PROBLEM 15-9 Impairment of Financial Asset at Amortize Cost

PROBLEM 15-9 Impairment of Financial asset at Amortize cost
On January 1, 2014, La Trinidad Co acquired a 4-year bonds with a face value of P4,000,000 for
P3,756,920. The started interest is 10% per year payable annually on December 31. The bonds are
acquired to yield 12%. The bonds are to be appropriately classified as financial asset at amortize cost.
On December 31, 2015, after receiving the interest, the issuer of the financial instrument is in financial
difficulties and it becomes probable that an impairment loss should be recognized. The company
assesses that only the principal amount will be received on the maturity date. On that date, the
prevailing rate of an interest is 14%. The present value of the future cash flows based on 14% is
P3,078,000 while the present of expected cash flows for the remaining period using 12% is P3,188,800.
Based on the above data, answer the following:

1. How much is the impairment loss in 2015?
a. Nil c. 786,680
b. 675,880 d. 110,800
2. How much is the interest income for 2016?
a. 430,920 c. 471,599
b. 421,070 d. 382,656
PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized Cost

On January 1, 2014, Mankayan Co acquired a 4-year bonds with a face value of P5,000,000 for
P4,696.,150. The stated interest is 10% for year payable annually on December 31. The bonds were
acquired to yield 12%. The bonds are to be appropriately classified as financial asset at amortized cost.
assesses that only the principal amount will be received on the maturity date. On that date, the
prevailing rate of interest is 14%. The present value of the future cash flows based on 14% is P3,847,500
while the present of expected cash flows for the remaining period using 12% id P3,986,000. Impairment
loss P844,851 was appropriately recognized by the company.
On December 31 2016, the financial condition of the borrower has improved and that it can pays its
unpaid obligation including principal and interest at maturity. The prevailing rate of interest on this date
is 11%. The present value of expected cash flows based on its rate is P4,617,000. The present of
expected cash flows for the remaining period using 12% is P5,357,400. If there is no impairment loss, the
present value would have been P4,910,521.
How much is the gain on reversal of impairment loss to be recognized in the profit or loss in 2016?
a. 318,880 c. 230,850
b. 524,371 d. 446,201
COMPREHENSIVE PROBLEM
PROBLEM 15-11
In auditing the books for the Sablan Corporation as of December 31, 2014, you find the following trading
investment balance:
Investment in Big Rod 9% Bonds (Maturity Date: June 1, 2016)
Date Particular Debit Credit Balance Debit

2014
Jan. 21 Bonds, P2,000,000 2,065,500 2,065,500
acquired at 102
plus Accrued
Interest
Mar. 1 Proceeds from sale 1,060,000 1,005,500
of bonds.
P1,000,000 par
and accrued,
1-Jun Interest receive 45,000 960,500
Nov. 1 Amount receive on 419,000 541,500
sale of bonds,
P400,000 par at
101 and accrued
interest
Dec. 1 Interest received 27,000 514,500
The market value is equal to the cost of December 31, 2014.
Questions:
1. The correct cost of investment in bonds on January 21, 2014
a. 2,040,000 c. 2,025,500
b. 2,065,500 d. 2,000,000
2. The gain (or loss) on sale of bonds on March 1 2014.

a. 17,500 c. 15,500
b. (17,500) d. (15,000)
3. The gain ( or loss) on sale of bonds on November 1, 2016.
a. (4,000) c. 6,000
b. 4,000 d. (6,000)
4. The total interest income for 2014.
a. 88,500 c. 86,500
b. 180,000 d. 188,500
5. The carrying value of investment in bonds as of December 31. 2014.
a. 612,000 c. 588,000
b. 606,000 d. 598,000
PROBLEM 15-12 Impairment and Reversal of Impairment Loss
On January 1, 2014, Tuba Co. acquired 4-year bonds with a face value of P4,000,000 and stated interest
of 12% per year payable annually on December 31. The bonds were acquired to yield 10%. The bond are
to be appropriately classified as financial asset at amortized cost.
assesses that only the principal amount will be received on the maturity date. The present value of the
future cash flows based on existing current rate of 11% is P3,246,400. The present value of expected
cash flows for the remaining period using 10% is P3,305,600.
On December 31 2016, the financial condition of the borrowers has improved and that it can pay its
unpaid obligation including principal and interest at maturity. The prevailing rate of interest of this date
is 9%. The present value of expected cash flows based on this rate is P3,816,720. The present value of
expected cash flows for the remaining period using 10% is P4,509,136.
Questions:
1. How much is the purchase price of bonds on January 1, 2014?
a. Nil c. 4,253,552
b. 3,403,552 d. 1,051,730
a. 480,000 c. 413,880
b. 425,355 d. 114,104
3. How much is the impairment loss in 2015?
a. Nil c. 892,398
b. 833,198 d. 59,200
a. 357,104 c. 396,385
b. 360,350 d. 330,560
5. How much is the gain on reversal of impairment loss to be recognized in the profit or loss in 2016?
a. Nil c. 213,216
b. 469,142 d. 436,486
PROBLEM 15-13
Your audit of Un-unnoy Corporation disclosed that the company owned the following securities on
December 31, 2014:
Trading securities
Security Shares Cost Market
Panaghoy, Inc 14,400 216,000 276,000
Lamentation, Inc. 24,000 648,000 432,000
Total 864,000 708,000
Fair value through other comprehensive income securities:

Equity Securities Shares Cost Market
Zephanie, Inc. 360,000 9,360,000 8,760,000
FA at amortize cost:
Book
13%, 2,000,000 face value, Exodus Cost Value
Bonds (int. payable annually Dec. 31) 1,881,000 1,903,150
12&, 5,000,000 face value, Genesis bonds,

Acquired on January 1, 2014 (int. payable every
December 31) 5,311,400 5,242,540
The following transaction occurred:

March 1, 2015: Sold 12,000 shares of Lamentation, Inc. stock for P204,000.
December 30, 2015: The Company changed its business model. It was determined that the exodus bonds
be reclassified to held for trading.
On January 1, 2016, the bonds were quoted at 101. The Exodus bonds were purchase on January 2,
2014. The discount was amortized using effective interest method.
The market values of the stocks and bonds on December 31, 2015, are as follows:
Panaghoy, Inc. P22 per share
Lamentation, Inc. P15 per share
Zephaniah, Inc. P28 per share
Questions:
Based on the above and the result of your audit, determine the following:
1. Gain (or loss) on sale of 12,000 Lamentation, Inc. shares on March 1, 2015
a. 12,000 c. (96,000)
b. (12,000) d. 96,000
2. Interest income on the genesis bonds for the year 2015
a. 537,499 c. 531,140
b. 524,254 d. 600,000
3. Interest income on the Exodus bonds for the year 2015.
a. 260,590 c. 91,377
b. 185,460 d. Nil
4. The gain (loss) on reclassification on January 1, 2016?
a. 228,590 c. 91,377
b. 185,460 d. Nil
5. The carrying value of the trading securities and financial assets at amortize cost as of December31,
2015 should be
Trading securities FA at amortize cost
a. 496,800 5,166,794
b. 496,800 7,095,417
c. 540,000 5,166,794
d. 540,000 7,095,417
PROBLEM 15-14 Reclassification from FAAC to FVTPL
Penablanca Company has the following transaction relating investment in 2014 and 2015:
• Purchased bonds with a face value of P5,000,000 on July 1, 2014. The 5-year 12%bonds were issued
on January 2, 2014 and will mature on January 2, 2019. The bonds are to be appropriately classified as
financial assets at amortize cost. Interest is payable annually every December 30. Market rate of
interest for a similar debt instrument at the time of acquisition is 10% which is also the market rate of
interest for a similar debt instrument at the time the instruments are issued.
• On December 31, 2015, Penablance changed its business model. It was determined that the bonds be
reclassified to held for trading securities on reclassification date. On January 1, 2016, the fair value of
the bonds amounted to P5,121,400.
• Penablanca Company also purchased 20,00 shares out of 200,000 shares outstanding of Sta. Ana
Company’s ordinary share on February 23, 2015 for P924,000. The shares are to be appropriately
classified as fair value through other comprehensive income. Penablanca receive P40,000 cash
dividend on Sta. Ana on July 1, 2015 to shareholders of record on December 31, 2015. The dividend
was distributed on January 31, 2015. The market price of the share was P38 ON December 1, 2015.
The market price of the share was P38 ON December 1, 2015, P40 on December 31, 2015 and P42 ON
January 31, 2016.
Questions:
Based on the above data, answer the following (Round off present value factors to three decimal places):
1. What is the purchase price of the debt instrument at the time of acquisition?
a. 5,348,580 c. 5,648,580,
b. 5,626,006 d. 5,326,006
2. What is the interest income in 2014?
a. 537,960 c. 531,756
b. 268,980 d. 300,000
3. What amount should be recognized as gain or loss on reclassification on January 1, 2016?
a. 102,333 c. 493,373
b. (127,916) d. (254,116)
4. What amount should Penablanca record as dividend re venue for the year ended December 31, 2015?
a. 40,000 c. 116,000
b. 88,000 d. 120,000
5. What amount should Penablanca report as investment in equity securities be presented in the
statement of financial position on December 31, 2015?
a. 800,000 c. 880,000
b. 836,000 d. 924,000
PROBLEM 15-15
Tublay Company has the following Investment:
• On January 2, 2014, Tublay Company acquired 25% of the 100,000 ordinary shares of Luke Company
at a cost of cost of P2,140,000. The book value of the Luke Company’s net assets at the date of
acquisition is P7,920,000. The fair market value of Luke’s net assets and liabilities were
approximately equal to the current carrying value except for depreciable plant and equipment. The
fair value of the depreciable plant and equipment exceeded the carrying value of P640,000 and had
a remaining life of four years.
During 2014, Luke Company reported net income of P1,700,000 and paid cash dividend of P320,000.
On January 3, 2015, Luke issued 56,250 additional ordinary shares in public offering at a price of
P120 per share. Tublay Company did not acquire any of these shares but decided to reclassify its
investment to Fair value through other comprehensive income.
• On January 1, 2014, Tublay Company purchased the debt instrument of Josiah Company with face
value of P5,000,000 bearing interest are of 8% for P4,621,006 to yield 10% interest per year. The
bonds mature on January 1, 2019 and pay interest annually on December 30. The bonds are to be
appropriately classified as financial assets at amortize cost.
On December 31,2015, the prevailing market rate of interest is 14%. There has been objective
evidence that the borrower will be delinquent as to the payment of interest and will eventually enter
into bankruptcy proceedings. Thus, impairment loss is to be recognized. The Company assesses that
only the principal is collectible at the maturity date.
Question:
Based on the above data, answer the following questions (Round off present value factors to three
decimal places)
1. What is the carrying value of Tublay’s investment as of December 31, 2014?
a. 2,445,000
b. 2,485,000
c. 2,565,000
d. 2,605,000
2. What amount of gain on reclassification to be recognized in the profit or loss as a result of
diminution in the interest on January 3, 2015?
a. 0
b. 395,000
c. 555,000
d. 435,000
3. What is the interest income to be reported in 2014?
a. 400,000
b. 462,101
c. 468,311
d. 475,142
4. What is the interest income to be reported in 2015?
a. 400,000
b. 462,101
c. 468,311
d. 475,142
5. What amount of impairment loss should Tublay Company recognized in its December 31, 2015
income statement?
a. 1,376,418
b. 380,000
c. 996,418
d. 322,760
CHAPTER 16
PROBLEM 16-1
On January 4, 2015, Tamara Bakery paid P30 million shares of Jade Company ordinary shares. The
investment represents a 20% interest in the net asset of Jade and gave Tamara the ability to exercise
significant influence over Jade’s operations. Tamara received dividends of P1.00 per share on December
15, 2015 and Jade reported net income of P8 million for the year ended December 31, 2015. The market
value of Jade’s ordinary shares at December 31, 2015 was P32 per share. On the purchase date, the book
value of Jade’s net assets was P120 million and the fair market value of Jade’s depreciable assets, with an
average remaining useful life of six years, exceeded their book value by P6 million. The remainder of the
excess of the cost of the investment over the book value of net assets purchased was attributable to
goodwill.
Question:
1. How much is the implied goodwill from acquisition?
a. 4,800,000
b. 6,000,000
c. 7,200,000
d. 6,000,000
2. What amount of investment revenue should Tamara report on its income statement for the year
ended December 31, 2015, under the fair value method?
a. 1,400,000
b. 1,600,000
c. 1,000,000
d. 1,800,000
3. What amount of investment revenue should Tamara report on its income statement for the year
ended December 31, 2015, under the equity method?
a. 1,400,400
b. 1,600,000
c. 1,000,000
d. 1,800,000
4. Under the equity method, the carrying value of the Tamara Company’s investment in ordinary
shares of Jade Co. on December 31, 2015, should be
a. 31,600,000
b. 30,400,000
c. 31,400,000
d. 32,000,000
5. What amount should Tamara Company report on its December 31, 2015, statement of financial
position as its investment in Jade Co. under fair value method?
a. 31,600,000
b. 30,400,000
c. 31,400,000
d. 32,000,000
PROBLEM 16-2
On January 1, 2015, Bayawa Co. acquired 25% interest in the ordinary shares of Josiah Inc. for
P3,900,000. Bayawa Co. also paid for P100,000 transaction cost incidental to the acquisition. Josiah’s
assets and liabilities approximate their fair values except for inventories with carrying amount of
P600,000 and fair value of P400,000 and machinery with carrying amount of P3,000,000 and fair value of
P1,500,000. The remaining useful life of the machinery is 10 years. JOSIAH’s net assets have a book value
of P12,000,000.
On December 31,2015, Josiah reported net income of P4,000,000 and declared and paid dividends of
P1,000,000.
On December 31, 2016, Josiah reported net income of P5,000,000 and declared and paid dividends of
P1,400,000.
Questions:
1. How much is the implied good will from acquisition?
a. 1,425,000
b. 950,000
c. 575,000
d. 1,000,000
2. How much is the net share in the profit or loss of the associate (investment income) in 2015?
a. 1,087,500
b. 1,000,000
c. 1,087,500
d. 950,000
3. How much is the carrying amount of the investment as of December 31, 2015?
a. 5,087,500
b. 5,087,500
c. 4,837,500
d. 4,700,000
a. 1,250,000
b. 1,287,500
c. 1,250,000
d. 1,200,000
a. 6,125,000
b. 5,775,000
c. 6,087,500
d. 5,087,500
PROBLEM 16-3
On January 1, 2015, Meibelyn Co. acquired 25,000 ordinary shares out of the 100,000 outstanding
ordinary shares of Lloren Inc. for P4,000,000. Lloren’s assets and liabilities approximate their fair values
except for inventories with carrying amount of P600,000 and fair value of P400,000 and machinery with
carrying amount of P3,000,000 and fair value of P1,500,000 and land with carrying amount of
P1,200,000 AND FAIR VALUE OF p1,800,000. The remaining useful life of the machinery is 10 years.
Lloren’s net assets have a book value of P12,000,000.
On December 31, 2015, Lloren reported net income of P4,000,000 and declared and paid dividends of
P1,000,000.
On April 30, 2016, the land of Lloren was sold at a gain of P100,000.
On December 31, 20116, Lloren reported net income of P5,000,000 and declared and paid dividends of
P1,400,000.
Question:
Based the above data, answer the following:
1. How much is the implied goodwill acquisition?
a. 1,175,000
b. 950,000
c. 575,000
d. 1,000,000
a. 937,500
b. 1,000,000
c. 1,087,500
d. 950,000
a. 4,687,500
b. 5,087,500
c. 4,837,500
d. 4,700,000
a. 1,250,000
b. 6,150,000
c. 5,775,000
d. 6,100,000
a. 6,125,000
b. 6,150,000
c. 5,775,000
d. 6,100,000
PROBLEM 16-4
Jacob Company owns 20% of Soen Company’s preference share capital and 80% of its ordinary share
capitalon December 31, 2015.
10% cumulative preference share capital 1,000,000

Ordinary share capital 1,400,000
Soen reported net income of P600,00 for the year ended December 31, 2015. What is the equity in
earnings of investee for 2015?
a. 400,000
b. 480,000
c. 420,000
d. 460,000
PROBLEM 16-5
On January 1, 2015, Krizzelle Company acquired 25% of the outstanding ordinary shares of Arah
Company for P5,000,000. This investment gave Krizelle the ability to exercise significant influence over
Arah. The book value of the acquired shares was P4,200,000. The excess of cost over book value was
attributed to a depreciable asset which was undervalued on Arah’s statement of financial position and
which had a remaining useful life of eight years.
For the year ended December 31, 2015, Arah’ share capital outstanding is as follows:
10%cumulative preference share capital 4,000,000
Arah reported net income of P2,000,000 for the year ended December 31, 2015.
Questions:
Based on the above data, answer the following:.
CASE NO.1: Assuming the cumulative preference share is treated as equity by Arah and that Arah
declared dividends of P450,000 on the preference shares, answer the following:
1. What amount should Krizelle as investment income for the year ended December 31, 2015?
a. 500,000
b. 300,000
c. 387,500
d. 287,500
2. What amount should Krizelle record as investment in associate for the year ended December 31,
2015?
a. 5,300,000
b. 5,287,500
c. 5,400,000
d. 5,387,500
CASE NO.2: Assume instead that the preference shares are non-cumulative preference share treated as
equity by Arah and that Arah declared dividends of P450,000 on the preference shares. Answer the
following:
1. What amount should Krizelle record as investment income for the year ended December 31,
2015?
a. 500,000
b. 300,000
c. 387,500
d. 287,500
CASE NO.3: Assuming the cumulative preference share is treated as financial liability by Arah, answer the
following:
1. What amount should Krizelle record as investment income for the year ended December 31,
2015?
a. 500,000
b. 300,000
c. 387,500
d. 287,500
2. What amount should Krizelle record as investment in associate for the year ended December 31,
2015?
a. 5,300,000
b. 5,287,500
c. 5,400,000
d. 5,387,500
PROBLEM 16-6
On January 1, 2015, Christine Co. acquired 10,000 ordinary shares out of the 100,000 outstanding
ordinary shares of Mary Inc. for P2,000,000. The investment was classified as fair value through profit or
loss (FVTPL). The fair values per share of Mary are as follows: December 31, 2015. P250; December 31,
2016, P220 and December 31, 2017. P260.
On January 1, 2017, Christine purchased an additional 15,000 of Mary’s stock for representing 15%
additional interest for P3,075,000 when the carrying amount of Mary’s net assets was P14,000,000. The
excess was attributable to the machinery having a remaining life of eight years.
On December 31,2015, Mary reported net income of P1,000,000 and declared and paid dividends of
P400,000. On December 31, 2016, Mary reported net income of P1,300,000 and declared and paid
dividends of P500,000. On December 31, 2017, Mary reported net income of P1,500,000 and declared
and paid dividends of P550,000.
Questions:
1. How much is the amount of unrealized gain (or loss) to be recognized in the profit or loss in
2016?
a. Nil
b. (300,000)
c. 200,000
d. 500,000
2. How much is the amount of investment income in be recognized in the profit or loss in 2016?
a. Nil
b. 40,000
c. 100,000
d. 137,000
3. How much is the adjustment to retained earnings as of January 1, 2017 as a result of acquisition
of 15% interest in Mary Corp?
a. Nil
b. 150,000
c. 200,000
d. 350,000
a. 375,000
b. 153,125
c. 596,875
d. 325,000
a. 5,650,000
b. 5,290,625
c. 5,871,875
d. 5,734,375
PROBLEM 16-7
In connection with your audit of Below National Company’s financial statement, you were able to gather
the following subsidiary account which reflects the marketable securities of the company for the year
2016:
Passing Rate Corp. (Fair Value through Other comprehensive income)
Date Transaction Shares Debit Credit
9/01 Purchase 40,000 P2,500,000
9/30 Cash dividends to - P 100,000
stockholders of
record 9/25,
declared 9/5
10/01 Purchased 100,000 6,000,000
10/15 Sale at P65 40,000 2,500,000
11/30 Cash collected for 40,000
sale made on
11/10, after a 9/30
declaration of P5
cash dividend per
share to
stockholders on
record as of 12/1 2,600,000
12/15 Cash dividend 300,000
received
TOTALS P8,500,000 P9,500,000
Below National, Inc. acquired 30,000 of the 100,000 outstanding ordinary shares of Kababain
Corporation’s voting stock on January 1, 2015 for P1,200,000. During 2015, Kababain earned P2,500,000
and paid dividends of P1,000,000. Below National’s 30% interest in kababain gives Below National the
ability to exercise significant influence over Kababain’s operating and financial policies. In 2016, Kababain
earned P3,000,000 and paid dividends of P800,000 on April 1 and P800,000 on October 1. On December
30, 2016, Below National sold half of its investment in Kababin for P1,200,000 cash and reclassified the
remaining shares into Fair Value through Other comprehensive Income securities.
Passing Rate Kababain

Market value of stock: 12/31/2016 P70.00 P75.00
Questions:
Based on the above and the result of your audit, answer the following:
1. The gain (or loss) on sale of 40,000 shares of passing rate Corp. on October 12 is
a. (100,000)
b. 100,000
c. 200,000
d. (200,000)
2. The gain on sale of 40,000 shares of passing rate Corp. on November 10 is
a. Nil
b. 200,000
c. 600,000
d. 400,000
3. The carrying value of the Below National Company’s investment in Passing Rate Corp. on
December 31, 2016 is.
a. 4,200,000
b. 6,000,000
c. 4,500,000
d. 3,900,000
4. The gain on sale of investment in Kababain Corp. is
a. Nil
b. 165,000
c. 300,000
d. 200,000
5. The total unrealized gain or loss to be reported in the 2016 statement of financial position is
a. Nil
b. 900,000
c. 990,000
d. 810,000
PROBLEM 16-8
Your firm has been engage to examine the financial statement of the Barney Company for its two years
of operation in 2015 and 2016. In connection with this audit, you have been assigned to audit the
investments accounts. In reviewing the activity in the Investment account during the two years, you
discover the following information:
• On July 1, 2015, Barney Co. purchased 200,000 shares of Baby Bap Corp. ordinary shares at P20 per
share, which reflected book value as of that date. At the time of purchase, Baby Bap had 1,000,000
ordinary shares outstanding. Barney had no ownership interest in Baby Bap prior to this purchase.
Barney Co. reported this purchase by a debit to investment in Associate and credit Cash P4,000,000.
• On August 1, 2015, Barney received a dividend of P100,000 from Baby Bap. The company recorded
this transaction by a debit to Cash and credit dividend income for P100,000.
• Baby Bap reported net income of P840,000 for the six months ended June 30, 2015 and a net
income of P1,800,000 for the year ended December 31, 2015. No journal entry was made by the
Barney Co.
• On December 31,2015, Baby Bap paid Barney Company dividends of P100,000. The Company
recorded this transaction by a debit to cash and credit dividend income for P100,000.
• On January 1, 2016, Barney sold 50,000 shares of Baby Bap Corp. ordinary shares for P25 per share,
its fair value on that date, and reclassified the remaining stock as fair value other comprehensive
income. The company recorded the sale by a debit to Cash and credit to investment in Associate at
P1,250,000. However, no journal entry was made by the company on the reclassification.
• On December 31, 2016, Baby Bap paid Barney Company dividends of P75,000. The company
recorded this transaction by a debit to cash and credit dividend income for P75,000.
• Baby Bap reported net income of P1,860,000 for the year ended December 31,2016. No journal
entry was made by the Barney Co.
• On December 31, 2016, the fair value of the Baby Bap’s share is P30 . No journal entry was made by
the Barney Co.
Questions:
Based on the above date, answer the following:
1. The investment balance on December 31,2015
a. 4,192,000
b. 3,992,000
c. 4,360,000
d. 4,160,000
2. The gain on sale of 50,000 shares on January 1, 2016
a. Nil
b. 252,000
c. 756,000
d. 1,008,000
3. The gain (or loss) due to reclassification from investment in association to fair value through
other comprehensive income to be recognized in the profit or loss in 2016
a. Nil
b. 252,000
c. 756,000
d. 1,008,000
4. The amount of unrealized gain should be reported in the 2016 statement of comprehensive
income as component of other comprehensive income
a. Nil
b. 750,000
c. 375,000
d. 200,000
5. The investment balance of Barney on December 31,2016
a. 4,500,000
b. 3,750,000
c. 2,994,000
d. 3,992,000
PROBLEM 16-9
Marianne Company purchased 250,000 shares of Sexy Co. ordinary shares on July 1, 2015 at P66 per
share, which reflected book value as of that date. At the time of purchase, Sexy Co. has 1,000,000
ordinary shares outstanding. Marianne had no ownership interest in Sexy prior to this purchase. Sexy
reported net income of P3,360,000 for the six months ended June 30, 2015. Marianne received a
dividend of P420,000 from Sexy on August 1, 2015. Sexy reported net income of P7,200,000 for the year
ended December 31,2015, and again paid Marianne dividends of P420,000.
On January 1, 2016, Marianne sold 100,000 ordinary shares of Sexy for P68 per share and reclassified the
remaining stock as available-for-sale securities. The quoted market price of such investment on January
1, 2016 was P69 per share. Sext reported net income of P7,440,000 for the year ended December 31,
2016 and paid Marianne dividends of P240,000. The fair value Sexy ordinary shares at December 31,
2016 was P70 per share.
Questions:
1. What is the carrying value of the stock investment at December 31,2015?
a. P16,620,000
b. P16,500,000
c. P16,380,000
d. P9,972,000
2. The total amount of gain to be reported in the 2016 income statement is
a. P152,000
b. P378,000
c. P530,000
d. P680,000
3. What amount of unrealized gain should be reported in the 2016 statement of comprehensive
income as component of other comprehensive?
a. P0
b. P150,000
c. P528,000
d. P378,000
4. The carrying value of the retained investment to be shown in the statement of financial position
on December 31. 2016 is
a. P9,972,000
b. P10,848,000
c. P10,350,000
d. P10,500,000
PROBLEM 16-10
On January 1, 2015, Solenn Company acquired as a long-term investment for P1,400,000, a 40% interest
in Lovie Company when the fair value of Lovie’s net assets was P3,500,000. Lovie Company reported the
following net losses:
2015 1,000,000
2016 1,400,000
2017 1,600,000
2018 800,000
On January 1. 2017, Solenn Company made cash advance s of P400,000 to Lovie Company. On decenber
31, 2018, it is not expected that Solenn Company will provide further support for Lovie Company.
What amount should Solenn Company report in 2018 as loss from investment?
a. 320,000
b. 800,000
c. 200,000
d. 120,000
PROBLEM 16-11
On January 1, 2015, Drenz Co. acquired 25% interest in the ordinary shares of Josiah, Inc. for P3,000,000
which reflected book value as of that date. On November 20, 2015, Drenz Company sold inventory
costing P50,000 to Josiah Co. for P100,000 , 60% of which was still unsold on December 31, 2015. Josiah
Company reported net income and paid dividends for 2015 and 2016 as follows:
2015 2016
Net Income 1,000,000 1,500,000
Dividend declared 400,000 700,000
Questions:
Based on the above date, determine the following:
1. Share in the net income (or loss) of the associate in 2015
a. P 250,000
b. P220,000
c. P95,000
d. P280,000
a. P375,000
b. P280,000
c. P280,000
d. P405,000
PROBLEM 16-12
On January 1, 2015, Norme Co. acquired 25% interest in the ordinary shares of Donnah, Inc. for
P3,000,000 which reflected book value as of that date. On November 20, 2015, Donnah Company sold
Inventory costing P60,000 to Norme Co. for P120,000, 60% of which was still unsold on December 31,
2015.
2015 2016
Net Income 1,000,000 1,500,000
Questions:
a. 250,000
b. 241,000
c. 116,000
d. 259,000
a. 375,000
b. 259,000
c. 259,000
d. 384,000
PROBLEM 16-13
On January 1, 2015, Jhona Co. acquired 25% interest in the ordinary shares of Eldon, Inc. for P3,000,000
which reflected book value as of that date. On January 3, 2015, Jhona Company sold an equipment
costing P600,000 to Josiah Company for P800,000. The equipment has a remaining life of five years.
2015 2016
Net Income 1,000,000 1,500,000
Questions:
a. 250,000
b. 90,000
c. (35,000)
d. 410,000
a. 375,000
b. 290,000
c. 290,000
d. 415,000
PROBLEM 16-14
On January 1, 2015, May Joy Co. acquired 25% interest in the ordinary shares of Station, Inc. for
P3,000,000 which reflected book value as of that date. On January 3, 2015, Josiah Company sold an
equipment costing P600,000 to May Joy Company for P800,000. The equipment has a remaining life of 5
years.
2015 2016
Net Income 1,000,000 1,500,000
Questions:
1. Share in the net income (or loss) of associate in 2015
a. 250,000
b. 210,000
c. 85,000
d. 290,000
2. Share in the net income (or loss) of associate in 2016
a. 375,000
b. 260,000
c. 260,000
d. 385,000
PROBLEM 16-15
On January 1, 2015, Myrah Company acquired 30% of the ordinary shares of an associate for P4,000,000.
On this date, all the identifiable assets and liabilities of the associate were recorded at fair value. An
analysis of the acquisition showed that goodwill of P200,000 was acquired.
The net income and dividend of the associate for 2015 and 2016 were as follows:
2015 2016
Net income 2,000,000 3,000,000
Dividend paid 800,000 1,200,000
On January 3, 2015, Myrah Company sold an equipment costing P600,000 to Josiah Company for
P800,000. The equipment has a remaining life of 5 years.
In December 2015, the associate sold inventory to Myrah Company for P700,000. The cost of the
inventory was P600,000. This inventory remained unsold by Myrah Company on December 31, 2015.
Howerver, it was sold by Myrah Company in 2012.
In December 2016, the associate sold inventory to Myrah Company for P550,000. The cost of the
inventory was P400,000. This inventory remained unsold by Myrah Company on December 31, 2016.
Questions:
1. Net share in the net income (or loss) of the associate in 2015
a. 600,000
b. 440,000
c. 410,000
d. 760,000
2. Net share in the income (or loss) of the associate in 2016
a. 900,000
b. 865,000
c. 860,000
d. 925,000
3. Carrying amount of the investment in associate on December 31, 2015
a. 4,410,000
b. 600,000
c. 4,440,000
d. 4,760,000
4. Carrying amount of the investment in associate on December 31, 2016
a. 5,310,000
b. 5,500,000
c. 5,335,000
d. 5,635,000
5. Assuming the company is a small/medium entity and uses the equity method, the carrying
amount of investment on December 31, 2016 is
a. 4,310,000
b. 4,500,000
c. 4,695,000
d. 4,635,000
PROBLEM 16-16
At December 31, 2015, Aud Prob Company property reported as current assets the following Fair value
through other Comprehensive Income equity securities:
Market
At Cost Value
Roque Corporation, 1,000 shares, convertible
preference share P40,000 P45,000
Ocampo, Inc., 6,000 shares of ordinary share 60,000 60,000
Dagumboy Co., 2,000 shares of ordinary share 55,000 66,000
TOTALS P155,000 P171,000
On January 2, 2016, Aud Prob purchase 100,000 shares of Asuncion Corporation ordinary share for
P1,700,000, representing 30% Asuncion’s outstanding ordinary share and an underlying equity of
P1,400,000 in Asuncion’s net asset on January 2. Aud Prob has no other financial transaction with
Asuncion during 2016. As a result of Aud Prob’s 30% ownership of Asuncion, Aud Prob has the ability to
exercise significant influence over Asuncion’s financial and operating policies.
During 2016, Aud Prob disposed of the following securities:
January 18 Sold 2,500 shares of Ocampo for P13 per share

June 1 Sold 2,500 shares of Dagumboy, after a 10% stock dividend was received, for P21 per
share.
October 1 Converted 500 shares of Roque’s Preference share into 1,500 shares of Roque’s ordinary
share, when the market price was P50 per share for the Preference share and P21 per
share for the ordinary share.
The following 2016 dividend information pertains to stock owned by Aud Prob:
February 14 Dagumboy issued a 10% stock dividend when the market price of Dagumboy’s ordinary
share was P22 per share
April 5 and
October 5 Roque paid dividends of P1.20 per share on its Preference share to stockholders of
record on March 9 and September 9, respectively. Roque did not pay dividends on its
ordinary share during 2016.
June 30 Ocampo paid a P1.00 per share dividends on its ordinary share.
March 1, June 1, September 1, and December 1
Asuncion paid quarterly dividends of P0.50 per share on each of these dates. Asuncion’s
net income for the year ended December 31, 2016 was P1,200,000.
On December 31, 2016, Aud Prob’s management intended to hold Asuncion’s stock as a Long-term
investment with the remaining investments being considered as temporary. Market
prices per share of the securities were as follows:
December 31
2016 2015
Roque Corporation – preference P56 P42
Roque Corporation – ordinary 20 18
Ocampo, Inc. – ordinary 11 11
Dagumboy Co. – ordinary 22 20
Asuncion Corporation – ordinary 16 18
All of the foregoing stocks are listed on the Philippines Stock Exchange. Declines in market value from
cost would not be considered permanent.
Questions:
1. What is the carrying value of the implied goodwill on December 31, 2016
a. 300,000
b 270,000
c. 280,000
d. 290,000
2. Gain or loss on sale of Ocampo shares
a. 7,500 loss
b. 7,500 gain
c. 5,000 gain
d. 5,000 loss
3. Gain or loss on sale of Dagumboy shares.
a. 2,000 loss
b. 2,000 gain
c. 3,250 gain
d. 3,250 loss
4. Gain or loss on conversion of 500 Roque preference shares into 1,500 ordinary share.
a. 5,000 gain
b. 5,000 loss
c. 11,500 gain
d. 11,500 loss
5. Total dividend income for the year 2016
a. 5,900
b. 2,400
c. 3,500
d. 5,300
6. Carrying amount of Aud Prob’s investmentin Asuncion as of December 31, 2016
a. 1,860,000
b. 1,830,000
c. 1,530,000
d. 1,560,000
7. Total carrying calue of Aud Prob’s Fair through Other Comprehensive Income equity securities as
of December 31, 2016
a. 133,900
b. 139,300
c. 130,900
d. 133,300
PROBLEM 16-17
You were able to gather the following in connection with your audit of Diadi, Inc. On December 31, 2015,
Diadi reported the following fair value through other comprehensive in come investment:
Unrealized
Cost MarketLoss
Solano Corp., 10,000 shares
Of ordinary shares (a 1% interest) 250,000 220,000 30,000
A. Castaneda Corp., 20,000 shares
Pingkian Corp., 50,000 shares
Of ordinary shares (a 10% interest) 1,400,000 1,350,000 50,000
Total 1,970,000 1,870,000 100,000
Additional Information:
• On April 1, 2016, Solano issued 10% stock dividend (bonus shares) when the market price of its stock
was P24 per share
• On August 30, 2016, A. Castaneda issued to all shareholders, stock rights on the basis of one right
per share. Market prices at date of issue were P27 per share of stock and P3 per right. Diadi sold all
rights on December 1, 2016 for net proceeds of P75,000.
• On July 1, 2016, Diadi acquired 100,000 additional shares of Pingkian Corps. ‘s ordinary share which
represented a 20%investment in Pingkian and paid P30 per share, its fair value on that date, The fair
value of all Pingkian’s identifiable assets net of liabilities was equal to their carrying amount of
P12,500,000. As a result of this transaction, Diadi owns 30% of Pingkian and can exercise significant
influence over Pingkian’s operating and financial policies.
• Diadi’s initial 10% interest of 50,000 shares of Pingkian’s ordinary share was acquired on January 2,
2015 for P1,600,000. At that date, the net assets of Pingkian totaled P12,000,000 and the fair value
of Pingkian’s identifiable assets net of liabilities were equal to their carrying amount.
• Market prices per share of the securities which are all listed in the Philippine stock Exchange are as
follows:
12/13/2016 12/31/2015
Solano Corp.,-ordinary shares 23 22
A. Castaneda Corp.,-ordinary shares 14 15
Pingkian Corp.,-ordinary shares 31 27
• Pingkian reported net income and paid dividends of:
Dividend
Net income per share
Year ended December 31, 2015 1,000,000 1
Six months ended June 30, 2016 500,000 None
Six months ended December 31, 2016
(dividend was paid on 10/1/2016) 900,000 2
There were no other intercompany transactions between Diadi and Pingkian.
Questions:
1. Net unrealized gain (or loss) on available for sale securities as of December 31, 2016
a. 95,000
b. (37,000)
c. (5,000)
d. (37,000)
2. Gain or loss on sale of A. Castaneda’s stock rights.
a. 15,000
b. 75,000
c. Nil
d. 60.000
3. Net adjustment to retained earningsas of July 1, 2016 as a result of the purchase of additional
shares of stock of Pingkian Corp.
a. 70,000
b. 210,000
c. 58,000
d. Nil
4. Net investment income from Pingkian Corp. for year ended December 31, 2016
a. 237,500
b. 225,000
c. 262,000
d. 270,000
5. Carrying amount of investment in Pingkian Corp. as of December 31, 2016.
a. 4,647,500
b. 4,565,000
c. 4,470,000
d. 4,200,000
PROBLEM 16-18
You were able to gather the following in connection with your audit of Siegfried, Inc. On December 31,
2015, Siegfried properly reported the following investment:
Fair value through other comprehensive:
Unrealized
Cost Market Loss
Rodolfo Corp., 20,000 shares
Gene Corp., 40,000 shares
Total 1,140,000 1,000,000 100,000
Investment in Associate
Cleo Co, 50,000 shares (25% interest) P9,000,000
• On April 1, 2016, Siegfried Co. acquired 10, 000 shares of BOY –OT Co. stocks at P100per share to be
appropriately classified as Fair value through other comprehensive income. Brokerage and
commissions of P25,000 were paid by Siegfried Co.
• On April 25, 2016, Siegfried Co. sold 4,000 shares of BOY-OT at P115 per share.
• On August 30, 2016, Gene issued to all shareholders stock rights on the basis of one right per share.
Market prices at date of issue were P14.40 per share of stock and P1.60 per right. Siegfried sold all
rights on December 1, 2016 for net proceeds of P65,000.
• The investment in associate was acquired on January 1, 2016 for P8,000,000. The book value of the
acquired share was P7,000,000. The excess is attributable to a patent which has a useful life of 10
years. On December 31, 2016, Siegfried Company sold one-half of its investments in Cleo Co. for
P225 per share and reclassified the remaining balance of its investment to Fair value through other
comprehensive income. Cleo reported net income of P10,000,000 for the year ended December
31,2016.
• Market prices per share follow:
12/31/2016
Rodolfo Corp. – ordinary shares 23
Boy-ot Corp. – shares 96
Gene Corp. – ordinary share 14
Cleo Corp. – ordinary share 225
• Cash dividends follow:
Amount Date of Date of Date of
Per share Declaration Record payment
Boy-ot P4 3/30/201 4/30/2016 4/30/2016
Cleo P20 10/1/2016 10/31/2016 11/31/2016
Question:
1. What is realized gain or loss on sale of Boy-ot shares?
a. 60,000
b. 50,000
c. 34,000
d. 66,000
2. What is realized gain or loss on sale of Cleo shares?
a. 1,125,000
b. 125,000
c. 375,000
d. 425,000
3. what is the total dividend income in the statement of comprehensive income in 2016?
a. Nil
b. 40,000
c. 500,000
d. 540,000
4. What is the adjusted carrying value of the investment in Fair value through other comprehensive
income to be reported in the statement of financial position on December 31, 2016?
a. 7,221,000
b. 7,356,000
c. 1,596,000
d. 1,731,000
5. What ids the total unrealized loss t obe presented in the statement of financial position on
December 31, 2016?
a. 35,000
b. 135,000
c. 159,000
d. 59,000
CHAPTER 18
PROBLEM 18-1
Josiah Co. acquired a new machine. Details of the acquisition are as follows:
Purchase price including VAT 1,568,000

Cost of water device to keep machine cool. 8,000
Cost of safety rail and platform surrounding machine 12,000
Installation cost, including site preparation and assembling. 20,000
Fees paid to consultants for device on acquisition of the
machinery. 13,000
Dismantling cost of the machine 10,000
Repair cost of the machine damaged while in the process of
installation. 5,000
Loss on premature retirement-old machine 18,000
Other nonrefundable sales tax 13,000
Cost of training for personnel who will use the machine 25,000
Cost of removing old machine 10,000
Determine the cost of the machinery

a. 1,476,000
b. 1,420,000
c. 1,422,000
d. 1,644,000
PROBLEM 18-2
On July 1, 2015, Drenz, Inc. purchased land and incurred other cost relative to the construction of a new
warehouse. A summary of economic activities is listed below:
Purchase Price P 925,000

Title Insurance 7,500
Legal fees to purchase land 5,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials (6,000)
Property taxes, January 1, 2015 – June 30, 2015 15,000
Cost of grading and filling building site 45,000
Cost of building construction 3,100,000
Interest on constructing loan 60,000
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Questions:
Based on the above data, determine the following:
1. Land
a. 997,500
b. 1,034,000
c. 952,500
d. 982,500
2. Building
a. 3,196,500
b. 3,160,000
c. 3,205,000
d. 3,256,500
3. Land improvements
a. 400,000
b. 460,000
c. 505,000
d. 60,000
PROBLEM 18-3
On March 1, 2015, Levy Co. acquired land and building by praying P10,000,000 and assuming a mortgage
of P1,000,000. The land and building have appraised values of P4,000,000 and P6,000,000, respectively.
The building will be used by Levy Co. as its head office.
Draining cost and filling the land. 33,000

Cost of grading and leveling the land 6,000
Broker’s fee on the land 6,500
Interest, liens and other encumbrances on the building assumed
by the buyer. 21,000
Payments to tenants of the building to induce them to vacate the
premises . 50,000
Cost of option of the acquired land 8,000
Registration fee and transfer of title 13,000
Mortgage, encumbrances on the land assumed by buyer 13,500
Real Property taxes on the land accrued after acquisition 5,000
Cost of shrub, trees, and other landscaping 53,000
Repairs and renovation cost before the building is occupied 66,400
Unpaid taxes on the building up to the date of acquisition 2,000
Legal fees and other expenses incurred in connection with the
Purchase of the building 8,000
Questions:
Based on the above data, determine the adjust cost of the following:
1. Land
a. 11,080,000
b. 4,453,500
c. 4,480,000
d. 4,445,000
2. Building
a. 6,668,400
b. 6,600,000
c. 6,697,400
d. 6,747,400
3. Land Improvement
a. 103,000
b. 50,000
c. 53,000
d. 116,500
PROBLEM 18-4
On January 1, 2015, Riza Co. acquired land and building on cash basis for P800,000. Appraised values of
the land building are P200,000 and P300,000, respectively.
Additional cost incurred follow:
Commissions paid to brokers 80,000

Non-refundable sales taxes 40,000
Labor cost on renovation of the building 100,000
Demolition cost on some of the portion of the building 60,000
Proceeds from sale of demolition scrap 15,000
Question:
1. How much is the cost of the land?
a. 1,065,000
b. 368,000
c. 597,000
d. 426,000
2. How much is the cost of the building?
a. 1,065,000
b. 368,000
c. 597,000
d. 639,000
PROBLEM 18-5
On January 1, 2015, Judycel Co. acquired an equipment for P500,000 on account with a term of 3/10,
n/30. Additional costs incurred are as follow:
Freight and insurance 15,000

Cost of testing and trial runs 12,000
Training cost of staff who will operate the equipment 13,000
The account was paid on January 10,2015.
How much is the cost of the equipment?

a. 527,000
b. 512,000
c. 525,000
d. 540,000
PROBLEM 18-6
On January 1, 2015, Rex Co. acquired an equipment for P500,000 on account with a term of 3/10, n/30.
Additional costs incurred are as follow:
Installation Cost 50,000

Training cost of staff who will operate the equipment 40,000
Estimate decommissioning and restoration 100,000
Imputed rate of interest is 10% Rex Co. is required by law to dismantle and restore the site after 5 years.
The account was paid on January 15, 2015.
How much is the cost of the equipment?

a. 690,000
b. 597,090
c. 612,090
d. 637,090
PROBLEM 18-7
On January 1, 2015, Jimar Co. acquired an equipment by using two-year, noninterest bearing note
amounting to P1,000,000. The prevailing interest rate of the note is 12%.
Questions:
1. Assuming the equipment has cash price equivalent of P800,000, how much is the cost of the
equipment?
a. 800,000
b. 797,200
c. 1,000,000
d. 1,690,050
2. Assuming the equipment has no cash price equivalent, how much is the cost of the equipment?
a. 800,000
b. 797,200
c. 1,000,000
d. 1,690,050
PROBLEM 18-8
Flory Co. exchanged equipment with Jane Co. Data before the exchanged follow:
Flory Co. Jane Co.
Equipment 1,000,000 4,000,000
Accumulate depreciation 200,000 2,200,000
Carrying amount 800,000 1,800,000
Fair value 1,200,000 1,400,000
Cash paid by Flory Co. to Brayden 200,000 200,000
Questions:
Case no. 1: Assume the transaction has commercial substance:
1. How much is the cost of the equipment to be recognized by Flory Co.?
a. 800,000
b. 1,000,000
c. 1,200,000
d 1,400,000
2. How much is the gain (or loss) on exchanged to be recognized by Flory Co.?
a. Nil
b. 400,000
c. (400,000)
d. (600,000)
Case no 2: Assume the transaction lacks commercial substance:
3. How much is the cost of the equipment to be recognized by Flory Co.?
a. 800,000
b. 1,000,000
c. 1,200,000
d 1,400,000
4. How much is the gain (or loss) on exchanged to be recognized by Flory Co.?
a. Nil
b. 400,000
c. (400,000)
d. (600,000)
PROBLEM 18-9
On January 1, 2015, Raciel Co. traded old equipment for a newer model. Data before the trade in are as
follow:
Old Equipment:
Cost 350,000
Accumulate depreciation 120,000
Average published retail value 60,000
New Equipment:
List price 400,000
Cash price without trade in 340,000
Cash price with trade in 270,000
Questions:
1. How much is the cost of the equipment to be recognized by Raciel Co.?
a. 340,000
b. 270,000
c. 400,000
d 230,000
2. How much is the gain (or loss) on trade in to be recognized by Raciel Co.?
a. Nil
b. (160,000)
c. (10,000)
d 110,000
PROBLEM 18-10
On January 1, 2015, Jasmin Co. acquired an equipment with a fair value of P4,000,000 by issuing 10,000
ordinary shares with par value of P40 per share and fair value of P360 per share.
Questions:
1. How much is the initial cost of the equipment?
a. Nil
b. 400,000
c. 3,600,000
d 4,000,000
2. How much is the gain (or loss) on exchanged to be recognized in the profit or loss of Jasmin Co.?
a. Nil
b. 3,600,000
c. 400,000
d 3,200,000
PROBLEM 18-11
On January 1, 2015, Mhelson Co. acquired an equipment with a fair value of P5,080,000 by using 500
bonds. Each bond has a face value of P10,000 and fair value of P10,200.

1. How much is the initial cost of the equipment?
a. Nil
b. 5,000,000
c. 5,100,000
d 5,080,000
2. How much is the gain (or loss) on exchanged to be recognized in the profit or loss of Mhelson Co.?
a. Nil
b. 100,000
c. 80,000
d 20,000
PROBLEM 18-12
On January 1, 2015, Edson Co. received a land from Marlon Co. The fair value of the land amounted to
P4,000,000. Registration and transfer of title amounting to 40,000 were incurred by Edson Co.
Questions:
1. Assuming Marlon Co. is an unrelated corporation with no condition to the donation, how much is
the cost of the equipment?
a. Nil
b. 4,040,000
c. 4,000,000
d 3,960,000
2. Assuming Marlon Co. is a shareholder, how much is the cost of the equipment?
a. Nil
b. 4,040,000
c. 4,000,000
d 3,960,000
PROBLEM 18-13
On January 1,2015, Ria Co. purchased a P400,000 tract of land that is intended to be the site of a new
office complex. Ria incurred additional cost and realized salvage proceeds during 2015 as follow:
Demolition of existing building on site 75,000

Legal and other fees to close escrow 12,000
Proceeds from sale of demolition scrap 10,000
Questions:
1. Assume that the new office building is to be constructed right away, how much is the cost of the
land?
a. 412,000
b. 475,000
c. 477,000
d 487,000
2. Assume that the new office building is to be constructed next year, how much is the cost of the land?
a. 412,000
b. 475,000
c. 477,000
d 487,000
PROBLEM 18-14
On January 1, 2015, Andrix Co. borrowed P1,000,000 from BPI to construct a machine (which meets the
requirements of a qualifying asset). The reporting date is December 31, 2015. The interest rate on the
loan is 20% per annum. In the first phase of the construction, there were idle funds which the company
invested. Interest on such investments amounted to P60,000.
Questions:
1. Assuming simple interest, how much is the capitalizable borrowing cost?
a. 200,000
b. 140,000
c. 155,000
d 215,500
2. Assuming simple interest and the interest and the income from investment was received on
September 1, 2015, how much is the capitalizable borrowing cost?
a. 200,000
b. 140,000
c. 155,500
d 180,000
3. Assuming that the interest is compounded quarterly, how much is the capitalizable borrowing cost?
a. 200,000
b. 140,000
c. 155,500
d 215,500
4. Assuming an amount of P400,000 was spent immediately on the qualifying asset and another
P250,000 was spent on the asset on June 1, 2015. Also assume that the surplus funds are invested at
an interest rate of 15% per annum. Interest was paid and received annually on December 31.
a. 200,000
b. 140,000
c. 131,875
d 200,000
PROBLEM 18-15
On January 1, 2015, Domingo Co. borrowed P1,000,000 from BPI to construct a machine (which meets
the requirements of a qualifying asset). The reporting date is December 31,2015. An amount of
P800,000 was spent evenly throughout the year. The interest rate on the loan is 20% per annum. The
surplus fund share invested at an interest rate of 15% per annum. Interest is paid and received annually
on December 31.
Questions:
1. Assuming that the total proceeds from borrowings are received on day 1 and any surplus funds are
invested until needed, how much is the capitalizable borrowing cost?
a. 110,000
b. 200,000
c. 80,000
d Nil
2. Assuming the cash is withdrawn as needed and as a result there are no surplus funds to invest and
interest is paid only on those amounts withdrawn, how much is the capitalizable borrowing cost?
a. 110,000
b. 200,000
c. 80,000
d Nil
PROBLEM 18-16
On January 1, 2015, Kendall Inc. began construction of an automated cattle feeder system. The system
was finished and ready for use on September 30,2016. Expenditures on the project were as follows:
January 1, 2015 200,000

September 1, 2015 300,000
December 31, 2015 300,000
March 31, 2016 300,000
September30, 2016 200,000
Kendall borrowed P750,000 on a construction loan at 12% interest on January 1, 2013. This loan was
outstanding throughout the construction period. The company had P4,500,000 in 9% bonds payable
outstanding in 2013 and 2014.
Questions:
1. Assuming that the total proceeds from borrowings are receive on day 1 and any surplus funds are
invested until needed, how much is the capitalizable borrowing cist?
a. 110,000
b. 200,000
c. 80,000
d Nil
2. Assuming that cash is withdrawn as needed and as a result there are no surplus funds to invest and
interest is paid only on those amount withdrawn, how much is the capitalizable borrowing cost?
a. 110,000
b. 200,000
c. 80,000
d Nil
PROBLEM 18-16
On January 1, 2015, Kendall Inc. began construction of an automated cattle feeder system. The system
was finished and ready for use on September 30, 2016. Expenditures on the project were as follows:
January 1, 2015 200,000
September 1, 2015 300,000
December 31, 2015 300,000
March 31, 2016 300,000
September 30, 2016 200,000
Kendall borrowed P750,000 on a construction loan at 12% interest on January 1, 2013. This loan was
outstanding throughout the construction period. The company had P4,500,000 in 9% bonds payable
outstanding in 2013 and 2014.
Questions:
1. Average accumulated expenditures for 2015 was
a. 300,000
b. 350,000
c. 500,000
d 400,000
2. Interest capitalized for 2015 was
a. 48,000
b. 42,000
c. 60,000
d 36,000
3. Average accumulated expenditures for 2016 was
a. 536,000
b. 1,236,000
c. 1,200,000
d 1,036,000
4. Interest capitalized for 2016 was
a. 104,625
b. 86,805
c. 87,875
d 67,500
PROBLEM 18-17
On January 1, 2015, Covey Co. started construction of a new office building. To finance construction,
Convey borrowed P15,000,000 specifically for the construction of the building. Interest accruing on the
loan is 10%. However, a part of the borrowing is used for working capital. and other business needs
during the year. Investment income earned on temporary investments of proceeds from the borrowing
amounted to 50,000 which was received in cash on October 1, 2015. Expenditures on the building
amounted P6,000,000 which was incurred evenly during the year.
How much is the capitalizable borrowing cost?

a. 298,750
b. 300,000
c. 295,000
d 595,000
PROBLEM 18-18
Darwin babaran Co. purchased machinery on October 1, 2015. The following information regarding this
asset and its acquisition is available:
Cost P3,300,000
Residual value P300,000
Estimated useful life 5 years
Estimated service hours 60,000 hours
Estimated units of output 50,000 units
The machinery was operated for a total of 6,100 hours in 2015 and 8,200 hours in 2016 and had
produced 5,000 units of products in 2015 and 6,000 units of products in 2016.
Required:
Compute the depreciation expenses for 2015 and 2016 under each of the following methods:
1. Straight-line 4. Sum-of the year’s digits
2. Service hours 5. Double-declining balance
3. Units of output method 6. 150% declining balance method
PROBLEM 18-19
Hendricks construction purchased a crane on January 1, 2013, for P102,750. At the time of purchase, the
crane was estimated to have a life of six years and a residual value of P6,750. In 2015, Hendricks
determined that the crane had a total useful life of seven years and a residual value of P4,500. If
Hendricks uses the straight-line method of depreciation, what will be the depreciation expense for the
crane in 2015?
a. 16,000
b. 13,250
c. 9,464
d 8,000
PROBLEM 18-20
In January, Hunter Corporation entered into a contract to acquire a new machine for its factory. The
machine, which had a cash price of P300,000, was paid as follows:
Down payment 30,000

Note payable in 10 equal monthly installments 240,000
1,000 shares of hunter ordinary shares with an agreed value of
P50 per share 50,000
Total 320,000
Prior to the machine’s use, installation cost of P8,000 were incurred. The machine has an estimated
useful life of ten years and an estimated salvage value of P10,000. What should Hunter recorf as
depreciation expense for the first year under the straight-line method?
a. 29,800
b. 30,000
c. 31,000
d 31,800
PROBLEM 18-21
At the start of its business, Snell Corp. decided to use the composite method of depreciation and
prepared the following schedule of machinery owned.
Estimated Estimated
Total Cost Salvage value Life in years
Machine A 275,000 25,000 20
Machine B 100,000 10,000 15
Machine C 20,000 5
Snell computes depreciation on the straight-line method. Based on the information presented, the
composite life of these assets (in years) should be
a. 13.30
b. 16.00
c. 18.00
d 19.80
Problem 18-22
An asset acquired January 1, 2014, for P15,000 with an estimates 10-year life and no residual value is
being depreciated in an equipment group asset account that has an average service life of 8 years. The
asset is sold on December 31,2015 for P6,000. The entry to record the sale would be:
a. Cash 6,000
Loss on sale of equipment 9,000
Equipment 15,000
b. Cash 6,000
Equipment 6,000
c. Cash 6,000
Accumulated depreciation 3,750
Loss on sale of equipment 5,250
Equipment 15,000
d Cash 6,000
Equipment 15,000
PROBLEM 18-23
Andrews manufacturing Company purchased a new machine on July 1, 2014. It was expected to produce
200,000 units of product over its estimate useful life of eight years. Total cost of the machine was
P600,000 and salvage value was estimated to be P60,000. Actual units produced by the machine in 2014
and 2015 are shown below.
2014: 16,000 units 2015: 30,000 units
Andrews reports on a calendar- year basis and uses-of-production method of depreciation. The amount
of depreciation expense for this machine in 2015 would be
a. 124,200
b. 90,000
c. 81,000
d 74,520
PROBLEM 18-24
Darrel manufacturing company purchased a new machine on July 1, 2014. It was expected to be used for
100,000 working hours over its estimated useful life of eight years. Total cost of the machine was
estimated to be P60,000. Actual hours used for this machine in 2014 and 2015 are shown below.
2014 10,000 working hours
2015 15,000 working hours
Darrell reports on a calendar-year basis and uses the working hour’s method of depreciation. The
amount of depreciation expense for this machine in 2015 would be
a. 54,000
b. 60,000
c. 81,000
d 90,000
PROBLEM 18-25
Luther soaps purchased a machine on January 1,2014, for P18,000 cash. The machine has an estimated
useful life of four years and a salvage value of P4,700. Luther uses the Double-Declining-balance method
of depreciation for all its assets. What will be the machine’s book value as of December 31, 2015?
a. 64,000
b. 76,800
c. 80,000
d 96,000
PROBLEM 18-26
Dewey Company purchased a machine that was installed and place d in service on January 2, 2014 at a
total cost of P480,000. Residual value was estimates at P80,000. The machine is being depreciated over
ten years by the double-declining-balance method. For the year 2015, Dewey should record depreciation
expense of
a. 64,000
b. 76,800
c. 80,000
d 96,000
PROBLEM 18-27
Overberg Company purchased a machine on January 2,2014, for P1,000,000. The machine has an
estimates useful life of five years and a salvage value of P100,000. Depreciation was computed by the
150% declining-balance method. The accumulated depreciation balance at December 31,2015, should
be
a. 360,000
b. 459,000
c. 490,000
d 510,000
PROBLEM 18-28
Joe Corporation bought a machine on January 11, 2014. In purchasing the machine the company paid
P50,000 cash and signed an interest-bearing note for P100,000. The estimated useful life of the machine
is five years, after which time the salvage value is expected to be P15,000. Given this information, how
much depreciation expense would be recorded for the year ending December 31, 2015 if Joe the sum-of-
the-years’-digits depreciation method?
a. 45,000
b. 40,000
c. 36,000
d 34,000
PROBLEM 18-29
Tracy Manufacturing has equipment that is comprised of five components
Estimated Estimated
Component Cost Residual value Life (In years)
A 550,000 50,000 10
B 420,000 20,000 9
C 360,000 10,000 8
D 190,000 30,000 7
E 235,000 40,000 6
Compute for the depreciation expense for the year
a. 196,250
b. 163,750
c. 175,000
d 161,500
PROBLEM 18-30
A truck that cost P8,000 was originally being depreciated over four years using the straight-line method
with no salvage value. If after one year, it was decided that the truck would last an additional four years
(or a total of five years), the second years’ depreciation would be
a. 2,000
b. 1,000
c. 1,500
d 2,500
PROBLEM 18-31
Anita mining uses the retirement method to determine depreciation on its office equipment. During
2013, its first year of operations, office equipment was purchased at a cost of P14,000. Useful life of the
equipment averages four years and no salvage value is anticipated. In 2015, equipment costing P5,000
was sold for P600 and replaced with new equipment costing P6,000. Anita would record 2013
depreciation of:
a. 3,500
b. 4,400
c. 5,400
d Nil
PROBLEM 18-32
On January 2, 2011, Jigo Ocon. Co. purchased a manufacturing machine for P3,300,000. The machine has
an 8-year useful life, has a salvage value of P300,000 and is being depreciated by straight-line method.
Case No. 1: Assume that on January 1, 2015, Jigo Co. determines that the remaining useful life is only 2
years.
Case No. 2: Assume that on January 1, 2015, Jigo Co. determines that the salvage value at the end of
useful life is only P150,000.
Case No. 3: Assume that on January 1, 2015, Jigo Co. changes its method of depreciation from straight-
line method to sum-of-the-years’ digits method.
Required:
For each of the independent cases below, compute for the following:
1. How much is the depreciation expense in 2015?
2. How much is the remaining book value at the end of 2015?
PROBLEM 18-33
Brillantes Mining use the replacement method to determine depreciation on its office equipment. During
2013, its first year of operations, office equipment was purchased at a cost of P14,000. Useful life of the
equipment averages four years and no salvage value is anticipated. In 2015, equipment costing P5,000
was sold for P600 and replaced with new equipment costing P600. Brillantes would record 2015
depreciation of:
a. 3,500
b. 4,400
c. 5,400
d Nil
PROBLEM 18-34
The statement of financial position of Davidson Corporation reported net fixed assets of P320,000 at the
end of 2013. The fixed-asset turnover ratio for 2014 was 4.0, and sales for the year totaled P1,480,000.
Net fixed assets at the end of 2014 were:
a. 470,000
b. 370,000
c. 420,000
d 400,000
PROBLEM 18-35
On January 30, 2014, a fire in Jeremy Company’s plant caused the total loss of a production machine.
The machine was being depreciated at P20, 000 annually and had a carrying amount of P160,000 at
December 31, 2013. On the date of the fire, the fair value of the machine was P220, 000 and Pine
receive insurance proceeds of P200,000 in October 2014. In its income statement for the year ended
December 31, 2014, what amount should Jeremy recognize as a gain or loss on disposition?
a. Nil
b. 20,000 gain
c. 40,000 gain
d 50,000 gain
COMPREHENSIVE PROBLEMS
PROBLEM 18-36
The property, plant and equipment section of Benner Corporation’s balance sheet at December 31, 2013
included the following items:
Land P700,000
Land Improvements 10,000
Building 900,000
Machinery 980,000
During 2014 the following data were available to you upon your analysis of the fixed assets account:
Cash paid on the purchase of land P2,500,000

Mortgage assumed on the land bought, including interest at 16% 4,000,000
Realtor’s commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on land 120,000
Amount recovered from salvage of the building demolished 150,000
Cost of fencing the property 110,000
Amount paid to a contractor for the bldg. erected 2,000,000
Building permit fees 20,000
Excavation expenses 50,000
Architect’s fees 50,000
Interest that would have been earned had the money used
during the period of construction been invested in the money
market 150,000
Invoice cost of machinery acquired 2,000,000
Freight, unloading, and delivery charges 60,000
Customs duties and other charges 140,000
Allowances, hotel accommodation, etc., paid to foreign
Technician during installation and test runs of machines 400,000
Royalty payments on machines purchased (based on units
produced and sold) 120,000
Questions:
Based on the above and the result of your audit , determine the following:
1. The total cost of the land.
a. P7,770,000
b. P7,650,000
c. P7,620,000
d P7,880,000
2. The total cost of the land improvement.
a. P120,000
b. P10,000
c. P110,000
d P170,000
3. The total cost of the building
a. P2,990,000
b. P3,020,000
c. P2,920,000
d P3,220,000
4. The total cost of the machinery
a. P3,500,000
b. P3,580,000
c. P3,620,000
d P3,220,000
5 The total cost of the depreciable property, plant and equipment

a. P6,690,000
b. P6,010,000
c. P6,720,000
d P6,470,000
PROBLEM 18-37
On January 1, 2014, Wilmer Co. began constructing a building on a land that it had previously acquired.
The building id to be =used by the company as its main office. The building was completed on September
1, 2015. The following payments were made to the sub-contractor:
Date of Payments Amount
January 1,2014 3,000,000
July 1, 2014 7,000,000
November 1, 2014 6,000,000
July 1,2015 1,000,000
August 1, 2015 2,000,000
The following amounts amount represents the borrowing of Wilmer Co. as of December 31, 2014.
• 10%, P2,000,000, 4-year note dated January 1, 2014 with simple interest payable annually,
specifically borrowed to finance the construction project. Interest income in 2014earned on the
temporary investment of the proceeds is P13,000.
• 14%, P2,000,000, 5-year note dated January 1, 2014 with interest payable annually
• 12%, P18,000,000, 5-year note dated December 31, 2013 with interest payable annually
Questions:
1. The amount of avoidable interest for 2014
a. 858,000
b. 2,640,000
c. 1,782,000
d 871,000
2. The capitalizable borrowing cost of 2014
a. 858,000
b. 2,640,000
c. 1,782,000
d 871,000
3. The interest expense in 2014
a. 858,000
b. 2,640,000
c. 1,782,000
d 871.000
4. The interest expense in 2015
a. 1,190,883
b. 1,449,117
c. 1,257,550
d 2,640,000
5. The total cost of the new building in 2015

a. 16,858,000
b. 21,240,450
c. 18,307,117
d 24,280,000
PROBLEM 18-38
On January 1, 2014, Kolokoy Company received a grant of P25 million from the government of the
United States of America for the construction of a building that will be used as a laboratory and research
facility with an estimated cost of P30 million and useful life of 20 years. The facility was completed on
January 1, 2015.
Questions:
1. How much income from the government grant should be recognized in 2015?
a. Zero
b. 250,000
c. 1,500,000
d 1,250,000
2. Depreciation expense in 2015 assuming gross method was used.
a. Zero
b. 250,000
c. 1,500,000
d 1,250,000
3. Depreciation expense in 2015 assuming net method was used.
a. Zero
b. 250,000
c. 1,500,000
d 1,250,000
4. Carrying amount of the building on December 31, 2015 assuming the gross method was used
a. 5,000,000
b. 30,000,000
c. 4,750,000
d 28,500,000
5. Carrying amount of the building on December 31, 2015 assuming the net method was used.
a. 16,858,000
b. 21,240,450
c. 18,307,117
d 24,280,000
PROBLEM 18-39
On January 1, 2014, Yoko Company received a large tract of land in the Isabel province by the Philippine
government. The fair value of the land is P5 million. Yoko Company is mandated by the grant to construct
factory in the area and employ only personnel residing in the Isabela region.
On January 1, 2015, the factory building was finished and the cost of the factory amounted to P20
million with useful life of 10 years.
Questions:
1. How much income from the government grant should be recognized n 2015?
a. Zero
b. 500,000
c. 5,000,000
d 4,500,000
2. Depreciation expense in 2015 assuming gross method was used.
a. Zero
b. 500,000
c. 2,000,000
d 1,500,000
3. Depreciation expense in 2015 assuming net method was used
a. Zero
b. 500,000
c. 2,000,000
d 1,500,000
4. Carrying amount of the building on December 31, 2015 assuming the gross method was used.
a. 18,000,000
b. 13,500,000
c. 20,000,000
d 15,000,000
5. Carrying amount of the building on December 31, 2015 assuming the net method was used.
a. 18,000,000
b. 13,500,000
c. 20,000,000
d 15,000,000
PROBLEM 18-40
On January 1, 2014, Joy Waquiz Corporation purchased for P1,200,000 a tract of land (site number 143)
with a building. Waquiz paid a real estate broker’s commission of P72,000, legal fees of P12,000, and title
guarantee insurance of P36,000. The closing statement indicate that the land value was P1,000,000 and
the building value was P200,000. Shortly after acquisition, the building was razed at a cost of P108,000.
Waquiz entered into P6,000,000 fixed-price contract with Cabeng Builders, Inc. on March 1, 2014 for the
construction of an office building on land site number 143. The building was completed and occupied on
September 1, 2015. Additional construction cost were incurred as follows:
Plans, specification, and blueprints 42,000

Architects’ fees for design and supervision 164,000
The building is estimated to have a 40-year life from the date of completion and will be depreciated
using the 150% declining balance method.
To finance construction cost, Waquiz borrowed P1,000,000 with a 12% interest on January 1, 2014. The
loan was outstanding for the entire years of 2014 and 2015. The company’s other interest-bearing debts
include the following (Also outstanding for the entire years of 2014 and 2015):
Principal Borrowing cost

10% bank loan P2,800,000 P280,000
10% short-term note 3,200,000 320,000
12% long-term note 2,000,000 240,000
P8,000,000 P840,000
Expenditure on the project were as follow:

Date Expenditures
January 1, 2014 1,000,000
April 1, 2014 500,000
October 1, 2014 800,000
December 31, 2014 900,000
January 1, 2015 1,000,000
May 1, 2015 600,000
September 1, 2015 1,200,000
Questions:
Based on the above data, compute for the following:
1. Total cost of the land
a. P1,272,000
b. P1,284,000
c. P1,320,000
d P1,428,000
2. Capitalizable borrowing cost for the year ended 2014.
a. P180,375
b. P225,000
c. P187,500
d P960,000
3. Capitalizable borrowing cost for the year ended 2015.
a. P337,626
b. P340,750
c. P560,000
d P369,126
4. Total cost of the building as of September 20, 2015.
a. P6,771,750
b. P6,755,501
c. P6,832,001
d P6,724,001
5. Interest expense for the year 2015.
a. P590,874
b. P340,750
c. P622,374
d P619,250
6. Depreciation expense for the building in 2015.
a. P84,050
b. P84,500
c. P84,648
d P252,150
PROBLEM 18-41
Exodus Company’s property, plant and equipment and accumulated depreciation balances at January 1,
2015 are:
Accumulated
Cost depreciation
Land 550,000
Building 6,000,000 4,427,136
Machinery 3,000,000 1,500,000
Furniture and fixtures 1,500,000 800,000
Depreciation method and useful life:
Building is P1,300,000
Machinery Straight line, 20 years, no salvage value
Furniture and Sum-of-the-years’ digits method, 5 years, no salvage
Fixtures value (all are purchased on April 1, 2013).
Depreciation is computed to the nearest month.

a. At the beginning of 2015, the company paid P600,000 to overhaul the machine . As a result of this
major overhaul, the company estimated that the useful life of the machine would be extended an
additional five years.
b. On January 6, 2015, Exodus completed its self-construction of a building on its own land. Direct cost
of construction were P2,220,000. Construction of the building required 15,000 direct labor hours.
The construction department has an overhead allocation system for outside jobs based on an activity
denominator of 100,000 direct labor hours, budgeted fixed cost of P2,500,000, and budgeted
variable cost of P27 per direct labor hour.
c. On April 1, 2015, the company changes its method of depreciation from sum-of-the-years’ digits
method of a furniture and fixture that was acquired for P300,000 without change in its original
useful life
d On July 1, 2015, machinery was purchased at a total invoice cost of P356,000. Additional cost of
P23,000 to rectify damage on delivery and P18,000 for concrete embedding of machinery were
incurred. A wall had to be demolished to enable a large machine to be move into the plant. The wall
demolition cost P7,000, and rebuilding of the wall cost P19,000
e. On November 4, 2015, Exodus purchased a tract of land definitely as a future plant site for P700,000.
Questions:
1. Depreciation expenses of the furniture and fixture for the year 2015
a. P310,000
b. P280,000
c. P320,000
d P400,000
2. Accumulated depreciation of the furniture and fixture at the end of 2015
a. P1,110,000
b. P1,080,000
c. P1,120,000
d P400,000
3. Total cost of the land at the end of 2015
a. P550,000
b. P1,250,000
c. P700,000
d P850,000
4. The total cost of the new building at the end of 2015
a. P3,000,000
b. P5,125,000
c. P2,780,000
d P2,880,000
5. Depreciation of the building in 2015
a. P614,537
b. P767,220
c. P914,573
d P872,864
6. The total adjusted cost of the machinery at the end of 2015
a. P3,400,000
b. P3,423,000
c. P4,000,000
d P3,374,000
7. Depreciation of the machinery in 2015
a. P158,000
b. P260,000
c. P158,800
d P156,700
PROBLEM 18-42
Your audit of Luis, Inc.’s property, plant and equipment disclosed the following data at December 31,
2015.
Accumulated
Depreciation
ASSETS Cost 12/31/2015
Machinery-D P 140,000 P 92,800
Machinery-R 204,000 140,800
Machinery-I 320,000 60,000
Machinery-A 320,000 64,000
Methods of depreciation and other data:

Date Useful Salvage Depreciation
Machinery: Purchased life Value Method
D 2010 10 years P 12,400 SYD
R 2011 15,000 hours 12,000 Activity
I 2012 15 years 20,000 Straight line
A 2014 10 years 20,000 DDB
You noted that the client’s policy on depreciation is that no depreciation is recorded in the year an asset
is purchased, and full year depreciation is provided in the year an asset is disposed of. No depreciation
has yet been recorded in 2016.
The following transaction occurred in 2016:
3. On May 5, assets D was sold for P52,000 cash. The company’s bookkeeper recorded this retirement
in the following manner in the cash receipts journal:
Cash 52,000
Asset D 52,000
4. On December 31, it was determine that asset R had been used 2,100 hours during 2015.
5. On December 31, before computing depreciation expense on Asset I, the management of Luis
decided the useful life remaining from January 1, 2016 was 10 year.
6. On December 31, it was discovered that a plant asset purchased in 2015 a useful life of 10 years and
no salvage value. Management has decided to use the double declining balance method for this
asset, which can be referred to as “Asset N” .
Questions:
1. How much is the net gain or (loss) on sale of Machinery D in 2016?
a. P16,400
b. (P16,400)
c. P4,800
d (P4,800)
2. How much is the accumulate depreciation- machinery R, December 31, 2016?
a. P169,360
b. P167,680
c. P171,040
d P166,400
3. How much is the accumulated depreciation-machinery I, December 31, 2016?
a. P90,000
b. P86,000
c. P84,000
d P124,000
4. How much is the accumulated depreciation-machinery A, December 31, 2016?
a. P115,200
b. P128,000
c. P76,800
d P76,000
5. How much is the total depreciation expenses for 2016?
a. P122,480
b. P113,680
c. P118,560
d P131,280
PROBLEM 18-43
The property, plant and equipment section of Alyssa Company’s December 31, 2015 statement of
financial position the following:
Property, plant and equipment:

Land P120,000
Building P840,000
Less: Accumulated depreciation 200,000 640,000
Office equipment 330,000

Less: Accumulated depreciation ? ?
Machinery 180,000
Less: Accumulated depreciation ? ?
Total property, plant and equipment ?
The straight line method is used to determine depreciation of the machinery.
• On March 31, 2016, Machine 102 was sold for P52, 500. Early in 2016, the useful life of machine 101
was revised to seven years in total and the residual value was revised to zero.
• The office equipment was purchased at the beginning of 2012. The useful life of the office
equipment was estimated to be 10 years with no residual value. The equipment has been
depreciated by the sum-of-the-years’ –digits method. On January 1, 2016, the company changed to
straight line method.
Questions:
1. Accumulated depreciation of the office equipment at December 31, 2015
a. 162,000
b. 126,000
c. 204,000
d 168,000
2. Depreciation expense of the machine in 2016
a. 14,775
b. 16,150
c. 18,150
d 18,300
3. Total depreciation expense of the office equipment and the building in 2016
a. 52,600
b. 40,000
c. 61,000
d 76,000
4. Gain or loss on sale of machine 102 in 2016
a. 13,500 gain
b. 13,500 loss
c. 11,750 gain
d 11,750 loss
5. Book value of the office equipment on December 31, 2016

a. 90,000
b. 105,000
c. 113,400
d 126,000
PROBLEM 18-44
The building and accumulated Depreciation accounts of Michael Co. contain the following entries during:
2013 Building Item Debit Credit
Jan 1 Balance 2,000,000
Jan 2 Building received as a government grant 1,500,000
June 30 Cash paid for the exchange of office
Building No. 2 for office building No. 3
(exchanged with commercial substance) 400,000
Dec 31 Balance . 3,900,000
3,900,000 3,900,000
Date Accumulated Depreciation Debit Credit

2013 Item
December 31, 2010 Depreciation 200,000
Additional information:
• The beginning balance of the building represents the amount paid when it acquired the two
buildings (Office building No. 1 and Office building No. 2) used as its head office on January 1, 2010.
The allocated cost of its building was P1,000,000 each. The estimated useful life of the building is 10
years. On January 1, 2013, major improvements on the office building No. 1 amounting to P245, 000
were incorrectly charged to repairs and maintenance expense.
• A building which had a fair value of P1,400,000 was accepted from the city government as a
donation on January 2, 2013. The building that was estimated to be useful for another 10 years was
to be used as a factory site as a condition on the grant. Legal fees incurred in relation to the donation
was at P50,000 and was charge to 2013 operating expenses. Another P100,000 was incurred to
remodel and renovate the building prior to use. This amount was also charge to repairs expense.
• The fair value of the office building No. 3 is P1,200,000. The remaining useful life of office building
No. 3 is 4 years.
Questions:
Based on the above and the result of your audit, you are to provide the answers to the following:
1. The correct cost of the factory building acquired on January 2, 2013
a. 1,400,000
b. 1,450,000
c. 1,550,000
d 1,500,000
2. The gain or loss on exchange on June 30

a. 150,000
b. 100,000
c. 350,000
d 400,000
3. The total depreciation expense in 2013
a. 635,000
b. 640,000
c. 490,000
d 630,000
4. The income from government grant in 2013
a. 140,000
b. 145,000
c. 135,000
d 125,000
5. The carrying value of the office building No. 1 as of December 31, 2013.
a. 810,000.
b. 945,000.
c. 800,000.
d 910,000.
PROBLEM 18-45
You obtain the following information pertaining to Trinidad Francia Co.’s property, plant, and equipment
for 2015 in connection with your audit of the company’s financial statements.
December 31, 2015 Cost Accumulated Depreciation

Land 1,000,000 -
Building (construction In progress) 9,000,000 -
Machinery and equipment 3,000,000 1st year- P1,000,000
2nd year-P 800,000
Delivery truck 1,152,000 432,000
Depreciation Method Useful Life

Building Straight-line 50 years
Machinery and equipment Sum of the years digits ? (age is 2 years)
Delivery truck Straight-line 8 years
a. The company began the self-construction of a building on January 1, 2015 and was completed on
December 31, 2016. The following expenditures were made during 2015 and 2016:
January 1, 2015 2,000,000
July 1, 2015 4,000,000
November 1, 2015 3,000,000
July 1, 2016 1,000,000
Total 10,000,000
Trinidad Francia Company had the following loans outstanding during the years 2015 and 2016:
Loan Principal Interest rate
Specific construction loan 2,000,000 10%
General loan 15,000,000 12%
The balance on December 31, 2015 represents the amount expended in 2015 before any borrowing
cost.
b. On January 1, 2016, a delivery truck purchased for P240,000 on January 1, 2014 was overhauled at a
cost of P60,000. As a result, the entity estimated that its original useful life of 8 years would be
extended by two years.
c. On July 1, 2016, a new delivery truck was purchased at an invoice cost of P400,000. Additional cost
of P20,8000 for freight and P400,000 for installation and testing were incurred. The delivery truck
was put to use on July 26, 2016.
Questions:
Based on the above and the result of your audit, you are to provide the answers to the following:
1. What is the capitalized borrowing cost in 2015?
a. 200,000
b. 160,000
c. 300,000
d 500,000
2. What is the cost of the building on December 31, 2016?
a. 10,000,000
b. 11,700,000
c. 11,660,000
d 11,500,000
3. Assuming that the company is a Small Medium Entity (SME), what is the cost of the building on
December 31, 2016?
a. 10,000,000
b. 11,700,000
c. 11,660,000
d 11,500,000
4. What is the depreciation expense of the machinery and equipment in 2016?
a. 600,000
b. 1,500,000
c. 900,000
d 400,000
5. What is the depreciation expense of the delivery truck in 2016?
a. 144,000
b. 1,212,000
c. 1,072,800
d 1,240,800
6. What is the carrying value of the delivery truck on December 31, 2016?
a. 1,672,800
b. 1,212,000
c. 1,072,800
d 1,240,800
CHAPTER 19
PROBLEM 19-1
On February 1, 2015, Marianne Co. purchased the right to remove gravel from an old rock quarry. The
gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was P164,000,
with estimated salable rock of 20,000 tons. During 2015, Marianne loaded and sold 4,000 tons of rock
and estimate that 16,000 tons remained at December 31, 2015. At January 1, 2016, Marianne estimated
that 20,000 tons still remained. During 2016 Marianne loaded and sold 8,000 tons.
Questions:
1. How much is the depletion in 2015?
a. 41,000
b. 32,800
c. 30,750
d 24,600
a. 54,667
b. 65,600
c. 52,480
d 55,760
PROBLEM 19-2
On January 1, 2015, Jacqueline Co. acquired a property containing mineral resources at a cost of
p8,000,000. Exploration cost on the property amounted to P12,000,000. As part of the company policy,
all exploration cost and evaluation of mineral resources are capitalized. Intangible development cost
incurred amounted to P10,000,000. At the end of the economic life of the wasting asset, Jacqueline Co.
expects to sell the land for P1,000,000 after incurring cost of P100,000. Geologist estimate that the mine
will provide approximately P4,000,000 units.
Actual units extracted from 2015 to 2017 totaled to 400,000. At the beginning of 2018, Geologist
estimates that only 500,000 units will be extracted. Also Jacqueline estimates that after reserves are
depleted, the land will be sold for P800,000 after incurring cost of P200,000. Actual units extracted in
2018 totaled 200,000.
Questions:
a. 10,596,000
b. 6,960,000
c. 10,560,000
d 5,916,000
2. What is the carrying amount of the wasting asset on December 31, 2018?
a. 16,494,000
b. 11,040,000
c. 16,440,000
d 9,474,000
PROBLEM 19-3
In 2015, Junica Co. acquired land containing ore for a total cost of P4,000,000 Exploration cost amounted
to P6,000,000 while intangible equipment development cost amounted to P5,000,000. Movable tangible
equipment cost for heavy equipment totaled P2,000,000 while immovable tangible equipment cost
amounted to P1,000,000. Geologist estimate that the total units estimated to be extracted is for
4,000,000. It is estimated that 400,000 units will be extracted each year during the useful life of the
wasting assets.
The movable equipment has a useful lie of 10 years while the immovable equipment has an estimated
useful life of 5 years.
Actual units extracted during 2015 are 500,000 units.
Questions:
a. 1,875,000
b. 1,250,000
c. 500,000
d 1,125,000
2. How much is the 2015 depreciation of the movable equipment
a. 200,000
b. 125,000
c. 100,000
d 83,333
3. How much is the 2015 depreciation of the immovable equipment
a. 200,000
b. 125,000
c. 100,000
d 83,333
PROBLEM 19-4
In 2015, Leigh Co. acquired land containing ore for a total cost of P4,000,000. Exploration cost amounted
to P6,000,000 while intangible development cost amounted to P5,000,000. Movable tangible equipment
cost for heavy equipment totaled P2,000,000 while immovable tangible equipment cost amounted to
P1,000,000. Geologist estimate that the total units estimated to be extracted is 4,000,000. It is estimated
that 500,000 units will be extracted each year during the useful life of the wasting assets.
The movable equipment has a useful life of 20 years while the immovable equipment has an estimated
Actual units extracted during 2015 are 500,000 units.

Questions:
a. 1,875,000
b. 1,250,000
c. 500,000
d 1,125,000
2. How much is the 2015 depreciation of the movable equipment?
a. 100,000
b. 200,000
c. 250,000
d 125,000
3. How much is the 2015 depreciation of the immovable equipment?
a. 100,000
b. 50,000
c. 125,000
d 250,000
PROBLEM 19-5
Widee Company provides the following balances at the end of 2015:
Mineral deposit, at cost 20,000,000

Accumulated depletion 7,000,000
Share premium 2,000,000
Capital liquidated 800,000
Accumulated profits – unappropriated 9,000,000
Accumulated profits appropriated for contingencies 800,000
Inventory of resource deposits (120,000 units) 1,440,000
Depletion rate per unit P6
How much is the maximum amount of dividends that can be declared by widee?
a. 9,000,000
b. 13,760,000
c. 16,000,000
d 14,480,000
PROBLEM 19-6
The Quesimia Mining Company bought a tract of land containing coal veils for P9,075,000. The tract is
expected to yield 1,100,000 tons of coal. The company likewise expects that the quantity which shall be
mined in each of the succeeding years will be twice the quantity mined in the first year of operations.
During the letter part of 2015, installations with an estimated useful life of ten years were set up at a
cost of P1,925,000. Mining equipment was purchased early in 2016 for P4,400,000 and the equipment
has a useful life of eight years and can be transferred conveniently to another location. The installation,
on the other hand, shall be abandoned when the coal deposits are exhausted.
The company started operation in January 2016. By the end of the year, the company mined and sold
100,000 tons of coal . also in 2017, the company incurred additional development cost of P750,000 and
mined and sold 150,000 tons of coal.
Questions:
1. How much should the company recorded as depletion expense for 2016?
a. P1,650,000
b. P1,000,000
c. P907,500
d P825,000
2. How much should the company record as depreciation expense for 2016 of the Installation?
a. P192,500
b. P175,000
c. P0
d P130,000
3. How much should the company record as depreciation expense for 2016 of the mining equipment?
a. P1,550,000
b. P1,120,000
c. P1,350,000
d P1,237,500
4. How much should the company record as depletion expense for 2017?
a. P1,550,000
b. P1,120,000
c. P1,350,000
d P1,237,500
5. Using the production method of depreciation, how much should the company record as total
depreciation expense for 2017?
a. P262,500
b. P550,000
c. P812,500
d P725,000
PROBLEM 19-7
On January 1, 2015, Micah Joy Mining Corp. acquired property containing mineral resources for
P150,000,000. Total cost of exploration and intangible development cost was P8,000,000. Micah Joy is
mandated by the Mining Act to restore the site after 4 years. Based on most reliable measurements, the
amount of restoration cost is P12,000,000 and current market-based discount rate is 10%. On the same
date, Micah Joy acquired movable tangible equipment amounted P6,000,000 while the immovable
tangible equipment amounted to P9,000,000. Geologist estimate that the total units estimated to be
extracted each year during the useful life of the wasting assets.
Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000 respectively.
Question: (Please carry over all decimal places in the computation)

1. How much is the initial cost of the mineral deposit?
a. 166,196,161
b. 170,000,000
c. 158,000,000
d 158,196,161
a. 22,666,667
b. 22,159,488
c. 21,066,667
d 21,092,822
a. 300,000
b. 800,000
c. 750,000
d 1,125,000
a. 900,000
b. 1,200,000
c. 1,125,000
d 750,000
5. How much is the interest expense in 2016?
a. 819,616
b. Nil
c. 1,200,000
d 2,049,040
PROBLEM 19-8
On January 1, 2015, Harruel Mining Corp. acquired property containing mineral resources for
P120,000,000. Total cost of exploration and intangible development cost incurred was P6,000,000.
Harruel is mandated by the Mining Act to restore the site after 4 years. Based on the most reliable
measurement, the amount of restoration cost is P10,000,000 and current market-based discount rate is
12%. On the same date, Harruel acquired movable tangible equipment amounted to P6,000,000 while
the immovable tangible equipment cost totaled P9,000,000. Geologist estimate that the total units
estimated to be extract is 12,000,000. It is estimated that 1,500,000 will be extract each year during the
useful life of the wasting assets.
useful life of 5 years. Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000 respectively.
Questions: (Please carry over all decimal places in the computation)

1. How much is the initial cost of the mineral deposit?
a. 132,355,181
b. 136,000,000
c. 126,000,000
d 126,355,181
a. 18,133,333
b. 17,647,357,
c. 16,800,000
d 16,847,357
a. 1,00,000
b. 800,000
c. 750,000
d 1,125,000

a. 1,800,000
b. 1,200,000
c. 1,125,000
d 750,000
5. How much is the interest expense in 2016?
a. 762,622
b. Nil
c. 1,200,000
d 1,588,795
CHAPTER 20
PROBLEM 20-1
The following data was extracted during the financial statement preparation of the Francine Company.
Francine Co.’s accountant is unsure how to classify the following items in the statement of financial
position due to Francine Co.’s diverse activities.
Items Amount
1) Land purchased but the management has not yet decided how to use the P800,000
land.
2) A factory is in the process of being constructed on behalf of the government. 1,260,000
3) A building being constructed on behalf of Francisca Company. 1,000,000
4) A property intended for sale in the ordinary course of business. 450,000
5) A building occupied by employees, who do not pay market rent on the 240,000
building they occupied.
6) A building that is leased to a third party under a finance lease. 1,110,000
7) A building that is held under mixed use; ¼ of it is owner-occupied and the 1,720,000
other ¾ is to earn rentals
8) A property wherein significant ancillary service are provided to occupants. 960,000
9) Land and building lease to a subsidiary 2,100,000
10) A new machine lease to another subsidiary 530,000
11) A machine that is lease under operating lease 420,000
12) A building held by the entity under a finance lease and leased out under 1,100,000
operating leases
13) A building owned by the company and being leased out under operating 1,300,000
leases
14) A building that is being constructed or developed for future use as 1,150,000
investment property
Questions:
Based on the above and the result of your audit, compute for the amount that is to be included in the
separate financial statement of Francine Company:
1. Owner-occupied property
a. P2,160,000
b. P2,580,000
c. P4,260,000
d P3,270,000
2. Investment property
a. P5,640,000
b. P8,850,000
c. P7,740,000
d P8,270,000
3. Inventories
a. P540,000
b. P495,000
c. P450,000
d P1,710,000
PROBLEM 20-2
Kevin Company completed the construction of a building at a total cost of P250 million at the end of
2015. The buildings estimated useful life is 20 years. The building will be used by Kevin Company as its
head office, but an insignificant portion will be leased to tenants.
Questions:
1. Assuming the portion being leased to tenants is estimated to be 10% of the total portion of the
building, what amount should be reported as investment property?
a. P250M
b. P25M
c. P225M
d Nil
2. Assuming the portion being leased to tenants cannot be separately identified, what amount should
be reported as investment property?
a. P250M
b. P25M
c. P225M
d Nil
PROBLEM 20-3
Love Hotel completed the construction of a hotel with a swimming pool at a total cost of P105 million at
the end of 2014. The estimated useful life of the hotel is 30 years and the company uses the cost model
in accounting for its fixed assets.
Questions:
1. Assume that Love Hotel Company provides security service for its guest belongings as part of the
service it provides, what amount should be reported as investment property in its statement of
financial position as of December 31, 2015?
a. P105M
b. P98M
c. P101.5M
d Nil
2. Assume Love Hotel Company is an owner managed hotel, what amount should be reported as
investment property in its statement of financial position as December 31, 2015?
a. P105M
b. P98M
c. P101.5M
d Nil
PROBLEM 20-4
Pagara Inc., a real estate firm, and its subsidiaries have provided you, their PFRS specialist with a list of
properties they own:
• A building owned by Pagara, Inc. being lease out to Pigar, Inc. a subsidiary of Pagara, Inc.,
P20,000,000.
• A property costing P34M held by a subsidiary of pagara Inc. in the ordinary course of its business.
• Land held for undetermined future use costing P15,000,000.
Questions:
1. In its separate financial statement, what should be the amount of investment property to be
reported by Pagara Inc.?
a. P69M
b. P35M
c. P54M
d P15M
2. In the consolidated financial statement of Pagara Inc. and its subsidiaries, what amount should be
reported as investment property in its statement of financial position?
a. P4 million
b. P3.2 million
c. P3.5 million
d P3 million
PROBLEM 20 -5
On January 1, 2015, Rachel Company leased a building from Goldemayre Company for the purpose of
letting out to tenants. The lease is property classified as finance lease under PAS 17 leases. The fair value
of the building on January 1 and December 31 is P3.5 million, respectively. The present value of the
minimum lease payment compute based on the implicit interest rate of 12% is P3.2 million.
What should be the amount to be recorded by Rachel Company on January 1, 2015 as investment
property?
a. P4 million
b. P3.2 million
c. P3.5 million
d P3 million
PROBLEM 20-6
Blatche Company completed the construction of a shopping mall at the end of 2013 for a total cost of
P200 million. The mall has estimated economic life of 25 years. The mall was constructed for the purpose
of earning rentals by letting out space in the shopping mall to tenants.
An independent valuation expert was used by the company to fair value the shopping mall on an annual
basis. According to the fair valuation expert, the fair value of the shopping mall at the end of 2014 and
2015 were P240 million and P230 million, respectively.
Questions:
1. If Blatche much should be recognize in profit or loss in 2015 as result of the fair value changes?
a. P46,000,000
b. P10,000,000
c. P30,000,000
d Nil
2. If Blatche Company opted to use the cost model to measure the shopping mall, how much should be
recognized in profit or loss in 2015 as depreciation expense?
a. P9,600,000
b. P8,000,000
c. P9,200,000
d Nil
3. If Blatche Company opted to use cost model to measure the shopping mall, how much is the
carrying amount of shopping to be reported in its statement of financial position as of December 31,
2015?
a. P230,000,000
b. P192,000,000
c. P200,000,000
d P184,000,000
4. If Blatche Company opted to use the fair value model to measure the shopping mall, how much
should be recognized in profit or loss in 2015 as a result of the fair value changes?
a. P46,000,000
b. P10,000,000
c. P30,000,000
d Nil
5. If Blatche Company opted to use the fair value model to measure the shopping mall, how much
should be recognized in profit or loss in 2015 as depreciation expense?
a. P9,600,000
b. P8,000,000
c. P9,200,000
d Nil
6. If Blatche Company opted to use the fair value model to measure the shopping mall, how much is
the carrying amount of the shopping mall to be reported in its statement of financial position as of
December 31, 2015?
a. P230,000,000
b. P192,000,000
c. P200,000,000
d P184,000,000
PROBLEM 20-7
On January 1, 2013, Cyprian Company bought a land and building from Gladys Company for P3,500,000.
Cyprian Company will use the building as its head office. The portion of the total purchase price
attributable to the land is P1,700,000, while the balance is attributable to the building. Cyprian
depreciates the building using straight line method over an estimated useful life of 25 years and uses
cost model in measuring its fixed assets subsequent to initial measurement.
On December 1, 2015, Cyprian has acquired another land and building in the Central Business District to
be used as their new head office as this would be a good location. The management decided to lease out
the old building under operating lease. By the end of 2015, the old building was already vacated by
Cyprian Company and another company has already leased the old building. The fair value of the land
and building at the end of 2015 was P3,400,000.
Questions:
1. How much should be recognized in the 2015 profit or loss as a gain or loss on transfer from owner-
occupied to investment property?
a. P100,000 loss
b. P320,000 gain
c. P116,000 gain
d Nil
2. How much is the carrying amount of the investment property at the end of December 31, 2015
statement of financial position?
a. P3,400,000
b. P3,080,000
c. P3,284,000
d Nil
PROBLEM 20-8
Andray Company owns a building purchased on January 1, 2011 for P100 million. The building was used
as the company’s head office. The building has an estimated useful life of 25 years. In 2015, the company
transferred its head office and decided to lease out the old building. Tenants began occupying the
reclassified the building as investment. The fair value on the date of reclassification was P86 million.
Questions:
1. If the investment property is to be carried using cost model, how much should be recognized in the
2015 profit or loss as a gain or loss on transfer from owner-occupied to investment property?
a. P8,000,000
b. P4,000,000
c. P6,000,000
d Nil
2. If the investment property is to be carried using cost model, how much should be recognized in the
2015 other comprehensive income as a result of the transfer from owner-occupied to investment
property?
a. P8,000,000
b. P4,000,000
c. P6,000,000
d Nil
3. If the investment property is to be carried using fair value model, how much should be recognized in
the 2015 profit or loss as a gain or loss on transfer from owner-occupied to investment property?
a. P8,000,000
b. P4,000,000
c. P6,000,000
d Nil
4. If the investment property is to be carried using fair value model, how much should be recognized in
the 2015 other comprehensive income as a result of the transfer from transfer from owner-occupied
to investment property?
a. P8,000,000
b. P4,000,000
c. P6,000,000
d Nil
PROBLEM 20-9
On January 1, 2013, EFG Co. purchased a building at a cost of P3,000,000. On the same date, the building
was leased put under an operating lease. The company’s policy regarding depreciable asset is to
depreciate using straight line method over an estimated useful life of 20 years.
The fair value of the building at the end of 2013 and 2014 is P3,100,000 and P2,450,000, respectively. On
January 2, 2015, the company terminated all lease and sold the building for P2,990,000, incurring
disposal cost of P120,000.
Questions:
1. If the investment property is accounted using the cost model, what should be the amount of
derecognition gain to be reported on its profit or loss in 2015?
a. P540,000
b. P290,000
c. P420,000
d P170,000
2. If the investment property is accounted using the fair value model, what should be the amount of
derecognition gain or loss to be reported on its profit or loss in 2015?
a. P540,000
b. P290,000
c. P420,000
d P170,000
Note to readers: Initial measurement concepts (e.g., acquisition through exchange, trade-in, issuance of
equity, issuance of debt, etc.) involving readers are therefore advised to refer to the discussion and
concept of the initial measurement concepts of the said topic.
CHAPTER 22
PROBLEM 22-1
Jimar Co. incurred the following cost during the year:
1 Cost of activities aimed at obtaining new knowledge 700,000
2 Marketing research to study consumer tastes 16,000
3 Cost of developing and producing a prototype model 23,000
4 Cost of testing the prototype model for safety and environmental friendliness 80,000
5 Cost of revising designs for flaws in the prototype model 15,000
6 Salaries of employees, consultants, and technician involved in R&D 120,000
7 Amount paid for conference for the introduction of the newly developed product 102,000
including fee of a model hired as endorser
8 Advertising to establish recognition of the newly developed product 43,000
9 Cost incurred on search for alternatives for materials devices, products, processes, 30,000
systems
1 Cost of final selection of possible alternatives for a new process 96,000
0
1 Periodic or routine design changes to existing products 2,500
1
1 Modification of design for a specific customer 10,000
2
1 Cost of design, construction and operation of a pilot plant that is not of a scale 5,000
3 economically feasible for commercial production
1 Cost of routine, seasonal, and periodic design of tools, jigs, molds and dies 18,000
4
1 Cost of quality control during commercial production 32,000
5
1 Cost of building acquired to be used in various R&D projects 1,000,000
6
1 Depreciation on the building described above 100,000
7
1 Personnel cost of persons involved in research and development project 41,200
8
1 Design, construction, and testing of preproduction prototypes and models 96,000
9
Compute for the total research and development expense during the year.
a. 1,306,200
b. 1,176,200
c. 1,223,500
d 1,034,000
PROBLEM 22-3
Innova Co. purchased a patent on Jan. 1, 2013 for P300,000. The patent was being amortized over its
remaining legal life of 15 yrs. During 2015, Innova determined that the economic benefit of the patent
would not last longer than 10 years from the date of acquisition. What amount should be charge to
patent 10 years from the date of acquisition. What amount should be charged to patent amortization
expense for the year ended Dec. 31, 2015?
a. 32,500
b. 20,000
c. 26,000
d 17,333
PROBLEM 22-4
On January 1, 2015 , Revo Company bought a trademark from Montero Company for p500,000. Revo
retained an independent consultant who estimated the trademark’s life to be indefinite. Its carrying
amount in Montero’s accounting records was P800,000. In Revo’s December 31, 2015 statement of
financial position, what amount should be reported as trademark?
a. 500,000
b. 800,000
c. 450,000
d Nil
PROBLEM 22-5
On June 30, 2015 Dale signed an agreement to operate as a franchise fee of P6,000,000. The same date,
Dale paid P2,000,000 and agreed to pay the balance in four equal annual payments of P1,000,000
beginning July 1, 2016. The down payment is not refundable and no future services are required of the
franchisor. Dale can borrow at 14% for a loan of this type present and future value factors are as follows:
Present value of 1 at 14% for 4 periods 0.59

Future amount of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
Dale should record the acquisition cost of the franchise on June 30, 2015 at
a. 2,910,000
b. 6,000,000
c. 4,360,000
d 4,910,000
PROBLEM 22-6
On January 1, 2012, Jasmin Company signed a 12-year lease for a building. Jasmin has an option to
renew the lease for an additional 6-year period on or before January 1, 2017. During January 2015,
Jasmin made substantial improvements to the building. The cost of the improvements was
P2,250,000,with an estimated useful life of 10 years. At December 31, 2015, Jasmin intended to exercise
the renewal option. Jasmin has taken a full year’s depreciation on this improvement. In the December
31, 2015 statement of financial position, the carrying amount of this leasehold improve amount of this
leasehold improvement should be
a. 2,250,000
b. 2,025,000
c. 2,100,000
d 2,000,000
PROBLEM 22-7
Joy Company engaged your service to compute the goodwill in the purchase of another entity which
provided the following:
Net income Net assets

2013 1,000,000 3,900,000
2014 1,250,000 4,350,000
2015 1,950,000 4,500,000
Goodwill is measured by capitalizing excess earning at 25% with normal return on average net asset at
20%. How much is the purchase price for the other entity?
a. 6,700,000
b. 7,000,000
c. 5,600,000
d 6,450,000
PROBLEM 22-8
During 2015, Zedrick Company incurred cost to develop and produce a computer software product as
follows:
Completion of detailed program design or working model 500,000
Cost incurred for coding and testing to establish technological
feasibility 100,000
Other coding cost after establishment of technological feasibility 1,000,000
Other testing cost after establishment of technological feasibility 750,000
Cost of producing product masters 1,250,000
Duplication of computer software and training materials from
product master 1,500,000
Packaging product 250,000
Questions:
1. In the December 31, 2015 statement of financial position, what amount should be capitalized as
software cost subject to amortization?
a. 3,000,000
b. 3,600,000
c. 4,500,000
d 4,750,000
2. In the December 31, 2015 statement of financial position, what amount should be reported as
inventory?
a. 1,750,000
b. 3,000,000
c. 2,350,000
d 1,500,000
3. Assuming revenue method is used in the amortization and revenue for the year amounted to
P10,000,000 and total expected revenue is P40,000,000, how much is the amortization for the year?
a. 750,000
b. 900,000
c. 1,125,000
d 1,187,500
PROBLEM 22-9
The following cost were incurred by Amalayer Company in developing its website:
Undertaking feasibility studies 80,000

Training employees to operate web site 24,000
Evaluating alternative products and suppliers 60,000
Purchasing and developing hardware 64,000
Obtaining domain name 32,000
Installing developed application on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating purchasing, preparing (e.g. creating links and identifying 60,000
tags), and uploading information
Updating graphics and revising content 32,000
Adding new functions, features and content 12,000
Reviewing security access 36,000
Questions:
Based on the above, compute for the website cost to be included as intangible asset assuming:
1. The website is developed solely or primarily for promoting and advertising an entity’s own products
and services.
a. Nil
b. 424.000
c. 652.000
d 388.000
2. The web site arises from development and is for internal or external access and shall be used for
placing orders and the expenditures can be directly attributed to preparing the web site to operate
in the manner intended by management
a. Nil
b. 424,000
c. 652,000
d 388,000
COMPREHENSIVE PROBLEMS
PROBLEM 22-10
Amalayer Company engaged your services to compute the goodwill and purchase price for the
acquisition of Amalayer Company. The following data are available for the Amalayer Company:
Current assets 6,000,000 Current liabilities 3,500,000
Investments 2,500,000 Noncurrent liabilities 2,500,000
PPE 13,000,000 Ordinary shares 7,000,000
Share premium 1,500,000
_______ Accumulated Profits 7,000,000
Total assets 21,500,000 Total Liab and SHE 21,500,000
You found out that the investments have a fair value of P2,000,000 and the current assets and property,
plant and equipment are understand by P800,000 and P1,850,000. All other and equities are property
stated. An examination of the company’s income for the last 4 years revealed that the total earnings
amounted to P9,000,000. The said earnings include gain on sale during the last of P100,000 and P150
annual bonus of the president. The normal rate of return is 10%
Questions:
Compute for the goodwill and the corresponding, purchase price assuming:
1. Purchase of goodwill for 4 years.
Purchase
Goodwill price
a. 2,440,000 20,090,000
b. 6,100,000 23,750,000
c. 12,037,500 29,687,500
d. 1,852,753 19,502,753
2. Capitalization of average earnings using 8%.
Purchase
Goodwill price
a. 2,440,000 20,090,000
b. 6,100,000 23,750,000
c. 12,037,500 29,687,500
d 1,852,753 19,502,753
3. Capitalization of average earnings using 8%.
Purchase
Goodwill price
a. 2,440,000 20,090,000
b. 6,100,000 29,687,000
c. 12,037,500 23,750,000
d 1,852,753 19,502,753
4. Discounted average excess earning using 12% rate.
Purchase
Goodwill price
a. 2,440,000 20,090,000
b. 6,100,000 23,750,000
c. 1,852,753 19,502,753
d 12,037,500 29,687,500
PROBLEM 22-11
Azon, Inc. reported other noncurrent asset account balances on December 31, 2014, as follows:
Patent 384,000
Accumulated amortization (48,000)
Net patent 336,000
Transactions during 2015 and other information relating to Azon’s other noncurrent assets included the
following:
• The patent was purchased from Ruby Company on January 2, 2013, when the remaining legal life
was 16 years. On January 2, 2015, Azon determined that the remaining useful life of the patent was
only eight years from the date of its acquisition.
• On January 2, 2015, in connection with the purchase of a trademark from Golden Corp., parties
entered into noncompetition agreement. Azon paid Golden P1,600,000, of which three-quarters
related to the trademark and one-quarter reflected Golden’s agreement not to compete for a period
of five years in the line of business covered by the trademark, Azon considers the life of the
trademark to be indefinite.
• On January 3, 2015, Azon acquired all the noncash assets and assumed all liabilities of White
Company at a cash purchase price of P2,400,000. Azon determined that the fair value of the net
asset acquired in the transaction is P1,600,000.
Questions:
Based on the above, determine the following:
1. Amortization expense of Patent in 2015
a. 56,000
b. 48,000
c. 42,000
d none
2. Amortization expense of Trademark in 2015
a. 80,000
b. none
c. 32,000
d 16,000
3. Amortization expenses of Noncompetition agreement in 2015
a. 80,000
b. none
c. 320,000
d 160,000
4. Carrying amount of Goodwill as of December 31, 2015.
a. 800,000
b. 2,400,000
c. 1,600,000
d 720,000
5. Total carrying amount of the intangible assets as of December 31, 2015.
a. 2,600,000
b. 1,800,000
c. 2,608,000
d 2,614,000
PROBLEM 22-12
Julie Co. incurred the following expenditures in establishing its taxi business in a local city:
Date Amount Additional information
May 1, 2015 1,500 General start-up costs
June 30, 2015 7,000 Legal cost directly attributable to the
Acquisition of the taxi licenses
June 30 2015 100,000 Payment to the taxi licensing authority for the
taxi licenses, including P10,000 refundable
purchases taxes
July 1, 2015 100 Printing business cards of the drivers
July 1, 2015 20,000 Payment for an advertisement to be published
Every day for the next 12 months in a local daily
Newspaper
At December 31, 2015, Julie Co. made the following assesstments:
• Economic life of the taxi license: five years from June 30, 2015 ( the date of acquisition)
• Residual value of the taxi licenses: Nil
• The entity expects to consume the taxi licenses’ future economic benefits evenly five years from the
date of acquisition.
• There is no indication that the taxi licenses might be impaired: The taxi drivers own their own
vehicles which they operate under Julie Co.’s taxi licenses.
Questions:
Based on the above, compute for the following:
1. Cost of intangible assets at initial recognition
a. 7,000
b. 107,000
c. 90,000
d 97,000
2. Amortization in 2015
a. 700
b. 9,000
c. 9,700
d 10,700
3. Carrying amount of intangible assets as of December 31, 2015
a. 6,300
b. 96,300
c. 87,300
d 81,000
4. Total expenses in 2015 relating to establishment of taxi business
a. 11,200
b. 21,300
c. 32,300
d 112,300
5. Carrying amount of intangible assets as of December 31, 2016

a. 4,900
b. 74,900
c. 63,000
d 67,900
PROBLEM 22-13
As part of your engagement to audit the financial statements of the Rex Company, you found the
following patent account:
Patent
1/12011
1/12013
1/12014
1/12015 1,040,000 12/31/2015
• The balance on January 1, 2011 reflects the amount debited to the account when it acquired a
patent from unrelated company for P500,000. Rex estimates that the patent has a remaining useful
of 10 years.
• On January 1, 2013, Rex Co. debited the patent account when it acquired a competitive patent from
Dauz Corp. for P224,000 in order to protect the old patent. The competitive patent has a remaining
legal life and useful life of 16 years.
• On January 1, 2014, Rex Co. debited the patent account when it acquired a related patent from
Banggawan Corp. for P200,000. The related patent extend the useful life of the old and competitive
patent to 20 years.
• On January 1, 2015, Rex Co. debited the patent account when it incurred litigation cost of P100,000
in an unsuccessful defense of the patents held.
• No amortization has yet been recognized by the company.
Questions:
1. Amortization 2011
a. None
b. 25,000
c. 50,000
d 75,000
a. None
b. 25,000
c. 50,000
d 80,000
3. Carrying value of the patent, December 31, 2013
a. 715,000
b. 715,000
c. 690,000
d 560,000
a. 38,000
b. 25,000
c. 50,000
d 80,000
5. Loss on Patent written off in 2015
a. 722,000
b. 760,000
c. 710,000
d 680,000
PROBLEM 22-14
As part of your engagement to audit the financial statement of the NCPAR Company, you found the
following Intangible asset account:
Intangible Asset
1/1/2013 600,000
1/1/2014 300,000
1/1/2015 1,000,000 1,900,000 12/13/2015
• The amount debited to the intangible asset account on January 1, 2013 represent the purchase price
of the trademark from unrelated company. Other related cost incurred which was charged to
expense included the following:
Selling cost incurred for the product it manufactured under the
Trademark 25,000
Cost of employee benefits arising directly from bringing the asset
to its intended condition 60,000
Professional fees arising from bringing the asset to its
intended condition 13,000
Cost of introducing the new product including advertisement
cost 9,000
The trademark can be renewed indefinitely.
• The amount debited to the intangible asset account on January 1, 2014 represents the purchase
price of a customer list acquired from a well-known distributor of books for P300,000. NCPAR
expects to benefit from the information evenly over a 5-year period.
• The amount debited to the intangible asset account on January 1, 2015 represent the purchase price
of a franchise from Rex Co. NCPAR Co. paid P400,000 and issued a P600,000 note payable on
December 31,2017. Interest implicit on the note is 12%. The franchise gives NCPAR the right to sell
Rex’s products until December 31, 2019, and is renewable for additional 5 years. In January 2015 is
P100,000. As of December 31, 2015, no decision as to renewable has been made by the company.
• No amortization has yet been recognized by the company.
Questions:
1. Cost of the Intangible asset on January 1, 2013
a. 600,000
b. 625,000
c. 673,000
d 707,000
a. None
b. 31,250
c. 33,650
d 35,350
a. None
b. 60,000
c. 91,250
d 93,650
a. 225,416
b. 335,693
c. 256,666
d 369,343
5. Carrying value of the Intangible asset, 12/31/2015
a. 1,514,664
b. 1,473,057
c. 1,518,434
d 1,508,657
PROBLEM 22-15
You noted the following related to the company’s Intangible assets in connection with your audit of the
Paete Corporation’s financial statement for the year 2015:
• Paete, Inc. was organized in 2014 and began operations on January 1 , 2015. Prior to the start of
operation, the following cost were incurred by the corporation:
Attorney’s fees for incorporation 120,000

Incorporation filing fees with the securities &
Exchange Commission 20,000
• On January 2, 2015, the company developed a trademark to distinguish its products from those of its
competitors. The following items are being treated as part of the cost of the trademark:
Marketing research to study consumer tastes 800,000

Design cost of trademark 3,000,000
Legal fees of registering trademark 300,000
Advertising to establish recognition of trademark 400,000
Registration fee with Patent Office 100,000
Through renewals, the trademark is expected to have an unlimited life.
• On January 3,2015, Paete signed an agreement to operate as a franchise for 20 years of Can
Company for an initial franchise fee of P1,200,000. On the same date, Paete paid P400,000 and
agreed to pay the balance in four equal annual payments starting January 1, 2016. The down
payment is not refundable and no future services are required of the franchisor. Paete can borrow at
% for a loan of this type. Present and future value factor are as follows:
Present value of 1 at 14% for 4 periods 0.59

Future amount of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at
14% for 4 periods 2.91
Questions:
Based on the above, compute the following:
1. How much is the carrying value of the organization cost on December 31, 2015 statement of
financial position?
a. Nil
b. 133,000
c. 140,000
d 120,000
2. How much is the correct cost of trademark?
a. 3,300,000
b. 3,400,000
c. 400,000
d 4,500,000
3. How much should Paete record as acquisition cost of the franchise on January 3, 2015?
a. 872,000
b. 982,000
c. 1,352,000
d 882,000
4. How much is the carrying value of the franchise on December 31, 2015?
a. 932,900
b. 872,000
c. 834,700
d 940,100
5. How much amortization should Paete record the year ended December 31, 2015?
a. 43,600
b. 49,100
c. 105,200
d 460,000
PROBLEM 22-16
San Fernando Manufacturing Corporation was incorporated on January 3, 2014. The corporation’s
financial statements for its first year’s operations were not examined by a CPA. You have been engage to
examine the financial statements for the year ended December 31, 2015, and your examination is
substantially completed. The corporation’s unadjusted trial balance as follows:
SAN FERNANDO MANUFACTURING CORPORATION
Unadjusted Trial Balance
December 31, 2015
Cash 22,000
Accounts receivable 137,000
Allowance for doubtful accounts 1,000
Inventories 77,000
Machinery 150,000
Equipment 58,000
Patents 204,000
Prepaid expenses 21,000
Organization cost 58,000
Goodwill 48,000
Licensing agreement 1 100,000
Licensing agreement 2 118,000
Accounts payable 295,000
Unearned revenue 25,000
Share capital 634,000
Retained earnings, 1/1/2015 34,000
Sales revenue 1,337,000
Cost of goods sold 908,000
Selling and general expenses 346,000
Interest expense 7,000
Loss on typhoon 24,000
Totals 2,312,000 2,312,000
The following information relates to accounts that may still require adjustment:
• Patent for San Fernando’ manufacturing process were acquired January 2, 2015 for P136,000. An
additional P68,000 was spent in December 2015 to improve machinery covered by the patents and
was debited to the patents account. Depreciation on operational asset has been properly recorded
for 2015 in accordance with San Fernando’s practice, which provides a full year’s depreciation for
property on hand June 30 and no depreciation otherwise. San Fernando uses the straight-line
method for all depreciation and amortization.
• The balance in the organization cost account includes cost incurred during the organization period.
No amortization has yet been recorded.
• On January 3, 2014, San Fernando purchased Licensing Agreement 1, which was believed to have a
20-year useful life. The balance in the licensing Agreement 1 account includes its purchase price of
P96, 000 and cost of P4,000 related the acquisition.
• On January 1, 2015, San Fernando bought licensing Agreement 2, which has a life expectancy of 10
years. The balance in the Licensing Agreement 2 account includes the P116,000 purchase price and
P4,000 in acquisition cost, but it has been reduced by a credit of P2,000 for the advance collection of
2015 revenue from the agreement. No amortization on agreement 2 has been recorded.,
• At the end of 2015, an explosion caused a permanent 60 percent reduction in the expected revenue-
producing value of licensing agreement 1. No entry has been made during 2014 or 2015 for
amortization or for the explosion in 2015.
• The balance in the goodwill account includes (1) P16,000 paid December 30, 2014, for an advertising
program that management believes will assist in increasing San Fernando’s sale over a period of
three to five years following the disbursement and (2) legal expenses of P32,000 incurred for San
Fernando’s incorporation on January 3, 2014. No amortization has ever been recorded on the
goodwill.
Questions:
Based on the above and the result of your audit, compute the following:
1. The carrying amount of patent, 12/31/2015.
a. 204,000
b. 136,000
c. 129,200
d 193,800
2. The carrying amount of licensing agreement No. 1, 12/31/2015.

a. Nil
b. 36,000
c. 90,000
d 59,000
3. The carrying amount of licensing agreement No. 2, 12/31/2015.
a. 120,000
b. 106,200
c. 108,000
d 118,000
4. The total carrying value of the intangible asset, 12/31/2015.
a. 459,800
b. 360,000
c. 273,200
d 441,000
5. The total adjustment to retained earnings on January 1, 2015, as a result of the above prior periods
error.
a. 111,000 debit
b.
c.
d

PROBLEM 15-9 Impairment of Financial Asset at Amortize Cost

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PROBLEM 15-9 Impairment of Financial Asset at Amortize Cost

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PROBLEM 15-9 Impairment of Financial asset at Amortize cost

Based on the above data, answer the following:

PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized Cost

Date Particular Debit Credit Balance Debit

2. The gain (or loss) on sale of bonds on March 1 2014.

Fair value through other comprehensive income securities:

12&, 5,000,000 face value, Genesis bonds,

The following transaction occurred:

10% cumulative preference share capital 1,000,000

Passing Rate Kababain

During 2016, Aud Prob disposed of the following securities:

January 18 Sold 2,500 shares of Ocampo for P13 per share

Purchase price including VAT 1,568,000

Determine the cost of the machinery

Purchase Price P 925,000

Draining cost and filling the land. 33,000

Additional cost incurred follow:

Commissions paid to brokers 80,000

Freight and insurance 15,000

The account was paid on January 10,2015.

How much is the cost of the equipment?

Installation Cost 50,000

How much is the cost of the equipment?

Based on the above data, answer the following:

Demolition of existing building on site 75,000

January 1, 2015 200,000

How much is the capitalizable borrowing cost?

Down payment 30,000

2014: 16,000 units 2015: 30,000 units

Cash paid on the purchase of land P2,500,000

5 The total cost of the depreciable property, plant and equipment

5. The total cost of the new building in 2015

Plans, specification, and blueprints 42,000

Principal Borrowing cost

Expenditure on the project were as follow:

Depreciation is computed to the nearest month.

Methods of depreciation and other data:

Property, plant and equipment:

Office equipment 330,000

5. Book value of the office equipment on December 31, 2016

Date Accumulated Depreciation Debit Credit

2. The gain or loss on exchange on June 30

December 31, 2015 Cost Accumulated Depreciation

Depreciation Method Useful Life

Actual units extracted during 2015 are 500,000 units.

Actual units extracted during 2015 are 500,000 units.

Mineral deposit, at cost 20,000,000

Question: (Please carry over all decimal places in the computation)

Questions: (Please carry over all decimal places in the computation)

4. How much is the 2015 depreciation of the immovable equipment?

Present value of 1 at 14% for 4 periods 0.59

Net income Net assets

Undertaking feasibility studies 80,000

5. Carrying amount of intangible assets as of December 31, 2016

Attorney’s fees for incorporation 120,000

Marketing research to study consumer tastes 800,000

Through renewals, the trademark is expected to have an unlimited life.

Present value of 1 at 14% for 4 periods 0.59

2. The carrying amount of licensing agreement No. 1, 12/31/2015.

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