Intacc Finals

CHAPTER 23
PROPERTY, PLANT AND EQUIPMENT

Problem 23-1 (IAA)
Erica Company had the following property acquisitio during the current year:
1. Acquired a tract of land in exchange for 50,000 ordinary shares with

P100 par value and market price of P120 per share on the date of
acquisition.
The last property tax bill indicated assessed value of P4,500,000 for
the land.
2. Received land from a major shareholder as an inducement to locate a
plant in the city.
No payment was required but the entity paid P50,000 for legal
expenses for land transfer. The land is fairly valued at P1,000,000.
3. Purchased for P5,500,000, including appraiser fee of P100,000 a
warehouse building and the land on which it is located.
The land had an appraised value of P2,000,000 and original cost of
P1,400,000. The building had an appraised value of P3,000,000 and
original cost of P2,500,000.
4. Purchased an office building and the land on which it is located for
P7,500,000 cash and assumed an existing P2,500,000 mortgage.
For realty tax purposes, the property is assessed at P9,600,000, 60% of
which is allocated to building.
Required: Prepare journal entries to record the transactions for the current
year.
Problem 23-2 (ACP)
Credulous Company purchased equipment on January 1, 2020 under the
following terms:
a. P200,000 downpayment
b. Five annual payments of P100,000, the first installmentnote to be paid on
December 31, 2020.
The same equipment was available at a cash price of P580,000.
Required: Prepare journal entries for 2020 and 2021.

Problem 23-3 (ACP)
On January 1, 2020, Enrich Company purchased a machine under the
following terms:
a. P100,000 downpayment
b. Four annual payments of P200,000, the first installment note to be paid on
December 31, 2020.
The fair value of the machine is not clearly determinable on the date of
acquisition.
The prevailing rate of interest for this type of obligation is 10%. The present
value factors at 10% for four periods are:
Present value of 1 .683
Present value of ordinary annuity of 1 3.170
Required: Prepare journal entries for 2020 and 2021.
Problem 23-4 (IAA)

Anson Company had the following machinery during the year:
1. Acquired a machine with an invoice price of P3,000,000 subject to a cash
discount of 10% which was not taken.
The entity incurred a cost of P50,000 in removing the ol machine prior to the
installation of the new one supplies were acquired at a cost of P150,000.
2. During the early part of current year, the entity purchased a machine for
P500,000 down and four-month installments of P1,250,000. The cash price of
the machine was P4,700,000
3. At the beginning of current year, the entity purchased a machine for
P2,000,000 in exchange for a noninterest-bearing note requiring four
payments of P500,000. The first payment was made at the end of current
year.
The implicit rate of interest for this note at date of issuance was 10%. The
present value of an ordinary annuity of 1 at 10% is 3.17 for four periods.
The present value of an annuity of 1 in advance at 10% 18 3.49 for four
periods.
4. At the beginning of current year, the entity acquired machine by issuing a

four-year, noninterest-bearing for P2,000,000
The entity has an implicit 10% interest for the ty note. The present value of 1
at 10% for 4 years is 0.68.
Required: Prepare journal entries to record the machinery acquisition and

related interest.
Problem 23-5 (IAA)
1. Nutty Company made the following individual cash purchases:
Land and building 6,000,000
Machinery and office equipment 1,800,000
Delivery equipment 500,000
An appraisal disclosed the following fair value:

Land 1,000,000
Building 3,000,000
Machinery 800,000
Office equipment 400,000
Delivery equipment 350,000
2. Nutty Company acquired the assets of another entity with

the following fair value:
Land 1,000,000
Building 5,000,000
Machinery 2,000,000
The entity issued 60,000 shares with P100 par value in exchange. The share
had a quoted price of P150 on the date of purchase of the property.
3. Received a parcel of land located in Davao City from a philanthropist as an

inducement to locate a plant in the city. The land has a fair value of
P1,500,000.
4. The entity paid cash for machinery, P900,000 subject to 2% cash discount,
and freight on machinery, P35,000.
5. The entity acquired furniture and fixtures by issuing a P400.000 two-year
noninterest-bearing note. In similar transactions, the entity has paid 12%
interest. The present value of 1 at 12% for 2 years is .797, and the present
value of an annuity of 1 at 12% for 2 years is 1.69.
Required: Prepare journal entries to record the transactions.
Problem 23-6 (AICPA Adapted)

Cherish Company provided the following transactions:
1. Exchanged a car from inventory for a computer to be used as a long-term

asset.
Carrying amount of the car 300,000

Listed selling price of the car 450,000
Fair value of the computer 430,000
Cash difference paid by Cherish Company 50,000
2. Exchanged an old packaging machine which cost P240.000

and was 50% depreciated, for new machine and paid a cash difference of
P30,000.
The fair value of the old packaging machine is determined to be P110,000

and the list price of the new machine is P150,000.
3. Exchanged an old equipment costing P3,000,000 with

accumulated depreciation of P1,800,000 and fair value of P1,000,000 for
another used equipment with fair value of P1,200,000. The exchange is
nonmonetary.
Required: Prepare journal entries to record the transactions.
Problem 23-7 (ACP)

Smile Company exchanged used equipment for ano equipment of Frown
Company. The following informar pertains to the exchange:
SMILE FROWN
Equipment 2,400,000 2,200,000
Accumulated depreciation 2,000,000 1,750,000
Fair value of equipment 500,000 500,000
Required: Prepare journal entry on the book of entry of Smile and Frown.

Lecherous Company traded a used equipment for a newer model with a
dealer.
Old equipment:
Original cost 1,000,000
Accumulated depreciation 600,000
Fair value - unknown
New equipment:
List price 1,600,000
Cash price without trade in 1,400,000
Cash payment with trade in 980,000
Required: Prepare journal entry to record the exchange transaction.
Problem 23-9 (IAA)

Mellow Company acquired a delivery truck, making payment of P2,680,000,
the payment being analyzed as follows:
Price of truck 2,500,000

Charge for extra equipment 50,000
Value added tax 300,000
Insurance for one year 120,000
Motor vehiole registration 10,0000
Total 2, 980,000
Less: Trade in value allowed on old truck 300,000
Cash paid 2, 680,000
The old truck cost P1,500,000 and has a carrying amount of P200,000, and
fair value of P50,000. The value added tax is refundable or recoverable.
Required: Prepare journal entry to record the exchange transaction.

Problem 23-10 (IAA)
Gratitude Company provided the following information relation to the
construction of a building during the year
TOTAL FINISHED GOODS BUILDING

DIRECT LABOR 6,000,000 4,200,000 1,800,000
MATERIALS 7,200,000 3,000,000 4,000,000
OVERHEAD 2,000,000 ? ?
The following assumptions are made:

1. No overhead is to be assigned to the building.
2. Normal production of finished goods is 180,000 units
Because of the construction of the building, finished goods production

totaled only 135,000 units. The building is to be charged with the overhead
which would have been charged to the 45,000 units which were not
produced.
3. Overhead is to be apportioned in the ratio of direct labor.
Required: Compute the cost of finished goods and building
Problem 23-11 (IAA)

Acrophobia Company summarized the following manufacturing and
construction activities for 2020:
FINISHED GOODS BUILDING

MATERIALS 3,000,000 500,000
DIRECT LABOR 4,000,000 1,000,000
Overhead for the prior year was 75% of the direct labor cost
Overhead in 2020 related to both product manufacture an construction
activities amounted to P3,600,000.
Required:
a. Calculate the cost of the machinery, assuming manufacturing activities
are to be charged with over at the rate experienced in the prior year.
b. Calculate the cost of the machinery if manufacturing construction
activities are to be charged with overhea the same rate.
Problem 23-12 (IAA)
During the year, Storm Company purchased a new machine. A P120.000
down payment was made and three monthly P1,160,000. installments of
P360,000. The cash price would have been The entity paid no installation
charges under the monthly payment plan but a P20,000 installation charge
would have been incurred with a cash purchase.
What amount should be capitalized as cost of the machine?

a. 1,220,000
b. 1,200,000
c. 1,180,000
d. 1,160,000

Grey Company acquired a machine with a cash price of P2,000,000. Down
payment 400,000 Note payable in 3 equal annual installments 1,200,000
20,000 shares of Grey Company at fair value 800,000 Prior to use,
installation cost of P50,000 was incurred. The machine has a residual value
of P100,000.
DOWNPAYMENT 400,000
NOTE PAYABLE IN 3 EQUAL ANNUAL INSTALLMENTS 1,200,000
20,000 SHARES OF GREY COMPANY AT FAIR VALUE 800,000
What is the initial measurement of the new machine?

a. 2,000,000
b. 2,400,000
c. 2,050,000
d. 2,450,000
Problem 23-14 (IAA)
Corner Company puchased a van with a list price of P3,000,000. The dealer
granted a 15% reduction in list price and an additional 10% cash discount on
the net price if payment is made in 30 days. Irrecoverable taxes amounted to
P40,000 and the entity paid an extra P30,000 to have a special horn
installed.
What amount should be recorded as initial cost of the van?

a. 2,550,000
b. 2,335,500
c. 2,365,000
d. 2,325,000
On December 31, 2020, Bart Company purchased a machine in exchange for

a noninterest bearing note requiring eight payments of P200,000.
The first payment was made on December 31, 2020 and the others are due
annually on December 31.
At date of issuance, the prevailing rate of interest for this type of note was
11%. PV of an ordinary annuity of 1 at 11% for 8 periods 5.146
PV of an annuity of 1 in advance at 11% for 8 periods 5.712
1. What amount should be recorded as initial cost of the machine?
a. 1,600,000
b. 1,029,200
c. 1,400,000
d. 1,142,400
2. What is the discount on note payable on December 31, 2020?

a. 657,600
b. 457,600
c. 570,800
d. 0
3. What is the interest expense for 2021?

a. 125,664
b. 103,664
c. 113,212
d. 176,000
4. What is the carrying amount of note payable on December 31, 2021?

a. 942,400
b. 846,064
c. 742,400
d. 742,412
Problem 23-16 (IAA)

At the beginning of current year, Allison Company purchased a new machine
on a deferred payment basis.
A down payment of P200,000 was made and four annual installments of

P600,000 each are to be made every year-end. The cash equivalent price of
the machine was P2,300,000.
Due to an employee strike, the entity could not install the machine
immediately and thus incurred P30,000 of storage cost. Cost of installation
excluding the storage cost amounted to P80,000.
What is the initial amount to be capitalized as the cost of the machine?

a. 2,300,000
b. 2,380,000
c. 2,410,000
d. 2,600,000
Problem 23-17 (IAA)
Lax Company recently acquired two items of equipment.
* Acquired a press at an invoice price of P3,000,000
subject to a 5% cash discount which was taken. Costs of freight and
insurance during shipment were P50,000 and installation cost amounted to
P200,000.
* Acquired a welding machine at an invoice price of P2,000,000 subject to a
10% cash discount which was not taken. Additional welding supplies were
acquired at a cost of
P100,000.
What is the total increase in the equipment account as a result of the
transactions?
a. 4,900,000
b. 5,000,000
c. 5,100,000
d. 5,200,000

At the beginning of the current year, Hallmark Co exchanged an old
packaging machine, which cost P13 and was 50% depreciated, for a used
machine and paid difference of P160,000.
The fair value of the old packaging machine was determined to be P700,000.
1. What is the cost of the new asset acquired?
a. 700,000
b. 860,000
c. 660,000
d. 600,000
2. What is the gain on exchange?

a. 540,000
b. 100,000
c. 60,000
d. 0

At the beginning of the current year, Junk Company traded in an old machine
having a carrying amount of P1,680,000 and paid a cash difference of
P600,000 for a new machine with a cash price of P2,050,000.
1. What is the cost of the machine acquired in exchange.
a. 1,680,000
b. 2,050,000
c. 1,450,000
d. 1,080,000
2. What amount of loss should be recognized on

exchange?
a. 600,000
b. 230,000
c. 370,000
d. 0

Amiable Company exchanged a truck with a carrying amount of P1,200,000
and a fair value of P2,000,000 for a truck and P200,000 cash. The fair value
of the truck received was P1,800,000.
The cash flows from the new truck are not expected to be significantly
different from the cash flows of the old truck.
1. At what amount should the truck received in the

exchange be recorded?
a. 2,000,000
b. 1,400,000
c. 1,000,000
d. 1,800,000

a. 800,000
b. 600,000
c. 200,000
d. 0

During the current year, Lethal Company paid P100,000 and exchanged
inventory which has a carrying amount of P2,000,000 and a fair value of
P2,100,000 for other inventory in the same line of business with fair value of
P2,200,000.
1. What is the initial measurement of the new inventory received in

exchange?
a. 2,000,000
b. 2,100,000
c. 2,200,000
d. 2,300,000

a. 100,000
b. 200,000
c. 300,000
d. 0

Yola Company and Zaro Company are fuel oil distributors. To facilitate the
delivery of oil to their customers. Company and Zaro Company exchanged
ownership of 12 barrels of oil without physically moving the oil.
Yola Company paid Zaro Company P300,000 to compensata for a difference

in the grade of oil.
The configuration of cash flows from the asset received not expected to be
significantly different from the configuration of the cash flows of the asset
exchanged.
On the date of exchange, cost and market value of the oil were as follows:
YOLA COMPANY ZARO COMPANY
Cost 1,000,000 1,400,000
Market Value 1,200,000 1,500,000
1. What is initial measurement of the oil inventory received

in exchange by Yola Company?
a. 1,000,000
b. 1,200,000
c. 1,300,000
d. 1,500,000
2. What is the initial measurement of the oil inventory

received in exchange by Zaro Company?
a. 1,400,000
b. 1,500,000
c. 1,100,000
d. 1,200,000
Problem 23-23 Multiple choice (PAS 16)
1. Which is not a characteristic of property, plant and equipment?

a. The property, plant and equipment are tangible assets.
b. The property, plant and equipment are used in business.
c. The property, plant and equipment are expected to be
used over a period of more than one year.
d. The property, plant and equipment are subject to depreciation.
2. What valuation model should an entity use to neasure property, plant and
equipment?
a. The revaluation model or the fair value model
b. The cost model or the revaluation model
c. The cost model or the fair value through OCI
d. The cost model or the fair value model
3. The cost of property, plant and equipment comprises all of the following,
except
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Any cost directly attributable in bringing the asset to
the location and condition for the intended use
d. Initial estimate of the cost of dismantling the asset for which the entity has
no present obligation.
4. Costs directly attributable to the asset include all, except

a. Initial operating loss
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
5. Which cost should be expensed immediately?

a. Cost of opening a new facility
b. Cost of introducing a new product or service, including cost of advertising
and promotional activities
c. Cost of conducting business in a new location
d. All of these are expensed immediately
Problem 23-24 Multiple choice (IAA)
1. A nonmonetary exchange is recognized at fair value asset exchanged

unless
a. Exchange has commercial substance
b. Fair value is not determinable
c. The assets are similar in nature
d. The assets are dissimilar
2. In an exchange with commercial substance

a. Gain or loss is recognized entirely.
b. Gain or loss is not recognized.
c. Only gain should be recognized.
d. Only loss should be recognized.
3. The cost of property, plant and equipment acquired in an exchange is

measured at the
a. Fair value of the asset given plus cash payment.
b. Fair value of the asset received plus cash payment.
c. Carrying amount of the asset given plus cash payment.
d. Carrying amount of the asset received plus the cash payment.
4. Which exchange has commercial substance?

a. Exchange of assets with no difference in future cash flows.
B. Exchange by entities in the same line of business.
C. Exchange of assets with difference in future cash flows.
d. Exchange of assets that causes the entities to remain essentially the same
economic position.
5. For a nonmonetary exchange, the configuration of cashflow includes which

of the following?
a. The implicit rate, maturity date of loan and amous loan
b. The risk, timing and amount of cash flows of the assets
c. The entity-specific value of the asset
d. The estimated present value of the assets exchange
Problem 23-25 Multiple choice (AICPA Adapted)

1. When property is acquired by issuing equity shares, which of the following
is the best basis for establishing the historical cost of the acquired asset?
a. Historical cost of the asset to the seller
B. Historical cost of a similar asset
c. Fair value of the asset received
d. Fair value of shares issued
2. When a plant asset is acquired by deferred payment, which condition

generally does not indicate the need to consider the imputation of interest?
a. The interest rate stated on the deferred obligation is
significantly different from market interest rate.
b. The cash price of the plant asset is significantly different
from the deferred obligation.
c. The instrument representing the deferred obligation is noninterest bearing.
d. The face amount of the deferred obligation is equal to the fair value of the
plant asset exchanged.
3. If the present value of a note issued in exchange for a plant asset is less
than the face amount, the difference is
a. Included in the cost of the asset
b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance
4. An entity purchased a machinery that it does not have to pay until after
three years. The total payment on maturity will include both principal and
interest. The cost of the machine would be the total payment multiplied by
what time value of money concept?
a. Present value of annuity of 1
b. Present value of 1
C. Future amount of annuity of 1
d. Future amount of 1
CHAPTER 26
LAND, BUILDING AND MACHINERY
Capital and Revenue Expenditure
Problem 26-1
At the beginning of current year, Bastard Company sed for P4,500,000 a
tract of land as a factory site.
An existing building on the property was razed and ruction began on a new
factory building which was completed at year-end.
Cost of razing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
1. What is the cost of factory building?

a. 9,250,000
b. 9,450,000
c. 8,950,000
d. 9,150,000
2. What is the cost of the land?

a. 4,700,000
b. 5,000,000
c. 4,500,000
d. 4,800,000
Chameleon Company purchased a P4,000,000 tract of land as a factory site.
The entity razed an old building on the property and sold the materials it
salvaged from the demolition.
Demolition of old building 200,000
Legal fees for purchase contract and recording title 150,000
Title guarantee insurance 50,000
Proceeds from sale of salvaged materials 20,000
What is the initial carrying amount of land?

a. 4,200,000
b. 4,150,000
c. 4,050,000
d, 4,400,000

During the current year, Dauntless Company had the following transactions
pertaining to the new office building;
Purchase price of land as a building site 600,000

Legal fees for contract to purchase land 20,000
Sale of scrap from old building 30,000
Construction cost of new building 3,500,000
1. What amount should be reported for land?

a. 600,000
b. 620,000
c. 640,000
d. 670,000
2. What amount should be reported for building?

a. 3,520,000
b. 3,600,000
c. 3,500,000
d. 3,620,000
Problem 26-4 (IAA)
At the beginning of current year, Newman Company purchased a parcel of
land as a factory site for P1,000,000. An old building on the property was
demolished and construction began on a new building which was completed
at year-end.

Legal fee for title investigation and purchase contract 25,000
Construction cost 5,450,000
Salvaged materials resulting from demolition 50,000
What amount should be recorded as cost of building?

a. 5,675,000
b. 5,650,000
c. 5,625,000
d. 5,725,000
Problem 26-5 (IAA)

Nicko Company purchased a tract of land as a factory site. An old building
was demolished and construction began on the new building.
Purchase price of land and an old building 4,500,000

Fair value of old building 250,000
Cost of demolishing old building 300,000
Title insurance and legal fees to purchase land 200,000
New building construction cost 8,000,000
Survey before construction 100,000
Building permit or payment to city hall for approval of building
construction150,000
Excavation before new construction 200,000
Liability insurance during construction 100,000
New fence surrounding the new building 100,000
Driveway, parking bay and safety lighting 550,000
Cost of trees, shrubs and other landscaping 300,000
Cost of lighting and signage 100,000
1. What is the cost of the land?

a. 4,550,000
b. 4,800,000
c. 4,850,000
d. 4,450,000
2. What is the cost of the new building?

a. 9,700,000
b. 9,750,000
c. 9,800,000
d. 9,950,000
3. What is the cost of land improvements?

a. 950,000
b. 650,000
c. 850,000
d. 400,000
Problem 26-6 (IAA)

Enchantment Company incurred the following expenditures related to land
and building:
Cash paid for land and dilapidated building 1,000,000
Removal of old building to make room for construction of a new building
50,000
Payment to tenants for vacating old building 15,000
Architect fee for new building 200,000
Building permit for new construction 30,000
Fee for title search 10,000
Survey before construction of new building 20,000
Excavation before new construction 100,000
New building constructed 6,000,000
Assessment by city for drainage project 5,000
Cost of grading, leveling and landfill 45,000
Driveways and walks to new building from street (part of building plan)
40,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 60,000
Cost of changes during construction to take new building more
energy efficient 50,000
Cost of windows broken by vandals 25,000
1. What is the cost of land?
a. 1,145,000
b. 1,215,000
c. 1,130,000
d. 1,080,000
2. What is the cost of new building?

a. 6,625,000
b. 6,575,000
c. 6,585,000
d. 6,560,000
Problem 26-7 (IAA)

Facetious Company incurred the following expenditures related to the
construction of a new home office:
Purchase price of land and an old apartment building 2,000,000
fair value of land 1,800,000
Legal fees, including fee for title search 10,000
Payment of land mortgage and related interest due at time of sale 50,000
perment of delinquent property taxes assumed 20,000
Cost of razing the apartment building 30,000
Grading and drainage on land site 15,000
Architect fee on new building 200,000
Payment to building contractor 8,000,000
interest cost on specific borrowing during construction 300,000
Payment of medical bills of employees accidentally injured while inspecting
building construction 10,000
Cost of paving driveway and parking lot 40,000
Cast of trees, shrubs and other landscaping 55,000
Cast of installing lights in parking lot 5,000
Premium for insurance on building during construction 25,000
Cost of open house party to celebrate opening of building 60,000
a. 2,120,000
b. 1,920,000
c. 1,895,000
d. 1,845,000

a. 8,555,000
b. 8,525,000
c. 8,540,000
d. 8,530,000
3. What is the cost of land improvement?

a. 300,000
b. 115,000
c. 100,000
d. 0
Problem 26-8 (IAA)

Generic Company purchased land for P2,000,000 as a plant site There was a
small office building on the land with fair value of P700,000 which the entity
will continue to use with some modification and renovation.
The entity decided to construct a factory building and incurred the following
costs:
Materials and supplies 3,000,000

Excavation 100,000
Labor on construction 2,500,000
Cost of remodeling old office building 200,000
Imputed interest on corporation's own money used during construction
120,000
Cash discounts on materials purchased 60,000
Supervision by management during construction 70,000
Compensation insurance premiums for workers 20,000
Payment of claim for injuries not covered by insurance 25,000
Clerical and other expenses during construction 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 140,000
Legal cost of conveying land 10,000
Legal cost of injury claims 15,000
Saving on construction 200,000

a. 1,310,000
b. 1,300,000
c. 1,350,000
d. 1,410,000
2. What is the cost of office building?

a. 700,000
b. 900,000
c. 950,000
d. 850,000
3. What is the cost of factory building?

a. 5,720,000
b. 5,800,000
c. 5,920,000
d. 5,600,000
At the beginning of current year, Melancholy Company reported the following
property, plant and equipment:
Land 3,500,000
Land improvements 900,000
Building 6,000,000
Equipment 1,500,000
The following transactions occurred during the current year:

• A tract of land was acquired for P1,250,000
and intended definitely for use as future building site
• A plant facility consisting of land and building was
acquired from another entity in exchange for 100,000 Melancholy Company
shares.
On the acquisition date, the share had a closing market price of P45 on a
stock exchange.
The plant facility was carried at P1,000,000 for land and P3,000,000 for the
building at the exchange date.
Current appraised values for the land and building.
respectively, are P1,200,000 and P2,400,000.
• Expenditures totaling P750,000 were made in early part of the year for new
parking lot, street and sidewalk at the entity's various plant locations. These
expenditures had an estimated useful life of fifteen years.
• Equipment was purchased at a cost of P3,000,000. Freight and unloading
charge of P50,000, and installation cost of P350,000 were incurred.
• At the middle of the current year, an equipment was sold for P175,000. The
original cost of the equipment acquired two years ago was P500,000 The
equipment was depreciated on the straight line basis over an estimated
useful life of five years and no residual value.
1. What is total cost of land at year-end?

a. 6,250,000
b. 5,950,000
c. 5,750,000
d. 9,250,000
2. What is the total cost of building at year-end?

a. 8,400,000
b. 9,000,000
c. 8,250,000
d. 8,500,000
3. What is the total cost of land improvements at year-end?

a. 1,650,000
b. 900,000
C. 750,000
d. 800,000
4. What is the total cost of equipment at year-end?

a. 4,600,000
b. 3,400,000
c. 4,900,000
d. 4,400,000

At the beginning of the current year, Rock Company reported the following
balances:
Land 2,200,000
Building 6,500,000
During the current year, the following transactions occurred:
• A piece of land was acquired for P1,600,000.

To be able to acquire the land, P175,000 was paid to a real estate agent, and
P50,000 was incurred to clear the Land
During the course of clearing the land, timber and gravel were recovered and
sold for P25,000.
• A second piece of land with a building was acquired for P4,500,000
The appraiser valued the land at P2,000,000 and the
building at P1,000,000.
Shortly after acquisition, the building was demolished at a cost of P100,000
A new building was constructed at a cost of P5,000,000 plus excavation fee
P50,000, architect fee P80,000 and building permit P70,000.
• A third piece of land was acquired for P2,000,000 and was held for
undetermined use.
1. What total cost of land should be reported in the statement of financial

position under property, plant and equipment?
a. 8,500,000
b. 7,000,000
c. 7,100,000
d. 8,600,000

a. 5,200,000
b. 5,300,000
c. 6,800,000
d. 6,700,000
Problem 26-11 (IAA)
Paragon Company incurred the following costs during the current year in
relation to property, plant and equipment:
Cash paid for purchase of land 2,500,000

Mortgage assumed on the land purchased, including interest accrued
1,000,000
Realtor 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 the land to make room for
construction of new building 200,000
Salvage value of the old building demolished 50,000
Cost of fencing the property after completion 110,000
Amount paid to the contractor for the building constructed 5,000,000
Building permit fee 50,000
Excacation 50,000
Interest that would have been earned had the money used during the period
of construction been invested 150,000
Invoice cost of machine acquired 2,000,000
Freight, unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation, paid to foreign technicians during
installation and test run of machine 400,000
1. What amount should be capitalized as cost of land?

a. 3,950,000
b. 4,100,000
c. 3,850,000
d. 3,800,000
2. What amount should be capitalized as cost of building?
a. 5,300,000
b. 5,410,000
c. 5,450,000
d. 5,560,000
3. What amount should be capitalized as cost of machine?

a. 2,600,000
b. 2,000,000
c. 2,200,000
d. 2,560,000
Problem 26-12 (AICPA Adapter)

on January 1,2020, Lazaras Company reported the following property, plant
and equipment and transactions during the current year:
Land 1,500,000
Building 4,000,000
Leasehold improvements 500,000
a. land site number 621 was acquired for 3,000,000

Ariditionally, to acquire the land the entity paid a 60,000 commission to a
real estate agent. Cost of P15,000 was incurred to clear the land for the
intended used but not to make room for the construction of a new building.
During
the course of clearing the land, timber and gravel were recovered and sold
for P5,000.
b. A second tract of land site number 622 with a building was acquired for
P4,000,000. The closing statement indicted that the land fair value was
2,500,000 and the building fair value was P1,500,000. Shortly after
acquisition, the building was demolished at a cost of P300,000 to make room
for the construction of new building
c. A third tract of land site number 623 was acquired for P2,000,000 and was
classified as held for sale.
d. Extensive work was done to a building occupied by the entity under a
lease agreement that expires on December 31, 2026. The total cost of the
work was P1,250,000 which consisted of the following:
Painting of ceiling 100,000
Electrical work with useful life of 10 years 350,000
Construction of extension to current working area with useful life of 15 years
800,000
The lessor paid one-half of the cost incurred in connection with the extension
to the current working area
e. During December 2020, an amount of P650,000 was incurred to improve
leased office space. The related lease will terminate on December 31, 2022
and is not expected to be renewed.
F. The new building on the second tract of land constructed for P5,000,000
plus the following costs:
Excavation fee 50,000
Architectural design fee 150,000
Building permit 40,000
Imputed interest on funds used during construction 500,000
1. What total cost of land should be reported on December 31, 2020 under
property, plant and equipment?
a. 7,070,000
b. 7,060,000
c. 7,370,000
d. 7,000,000
2. What total cost of building should be reported on December 31, 2020?

a. 9,000,000
b. 9,540,000
c. 9,240,000
d. 9,490,000
3. What total cost of leasehold improvements should be reported on

December 31, 2020?
a. 2,300,000
b. 1,250,000
c. 1,900,000
d. 1,500,000
Problem 26-13 (IFRS)
Wisdom Company is installing a new equipment at the production facility and
incurred the following costs:
cost equipment per supplier's invoice 2,500,000
initial delivery and handling 200,000
cost of site preparation 600,000
Cosultants used for advice on the acquisition of equipment 700,000
Interest charges paid to supplier for deferred credit 200,000
Estimated dismantling cost to be incurred as required by contract 300,000
operating loss before commercial production 400,000
What total amount should be capitalized as cost of the equipment?

a. 4,300,000
b. 4,000,000
c. 4,200,000
d. 4,500,000
Problem 26-14 (IFRS)

Repertoire Company acquired a machine and incurred the following costs:
Cash paid for machine, including VAT of P96,000 896,000
Cost of transporting machine 30,000
Labor cost of installation by expert fitter 50,000
labor cost of testing machine 40,000
Insurance cost for the current year 15,000
Cost of training for personnel who will use the machine 25,000
Cast of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred as required by contract 65,000
What total amount should be capitalized as cost of the machine?

a. 1,135,000
b. 1,231,000
c. 1,200,000
d. 1,150,000
Problem 26-15 (IAA)
During the current year, Sacrosanct Company purchased a second hand
machine at a price of 3,000,000.
A cash payment of P500,000wasmade and atwo-year noninterest bearing
note was issued for the balance.
Recent transactions involving similar machinery indicate that the used
machine has a fairvalue of P2,400,000.
A new machine would cost P4,000,000
The following costs were incurred during the year:
Cost of removing old machine that is replaced 30,000
Cash proceeds from sale of the old machine replaced 10,000
General overhaul and repairs to recondition machine prior to use 150,000
Cost of spare parts to cover breakdowns 200,000
Cost of installation 80,000
Cost of testing machine prior to use 110,000
Cost of hauling machine from vendor to entity premises 10,000
Cost of repairing damage to machine caused when machine was dropped
during installation 30,000
Repairs incurred during first year of operations 90,000
Safety device added to the machine 250,000
Cost of training workers to operate the machine 20,000
What total amount should be capitalized as cost of the second hand

machine?
a. 3,000,000
b. 2,750,000
c. 3,200,000
d. 3,800,000
Problem 26-16 (IAA)

Reverend Company acquired a new processing machine at the beginning of
current year.
invoice cost-terms 5/10,n/30 1,600,000
Cost of transportation 60,000
Payment for strengthening the floor to support the weight of the new
machine.
The chief engineer spent two-thirds of his time during trial run of the new
machine. The monthly salary is P60,000.
During the year, the entity was granted a cash allowance of P100,000 by the
supplier because the machine proved to be of less than standard
performance capability.
The operator of the old machine who was laid off due to the acquisition of
the new machine was paid a gratuity of P30,000.
What amount should be capitalized cost of the new machine?

a. 1,560,000
b. 1,640,000
c. 1,710,000
d. 1,590,000

During the current year, Quean Company made the following expenditures
relating to the plant building:
Continuing and frequent repairs 400,000
Repainting of the plant building 100,000
Major improvements to the electrical wiring system 300,000
Partial replacement of roof tiles 150,000
What total amount should be charged to repair and

maintenance expense in the current year?
a. 950,000
b. 800,000
c. 650,000
d. 550,000

During the current year, Prestigious Company installed aproduction assembly
line to manufacture furniture.
In the current year, the entity purchased a new machine and improve the
assembly line to install the machine.
The improvement did not increase the estimated useful life of the assembly
line, but it did result in significant increase in production.
The following expenditures were incurred in connection with the project:
Machine 750,000
Labor to install machine 140,000
Parts added in improving the assembly line to provide future benefits 400,00
Labor and overhead to improve the assembly line 180,000
What total amount should be capitalized?

a. 1,470,000
b. 1,070,000
c. 890,000
d. 750,000

During the current year, Printable Company incurred the following costs for a
printing press:
Purchase of collating and stapling attachment 840,000
Installation of attachment 360,000
Replacement parts for overhaul of press 260,000
Labor and overhead in connection with overhaul 140,000
The overhaul resulted in a significant increase in production. Neither the
attachment nor the overhaul increased the estimated useful life of the press.

a. 1,600,000
b. 1,200,000
c. 840,000
d. 0
Problem 26-20 (IAA)

Prudent Company incurred the following expenditures:
Painting partitions in a large room recently divided into four sections 50,000
Labor cost of tearing down a wall to permit extension of an an assembly line
200,000
Major replacement of the motor of the machine. This replacement was
anticipated when the machine was purchased 500,000
Cost of grading land prior to construction 600,000
Dust filters in the interior of the factory were replaced. The new filters are
expected to reduce employee health hazards. 800,000

a. 2,150,000
b. 1,950,000
c. 1,900,000
d 1,400,000
Problem 26-21 (IAA)

Queer Company provided the following charges to the repair and
maintenance account:
Service contract on office equipment 100,000
Initial design fee for proposed extension of office building 150,000
New condenser for central air conditioning unit 10,000
Purchase of executive chairs and desks 200,000
Purchase of storm windows and screens and their installation on all office
windows 500,000
Sealing of roof leaks in production area 80,000
Replacement of door to production area 50,000
Installation of automatic door-opening system 200,000
Overhead crane for assembly department to speed up production 350,000
Replacement of broken gear on machine 60,000
What total amount of expenditures should be capitalized?

a. 1,400,000
b. 1,200,000
c. 1,500,000
d. 1,410,000
Problem 26-22 (IAA)

On December 31,2020, Scarce Company showed the following account for
machinery that it has assembled for own use.
Machinery
Cost of dismantling old machine Cash proceeds from sale of old
20,000 machine 14,000
Raw materials used 600,000 Depreciation for 2020 10% of
1286,000= 128,600
Labor in construction 400,000
Materials spoiled in trial run 30,000
Profit on construction 100,000
Purchase of machine tools 90,000
An analysis of details in the account disclosed the following:

1. The old machine, which was removed in the installation of the new one
had been fully depreciated.
2. The discount received on the payment of materials used in construction
totaled 40,000 and this as reported in the purchase discount account .
3. The factory overhead account shows a balance of 2,500,000 for the year
ended December 31, 2020. This balance exceeds normal overhead on plant
activities by 150,000 and is attributable to machine construction.
4. A profit was recognized on construction for the difference between cost
incurred and the price at which the could have been purchased.
5. Machine tools have a useful life of 3 years.
6. Machinery has a useful life of 10 years and was used for production
beginning september 1, 2020.
Required:
a. Determine the cost of the machinery
b. Prepare journal entries to adjust the machinery account on December 31,
2020.
Problem 26-23 (IAA)
Showroom Company used straight line depreciation. On January 1, 2020,the
entity purchased a new machine for P5,000,000 cash. The useful life of the
machine was 10 years with a P500,000 residual value.
On January 1, 2022, the entity decided that the original estimate of useful
life should be reduced by two years. The residual value did not change.
On January 1, 2023, the entity added an automatic guide and safety shield to
the machine at a cost of P300,000 cash.
This addition did not change the useful life and residual value but it resulted
in significant increase in production.
Required: Prepare journal entries to record purchase of machine on January

1, 2020, depreciation for 2020, depreciation for 2022, cost of addition on
January 1, 2023, and depreciation for 2023
Mundane Company purchased for cash a new building on January 1, 2020 for
P10,500,000. The building had an estimated useful life of 50 years and
residual value of P500,000.
Depreciation was computed on a straight line basis.
On January 1, 2022, the entity replaced the old roof with a permanent tile
roof costing P3,000,000.
The cost of the old roof was P2,500,000. The new roof did not change the
residual value but was considered a betterment.
Required: Prepare journal entries to record the following:

1. Purchase of the building on January 1, 2020
2. Depreciation for 2020
3. Replacement of the old roof on January 1, 2022
4. Depreciation for 2022
In auditing the records of Toronto Company for the year ended December 31,
2020 , the following data are discovered;
1. machine A listed at 4,500,000 was acquired on april 1, 2020 in exchange
for P5,000,000 face value bonds maturing on April 1, 2030. The accountant
recorded the acquisition by a debit to machinery and a credit to bonds
payable for P5,000,000. The bonds are unquoted. Straight line depreciation
was recorded based on a five year life and amounted to P600,000 for 9
months.
2. Machine B listed at P3,200,000 was purchased on January 1, 2020. The
entity paid P500,000 down and P250,000 per month for 12 months. The last
payment was made on December 30, 2020. Straight line depreciation based
on a five-year life and no residual value was recorded at P700,000 for the
year. Freight of P150,000 on Machine B was charged to freight in account.
3. Machine C was recorded at P3,000,000 which included the carrying
amount of P540,000 of a machine accepted as a trade in. The list price of
Machine C was P2,610,000 and the trade in allowance was P150,000. This
transaction took
place on December 22, 2020.
4. Machine D was acquired on January 10, 2020 in exchange for a past due
account receivable of P4,200,000 on which a allowance of 20% was
established at the end of prior year. The fair value of the machine on January
10 was estimated at P3,300,000. The machine was recorded by a debit to
machinery and a credit to accounts receivable for P4,200,000. No
depreciation was recorded on Machine D because it was never installed for
use. In March, the machine was exchanged for 30,000 shares of the entity
having a market value of P120 per share. The treasury shares account was
debited for P4,200,000, the carrying amount of Machine D.
Required: Prepare adjusting entries on December 31, 2020.

Problem 26-26 Multiple Choice (AICPA Adapted)
1. The cost of land usually includes all, except
a. Commission related to acquisition
b. Property tax after date of acquisition
c. Property tax to date of acquisition
d. Cost of survey
2. The cost of land typically includes all, except

a. Grading, filling, draining and clearing cost
b. Special assessment for drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
3. Fence and parking lot are reported as

a. Building
b. Land improvement
c. Land
d. Expense
4. Which should be capitalized as cost of land?

a. Filling in dirt to level the property prior to excavation
b. Excavation cost
c. Cost incurred to construct sidewalk and fence
d. All of these are capitalized as cost of land
5. Which cost should be charge to land improvement?

a. Clearing of trees and grading
b. Architect fee
c. Installation of a septic system
d. Cost of demolishing an old building
1. When an entity acquired land with an old building and immediately

demolished the old building so that the land can be used for the construction
of a plant, the cost incurred to demolish the old building should be
a. Expensed as incurred
b. Added to the cost of plant
c. Added to the cost of the land
d. Amortized over the estimated time period between the demolition of the
building and the completion of the plant
2. If an entity purchased a lot and an old building and demolished the old
building to make room for the construction of a new building, the proper
accounting treatment of the allocated carrying amount of the old building
would depend on
a. The significance of the cost allocated to the building in relation to the
combined cost of the lot and building
b. The length of time for which the building was held prior to demolition
c. The contemplated future use of the old building
d. The intention of management for the property when the new building was
constructed
3. An entity purchased land to be used as an investment property. Timber

was cut from the site so development of the land could begin. The proceeds
from the sale of the timber should be
a. Classified as other income
b. Credited to retained earnings
c. Deducted from the cost of the land
d. Classified as deferred income and amortized over five years
4. An entity purchased land and a hotel with the plan to tear down the hotel
and build a new hotel. The allocated cost of the old hotel should be
a. Depreciated over the remaining life of the old hotel.
b. Written off as a loss in the year the hotel is torn down.
c. Capitalized as part of the cost of the land.
d. Capitalized as part of the cost of the new hotel.
5. An entity’s forest land was condemned for use as a national park.

Compensation for the condemnation exceeded the forest land’s carrying
amount. The entity purchased similar, but larger, replacement forest land for
an amount greater than the condemnation award. As a result of the
condemnation and replacement, what is the effect on the carrying amount of
forest land reported in the statement of financial position?
a. The amount is increased by the excess of the replacement forest land’s

cost over condemned land’s carrying amount
b. The amount is increased by the excess of the replacement forest land’s
cost over the condemnation award
c. The amount is increased by the excess of the condemnation award over
the condemned forest land’s carrying amount
d. No effect, because the condemned direst land’s carrying amount is used
as the replacement forest land’s carrying amount
1. The term betterment means

a. An expenditure made for new facilities which increase capacity.
b. An expenditure made to restore capacity after abandonment or
retirement.
c. An expenditure made to improve existing facilities by increasing capacity.
d. An expenditure made to help ensure continuity of service capacity.
2. Which type of expenditure occurs when an entity installs a higher capacity
boiler to heat the plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment
3. An improvement made to a machine which increased the fair value and

production capacity without extending the useful life of the machine should
be
a. Expensed immediately
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account
4. Which of the following would ordinarily be treated as a revenue

expenditure rather than a capital expenditure?
a. Cost of servicing and overhaul to restore or maintain the originally
assessed standard of performance.
b. The replacement of a major component of building
c. An addition to an existing building
d. Cost of improvement that is expected to provide discernable future benefit
5. Which cost should not be capitalized?

a. Replacement of roof of building every 15 years
b. Cost of site preparation
c. Installation and assembly cost
d. Replacement of small spare parts annually
6. Which expenditure may properly be capitalized?

a. Expenditure for massive advertising campaign
b. Insurance on plant during construction
c. Research and development related to long-term asset giving the entity a
competitive market advantage
d. Title search and other legal cost related to a piece of property which was
not acquired
7. Which of the following subsequent expenditure should be expensed

immediately?
a. Expenditure made to increase the efficiency or effectiveness of an existing
asset
b. Expenditure made to extend the useful life of an existing asset
c. Expenditure made to maintain an existing asset in operating condition
d. Expenditure made to add new asset
8.An expenditure made in connection with a machine being used by an entity
should be
a. Expensed if it merely extends the useful life but does not improve the
quality.
b. Expensed if it merely improves the quality but does not extend the useful
life.
c. Capitalized if it maintains the machine in normal operation condition.
d. Capitalized if it increases the quantity of units produced by the machine.
CHAPTER 27
DEPRECIATION
Problem 27-1 (IAA)
Amicable Company purchased a machine at a cost of P635,000 on January 1,
2020. It was estimated that the machine would have a residual value of
P35,000.
The estimated useful life is 5 years, 60,000 service hours and 150,000
production units.
Actual Service Unit
operations hours produced
2020 14,000 34,000
2021 13,000 32,000
2022 10,000 25,000
2023 11,000 29,000
2024 12,000 30,000
Required:
Prepare a depreciation table for the following methods:
a. Straight line
b. Service hours
c. Production method
Problem 27-2 (IAA)

Austere Company purchased machinery for P570,000 on July 1, 2020. It is
estimated that it will have a useful life of 10 years, residual value of P20,000,
production of 200,000 units and working hours of 50,000.
The entity used the machinery for 3,000 hours in 2020 and 5,000 hours in
2021.
The machinery produced is 18,000 units in 2020 and 22,000 units in 2021.
Required:
Compute depreciation for 2020 and 2021
a. Straight line
b. Working hours
c. Output method
Problem 27-3 (IAA)
At the beginning of current year, Definite Company acquired the following
assets:
Cost Residual Useful life in
value years
Machinery 310,000 10,000 5
Office equipment 110,000 10,000 10
Building 1,600,000 100,000 15
Delivery equipment 430,000 30,000 4
Required:
a. Compute the composite depreciation rate.
b. Compute the composite life.
c. Prepare journal entry to record the depreciation for the current year.
Problem 27-4 (ACP)

Happy Company owed a power plant which consisted of the following assets
all acquired at the beginning of current year:
Cost Residual Useful life in
value years
Building 6,100,000 100,000 20
Machinery 2,550,000 50,000 5
Equipment 1,030,000 30,000 10
Required:
a. Compute the composite rate.
b. Compute the composite life.
c. Prepare journal entry to record the depreciation for the current year
following the composite method.
d. Prepare journal entry to record the retirement of the machinery at the end
of the fifth year assuming the proceeds from the retirement amount to
P40,000.
e. Prepare journal entry to record the depreciation for the sixth year following
the composite method.

Silent Company provided the following schedule of machinery:
Total Estimated residual Useful life in
cost value years
Machine A 550,000 50,000 20
Machine B 200,000 20,000 15
Machine C 40,000 5
What is the composite life of the assets?

a. 13.3
b. 16.0
c. 18.0
d. 19.8
Problem 27-6 (IAA)

Norraine Company used the composite method of depreciation based on a
composite rate of 25%.
At the beginning of 2020, the total cost of equipment was P5,000,000 with a
total residual value of P600,000. The accumulated depreciation was
P3,000,000 at that time.
In January 2020, the entity purchased an equipment for P2,500,000 with no
residual value.
At the end of 2020, the entity sold an equipment with an original cost of
P1,000,000 and a residual value of P200,000 for P350,000. This asset was
acquired on January 1, 2018.
1. What is the depreciation for 2020?

a. 1,625,000
b. 1,875,000
c. 1,125,000
d. 975,000
2. What is the gain or loss from the derecognition of the asset on December
31, 2020?
a. 100,000 gain
b. 150,000 loss
c. 50,000 loss
d. 0

Parable Company revealed the following depreciation policy on machinery:
A full year depreciation is taken in the year of acquisition.
No depreciation is taken in the year of disposition.
The estimated useful life is five years.
The straight-line method is used.
On June 30, 2020, the entity sold for P2,300,000 a machine acquired in 2017
for P4,200,000. The estimated residual value was P600,000.
What amount of gain on disposal should be recorded in 2020?

a. 140,000
b. 260,000
c. 620,000
d. 980,000

Wishful Company used straight line depreciation for the property, plant and
equipment which consisted of the following at the end of each year:
2020 2021
Land 250,000 250,000
Building 1,950,0 1,950,00
00 0
Machinery and equipment 6,500,0 6,950,00
00 0
Accumulated depreciation 3,700,0 4,000,00
00 0
The depreciation expense for 2020 and 2021 was P500,000 and P550,000,
respectively.
What amount was debited to accumulated depreciation during 2021 because
of the property, plant and equipment retirement?
a. 400,000
b. 250,000
c. 200,000
d. 100,000
Problem 27-9 (ACP)

Bitter Company acquired a machinery on April 1, 2020.
Cost 1,200,00
0
Residual value 120,000
Estimated useful 8 years
life
1. What is the depreciation for 2020 using sum of years’ digits?

a. 180,000
b. 240,000
c. 120,000
d. 160,000
2. What is the depreciation for 2021 using sum of years’ digits?

a. 157,500
b. 217,500
c. 210,000
d. 105,000
3. What is the depreciation for 2020 using double declining balance?

a. 300,000
b. 150,000
c. 225,000
d. 202,500
4. What is the depreciation for 2021 using double declining balance?

a. 270,000
b. 135,000
c. 243,750
d. 150,000

On January 1, 2020, Domino Company purchased a new machine for
P4,000,000. The new machine has an estimated useful life of eight years and
the residual value was estimated to be P400,000.
Depreciation was computed on the sum of the years’ digits method.
What is the carrying amount of the machine on December 31, 2021?
a. 2,100,000
b. 2,500,000
c. 1,150,000
d. 3,300,000

On January 1, 2018, Mogul Company acquired equipment to be used in the
manufacturing operations.
The equipment has an estimated useful life of 10 years and an estimated
residual value of P50,000.
The depreciation applicable to this equipment was P240,000 for 2020
computed under the sum of years’ digits method.
What was the acquisition cost of the equipment?
a. 1,650,000
b. 1,700,000
c. 2,400,000
d. 2,450,000

On April 1, 2020, Kingdom Company purchased new machinery for
P3,000,000. The machinery has an estimated useful life of five years and
depreciation is computed by the sum of years’ digits method.
What is the accumulated depreciation of the machinery on March 31, 2022?
a. 1,920,000
b. 1,800,000
c. 1,200,000
d. 1,000,000

Sahaya Company takes a full depreciation expense in the year of acquisition,
and no depreciation expense in the year of disposition. An asset was
acquired in 2017.
Cost 1,100,000
Residual value 200,000
Accumulated depreciation - January 1, 2020 720,000
Estimated useful life 5 years
Using the same method in 2017, 2018 and 2019, what depreciation should
be recorded in 2020?
a. 120,000
b. 180,000
c. 220,000
d. 240,000

Iceberg Company purchased equipment which was installed and put into
service January 1, 2020 at a total cost of P1,280,000. Residual value was
estimated at P80,000.
The equipment is being depreciated over eight years by the double declining
balance method.
What amount of depreciation should be recorded for 2021?
a. 225,000
b. 240,000
c. 300,000
d. 320,000
Problem 27-15 (IAA)

On January 1, 2020, Contour Company acquired an equipment to be used in
operations. The equipment had a useful life of 8 years and residual value of
P300,000.
The depreciation applicable to the equipment was P900,000 for 2021
computed under the double declining balance method.
What was the acquisition cost of the equipment?
a. 3,600,000
b. 4,500,000
c. 4,800,000
d. 5,100,000

Ambitious Company showed the following schedule of depreciable assets on
January 1, 2020.
Asse Cost Accumulated Acquisition Residu
t depreciation date al
A 4,000,000 2,560,000 2,018 400,00
0
B 2,000,000 1,440,000 2,017 200,00
0
C 2,800,000 1,344,000 2017 560,00
0
The useful life of each asset is 5 years. The entity takes a full depreciation in
the year of acquisition and no depreciation in the year of disposition.
Asset C was sold for P1,700,000 on June 30, 2020.
Asset A is depreciated under the double declining method.
1. What is the depreciation of Asset A for 2020?

a. 1,600,000
b. 1,440,000
c. 416,000
d. 576,000
2. What is the depreciation of Asset B for 2020 assuming same method in

prior years?
a. 240,000
b. 480,000
c. 360,000
d. 400,000
3. What is the gain on sale of Asset C?

a. 244,000
b. 464,000
c. 356,000
d. 804,000

Tarnish Company purchased equipment on January 1, 2020 for P5,000,000.
The equipment had an estimated 5-year useful life. The accounting policy for
5-year assets is to use the 200% double declining balance method for the
first two years of the asset’s life and then switch to straight line depreciation.
On December 31, 2022, what amount should be reported as accumulated
depreciation?
a. 3,000,000
b. 3,800,000
c. 3,920,000
d. 4,200,000
Problem 27-18 (IAA)

Saga Company purchased a machinery on January 1, 2017 for P7,200,000.
The machinery had useful life of 10 years with no residual value and was
depreciated using the straight-line method.
In 2020, a decision was made to change the depreciation method from
straight lime method to sum of years’ digits. The estimate of useful life and
residual value remained unchanged.
What is the depreciation for 2020?
a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000

On January 1, 2017, Bride Company purchased P2,400,000 a machine with a
useful life of ten years and no residual value. The machine was depreciated
by the double declining balance method. The entity changed to the straight-
line method on January 1, 2020.
What is the depreciation for 2020?
a. 153,600
b. 192,000
c. 240,000
d. 307,200
Problem 27-20 (IAA)

On January 1, 2020, Layman Company purchased personal computers for
P6,000,000. The management estimated that the computers would last
approximately 4 years with residual value of P600,000. The entity used the
double declining balance method.
During January 2021, the management realized that technological
advancement had made the computers virtually obsolete and proposed
changing the remaining useful life to 2 years.
What amount of depreciation should be recognized for 2021?
a. 3,000,000
b. 2,400,000
c. 1,500,000
c. 1,200,000
Problem 27-21 (IAA)

Spiderman Company purchased a machine on January 1, 2017 for
P3,760,000. The machine was estimated to have a useful life of five years
and a residual value of P240,000. The entity used the sum of years’ digits
method of depreciation.
On January 1, 2020, the entity determined that the total useful life of the
machine should have been four years and the residual value is P352,000.
What amount should be recorded as depreciation for 2020?

a. 192,000
b. 444,000
c. 592,000
d. 704,000
Problem 27-22 (IAA)

Superman Company acquired a machine on January 1, 2018 for P10,000,000.
The machine had an 8-year useful life with a P1,000,000 residual value and
was depreciated using the sum of years’ digits method.
In January 2020, the entity estimated that the asset’s useful life from the
date of acquisition should have been 6 years and the residual value is
P400,000.
What is the accumulated depreciation on December 31, 2020?
a. 5,212,500
b. 6,090,000
c. 4,400,360
d. 6,250,000

Patterson Company provided the following information on January 1, 2020:
Vehicle cost 5,000,000
Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000
Actual miles driven

2020 30,000
2021 20,000
2022 15,000
1. What is the depreciation for 2022 using the SYD method?
a. 1,000,000
b. 1,333,000
c. 800,000
d. 600,000
2. What is the accumulated depreciation on December 31, 2021 using the

double declining balance method?
a. 1,200,000
b. 1,600,000
c. 2,560,000
d. 3,200,000
3. What is the accumulated depreciation on December 31, 2022 using the

miles driven?
a. 2,000,000
b. 2,600,000
c. 800,000
d. 600,000
Problem 27-24 (IAA)

Fauna Company used the inventory method to account for numerous small
tools. At the beginning of current year, balance of the tools account was
P140,000.
The following transactions occurred with respect to the small tools during the
current year.
Acquisition and cost
March 31 40,000
July 31 20,000
Sales of used tools at salvage value on December 4,000
31
Inventory of small tools on December 31, at cost 150,000
Required: Prepare journal entries to record the transactions related to the

tools account.
Problem 27-25 (IAA)
Real Company used a hand tool in the manufacturing activities. On January
1, 2020, there are 800 of such tools on hand at cost of P200 each.
Acquisition and retirement during 2020 and 2021 are:
Acquisition and cost Retirement and Estimated value of
retirement tools at year end
proceeds
2020 400 @ P300 300 @ P50 200,000
2021 900 @ P400 700 @ P70 350,000
Retirement may be assumed to be on first-in, first-out basis.
Required: Prepare journal entries for 2020 and 2021 using retirement
method, replacement method and inventory method of depreciation.
At the beginning of current year, Vicious Company reported the following
property, plant and equipment and accumulated depreciation:
Cost Accumulated dep.

Land 350,000
Land improvements 180,000 45,000
Building 4,500,000 1,050,000
Machinery and Equipment 1,160,000 405,000
Automobiles 1,800,000 1,344,000
Land improvements - Straight line, 15 years.
Building - 150% declining balance, 20 years.
Machinery and equipment - Straight line, ten years.
Automobiles - 150% declining balance, three years.
*On January 1, machinery and equipment were purchased at a total invoice

cost of P260,000, which included a P10,000 charge for freight. Installation
cost of P40,000 was incurred.
*On June 30, a machine purchased for P60,000 two years ago was sold for
P36,000.
*On December 31, the entity purchased a new automobile for P460,000 cash
and trade-in of an automobile purchased for P540,000 three years ago. The
new automobile has a cash price of P570,000.
Required:
Determine the following for the current year:
1. Depreciation of land improvements
2. Depreciation of building
3. Depreciation of machinery and equipment
4. Depreciation of automobiles

At the beginning of current year, Obvious Company provided the following:
Land 875,000
Building 7,500,000 1,644,500
Machinery and Equipment 2,250,000 635,000
Building - double declining balance, 25 years

Machinery and equipment - Straight line, 10 years
Land improvements - Straight line
*On January 1, a plant facility consisting of land and building was acquired
from another entity in exchange for 25,000 shares of Obvious Company.
On this date, the share had a market price of P50. Current zonal values of
land and building for property tax purposes are P150,000 and P600,000,
respectively.
*On March 31, new parking lot, street and sidewalk at the acquired plant
facility were completed at a total cost of P192,000. These expenditures had
an estimated useful life of 12 years.
*On July 1, machinery and equipment were purchased at a total invoice cost
of P340,000. Additional cost of P10,000 for delivery and P50,000 for
installation were incurred.
*On December 20, a machine with a cost of P170,000 and a carrying amount
of P29,750 at date of disposition was scrapped without cash recovery.
Required:
Determine the depreciation of the building, machinery and equipment, and
land improvements for the current year.

At the beginning of the current year, Weird Company reported the following
property, plant, and equipment and accumulated depreciation:
Land 550,000
Building 6,000,000 1,327,800
Machinery 1,380,000 367,500
Building - Double declining balance, 20 years, residual value is 10% of cost
Machinery - Straight line, 10 years
* On January 1, the entity completed the self-construction of a building.

Direct costs 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.
* On July 1, machinery was purchased at a total invoice cost of P356,000.
Additional costs 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 moved into the
plant.
The wall demolition cost was P7,000, and rebuilding of the wall amounted to
P19,000.
Required:
1. Determine the depreciation of building for the current year.
2. Determine depreciation of machinery for the current year.
1. Depreciation is best described as a method of

a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life deterinination
2. Which depreciation method is not based on the passage of time?

a. Production method
b. Sum of years' digits
C. Declining balance
d. Straight line
3. A method which excludes residual value from the base for the depreciation
calculation in the earlier years is
a. Straight line
b. Sum of years' digits
c. Double declining balance
d. Output method
4. The double declining balance method

a. Results in a decreasing depreciation charge.
b. Means residual value is not deducted in computing the depreciation base.
c. Means the carrying amount should not be reduced below residual value.
d. All of these describe double declining balance
5. Which depreciation method applies a uniform depreciation rate each

period to the carrying amount of an asset?
a. Straight line
b. Declining balance
c. Output method
d. Sum of years' digits
6. All of the following factors are considered in determining the useful life of
an asset, except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
7. Technical or commercial obsolescence arises from

a. Expected usage of the asset
b. Expected physical wear and tear
C. Change or improvement in production or change in the market demand for
the product output of the asset
d. Expiry date of related lease of the asset
8. The production method of depreciation results in

a. Constant charge over the useful life of the asset.
b. Decreasing charge over the useful life of the asset.
c. Increasing charge over the useful life of the asset.
d. Variable charge based on the expected use or output of the asset.
9. What factor must be present under the production method of

depreciation?
a. Total units to be produced can be estimated
b. Production is constant over the life of the asset
c. Repair costs increase with use
d. Obsolescence is expected
10. The sum of years' digits method

a. Results in residual value being ignored.
b. Means the denominator is the number of years remaining at the beginning
of the year.
c. Means the carrying amount should not be reduced below residual value.
d. Results in an increasing depreciation charge.
Problem 27-30 Multiple choice (AICPA Adapted)
1. Which statement is the assumption on which straight line depreciation is

based?
a. The efficiency of the asset decreases in later years.
b. Service value declines as a function of time rather than use.
c. Service value declines as a function of obsolescence rather than time.
d. Physical wear and tear are more important than economic obsolescence.
2. The straight-line depreciation is not appropriate for

a. An entity that is neither expanding nor contracting an investment in
equipment because it is replacing equipment as the equipment depreciates.
b. Equipment on which maintenance and repairs increase substantially with
age.
C. Equipment with useful life that is not affected by the amount of use.
d. Equipment used consistently every period.
3. The principal objection to the straight-line method of depreciation is that it

a. Provides for the declining productivity of an aging asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment
base
d. Gives smaller periodic writeoff than a decreasing charge method
4. In which of the following situations is the production method of
depreciation most appropriate?
a. An asset's service potential declines with use
b. An asset's service potential declines with the passage of time
c. An asset is subject to rapid obsolescence
d. An asset incurs increasing repairs and maintenance with use
5. Which statement provides the best theoretical support for accelerated

depreciation?
a. Assets are more efficient in early years and initially generate more
revenue.
b. Expenses should be allocated in a manner that smooths earnings.
c. Repairs and maintenance costs probably would increase in later periods so
depreciation should decrease.
d. Accelerated depreciation provides easier replacement because of the time
value of money.
6. An asset has a nine-year useful life and is to be depreciated under the sum
of years' digits method. The annual depreciation would be the same as that
under the straight-line method in the
a. Third year
b. Fifth year
c. Seventh year
d. Ninth year
7. The composite depreciation method

a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of single asset in the
group
d. Excludes residual value from the base of the depreciation calculation
8. An entity using the composite depreciation method for a fleet of trucks,

cars and campers retired one of the trucks and received cash from a salvage
entity. The net carrying amount of these composite asset accounts would be
decreased by the
a. Cash proceeds received and original cost of the truck
b. Cash proceeds received
c. Original cost of the truck less the cash proceeds
d. Original cost of truck
CHAPTER 28
DEPLETION
Problem 28-1 (IAA)
Resource Company was engaged in the rock and gravel business. The
following transactions relate to the acquisition and development of an
extensive gravel pit:
2020
Cost of acquisition and development 960,000
Estimated output 2,400,000 tons
Production 1,000,000 tons
2021
Additional development cost 490,000
Production 600,000 tons
2022
Additional development cost 500,000
New estimate of remaining output 2,500,000 tons
Production 700,000 tons
Required: Prepare journal entries for 2020, 2021 and 2022.
Problem 28-2 (IAA)

Reliable Company purchased a tract of resource land in 2020 for P3,960,000.
The content of the tract was estimated at 120,000 units. When the resource
has been exhausted, it is estimated that the land will be worth P120,000.
Building was set up at a cost of P960,000 and heavy equipment was
purchased in early January 2020 for P1,240,000. The useful life of the
building is 8 years and the useful life of the equipment is 4 years.
In 2020, 12,000 units have been extracted. This was one half of the annual
extraction which can be expected following the first year of operations. In
2021, 25,000 units were extracted.
Required: Prepare journal entries to record transactions relating to the

resource property for 2020 and 2021.
Problem 28-3 (IAA)

On January 1, 2020 Universal Company paid P5,400,000 for property
containing natural resource of 2,000,000 tons of ore.
The estimated discounted amount of restoring the land after the resource is
exhausted is P450,000 and the land will have a value of P650,000 after it is
restored for suitable use.
Tunnels, bunk houses and other fixed installations are constructed in the
amount of P8,000,000. Such expenditures are to be charged to mine
improvements.
Operations began on January 1, 2021 and resources removed totaled
600,000 tons.
During 2022, a discovery was made indicating that available resources after
2022 will total 1,875,000 tons.
At the beginning of 2022, additional bunk houses were constructed in the
amount of P770,000. In 2022, only 400,000 tons were mined because of a
strike.
Required: Prepare journal entries for 2020, 2021 and 2022.
Problem 28-4 (ACP)

Icon Company provided the following balances at the end of the current year:
Wasting asset, at cost 20,000,00

0
Accumulated depletion 2,500,000
Share capital 50,000,00
0
Capital liquidated 1,800,000
Retained earnings 1,500,000
Depletion based on 50,000 units at P20 per unit 1,000,000
Inventory of resource deposit (5,000 units) 400,000
Required:
a. Compute the maximum dividend that can be declared.
b. Prepare journal entry to record the declaration of P2,000,000 dividend.
Problem 28-5 (IAA)

On January 1, 2020, Multinational Company was organized with an
authorized share capital of P10,000,000 consisting of 100,000 shares of P100
par value, one half of which was immediately sold for cash at P110 per share.
In February, the entity acquired a tract of resource land at a cost of
P3,000,000 which was paid in cash.
Also, the entity purchased for cash mining equipment of P800,000.
The geological survey of the resource property indicated an estimated
content of 1,000,000 units.
During the year ended December 31, 2020, the entity mined 90,000 units, of
which 85,000 units were sold for a cash price of P50 per unit.
The entity paid the following during the year:

Mining labor and other direct costs 2,268,000
Administrative expenses 500,000
Required:
a. Prepare journal entries including adjustments to record the transactions.
b. Prepare an income statement for the year ended December 31, 2020.
c. Prepare a statement of financial position on December 31, 2020.
d. Compute the maximum dividend that can legally be declared by the entity
on December 31, 2020.
e. Prepare journal entry assuming the maximum dividend is declared by the
entity.
Problem 28-6 (IAA)
In 2017, Sunflower Company acquired a silver mine in Eastern Mindanao.
Because the mine is located deep in the Mindanao frontier, Sunflower
Company was able to acquire the mine for the low price of P50,000.
In 2018, Sunflower Company constructed a road to the silver mine costing
P5,000,000. Improvements and other development costs made in 2018 cost
P750,000.
Because of the improvements to the mine and to the surrounding land, it is
estimated that the mine can be sold for P600,000 when mining activities are
complete.
During 2019, five buildings were constructed near the mine site to house the
mine workers and their families.
The total cost of the five buildings was P2,000,000. Estimated residual value
is P200,000.
In 2020, geologists estimated that 4,000,000 tons of silver ore could be
removed from the mine for refining.
During 2020, the first year of operations, only 500,000 tons of silver ore were
removed from the mine.
However, in 2021, workers mined 1,000,000 tons of silver.
During that same year, geologists discovered that the mine contained
3,000,000 tons of silver ore in addition to the original 4,000,000 tons.
Development costs of P1,300,000 were made to the mine early in 2021 to
facilitate the removal of the additional silver.
Early in 2021, an additional building was constructed at a cost of P375,000 to
house the additional workers needed to excavate the added silver. This
building is not expected to any residual value.
Required:
1. Compute the depletion for 2020 and 2021.
2. Compute the depreciation for 2020 and 2021.
At the beginning of current year, Vanity Company purchased a mineral mine
for P26,400,000 with removable ore estimated at 1,200,000 tons.
After it has extracted all the ore, the entity will be required by law to restore
the land to the original condition at an estimated cost of P2,400,000. The
present value of the estimated restoration cost is P1,800,000.
The entity believed it will be able to sell the property afterwards for
P3,000,000.
During the current year, the entity incurred P3,600,000 of development costs
preparing the mine for production and removed 80,000 tons and sold 60,000
tons of ore.
What amount should be reported as depletion for the current year?
a. 1,920,000
b. 1,440,000
c. 1,940,000
d. 1,455,000
Problem 28-8 (IAA)

On January 1, 2020, Misnomer Company purchased land with valuable
natural ore deposits for P10,000,000. The residual value of the land was
P2,000,000.
At the time of purchase, a geological survey estimated a recoverable output
of 4,000,000 tons.
Early in 2020, roads were constructed on the land to aid in the extraction and
transportation of the mined ore at a cost of P1,600,000. In 2020, 500,000
tons were mined and sold.
A new survey at the end of 2021 estimated 4,200,000 tons of ore available
for mining. In 2021, 800,000 tons were mined and sold.
What amount should be recognized as depletion for 2021?

a. 1,344,000
b. 1,920,000
c. 1,200,000
d. 1,600,000
At the beginning of current year, Handsome Company purchased a mineral
mine for P36,000,000 with removable ore estimated by geological survey at
2,160,000 tons. The property has an estimated value of P3,600,000 after the
ore has been extracted.
The entity incurred P10,800,000 of development costs preparing the
property for the extraction of ore.
During the current year, 270,000 tons were removed and 240,000 tons were
sold
What amount of depletion should be included in cost of goods sold for the
current year?
a. 3,600,000
b. 4,050,000
c. 4,800,000
d. 5,400,000
Problem 28-10 (IAA)

Radical Company acquired a mineral right for P30,000,000 in January 2020.
The mine has a recoverable ore estimated at 4,000,000 tons.
After it has extracted all the ore, the entity will be required by law to restore
the land to the original condition at a discounted amount of P2,000,000. The
entity believed that the property can be sold afterwards for P5,000,000.
Early in 2020, roads were constructed and other development costs were
incurred to aid in the extraction and transportation of the mined ore at a cost
of P6,000,000. In 2020, 200,000 tons of ore were mined and sold.
On December 31, 2021 a new survey made by a new mining engineer
indicated that 5,000,000 tons of ore were available for mining. In 2021,
225,000 tons of ore were extracted and sold.
What depletion expense should be recognized for 2021?

a. 1,650,000
b. 1,350,000
c. 1,856,250
d. 1,410,000

On July 1, Lethargic Company, a calendar year entity, purchased the rights to
a mine. The total purchase price was P14,000,000, of which P2,000,000 was
allocable to the land.
Estimated reserves were 1,500,000 tons. The entity expects to extract and
sell 25,000 tons per month.
The entity purchased new equipment on July 1. The equipment was
purchased for P8,000,000 and had a useful life of 4 years with no residual
value.
1. What is the depletion for the current year?

a. 1,200,000
b. 2,400,000
c. 1,950,000
d. 1,400,000
2. What is the depreciation of the equipment for the current

year?
a. 1,600,000
b. 2,000,000
c. 1,000,000
d. 1,200,000
Problem 28-12 (IAA)
At the beginning of current year, Nilli Company purchased a coal mine for
P30,000,000. Removable coal is estimated at 1,500,000 tons.
The entity is required to restore the land at an estimated cost of P3,600,000.
The land is estimated to have a value of P3,150,000 after restoration.
The entity incurred P7,500,000 of development cost preparing the mine for
production. During the current year, 450,000 tons were removed and
300,000 tons were sold.
What total amount of depletion should be recorded for the current year?
a. 11,385,000
b. 10,305,000
c. 3,870,000
d. 7,590,000

In 2019, Lepanto Mining Company purchased property with natural resources
for P28,000,000. The property had a residual value of P5,000,000.
However, the entity is required to restore the property to the original
condition at a discounted amount of 2,000,000.
In 2019, the entity spent P1,000,000 in development cost and constructed a
building on the property costing 3,000,000.
The entity does not anticipate that the building will have utility after the
natural resources are removed.
In 2020, an amount of P1,000,000 was spent for additional development on
the mine.
The tonnage mined and estimated remaining tons are:

Tons extracted Tons remaining
2019 0 10,000,000
2020 3,000,000 7,000,000
2021 3,500,000 2,500,000
1. What amount should be recognized as depletion for 2020?
a. 6,900,000
b. 9,600,000
C. 8,100,000
d. 8,400,000
2. What amount should be recognized as depletion for 2021?

a. 10,150,000
b. 11,025,000
c. 15,750,000
d. 9,450,000
Problem 28-14 (IAA)

Jubilant Company acquired a tract of land containing an extractable natural
resource. The entity is required by the purchase contract to restore the land
to a condition suitable for recreational use after it had extracted the natural
resource.
Geological survey indicated that the recoverable reserves will be 2,500,000
tons and that the extraction will be completed in five years.
Land 9,000,000
Exploration and development cost 1,000,000
Expected cash flow for restoration cost 1,500,000
Credit-adjusted risk-free interest rate 10%
PV of 1 at 10% for 5 periods 0.62
What is the depletion charge per ton of extracted material?

a. 4.00
b. 4.37
c. 3.97
d. 3.60
Problem 28-15 (IAA)

During 2020, Prospect Company incurred P4,000,000 in exploration cost for
each of 15 oil wells drilled in 2020.
Of the 15 wells drilled, 10 were dry holes. The entity used the successful
effort method of accounting. The entity depleted 30% of the oil discovered in
2020.
What amount of exploration cost should be reported in the December 31,

2020 statement of financial position?
a. 42,000,000
b. 14,000,000
C. 20,000,000
d. 6,000,000
1. The most common method of computing depletion is

a. Percentage depletion method
b. Decreasing charge method
c. Straight line
d. Production method
2. Depletion expense
a. Is usually part of cost of goods sold.
b. Includes tangible equipment in the depletable amount.
C. Excludes intangible development cost from the depletable amount.
d. Excludes restoration cost from the depletable amount.
3. Information needed to compute a depletion charge per unit includes the
a. Estimated total amount of resources available.
b. Amount of resources removed during the period.
c. Cumulative amount of resources removed.
d. Amount of resources sold during the period.
4. Which accurately describes the GAAP regarding the accounting for the
costs of drilling dry holes in the oil and gas industry?
a. Successful effort method
b. Full cost method
c. Both successful effort and full cost
d. Neither successful effort nor full cost method
5. Which of the following is not part of depletable amount?

a. Acquisition cost of the mineral resource deposit
b. Exploration cost
c. Tangible equipment used to extract the mineral resource
d. Intangible development cost such as drilling and tunnel

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CHAPTER 23

PROPERTY, PLANT AND EQUIPMENT

1. Acquired a tract of land in exchange for 50,000 ordinary shares with

Required: Prepare journal entries for 2020 and 2021.

Required: Prepare journal entries for 2020 and 2021.

Problem 23-4 (IAA)

4. At the beginning of current year, the entity acquired machine by issuing a

Required: Prepare journal entries to record the machinery acquisition and

An appraisal disclosed the following fair value:

2. Nutty Company acquired the assets of another entity with

3. Received a parcel of land located in Davao City from a philanthropist as an

Problem 23-6 (AICPA Adapted)

1. Exchanged a car from inventory for a computer to be used as a long-term

Carrying amount of the car 300,000

2. Exchanged an old packaging machine which cost P240.000

The fair value of the old packaging machine is determined to be P110,000

3. Exchanged an old equipment costing P3,000,000 with

Required: Prepare journal entries to record the transactions.

Problem 23-7 (ACP)

Problem 23-8 (AICPA Adapted)

Required: Prepare journal entry to record the exchange transaction.

Problem 23-9 (IAA)

Price of truck 2,500,000

Required: Prepare journal entry to record the exchange transaction.

TOTAL FINISHED GOODS BUILDING

The following assumptions are made:

Because of the construction of the building, finished goods production

Required: Compute the cost of finished goods and building

Problem 23-11 (IAA)

FINISHED GOODS BUILDING

What amount should be capitalized as cost of the machine?

Problem 23-13 (AICPA Adapted)

What is the initial measurement of the new machine?

What amount should be recorded as initial cost of the van?

Problem 23-15 (AICPA Adapted)

On December 31, 2020, Bart Company purchased a machine in exchange for

2. What is the discount on note payable on December 31, 2020?

3. What is the interest expense for 2021?

4. What is the carrying amount of note payable on December 31, 2021?

Problem 23-16 (IAA)

A down payment of P200,000 was made and four annual installments of

What is the initial amount to be capitalized as the cost of the machine?

Problem 23-18 (AICPA Adapted)

2. What is the gain on exchange?

Problem 23-19 (AICPA Adapted)

2. What amount of loss should be recognized on

Problem 23-20 (AICPA Adapted)

1. At what amount should the truck received in the

2. What is the gain on exchange?

Problem 23-21 (AICPA Adapted)

1. What is the initial measurement of the new inventory received in

2. What is the gain on exchange?

Problem 23-22 (AICPA Adapted)

Yola Company paid Zaro Company P300,000 to compensata for a difference

1. What is initial measurement of the oil inventory received

2. What is the initial measurement of the oil inventory

Problem 23-23 Multiple choice (PAS 16)

1. Which is not a characteristic of property, plant and equipment?

4. Costs directly attributable to the asset include all, except

5. Which cost should be expensed immediately?

Problem 23-24 Multiple choice (IAA)

1. A nonmonetary exchange is recognized at fair value asset exchanged

2. In an exchange with commercial substance