2015 Vol 1 Ch 5 Ans.pdf

CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT PROBLEMS 5-1.

a.

Cash price is the cost.

P285,000

b.

Downpayment Notes payable (70,000 x 3.3121)

P100,000

231,847 Cost of machine P331,847 c.

d.

e.

5-2.

Purchase price Appraisal cost Total cost to be allocated Allocation: Land 22,150,000 x 10,000/25,000 Building 22,150,000 x 12,500/25,000 Equipment 22,150,000 x 2,500/25,000

P882,000 25,095 P907,095

Purchase price 154,560/1.12 Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800 Total cost

P138,000 10,300 P148,300

(Uy Company)

Warehouse Manager’s residence

(49,500,000 (49,500,000 1,200,000 (49,500,000 (49,500,000

x 21,875,000/56,250,000) x 20,000,000/56,250,000) +

19,250,000 18,800,000

x 9,375,000/56,250,000) x 5,000,000/56,250,000)

8,250,000 4,400,000

(Chang Corporation) a. b.

5-4.

P 8,860,000 P 11,075,000 P 2,215,000

Cash price 1,000,000 x .90 x .98 Present value of the dismantling costs 50,000 x 0.5019 Cost of equipment

Land Office building

5-3.

P22,000,000 150,000 P22,150,000

720,000 x .90 Down payment Present value of 24 monthly installments 25,000 x 21.2434 Total

P648,000 P150,000 531,085 P681,085

(Planters Company and Producers Company) Books of Planters Company Cash Equipment Accumulated Depreciation-Building Gain on Exchange of Building

50,000 350,000 540,000 40,000

Building 900,000-540,000=360,000;400,000–360,000=40,000

900,000

G Books of Producers Company Building

400,000

Chapter 5- Property, Plant and Equipment

5-5.

Accumulated Depreciation-Equipment Loss on Exchange of Equipment Cash Equipment 800,000-320,000 = 480,000; 480,000-350,000=130,000 L (Black Company and Berry Company) Books of Black Company Equipment Accumulated Depreciation-Building Cash Building Books of Berry Company Building Accumulated Depreciation-Equipment Equipment Cash

5-6.

900,000 530,000 320,000 800,000 50,000

(Abatis Forwarders) 10,340,000 4,400,000 `

55,000 16,000 8,000 48,000 31,000

(a) King Company Tooling Machine Automobile (net) Gain on Exchange of Automobile

170,000 140,000 30,000

(b) Princess Company Machinery (new) Accumulated Depreciation – Machinery (old) Loss on Exchange of Machinery Machinery (old) Cash 5-9.

12,800,000 340,000 1,600,000

(Business Processing, Inc.) Equipment (new) 24,000 + 31,000 Accumulated Depreciation Loss on Exchange of Equipment Equipment ((old) Cash (64,000 – 33,000)

5-8.

50,000 800,000

310,000 540,000 50,000

Land Accumulated Depreciation – Trucks Trucks Cash Gain on Exchange of Trucks 5-7.

320,000 130,000

1,200,000 340,000 190,000 850,000 880,000

(Urban Corporation) Land P12,000,00 0

Land purchase Demolition of old building (net of P70,000 salvaged from demolished building) Legal fees for land acquisition Building permit fees Interest on loan for construction Building construction costs Landscaping costs* Equipment purchased of use in excavation (800,000 – 640,000) Fixed overhead allocated to building construction

38

Land Improvements

Building

P 230,000 150,000 80,000 270,000 15,000,000 P3,500,000 160,000 100,000

Chapter 5- Property, Plant and Equipment Total costs

P12,150,00 P3,500,000 P15,840,000 0 *Landscaping costs may be charged to the land account if there is an indication that such an expenditure is permanent in nature. Compensation for injury to construction worker is chargeable to loss; this expenditure could have been avoided had the company obtained insurance on its workers. If an insurance was acquired, the amount of premiums paid may be charged to the building being constructed. Profit on construction is not recognized elsewhere in the accounts. The self-constructed asset should be charged for the actual costs incurred in its completion. The cost of modifications to the new building per instruction by the building inspectors is charged to loss since this expenditure is not a necessary expense for the asset. This was incurred as a result of the company’s negligence and could have been avoided had proper planning been done. 5-10.

(Day Company) Purchase price of land Legal fees for purchase contract and recording ownership Delinquent property taxes on land Proceeds from sale of salvaged materials Total

5-11.

P4,000,000 150,000 50,000 (20,000) P4,180,000

(Yu Corporation)

Balances, December 31, 2014 Cash paid on purchase of land Mortgage assumed on the land bought including interest at 10% Legal fees, realty taxes and documentation expenses Payment to squatters

Land P7,000,000

Land Improvements P500,000

P 9,000,000

4,500,000 5,000,000 50,000 100,000

Razing costs of old building

120,000

Salvage value from building demolition

(150,000)

Cost of fencing the property Paid to a contractor for building erected Building permit fee Excavation expenses Architect’s fees Invoice cost of machines acquired Freight, unloading and delivery charges Custom duties and other charges Allowances, hotel accommodations paid to technicians during installation and test runs of machines Balances, December 31, 2015

Buildings

Machinery and Equipment P 980,000

500,000 12,000,000 20,000 50,000 150,000 2,000,000 60,000 140,000

P16,550,00 0

P1,000,000

P21,290,00 0

400,000 P3,580,000

The interest of P150,000 is an imputed interest and is not reported anywhere in the financial statements.

39

Chapter 5- Property, Plant and Equipment The royalty payments of machines purchased are charged to operating expense for the period. 5-12.

(Metro Company) a. b.

c.

P4,000,000 x 10% Less interest income earned on temporary investment of loan Capitalized interest 1,250,000 x 10% 1,250,000 x 10% x 9/12 1,250,000 x 10% x 6/12 1,250,000 x 10% x 3/12 Total interest Less interest income earned on temporary investment of loan Capitalized interest Total construction costs Total cost of building Computation of average accumulated expenditures: 1,400,000 x 12/12 1,000,000 x 9/12 1,200,000 x 6/12 1,000,000 x 3/12 400,000 x 0/12 Average accumulated expenditures

P400,000 ( 125,000) P275,000 P 125,000 93,750 62,500 31,250 P 312,500 40,000 P 272,500 5,000,000 P5,272,500 P1,400,000 750,000 600,000 250,000 ---------P3,000,000

Computation of weighted average interest rate: (10% x 1,600,000) + (12% x 2,000,000) 11.11% 1,600,000 + 2,000,000 Interest of specific borrowing: 1,800,000 x 10% Less interest earned Interest on general borrowing: 3,000,000 – 1,800,000 = 1,200,000 1,200,000 x 11.11% Capitalized interest d.

5-13.

P180,000 10,000

2,800,000 x 10% 1,600,000 x 10% 2,000,000 x 12% Total interest on loans Less capitalized interest 680/6,400 x 3M Interest expense for 2015

P170,000 133,320 P303,320 P280,000 160,000 240,000 P680,000 318,750 P361,250

(Lim Company) 3,600,000 x 12/12 6,000,000 x 7/12 15,000,000 x 6/12 15,000,000 x 1/12 Average accumulated expenditures a.

b.

P3,600,000 3,500,000 7,500,000 1,250,000 P15,850,000

Interest on specific borrowing (30,000,000 x 12%) Less interest revenue earned from temporary investments of specific borrowing Capitalized interest

P 3,600,000

Interest on specific borrowing (12,000,000 x 12%) Less interest revenue earned from temporary

P 1,440,000

40

249,000 P 3.351,000

Chapter 5- Property, Plant and Equipment investments of specific borrowing

249,000 P

1,191,000 Interest on general borrowings 15,850,000 – 12M = 3,850,000; 3,850,000 x 12.14%* 467,390 Capitalized interest ** 6,800,000 ÷ 56,000,000 = 12.14% 5-14.

(Alondra Corporation) (a)

(b) 5-15.

5-16.

P 1,658,390

Average accumulated expenditures: 4,000,000 x 12/12 8,000,000 x 9/12 12,200,000 x 6/12 8,800,000 x 3/12 7,000,000 x 0/12 Average accumulated expenditures Weighted average interest rate of general borrowings: 10% x 12,000,000 + 12% x 14,000,000 = 11.08% 12,000,000 + 14,000,000 Capitalized interest Specific borrowing (12% x 17 million) General borrowings 18,300,000 – 17,000,000 = 1,300,000 1,200,000 x 11.08% Total

P 4,000,000 6,000,000 6,100,000 2,200,000 -----P18,300,000

P2,040,000 144,040 P2,184,040

Total cost of building = Total construction cost + capitalized interest cost = P40,000,000 + P2,184,040 = P42,184,040

(Pifer Corporation) (a)

Materials Direct labor Overhead 2,000,000 – (150% x 1,000,000) Total

P1,250,000 250,000 500,000 P2,000,000

(b)

Materials Direct labor Overhead (2,000,000 x 250/1,250) Total

P1,250,000 250,000 400,000 P1,900,000

(Pioneer Development Corporation) (a)

Land Cash Unearned Income from Government Grant Building Cash Depreciation Expense Accumulated Depreciation (15,000,000/20 years)

3,000,000 50,000 2,950,000 15,000,000 15,000,000 750,000 750,000

Unearned Income from Government Grant Income from Government Grant (2,950,000/20 years) 147,500 (b)

Property, Plant and Equipment Land Less Unearned Income from Government Grant

41

147,500

P3,000,000 2,802,500 P 197,500

Chapter 5- Property, Plant and Equipment

Alternatively, the unearned income from government grant may be presented as part of the entity’s liabilities. 5-17.

(Tan Company) a.

Depreciation charges for 2014 and 2015 2014 1. SL 2. Hrs worked 3. Units of output 4. SYD 5. DDB 6. 150% DB

b.

Carrying amount of the asset at the end of 2015 Depreciation Method Cost 1. 2. 3. 4. 5. 6.

5-18.

Straight-line Hours worked Units of output SYD DDB 150% declining balance

90,000 7.20 x 6,000 hrs = 43,200 0.80 x 64,000 units = 51,200 720,000 x 7.25/36 =145,000 800,000-150,000=650,000 25% x 650,000 = 162,500 800,000-112,500=687,500 18.75% x 687,500) = 128,906 Accum. Depr.

800,000 800,000 800,000 800,000 800,000 800,000

157,500 79,200 87,200 265,000 312,500 241,406

Carrying amount 642,500 720,800 712,800 535,000 487,500 558,594

(De Oro Company) a.

Method 1 Method 2 -

Method 3 -

b.

5-19.

2015

(800,000 – 80,000) / 8 = 90,000 90,000 x 9/12= 67,500 720,000/100,000 hrs = 7.20/hr. 7.20 x 5,000 hrs = 36,000 720,000/900,000 units = 0.80/unit 0.80 x 45,000 units = 36,000 720,000 x 8/36 x 9/12 = 120,000 2/8 = 25% 25% x 800,000 x 9/12=150,000 1.5/8 = 18.75% 18.75% x 800,000 x 9/12= 112,500

Straight-line method Sum-of-the-years digits method 320,000 ÷ 80,000 = 4 year life 320,000 x 4/10 = 128,000 320,000 x 3/10 = 96,000 150% declining-balance method 1.5 ÷ 4 = 37.5% 37.5% x 340,000 = 37.5% x (340,000-127,500) =

Straight line method Sum-of-the-years digits method (320,000 x 2/10) 150% declining balance method 37.5% x (340,000-127,500-79,688)

127,500 79,688 P80,000 64,000 49,804

(Real Company) a.

2/5 = 40%; 26,400 ÷ 40% = 66,000

b.

12,000 x 5 years = 60,000; 66,000 – 60,000 = 6,000

c.

Carrying amounts, end of year 3 Straight-line (66,000 – 36,000) Sum-of-the-years digits(66,000 – 48,000

)

= P30,000 =

P18,000 Double-declining balance (66,000 – 52,744) = P13,256 The method with the lowest carrying amount at time of sale will yield the highest amount of gain on disposal. Therefore, the double-declining balance method will

42

Chapter 5- Property, Plant and Equipment provide the highest gain on disposal at the end of year 3.

5-20.

5-21.

(Citi Company) a.

Depreciation Expense for 2015 25% x 1,600,000 x 1/2

P200,000

b.

Sales price Carrying value on November 30, 2018 Cost Less accumulated depreciation 1,500,000 x (45/96) Loss on sale

P300,000

(b)

(c) (d) (e)

896,875 P596,875

Depreciation Expense – Equipment Accumulated Depreciation - Equipment (82,000-2,000)/10 = P8,000 (33,000-3,000)/6 = 5,000 (22,000-1,000)/7 = 3,000 (18,000 -2,000)/5 = 3,200 Total P19,200

19,200 19,200

Cash Accumulated Depreciation – Equipment (3,200 x 4) Loss on Sale of Equipment Part Equipment

5,000 12,800 200

Equipment Cash

20,000

18,000 20,000

Depreciation Expense – Equipment Accumulated Depreciations – Equipment

19,200

Depreciation Expense – Equipment Accumulated Depreciation – Equipment Components 1 – 3 = P16,000 Component 4 = 20,000/5 4,000 Total depreciation for P20,000

20,000

19,200 20,000

(Total Company) a.

b. c. 5-23.

703,125

(Asiaplus Corporation) (a)

5-22.

P1,600,000

Cost Less accumulated depreciation (1,100,000 ÷ 10) x 4 Carrying amount of the asset, beginning of 5th year Revised depreciation for the 5th year 760,000-100,000 = 660,000; 660,000 x 6/21

P1,200,000 440,000 P 760,000 P 188,571

Revised depreciation for the 5th year (760,000 – 60,000) / 5 years

P 140,000

Revised depreciation for the 5th year 760,000 / 4 years

P 190,000

(Standard Company) Cost Less accumulated depreciation: 2015 20% x 500,000 2016 20% x 400,000

P500,000 100,000 80,000

43

Chapter 5- Property, Plant and Equipment 2017 20% x 320,000 64,000 2018 20% x 256,000 51,200 Carrying amount, January 1, 2019 Depreciation expense for 2019 204,800 – 10,000 = 194,800; 194,800 ÷ 5 years 5-24.

P 38,960

(Carmi Company) (a)

Depreciation for 2017 January 1 to August 1 (378,000 – 35,000)/5 x 7/12 August 1 to December 31 (320,800 – 50,000) / (5 – 2) + 2 = 270,800 270,800 / 5 x 5/12 Total

(b)

5-25.

295,200 P204,800

Cost Less: Accumulated Depreciation (378,000–35,000)/5 x 2 Carrying value, August 1, 2017 Capitalized overhaul costs Carrying value after overhaul Depreciation, August 1 – December 31, 2015 (see above) Depreciation for year 2018 Carrying value, December 31, 2018 (Chu, Inc.)

P40,017 22,567 P62,584 P378,000 137,200 P240,800 80,000 P320,800 (22,567) (54,160) P244,073

Accum, depreciation balance, January 1, 2019 (528,000 x 4/8) P264,000 Revised depreciation expense for 2019 528,000 – 264,000 = 264,000 264,000/ 2 yrs. 132,000 Accumulated depreciation balance, December 31, 2019 P396,000 5-26.

(Imaculada Company) (a)

Accumulated Depreciation 137,500 Loss on Disposal of Machine Parts 112,500 Machinery To remove the carrying value of the replaced engine block 250,000/10 years = 25,000 25,000 x 5.5 years = 137,500 Machinery Cash

250,000

320,000 320,000 To capitalize the cost of replacement

Depreciation Expense 82,875 Accumulated Depreciation To record depreciation for 2019 January 1 – July 1, 2019 (prior to replacement) (1,000,000/10 years) x 6/12 July 1 – December 31, 2019 (after replacement) Carrying value, July 1 (1M/10) x 4.5 years 450,000 CV of old engine block (112,500) Cost of new engine block 320,000 Depreciable carrying value 657,500 Remaining life ÷ 10 yrs Revised annual depreciation 65,750 x ½ Total depreciation expense for 2019

44

82,875

50,000

32,875 82,875

Chapter 5- Property, Plant and Equipment

Alternative computation: New engine block 320,000/10 = 32,000; 32,000 x 6/12 Replaced engine block 25,000 x 6/12 Remaining parts of machinery 1,000,000 – 250,000 = 750,000 (750,000/10) x 6/12 (750,000/10 years) x 4.5 = 337,500 (337,500/10 years) x 6/12 Total depreciation expense for 2019 (b)

Accumulated Depreciation Loss on Disposal of Machine Parts Machinery 320,000/10 years = 32,000 32,000 x 5.5 years = 176,000

176,000 144,000

Machinery Cash

320,000

37,500 16,875 82,875

320,000 81,300 50,000

31,300 81,300

(Remedios Company) (a)

(b)

5-28.

12,500

320,000

Depreciation Expense 81,300 Accumulated Depreciation January 1 – July 1, 2019 (prior to replacement) (1,000,000/10 years) x 6/12 July 1 – December 31, 2019 (after replacement) Carrying value, July 1 (1M/10) x 4.5 years 450,000 CV of old engine block (144,000) Cost of new engine block 320,000 Depreciable carrying value 626,000 Remaining life ÷ 10 yrs Revised annual depreciation 62,600 x ½ Total depreciation expense for 2019 5-27.

16,000

Cost of Leasehold Improvements Less Accumulated Depreciation 1,200,000/10 years = 120,000 x 4 years Lease term is 10 years; Useful life is 12 years Shorter period is 10 years Carrying value, December 31, 2015 Carrying value, December 31, 2015 Revised remaining lease term is 11 years (10 – 4 + 5) Remaining useful life is 8 years (12 – 4) Shorter period is Depreciation expense for 2016

P1,200,000

480,000 P 720,000 P 720,000

P

÷ 8 years 90,000

(Joice Company) (a)

Recoverable amount is the higher of fair value less cost to sell and the asset’s value in use P420,000 Fair value less cost to sell (450,000 – 30,000) P420,000 Value in use 100,000 x 3.7908 P379,080 20,000 x 0.6209 12,418 P391,498

(b)

Carrying value of the asset, December 31, 2015

45

Chapter 5- Property, Plant and Equipment Cost Less accumulated depreciation (810,000/9) x 4 years Recoverable amount (see a) Impairment loss (c) 5-29.

5-30.

P860,000 360,000

Depreciation expense for 2015 (420,000 -20,000)/5 years

P500,000 420,000 P 80,000 P 80,000

(Island Souvenirs, Inc.) (a)

Value in use (1,500,000 – 700,000) x 3.7908 Residual value (500,000 x 0.6209) Total

P3,032,640 310,450 P3,343,090

(b)

Carrying value (9,000,000 – 1,500,000) P7,500,000 Recoverable amount (higher between P3,200,000 and P3,343,090) 3,343,090 Impairment loss P4,156,910

(c)

Revised annual depreciation (3,343,090–500,000)/5

P 568,618

(Lu Company) Depreciation Expense 56,250 Accumulated Depreciation To record depreciation expense for 2015 (500,000 – 50,000) / 8

56,250

Impairment Loss 131,250 Accumulated Depreciation 131,250 To record impairment loss. Carrying value 500,000 – (56,250 x 3 years) P331,250 Recoverable value 200,000 Impairment loss P131,250 Depreciation Expense 90,000 Accumulated Depreciation To record depreciation expense for 2016 (200,000 – 20,000) / 2 years 5-31.

90,000

(Twin Head Corporation) (a)

Depreciation expense 5,600,000 / 16 years

2013 350,000

(b)

December 31, 2015 Depreciation Expense Accumulated Depreciation Accumulated Depreciation Recovery of Previous Impairment Recoverable amount Carrying value (5,600,000 – 700,000) Increase in value Limit on recovery: Impairment loss

46

2014 350,000

350,000 350,000 2,100,000 2,100,000 7,500,000 4,900,000 2,600,000 2,400,000

Chapter 5- Property, Plant and Equipment Recovered impairment 2,400,000 / 16 years = 150,000; 150,000 x 2 years Limit on recovery (c)

(d) 5-32.

5-33.

Cost Accumulated depreciation (4,400,000 + 700,000 2,100,000) Carrying amount, December 31, 2015 To check: Limit on carrying value without impairment 10,000,000 x 14/20

300,000 2,100,000 10,000,000 3,000,000

–

7,000,000 7,000,000

Depreciation expense for 2016 (7,000,000 / 14 years)

500,000

(Coco Company) (a)

Cost Accumulated depreciation 12/31/14 (300,000/10) x 2 Carrying amount 12/31/14 before impairment Recoverable amount Impairment loss

P300,000 ( 60,000) P240,000 192,000 P 48,000

(b)

Carrying value 12/31/14 after impairment 2015 depreciation (192,000/8) Carrying amount 12/31/15 before recovery

P192,000 ( 24,000) P168,000

(c)

Carrying amount before recovery of impairment New recoverable amount Increase in value Limit on recovery Previous impairment P48,000 Recovered in 2015 (30,000 – 24,000) (6,000) Limit on recovery P42,000 Impairment recovery to be recognized at 12/31/15

P168,000 222,000 P 54,000

(a) 01/01/13

Equipment

P 42,000 2,000,000

Revaluation Surplus Accumulated Depreciation 3,600,000-2,400,000 = 1,200,000 (50% Inc.) 50% x 4,000,000 = 2,000,000 50% x 1,600,000 = 800,000 (b) 12/31/13

12/31/14

(c) 01/01/15

1,200,000 800,000

Depreciation Expense Accumulated Depreciation-Equipment 3,600,000 ÷ 6 yrs = 600,000 Revaluation Surplus Retained Earnings (1.2M/6)

600,000

Depreciation Expense Accumulated Depreciation-Equipment Revaluation Surplus Retained Earnings

600,000

Accumulated Depreciation-Equipment Revaluation Surplus

600,000 400,000

600,000 200,000 200,000 600,000 200,000 200,000

Equipment (d) 12/31/15

1,000,000

Depreciation Expense

500,000

47

Chapter 5- Property, Plant and Equipment Accumulated Depreciation-Equipment

500,000

2M ÷ 4 yrs = 500,000 Revaluation Surplus Retained Earnings 1.2M-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000

5-34.

Cost

Original 4.000M

Accum

1.600M

CV

2.400M

1/1/13 +2.00 M +0.80 M +1.20 M

1/1/13 6.000M 2.400M 3.600M

2013 & 2014 +1.20 M -1.20M

100,000 100,000

12/31/14 6.00M

1/1/15 -1.00M

1/1/15 5.00M

12//31/15 5.00M

3.60M

-0.60M

3.00M

3.50M

2.40M

-0.40M

2.00M

1.50M

(Samsung Company) 1/1/15 12/31/15 12/31/16 12/31/16

12/31/17

12/31/18

12/31/18

12/31/19 12/31/19 12/31/20

Machinery Cash Depreciation Expense (3,600,000/10) Accumulated Depreciation Depreciation Expense Accumulated Depreciation Machinery Accumulated Depreciation Revaluation Surplus

3,600,000

Cost Machinery 3,600,000 Accumulated Depreciation 720,000 Net 2,880,000 Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000) Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000) Accumulated Depreciation Revaluation Surplus (240,000 – 30,000 – 30,000) Revaluation Loss Machinery New Rev Machinery 3,350,000 Accumulated Depreciation 1,340,000 Net 2,010,000

Revalued 3,900,000 780,000 3,120,000 390,000

3,600,000 360,000 360,000 360,000 360,000 300,000

390,000 30,000 30,000 390,000 390,000 30,000 30,000 220,000 180,000 150,000 Ledger Bal 3,900,000 1,560,000 2,340,000

Depreciation Expense (2,010,000 / 6 years) Accumulated Depreciation

335,000

Depreciation Expense Accumulated Depreciation

335,000

Machinery Accumulated Depreciation Recovery of Previous Revaluation Loss (P & L) Revaluation Surplus Increase in asset value Unrecovered revaluation loss Initial revaluation loss Recovered through lower depreciation

48

60,000 240,000 Increase 300,000 60,000 240,000

550,000 Decrease 550,000 220,000 330,000 335,000 335,000

1,150,000 690,000 100,000 360,000 460,000 150,000

Chapter 5- Property, Plant and Equipment 150,000 / 6 = 25,000; 25,000 x 2 years Revaluation surplus New Rev Machinery 4,500,000 Accumulated Depreciation 2,700,000 Net 1,800,000 Check:

12/31/21

Carrying value based on cost (no revaluation loss) (3,600,000 x 4 years) / 10 years Revalued amount, 12/31/12 Revaluation Surplus Depreciation Expense 1,800,000/4 Accumulated Depreciation Revaluation Surplus (360,000 / 4 years) Retained Earnings

5-35.

5-36.

50,000 Ledger Bal 3,350,000 2,010,000 1,340,000

100,000 360,000 Increase 1,150,000 690,000 460,000

1,440,000 1,800,000 360,000 450,000 450,000 90,000 90,000

(Lakers, Inc.) (a)

Cost Accumulated depreciation 12/31/15 (100,000/10) Net Revalued amount Revaluation surplus 12/31/15

P100,000 ( 10,000) 90,000 112,500 P 22,500

(b)

Carrying amount 12/31/17 (112,500 x 7/9) Recoverable amount Decrease in value Remaining balance of Revaluation Surplus (22,500 x 7/9) Impairment loss in profit or loss

P 87,500 67,375 P 20,125 ( 17,500) P 2,625

(c)

As of 1/1/18 Depreciation expense for 2018 (67,375/7) Net before revaluation on 12/31/18 Revalued amount Increase in value Unrecovered impairment loss (2,625 x 6/7) Revaluation surplus, December 31, 2018 To check: CV without impairment, cost model 100,000 x 6/10 Revaluation surplus, December 31, 2018 Revalued amount, December 31, 20158

P67,375 ( 9,625) 57,750 73,000 P15,250 ( 2,250) P13,000 P60,000 13,000 P73,000

(Allied Company) Purchase price Residual value Development costs incurred and capitalized during 2013 Depletable cost 1/1/14 Estimated supply of mineral resources Depletion expense per ton in 2014 Number of tons removed during 2014 Depletion expense for 2014

P4,450,000 ( 650,000) 750,000 P4,550,000 ÷3,500,000 P 1.30 x 550,000 P 715,000

Depletable cost, January 1, 2014 (see above) Less depletion expense for 2014 Add development costs incurred and capitalized during 2015

P4,550,000 ( 715,000) 961,000

49

Chapter 5- Property, Plant and Equipment Depletable cost for 2015

P4,796,000

Revised estimated supply of mineral resource, 2015 Revised depletion rate per ton Number of tons removed during 2015 Depletion expense for 2015 5-37.

5-38.

÷4,360,000 P 1.10 700,000 P 770,000

(Ong Exploration Company) Purchase price Development costs Salvage value Restoration costs at present value (2,500,000 x 0.4632) Depletable cost Estimated recovery from the property Depletion rate per metric ton Resources extracted during 2015 Depletion expense for 2015

P45,000,000 1,500,000 ( 6,000,000) 1,158,000 P41,658,000 ÷10,000,000 P 4.1658 x 1,000,000 P 4,165,800

Depletable cost, 2015 (see above) Depletion expense for 2015 Development costs in 2016 New depletable cost for 2016 Remaining number of metric tons (9,250,000-1,000,000) Revised depletion per metric ton (rounded) Number of metric tons removed during 2016 Depletion expense for 2016

P41,658,000 ( 4,165,800) 750,000 P38,242,200 ÷ 8,250,000 P 4.64 x 1,500,000 P 6,960,000

(Family Mining Company) Depletion rate per ton: 4,000,000 + 400,000 – 200,000 1,400,000 tons

P3.00

Depreciation expense per ton: 300,000 – 20,000 1,400,000 tons

P0.20

(a)

(b)

(c)

Cost of ending inventory 2,000 units x 6 months Production cost per unit (8.00 + 3.00 + 0.20) Ending Inventory, December 31, 2015 Cost of goods sold 18,000 units x 6 months Production cost per unit Cost of goods sold for 2015

Depletable cost in 2015 Less depletion expense for 2015 20,000 units x 6 months 120,000 Depletion rate per ton x 3.00 New depletable cost for 2016 Revised estimated recovery at January 1, 2016 Revised depletion rate for 2016

50

12,000 x 11.20 P134,400 108,000 x 11.20 P1,209,600

P4,200,000 360,000 P3,840,000 ÷ 800,000 P 4.80

Chapter 5- Property, Plant and Equipment Depreciable cost in 2015 Less depreciation expense for 2015 (120,000 units x 0.20) Depreciable cost for 2016 Revised estimated recovery at January 1, 2016 Revised depreciation rate for 2016 5-39.

P 280,000 ( 24,000) P 256,000 ÷ 800,000 P 0.32

(Dungeon Mining) (a)

7,500,000/1,000,000 = 7.50/ton; 7.50 x 100,000 = P750,000 each year (Note: mining period, which is 10 years, 1,000,000/ 100,000, is shorter than the useful life in years; hence, unit of output method is used.)

(b)

Cost Less depreciation expense for the 1st and 2nd years Less depreciation for the 3rd and 4th years 6M/8yrs = 750,000; 750,000 x 2 years Carrying value at the end of the 4th year

P7,500,000 (1,500,000) (1,500,000) P4,500,000

(During shutdown period, the depreciation shall be computed based on remaining life, on a time-factor basis, generally straight-line.) (c)

150,000 tons/ year x 6 years = 900,000 4,500,000/900,000 = 5/ton; 5 x 150,000

P 750,000

With new estimate of annual production, mining period is shorter, at the beginning of the fifth year. The company shall compute depreciation using unit of output. (d)

5-40.

Carrying value at the end of the 4th year Less depreciation expense for the 5th and 6th years Carrying value at the end of the 6th year

P4,500,000 (1,500,000) P3,000,000

(Yap Machine Shop) (a) 1.

2.

3. 4.

5. 6.

7.

Cash Accumulated Depreciation-Building Loss on Disposal of Assets Land Building Cash Accumulated Depreciation-Equipment Loss on Disposal of Assets Equipment Equipment Cash

1,700,000 450,000 150,000 800,000 1,500,000 120,000 250,000 30,000 400,000 298,000 298,000

Land Income from Donated Asset Cash

8,000,000 7,800,000 200,000

Building Cash

240,000

Equipment Accumulated Depreciation-Equipment Gain on Disposal of Assets Equipment Cash

150,000 15,000

240,000

Building Cash

22,000 40,000 103,000 28,000,000 28,000,000

51

Chapter 5- Property, Plant and Equipment (b) Beginning balance (3) (4) (5) (6) (7) Total Balance 5-41.

Property, Plant and Equipment (Net) 2,150,000 (1) 298,000 (2) 8,000,000 240,000 125,000 28,000,000 39,053,000 Total 36,813,000

1,850,000 150,000

2,000,000

(Pat Corporation) (a)

Depreciation and amortization expense for year ended December 31, 2015 Buildings 1.5/25 = 6%; (12,000,000-2,631,000) x 6% P 562,140 Machinery and Equipment Based on beginning balance (9,000,000 x 10%) P900,000 Less depreciation of machine destroyed 230,000 x 10% x 9/12 17,250 P 882,750 New machine 2,800,000 + 50,000 + 250,000=310,000 3,100,000 x 10% x 6/12 155,000 Total P1,037,750 Automotive Equipment Based on beginning balance P180,000 Less depreciation of car traded 180,000 x 2/10 36,000 P 144,000 New car (240,000 x 4/10) 96,000 Total P 240,000 Leasehold Improvement (1,680,000 x 8/80) P 168,000

(b)

Gain ( loss) from disposal of assets Car traded in Fair value of car traded in (240,000 – 200,000) P 40,000 Book value of car traded 54,000 P(14,000) Machine destroyed by fire Insurance recovery P155,000 Book value of machine (230,000 x 4/10 ) 92,000 63,000 Net gain from disposal of assets

P

49,000 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7

B B C C C A C

MC8 MC9 MC10 MC11 MC12 MC13 MC14

B C B B A D D

MC15 MC16 MC17 MC18 MC19 MC20 MC21

B B D B B D D

MC22 MC23 MC24 MC25 MC26 MC27 MC28

Problems MC36 MC37 MC38

D C D

14,400,000 x 5/20 = 3,600,000 200,000 + 3,000 + 6,000 = 209,000 Cost of equipment is the fair value of FVPL exchanged

52

B D B D D C A

MC29 MC30 MC31 MC32 MC33 MC34 MC35

C B D C C C D

Chapter 5- Property, Plant and Equipment MC39 MC40 MC41

D C

MC42

C

MC43

C

MC44

C

MC45

C

MC46 MC47

B A

MC48

A

MC49 MC50 MC51

D C A

MC52

C

MC53

B

MC54 MC55 MC56

B A C

MC57 MC58 MC59 MC60

A D D C

MC61 MC62

C A

MC63

B

MC64

D

MC65

B

MC66

C

MC67 MC68 MC69 MC70

D C B B

MC71

A

MC72 MC73

D C

(800,000 – 20,000) x 12/78 x 9/12 = 90,000 780,000x11.25/78=112,500;90,000+112,500=202,500;800,000–202,500=597,500 4,500,000 + 30,000 + 6,000 = 4,536,000 10,000+50,000+40,000+60,000+90,000+45,000+150,000+9,800,000= 10,245,000 1,800,000 x 10% = 180,000; 180,000 – 45,000 = 135,000 2,500,000 – 1,800,000 = 700,000;7 00,000 x 9% = 63,000; 135,000+63,000=198,000 4,000,000x10%x6/12=200,000;750,000x12% x 6/12=45,000;200,000+45,000=245,000 1M+(4M÷ 2)=3M; 2M x 10% = 200,000;1M x 11%=110,000; 200,000+110,000=310,000 20,000FV–cash3,000 =17,000 cost; 40,000–30,000=10,000; 20,000–10,000 = 10,000 G 205,000 – 60,000 = 145,000; 145,000 – 168,000 = 23,000 4,500,000 + 1,320,000 + 77,000 + 53,000 = 5,950,000 total depreciable cost 112,500 + 66,000 + 9,625 + 13,250 = 201,375; 5,950,000 ÷ 201,375 = 29.5 yrs. 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000;201,375 ÷ 6,335,000 = 3.18% 4,500,000 ÷ 40 yrs. = 112,500 77,000 x 6/36 = 12,833 240,000 – 12,000 = 228,000; 228,000 ÷ 120 mos = 1,900; 1,900 x 63 mos = 119,700 240,000 – 119,700 = 120,300; 120,300 – 130,000 = 9,700 270,000 x (8+7)/36 = 112,500 270,000 ÷ 8 = 33,750; 33,750 x 2 = 67,500; 112,500 – 67,500 = 45,000 1.5/5 = 30% depreciation rate; 600,000 x 30% x ½ = 90,000 600,000 – 90,000 = 510,000; 510,000 x 30% = 153,000 240,000 ÷ 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400 90,000 x (5+4+3)/15 = 72,000 reported accum deprSYD;90,000x2/15=12,000 160,000/4 = 40,000; 400,000/40,000 = 10 years 240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000 (900,000 – 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000 42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000 49,200,000 – 43,755,000 = 5,445,000; 5,445,000 ÷ 4.5 years = 1,210,000/yr 1,210,000 x 40 yrs = 48,400,000; 49,200,000 – 48,400,000 = 800,000 54,000,000 – 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 ÷ 2,400,000 = 23 3,400,000 – 200,000 + 800,000 = 4,000,000 4,000,000 ÷ 4,000,000 = 1.00 per ton; 1.00 x 375,000 tons = 375,000 3,600,000 ÷ 800,000 = 4.50; 4.50 x 60,000 = 270,000 96,000 – 6,000 = 90,000; 90,000 ÷ 800,000 = 0.1125; 0.1125 x 60,000 = 6,750 P0 for Quarry No. 1 since the asset is not owned. 1M– 300,000 = 700,000; 700,000 ÷ 100 M = 0.007/ton; 0.007 x 1,380,000 = 9,660 .007 x 40,000,000 = 280,000; 700,000 – 280,000 = 420,000 420,000 ÷ 20,000,000 = 0.21; 0.21 x 1,380,000 = 28,980 (8,600,000-600,000) ÷ 40 yrs = 200,000; 200,000 x 5 yrs. = 1,000,000 8,600,000-1,000,000-600,000 = 7,000,000; 7,000,000 ÷ 30 yrs = 233,333 8,000,000 – 1,000,000 – 233,333 = 7,366,667; 7,500,000 – 7,366,667 = 133,333 160,000 x 10 yrs = 1,600,000; 4M – 1.6M = 2.4M; 3,240,000 – 2,400,000 = 840,000 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years; 3,240,000 ÷ 15 = 216,000 160,000 x 9 = 1.44M; 4M–1.44M =2.56M; 2.56M–0.5M =2.06M; 2.06M÷16 =128,750 2.06M–128,750=1,931,250; 3.24M–1,931,250=1,308,950 160,000–128,750=31,250; 500,000–31,250 =468,750; 1,308,750 – 468,750 = 840,000 (360,000 ÷ 6) x 2.5 yrs = 150,000 360,000 – 150,000 = 210,000 book value; 210,000 – 70,000 = 140,000 loss 70,000 ÷ 3.5 remaining years = 20,000; 70,000 – 20,000 = 50,000 1.8M – 600,000 = 1.2M; 600,000 ÷ 3 = 200,000;1.2M + 200,000 = 1.4M

53

Chapter 5- Property, Plant and Equipment MC74

C

MC75

B

3,000,000 – 300,000 = 2,700,000; 2,700,000 ÷ 10 = 270,000;270,000 x 4 = 1,080,000 3,000,000 – 1,080,000 = 1,920,000; 1,920,000 – 900,000 = 1,020,000 1,920,000 ÷ 6 yrs = 270,000 or 2,700,000 ÷ 10 yrs = 270,000

54