will have of P1,000,000after restoration. Relevant cost information as
follows:
Land P9,000,000
Estimated restoration costs 1,500,000
If Cooler maintains no inventories of extracted material, what should be the depletion expense per ton of extractedmaterial?

3. On January 2, 2020, the Wally Company purchased land for P 450,000, from which it is estimated that 400,000 tons of ore could be
extracted. It estimates that it will cost P 80,000 to restore the land, after which it could be sold for P 30,000. During 2020, the company
mined 80,000 tons and sold 50,000 tons. During 2021, the company mined 100,000 tons and sold 120,000. At the beginning of 2022, the
company spent additional P 100,000, which increased the reserves by 60,000 tons. In 2022, the company mined 140,000tons and sold
130,000 tons. The company uses a FIFO cost flow assumption.
Required: Calculate the depletion included in the income statement and ending inventory for 2020, 2021 and 2022.

Assessment Tasks 9.1 (Bazley et al., 2010)

1. The Befort Company field for a patent on a new type of machine. The application costs totaled P12,000. R&D costs incurred to create
the machine were P75,000. In the year in which the company filed for and received the patent, it spentP20,000 in the successful defense
of a patent infringement suit.
Required
1. At what amount should the company capitalize the patent?
2. How would you determine the economic life of the patent?
2. On January 4, 2021, the Franc Company purchased for P27,000 a patent that had been filed eight years earlier. The patent covers a
manufacturing process that the company plans to use for 15 years. On January 3, 2022, the company paid its lawyer P10,000 for
successfully defending the patent in a lawsuit.
Required: Prepare all the journal entries associated with the patent in 2021 and 2022.

3. On January 11, 2022, The Hughes Company applied for a tradename. Legal costs associated with the application were P20,000. In
January 2023, the company incurred P8,000 of legal fees in a successful defense of its tradename. The tradename was not impaired in
2022 and 2023.
Required: Compute the ending carrying value of the tradename for 2022 and 2023. Should the company amortize thetradename?

4. The KLK Clothing Company manufactures professionals clothing for women. In order to keep costs low while still producing quality
clothes, KLK conducts many research and development projects. On a current project KLK researchers used P35,000of cotton and
P27,000 of wool from its inventory. KLK paid its researchers P30,000 in wages and purchased a special weaving machine for P60,000
cash. The machine was not suitable for use in production activities and was not expected to be used in other research projects. In addition,
depreciation of the project’s research lab amounted to P20,000.
Required: Prepare the journal entry to record KLK’s research and development costs.

5. In 2020, Lalli Corporation incurred R&D costs as follows:

Material and equipment P100,000
Personnel 100,000
Indirect costs 50,000
P250,000
These costs relate to a product that will be marketed in 2021. The Company estimates that these costs will be recoupedby December
31, 2024
Required: What is the amount of R&D costs expense in 2020?

Assessment Task 10.1 (Millan, 2019)

1. PAS 41 Agriculture is applicable to which of the following?
a. Agricultural produce after the point of harvest
b. Bearer plants related to agricultural activity
c. Living animals related to agricultural activity
d. Unconditional government grants related to biological assets measured at cost
2. Which of the following standard is most likely applicable to agricultural produce after the point of harvest?
a. PAS 41 Agriculture
b. PAS 16 Property, Plant and equipment
c. PAS 2 Inventories
d. Any of these
3. PAS 41 is applicable to which of the following items?
a. Land used for farming
b. Agricultural produce after point of harvest
c. Unconditional government grants related to bearer plants
d. Unconditional government grant related to consumable living animals measured at fair value costs to sell.
4. Which of the following is considered as a biological asset under PAS 41?
a. Carcass
b. Ham
c. Pig
d. Piggy bank
5. Which of the following is considered as an agricultural produce under PAS 41?
a. eggs to be hatched into chicks
b. condensed milk
c. dairy cow
d. felled tress

6. Which of the following is considered as inventory to be accounted for under PAS 2?

a. Harvested cotton
b. Harvested cane
c. Tea
d. Picked leaves
Use the following information for the next three questions:
ABC Co., has the following assets.
Maize plants 40,000
Wool 6,000
Processed fruit 20,000
Logs 60,000
Trees in timber plantation 200,000
Grape vines 120,000
Cotton plants 20,000
Picked fruit 20,000
Harvested latex 30,000
Roasted peanuts 20,000
7. How much is classified as biological assets that are accounted for under PAS 41 Agriculture?
8. How much is classified as property, plant and equipment that are accounted for under PAS 16 Property, Plant andEquipment?
9. How much is classified as agricultural produce?
10. How much is classified as inventory?

11. Which of the following is considered a bearer plant to be accounted for under PAS 16?
a. Palm oil
b. Corn oil
c. Vegetable oil
d. Oil palm
12. Which of the following is considered an agricultural activity under PAS 41?
a. Fishing in the open seas
b. Illegal logging
c. Floriculture
d. Farming in the cellphone
13. PAS 41 is applicable to which of the following?
a. Expensive plants used for beautification
b. Living animal used as transportation vehicle by company executive
c. Fishes in the fishpond being grown to be sold to consumers
d. All of these
14. Biological assets are measured as follows:
Initial Subsequent
a. Fair value less costs to sell Cost
b. Fair value less costs to sell Lower of cost and NRV
c. Fair value Lower of cost and fair value less costs to sell
d. Fair value less costs to sell Fair value less costs to sell
15. Which of the following s most likely an acceptable measurement for agricultural produce?
Initial Subsequent
a. Fair value less costs to sell Cost
b. Fair value less costs to sell Lower of cost and NRV
c. Fair value Lower of cost and fair value less costs to sell
d. Fair value less costs to sell Fair value less costs to sell
16. ABC Co.’s biological asset has a fair value less costs to sell of P 100,000 and P120,000, respectively. The year-end
adjusting entry will most likely include
a. a credit to unrealized gain of P 20,000 to be recognized in profit or loss
b. a credit to unrealized gain of P 20, 000 to be recognized in other comprehensive income
c. a debit to unrealized gain P 20,000 to be recognized in other comprehensive income
d. none of these