Chapter 5

CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT PROBLEMS

5-1.

a.

Cash price is the cost.

P215,000

b.

Downpayment Notes payable (70,000 x 3.3121) Cost of machine

P100,000 231,847 P331,847

c.

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

d.

e.

5-2.

5-3.

5-4.

P22,000,000 150,000 P22,150,000 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 disposal costs 50,000 x 0.5019 Cost of equipment

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

(Uy Company) Land Office building Warehouse Manager’s residence

(49,500,000 (49,500,000 (49,500,000 (49,500,000

x x x x

P138,000 10,300 P148,300

21,875,000/56,250,000) 20,000,000/56,250,000) + 1,200,000 9,375,000/56,250,000) 5,000,000/56,250,000)

(Chang Corporation) a. 720,000 x .90 b. Down payment Present value of 24 monthly installments 25,000 x 21.2434 Total

19,250,000 18,800,000 8,250,000 4,400,000

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

(Planters Company and Producers Company) Books of Planters Company Cash Equipment Accumulated Depreciation-Building Loss on Exchange of Building Building 1M-540,000 = 460,000; 400,000 – 460,000 = 60,000 L Books of Producers Company

50,000 350,000 540,000 60,000

1,000,000

Chapter 5- Property, Plant and Equipment

5-5.

5-6.

Building Accumulated Depreciation-Equipment Cash Gain on Exchange of Equipment Equipment 600,000-320,000 = 280,000; 350,000-280,000=70,000 G 280,000 – 350,000 = 70,000 gain (Black Company and Berry Company)

50,000 70,000 600,000

Books of Black Company Equipment Accumulated Depreciation-Building Building

460,000 540,000

Books of Berry Company Building Accumulated Depreciation-Equipment Equipment

280,000 320,000

1,000,000

600,000

(Abatis Forwarders) Land Accumulated Depreciation – Trucks Trucks Cash Gain on Exchange of Trucks

5-7.

400,000 320,000

10,340,000 4,400,000 `

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

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

55,000 16,000 8,000

48,000 31,000

5-8. King Company Tooling Machine Automobile (net) Gain on Exchange of Automobile

172,800

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

135,000 37,800

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

(Urban Corporation) Land P12,000,000

Land purchase

36

Land Improvements

Building

Chapter 5- Property, Plant and Equipment Demolition of old 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 Salvage from the demolished oldbuilding Total costs

300,000 150,000 P

P3,500,000

80,000 270,000 15,000,000

160,000 100,000 (70,000) P2,500,000

P350,000

P5,610,000

*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. should be charged for the actual costs incurred in its completion.

The self-constructed asset

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.

5-11

(Day Company) Purchase price of land Payments to tenants to vacate premises Demolition of old building Legal fees for purchase contract and recording ownership Delinquent property taxes on land Proceeds from sale of salvaged materials Total

P4,000,000 200,000 100,000 150,000 50,000 (20,000) P4,480,000

(Yu Corporation)

Balances, December 31, 2012 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 Razing costs of old building Salvage value from building demolition Cost of fencing the property

Land P7,000,000 4,500,000

Land Improvements P500,000

5,000,000 50,000 100,000 120,000 (150,000)

37

500,000

Buildings P 9,000,000

Machinery and Equipment P 980,000

Chapter 5- Property, Plant and Equipment 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, 2013

12,000,000 20,000 50,000 150,000

2,000,000 60,000 140,000

P16,620,000

P1,000,000

P21,220,000

400,000 P3,580,000

The interest of P150,000 is an imputed interest and is not reported elsewhere in the financial statements. The royalty payments of machines purchased are charged to operating expense for the period. 5-12.

(Metro Company) a. P5,000,000 x 10% Less interest income earned on temporary investment of loan Capitalized interest

P500,000 ( 125,000) P375,000

b.

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

P 125,000 93,750 62,500 31,250 P 312,500 40,000 P 272,500 5,000,000 P5,272,500

c.

Computation of average accumulated expenditures: 1,400,000 x 12/12 1,000,000 x 9/12 1,200,000 x 5/12 1,000,000 x 3/12 400,000 x 0/12 Average accumulated expenditures

P1,400,000 750,000 500,000 250,000 ---------P2,900,000

Computation of weighted average interest rate: (10% x 1,600,000) + (12% x 2,000,000) 1,600,000 + 2,000,000 Interest of specific borrowing: 1,800,000 x 10% Less interest earned Interest on general borrowing: 2,900,000 – 1,800,000 = 1,100,000 1,100,000 x 11.11%

38

11.11%

P180,000 10,000

P170,000

122,210

Chapter 5- Property, Plant and Equipment

d.

Capitalized interest

P292,210

2,800,000 x 10% 1,600,000 x 10% 2,000,000 x 12% Total interest on loans Less capitalized interest: (2,900,000 x 10.625%*) Interest expense for 2013

P280,000 160,000 240,000 P680,000 308,125 P371,875

* 680,000 / 6,400,000 = 10.625% 5-13.

(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 investments of specific borrowing

P 1,440,000 249,000 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

P 1,658,390

** 6,800,000 ÷ 56,000,000 = 12.14%

5-14.

(Alondra Corporation) (a) 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

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

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

39

249,000 P 3.351,000

P2,040,000

Chapter 5- Property, Plant and Equipment 18,200,000 – 17,000,000 = 1,200,000 1,200,000 x 11.08% Total (b)

5-15.

5-16.

Total cost of building = Total construction cost + capitalized interest cost = P40,000,000 + P2,172,960 = P42,172,960

(Pifer Corporation) (a) Materials Direct labor Overhead 2,200,000 – (150% x 1,000,000) Total (b)

Materials Direct labor Overhead (2,200,000 x 250/1,250) Total

P1,250,000 250,000 700,000 P2,200,000 P1,250,000 250,000 440,000 P1,940,000

(Pioneer Development Corporation) (a) Land Cash Unearned Income from Government Grant Building Cash

3,000,000

50,000 2,950,000

15,000,000 15,000,000

Depreciation Expense Accumulated Depreciation (15,000,000/20 years)

750,000

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

132,960 P2,172,960

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

147,500

750,000

147,500

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

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 2012 and 2013 2012 1. SL 2. Hrs worked 3. Units of

(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 4,500 hrs = 32,400 720,000/900,000 units = 0.80/unit

40

2013 90,000 7.20 x 5,500 hrs = 39,600

Chapter 5- Property, Plant and Equipment output 4. SYD 5. DDB 6. 150% DB b.

Carrying amount of the asset at the end of 2013 Depreciation Method Cost 1. 2. 3. 4. 5. 6.

5-18.

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

(De Oro Company) a. Method 1 Method 2 -

Method 3 -

b.

5-19.

0.80 x 40,000 units = 32,000 720,000 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

0.80 x 60,000 units = 48,000 720,000 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

Carrying amount 642,500 728,000 720,000 535,000 487,500 558,594

157,500 72,000 80,000 265,000 312,500 241,406

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 ) Double-declining balance (66,000 – 52,744)

= P30,000 = P18,000 = 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 provide the highest gain on disposal at the end of year 3. 5-20.

(Citi Company) a. Depreciation Expense for 2013 2010: 25% x 800,000 x 1/2 2011: 25% x (800,000 – 100,000) 2012: 25% x (800,000 – 275,000) 2013: 25% x (800,000 – 406,250)

41

P100,000 175,000 131,250

P98,437.50

Chapter 5- Property, Plant and Equipment

b.

5-21.

(or 800,000 x 87.5% x 75% x 75% x 25% Sales price Carrying value on November 30, 2013 Cost Less accumulated depreciation 720,000 x (3.75/8) Loss on sale

337,500

19,200

5,000 12,800 200

(c)

Equipment Cash

20,000

(d)

Depreciation Expense – Equipment Accumulated Depreciations – Equipment

19,200

Depreciation Expense – Equipment Accumulated Depreciation – Equipment

20,000

Components 1 – 3 = Component 4 = 20,000/5 Total depreciation for

462,500 P162,500

19,200

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

(e)

18,000

20,000

19,200

20,000

P16,000 4,000 P20,000

(Total Company) a.

b.

c.

5-23.

P800,000

(Asiaplus Corporation) (a) 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 (b)

5-22.

P98,437.50 P300,000

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

P500,000

42

Chapter 5- Property, Plant and Equipment Less accumulated depreciation: 2009 20% x 500,000 100,000 2010 20% x 400,000 80,000 2011 20% x 320,000 64,000 2012 20% x 256,000 51,200 Carrying amount, January 1, 2013 Depreciation expense for 2013 204,800 – 10,000 = 194,800; 194,800 ÷ 5 years

5-24.

(b)

Depreciation for 2013 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 Cost Less: Accumulated Depreciation (378,000–35,000)/5 x 2 Carrying value, August 1, 2013 Capitalized overhaul costs Carrying value after overhaul Depreciation, August 1 – December 31, 2013 (see above) Carrying value, December 31, 2013

P40,017

22,567 P62,584 P378,000 137,200 P240,800 80,000 P320,800 22,567 P298,233

(Chu, Inc.) Accum, depreciation balance, January 1, 2013 (528,000 x 4/8) Revised depreciation expense for 2013 528,000 – 264,000 = 264,000 264,000/ 2 yrs. Accumulated depreciation balance, December 31, 2013

5-26.

P 38,960

(Carmi Company) (a)

5-25.

295,200 P204,800

(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

P264,000

132,000 P396,000

250,000

320,000 To capitalize the cost of replacement.

Depreciation Expense Accumulated Depreciation

320,000

82,875 82,875

43

Chapter 5- Property, Plant and Equipment To record depreciation for 2013. January 1 – July 1, 2013 (prior to replacement) (1,000,000/10 years) x 6/12 July 1 – December 31, 2013 (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 2013

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 2013

(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

Depreciation Expense Accumulated Depreciation

81,300

January 1 – July 1, 2013 (prior to replacement) (1,000,000/10 years) x 6/12 July 1 – December 31, 2013 (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

44

50,000

32,875 82,875

16,000 12,500

37,500 16,875 82,875

320,000

320,000

81,300

50,000

Chapter 5- Property, Plant and Equipment Remaining life Revised annual depreciation Total depreciation expense for 2013 5-27.

(Remedios Company) (a) 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, 2012 (b)

5-28.

(c)

480,000 P 720,000

Carrying value, December 31, 2012 Revised remaining lease term is 11 years (10 – 4 + 5) Remaining useful life is 8 years (12 – 4) Shorter period is Depreciation expense for 2013

P 720,000

P

÷ 8 years 90,000

P420,000

Carrying value of the asset, December 31, 2013 Cost P860,000 Less accumulated depreciation (810,000/9) x 4 years 360,000 Recoverable amount (see a) Impairment loss

P500,000 420,000 P 80,000

Depreciation expense for 2013 420,000/5 years

P 84,000

(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)

P7,500,000

(d)

5-30.

31,300 81,300

P1,200,000

(Joice Company) (a) Recoverable amount is the higher of fair value less cost to sell and the asset’s value in use 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)

5-29.

÷ 10 yrs 62,600 x ½

Carrying value (9,000,000 – 1,500,000) Recoverable amount (higher between P3,200,000 and P3,343,090) Impairment loss Revised annual depreciation (3,343,090 – 500,000) / 5 years

(Lu Company) Depreciation Expense

P 568,618

56,250

45

3,343,090 P4,156,910

Chapter 5- Property, Plant and Equipment Accumulated Depreciation To record depreciation expense for 2012 (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 2013. (200,000 – 20,000) / 2 years 5-31.

90,000

(Twin Head Corporation) (a)

Depreciation expense 5,600,000 / 16 years

2011 350,000

(b)

December 31, 2013 Depreciation Expense Accumulated Depreciation

350,000 350,000

Accumulated Depreciation Recovery of Previous Impairment

(c)

2,100,000

Recoverable amount Carrying value (5,600,000 – 700,000) Increase in value Limit on recovery: Impairment loss Recovered impairment 2,400,000 / 16 years = 150,000; 150,000 x 2 years Limit on recovery Cost Accumulated depreciation (4,400,000 + 700,000 – 2,100,000) Carrying amount, December 31, 2013

5-32.

2,100,000 7,500,000 4,900,000 2,600,000 2,400,000 300,000 2,100,000 10,000,000 3,000,000 7,000,000

To check: Limit on carrying value without impairment 10,000,000 x 14/20 (d)

2012 350,000

7,000,000

Depreciation expense for 2014 7,000,000 / 14 years

500,000

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

46

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

Chapter 5- Property, Plant and Equipment (b)

Carrying value 12/31/12 after impairment 2013 depreciation (192,000/8) Carrying amount 12/31/13 before recovery

P192,000 ( 24,000) P168,000

(c)

Carrying amount before recovery of impairment P168,000 New recoverable amount 222,000 Increase in value P 54,000 Limit on recovery Previous impairment P48,000 Recovered in 2013 (30,000 – 24,000) (6,000) Limit on recovery P42,000 Impairment recovery to be recognized at 12/31/13

P 42,000

5-33. a. 01/01/11

b. 12/31/11

Equipment

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

1,200,000 800,000

Depreciation Expense Accumulated Depreciation-Equipment 3,600,000 ÷ 6 yrs = 600,000

600,000

12/31/11

Revaluation Surplus Retained Earnings 1,200,000 ÷ 6 yrs = 200,000

200,000

12/31/12

Depreciation Expense Accumulated Depreciation-Equipment

600,000

12/31/12

Revaluation Surplus Retained Earnings

200,000

Accumulated Depreciation-Equipment Revaluation Surplus

600,000 400,000

c. 01/01/13

200,000

600,000

200,000

Equipment 12/31/13

600,000

1,000,000

Depreciation Expense Accumulated Depreciation-Equipment

500,000 500,000

2,000,000 ÷ 4 yrs = 500,000 Revaluation Surplus Retained Earnings 1,200,000-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000 Original

1/1/11

1/1/11

2011 and 2012

47

12/31/12

1/1/13

100,000

1/1/13

100,000

12//31/13

Chapter 5- Property, Plant and Equipment

Cost Accum CV

5-34.

4.000M 1.600M 2.400M

+2.00M +0.80M +1.20M

6.000M 2.400M 3.600M

+1.20M -1.20M

6.00M 3.60M 2.40M

-1.00M -0.60M -0.40M

(Samsung Company) 1/1/08 Machinery Cash 12/31/08

12/31/09

3,600,000

Depreciation Expense (3,600,000/10) Accumulated Depreciation

360,000

Depreciation Expense Accumulated Depreciation

360,000

Machinery

300,000

Accumulated Depreciation Revaluation Surplus Machinery Accumulated Depreciation Net 12/31/10

Cost 3,600,000 720,000 2,880,000

Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation

Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000)

12/31/11

12/31/12

12/31/13

12/31/13

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

360,000

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

390,000

30,000 390,000

390,000

30,000 30,000 220,000 180,000 150,000 Ledger Bal 3,900,000 1,560,000 2,340,000 335,000

Depreciation Expense Accumulated Depreciation

335,000

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

335,000

335,000

1,150,000

48

3,600,000

30,000

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

Machinery

5.00M 3.50M 1.50M

360,000

Revaluation Surplus Retained Earnings (390,000 – 360,000) 12/31/11

5.00M 3.00M 2.00M

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

Machinery Accumulated Depreciation Net Check:

690,000 100,000 360,000 460,000 150,000 50,000

100,000 360,000

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

Increase 1,150,000 690,000 460,000

Carrying value based on cost (no revaluation loss) (3,600,000 x 4 years) / 10 years Revalued amount, 12/31/12 Revaluation Surplus 12/31/14

Depreciation Expense 1,800,000/4 Accumulated Depreciation Revaluation Surplus (360,000 / 4 years) Retained Earnings

5-35.

(Lakers, Inc.) (a) Cost Accumulated depreciation 12/31/10 (100,000/10) Net Revalued amount Revaluation surplus 12/31/10

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

90,000

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

(b)

Carrying amount 12/31/12 (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 1/1/13 Depreciation expense for 2013 (67,375/7) Net before revaluation on 12/31/13 Revalued amount Increase in value Unrecovered impairment loss (2,625 x 6/7) Revaluation surplus, December 31, 2013

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

To check: CV without impairment, cost model 100,000 x 6/10 Revaluation surplus, December 31, 2013 Revalued amount, December 31, 2013

P60,000 13,000 P73,000

49

450,000

90,000

Chapter 5- Property, Plant and Equipment

5-36.

5-37.

5-38.

(Allied Company) Purchase price Residual value Development costs incurred and capitalized during 2010 Depletable cost 1/1/12 Estimated supply of mineral resources Depletion expense per ton in 2012 Number of tons removed during 2012 Depletion expense for 2012

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, 2012 (see above) Less depletion expense for 2012 Add development costs incurred and capitalized during 2013 Depletable cost for 2013 Revised estimated supply of mineral resource, 2013 Revised depletion rate per ton Number of tons removed during 2013 Depletion expense for 2013

P4,550,000 ( 715,000) 961,000 P4,796,000 ÷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 2012 Depletion expense for 2012

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, 2012 (see above) Depletion expense for 2012 Development costs in 2013 New depletable cost for 2013 Remaining number of metric tons (9,250,000-1,000,000) Revised depletion per metric ton (rounded) Number of metric tons removed during 2013 Depletion expense for 2013

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

50

Chapter 5- Property, Plant and Equipment Depreciation expense per ton: 300,000 – 20,000 1,400,000 tons a.

P0.20

Cost of ending inventory 2,000 units x 6 months Production cost per unit (8.00 + 3.00 + 0.20) Ending Inventory, December 31, 2013

b.

Cost of goods sold 18,000 units x 6 months Production cost per unit Cost of goods sold for 2013

c.

Depletable cost in 2013 Less depletion expense for 2013 20,000 units x 6 months Depletion rate per ton New depletable cost for 2014 Revised estimated recovery at January 1, 2014 Revised depletion rate for 2014

12,000 x 11.20 P134,400

108,000 x 11.20 P1,209,600

P4,200,000 120,000 x 3.00

Depreciable cost in 2013 Less depreciation expense for 2013 (120,000 units x 0.20) Depreciable cost for 2014 Revised estimated recovery at January 1, 2014 Revised depreciation rate for 2014 5-39.

(Yap Machine Shop) a. 1. Cash Accumulated Depreciation-Building Loss on Disposal of Assets Land Building 2.

360,000 P3,840,000 ÷ 800,000 P 4.80 P ( P ÷ P

280,000 24,000) 256,000 800,000 0.32

1,700,000 450,000 150,000 800,000 1,500,000

Cash Accumulated Depreciation-Equipment Loss on Disposal of Assets Equipment

120,000 250,000 30,000

3.

Equipment Cash

298,000

4.

Land Income from Donated Asset

400,000

298,000

8,000,000 7,800,000

51

Chapter 5- Property, Plant and Equipment Cash 5.

Income from Donated Asset Cash

240,000

6.

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

150,000 15,000

7. b.

Building Cash

Beginning balance (3) (4) (6) (7) Total Balance

5-40.

200,000

240,000

22,000 40,000 103,000

28,000,000 28,000,000 Property, Plant and Equipment (Net) 2,150,000 (1) 298,000 (2) 8,000,000 125,000 28,000,000 38,813,000 Total 36,573,000

1,850,000 150,000

2,000,000

(Pat Corporation) a. Depreciation and amortization expense for year ended December 31, 2013 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) Book value of car traded Machine destroyed by fire Insurance recovery

52

P 40,000 54,000 P155,000

P(14,000)

Chapter 5- Property, Plant and Equipment Book value of machine (230,000 x 4/10 ) Net gain from disposal of assets

92,000

63,000 P 49,000

MULTIPLE CHOICE QUESTIONS

Theory MC1

A

MC11

B

MC2

B

MC12

A

MC3

D

MC13

D

MC4

D

MC14

D

MC5

C

MC15

B

MC6

A

MC16

B

MC7

C

MC17

D

MC8

B

MC18

B

MC9

C

MC19

D

MC1 0

B

MC20

B

Problems MC36 MC37 MC38 MC39 MC40

D C D D C

MC41

A

MC42

C

MC43

C

MC44

C

MC45

C

MC46 MC47

B A

MC48

A

MC49

D

MC2 1 MC2 2 MC2 3 MC2 4 MC2 5 MC2 6 MC2 7 MC2 8 MC2 9 MC3 0

D B D B D

MC3 1 MC3 2 MC3 3 MC3 4 MC3 5

D C C C D

D C A C B

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 (800,000 – 20,000) x 12/78 x 9/12 = 90,000 780,000 x 11.25/78 = 112,500; 90,000 + 112,500 = 202,500 800,000 – 202,500 = 597,500 4,500,000 + 30,000 + 6,000 + 40,000 + 60,000 = 4,636,000 Land 10,000 + 50,000 + 90,000 + 45,000 + 150,000 + 9,800,000 = 10,145,000 Building 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 4,000,000 x 10% x 6/12 = 200,000 750,000 x 12% x 6/12 = 45,000; 200,000 + 45,000 = 245,000 1,000,000 + (4,000,000÷ 2) = 3,000,000; 2,000,000 x 10% = 200,000 1,000,000 x 11% = 110,000; 200,000 + 110,000 = 310,000 20,000 FV – cash received 3,000 = 17,000 cost; 40,000 – 30,000 = 10,000; 20,000 – 10,000 = 10,000 Gain 20,500 – 6,000 = 14,500; 14,500 – 16,800 = 2,300 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 total depreciation expense 5,950,000 ÷ 201,375 = 29.5 yrs. 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000 total cost 201,375 ÷ 6,335,000 = 3.18% 4,500,000 ÷ 40 yrs. = 112,500

53

Chapter 5- Property, Plant and Equipment

MC50 MC51

C A

MC52

C

MC53

B

MC54 MC55

B A

MC56

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

MC74

C

MC75

B

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 depreciation under SYD 90,000 x 2/15 = 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 yrs. = 1,440,000; 4,000,000 – 1,440,000 = 2,560,000 2,560,000 – 500,000 = 2,060,000; 2,060,000 ÷ 16 yrs. = 128,750 2,060,000 – 128,750 = 1,931,250; 3,240,000 – 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 1,800,000 – 600,000 = 1,200,000; 600,000 ÷ 3 = 200,000 1,200,000 + 200,000 = 1,400,000 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