Deferred Settlement

Illustration 5: Deferred Settlement - No cash price equivalent.

On January, 20x1 ABC Co. acquired a building for P950,000

including P5,000 non-refundable purchase taxes. The purchase
agreement provided for payment to be made in full on December
31, 20x1. Legal fees, related to the acquisition, amounting to 2,000
were paid on January 1, 20x1. The effective interest rate is 10%

Requirement: Compute for the initial cost of the building

Self Construction
Self Construction
Illustration: Cost of Self-Constructed Assets
ABC Co. Purchased a lot for 2,000,000. Immediately after the
purchase, ABC started construction of a new building on the lot.
ABC Co. incurred the following additional costs.
ACQUISITION THROUGH
EXCHANGE
Acquisition through Exchange
Illustration: Exchange
ABC Co. and XYZ, Inc. Exchanged equipment. Relevant information
follows.

Case 1: With commercial substance- FV of asset given up

Case 2: With commercial substance- FV of asset received
Case 3: No commercial substance
ACQUISITION THROUGH
TRADE-IN
Acquisition through Trade-In
Illustration: Trade-In
ABC Co. traded-in an old machine for a new model. Pertinent
data are as follows
 Issuance of own Equity Instrument
cquisitions of assets through the issuance of an entity’s own
quity instrument are accounted for PFRS 2 Share Based
ayments. Under PFRS 2 the asset received is measured using
e following order of priority:
Fair value of asset received
Fair value of the equity instrument
Carrying Amount of equity given up
Issuance through own Equity Instrument
Illustration:
ABC Co. acquired land with fair value of 1,000,000 by issuing
10,000 shares with par value of 10 per value share and quoted
price 90 per share.
ISSUANCE OF DEBT
INSTRUMENT
Issuance through Debt Instrument
Illustration: On January 1, 20x1, ABC Co. acquired a piece of equipment
with fair value of 950,000 by issuing a 3-year, 1,000,000 face amount,
10% debt instrument. Principal is due at maturity but interest is due
annually. The present value of future cash flow on the debt instrument
discounted at the current market rate of 12% is 951,963.

Requirement; Provide the entry assuming the debt instrument issued is

a. Bonds payable
b. Notes payable
Donation
Issuance through Donation
Illustration:
ABC Co. received from XYZ Inc. an unconditional donation of land with
fair value of 1,000,000. ABC CO. incurred legal and registration fees of
10,000 in transferring title to the land.

Requirement: Provide the entries assuming XYZ, Inc. Is

a. Shareholder of ABC Co. and,
b. An unrelated party
 Classes of Property, Plant,
and Equipment

• Equipment
• Land
• Machinery
• Buildings
• Delivery Equipment
• Bearer Plants
• Transportation Equipment
• Furniture & Fixtures
• Office equipment
Lump-sum Purchase of Items
of Property, Plant, and
Equipment
Demolition Costs
Case 1: To Construct a new building
Case 2: To Clear the land for a possible future
sale.
Illustration 1: Lump-sum acquisition- building not demolished

On April 1, 20x1 ABC Co. Purchased land and building by paying 10,000,000
and assuming a mortgage of 2,000,000. The land building has fair values of
5,000,000 and 10,000,000 respectively. ABC Co. will use the building as its new
office. ABC Co. Also incurred the following costs.
Illustration 2: Lump-sum acquisition- building demolished

ABC Co. purchased land and building at a lump-sum price of 12,000,000. After
the acquisition , ABC Co. razed the existing building and started the construction o
a new one. Additional information is as follows:
Decommissioning and
Restoration costs
Illustration: Cost of equipment-with decommissioning cost

ABC Co. acquired an oil rig for P 100,000,000. Installation and other
necessary costs in bringing the equipment to its intended condition for use
totaled P20,000,000. A law requires ABC CO. To dismantle the equipment
and restore the installation site after 20 years. The estimated
decommissioning and restoration costs are P10,000,000. The appropriate
pre-tax discount rate is 12%.

Requirement: Compute for the initial cost of the equipment.

Depreciation
Depreciation Methods
Based on Time:
• Straight Line Method
• Accelerated Depreciation Methods
• Sum of the year’s Digit Method
• Double Declining Methods
• Partial Year Depreciation
Based on Actual Physical Use:
• Units of Production Method
• Input Method (Based on Hours)
• Output Method (Based on units produced)
Other Depreciation Methods:
• Composite Method and Group Method
• Retirement and Replacement Method
• Inventory Method
 Illustration: Straight line method to Partial Year Depreciation

On January 1, 20x1 an entity acquired a piece of equipment for

100,000. The equipment is estimated to have a useful life of 5 years and a
residual value of 20,0000

Requirement: Compute for depreciation using this methods:

1. Straight Line Method
2. Sum-of-the-years Method
3. Double Declining Balance Method
4. Partial Year Depreciation
 Illustration: Composite and Group Method

On January 1, 20x1, an entity acquired the following assets:

Cost Residual Value Useful Life
Machine Tools 20,000 2,000 3 years
Meters 16,000 1,000 5 years
Returnable 30,0000 ----- 6 years
containers

Subsequent Replacement and addition:

In 20x2, old returnable containers using 5,000 were replaced by new
containers costing 6,000
Subsequent Disposal:
In 20x3, machine tools with original cost of 5,000 and residual value of
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