fin ac robles empleo Ch 5 Vol 1 Answers2012

CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT PROBLEMS 5-1

a.

Cash price is the cost.

P215,000

b.

Downpayment Notes payable (50,000 x 3.1699) Preference shares (500 x 110) Cost of machine

P 50,000 158,495 55,000 P263,495

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 800,000 x .90 x .98 Present value of the disposal costs 50,000 x 0.5019 Cost of equipment

P705,600 25,095 P730,695

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

(4,500,000 (4,500,000 (4,500,000 (4,500,000

P138,000 10,300 P148,300

x 2,187,500/5,625,000) x 2,000,000/5,625,000) + 120,000 x 937,500/5,625,000) x 500,000/5,625,000)

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

1,750,000 1,720,000 750,000 400,000 P648,000 P150,000 531,085 P681,085

(Planters Company and Producers Company) (a)

Books of Planters Company Cash Equipment Accumulated Depreciation-Building Loss on Exchange of Building Building 1,000,000-540,000 = 460,000 book value 460,000 – 400,000 = 60,000 loss

50,000 350,000 540,000 60,000 1,000,000

Chapter 5- Property, Plant and Equipment

Books of Producers Company Building Accumulated Depreciation-Equipment Cash Gain on Exchange of Equipment Equipment

400,000 320,000 50,000 70,000 600,000

600,000-320,000 = 280,000 280,000 – 350,000 = 70,000 gain

(b) Books of Planters Company Equipment Accumulated Depreciation-Building Building Books of Producers Company Building Accumulated Depreciation-Equipment Equipment 5-5

1,000,000 280,000 320,000 600,000

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

5-6

460,000 540,000

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

5-7 King Company Tooling Machine Automobile (net) Gain on Exchange of Automobile

172,800 135,000 37,800

Princess Company Machinery (new) Accumulated Depreciation – Machinery (old) Loss on Exchange of Machinery Machinery (old) Cash

41

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

Chapter 5- Property, Plant and Equipment

5-8

(Urban Corporation) Land purchase Demolition of old building Legal fees for land acquisition Building permit fees Interest on loan for construction Building construction costs Assessment by the city government for sewer connection Landscaping costs* Equipment purchased of use in excavation (cost – proceeds from sale) 800,000 – 640,000 Fixed overhead allocated to building construction Salvage from the demolished building Total costs

Land P2,000,000 300,000 150,000

Land Improvements

Building

P

80,000 270,000 5,000,000

120,000 P350,000 160,000 100,000 (70,000) P2,500,000

P350,000

P5,610,000

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 anywhere 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. *Landscaping costs may be charged to the land account if there is an indication that such an expenditure is permanent in nature. 5-9

(Doy Company) Purchase price of land Payments to tenants to vacate premises Demolition of old building Legal fees for purchase contract and recording ownership Title guarantee insurance Proceeds from sale of salvaged materials Total

42

P4,000,000 200,000 100,000 50,000 20,000 (10,000) P4,360,000

Chapter 5- Property, Plant and Equipment

5-10

(Yu Corporation) Land Improvements P 10,000 110,000

Balances, December 31, 2011 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, etc. to technicians during installation Balances, December 31, 2009

Buildings P 900,000

Machinery and Equipment P 980,000

2,000,000 20,000 50,000 50,000 2,000,000 60,000 140,000

P120,000

P3,020,000

400,000 P3,580,000

The interest of P150,000 is an imputed interest and is not recognized anywhere in the financial statements. The royalty payments of machines purchased are charged to operating expense for the period. Land account balance at December 31, 2012 is computed as follows (for discussion only): Cash paid P2,500,000 Mortgage assumed 4,000,000 Legal fees, taxes and documentation expenses 50,000 Payment to squatters to vacate premises 100,000 Cost of tearing down building 120,000 Salvage from old building demolished (150,000) Balance, January 1, 2012 700,000 Balance, December 31, 2012 P7,320,000 5-11

5-12

(Far East Company) a. Direct materials Direct labor Overhead costs (125% x 150,000 Allocated fixed costs (20% 700,000) Total before interest cost Capitalized interest: (300,000 x 10% x 6/12) (specific borrowing) Total cost of equipment

P220,000 150,000 187,500 140,000 P697,500 15,000 P712,500

b.

P348,500

Average accumulated expenditures: (697,500/2) Capitalized interest: Specific borrowing 300,000 x 10% x 6/12 General borrowings 48,750 x 16% x 6/12 Total capitalized interest

(Metro Company) a. 4,000,000 x 10% Less interest income earned on temporary investment of loan Capitalized interest

43

P 15,000 3,900 P 18,900 P400,000 ( 85,000) P315,000

Chapter 5- Property, Plant and Equipment

b.

c.

1,000,000 x 10% 1,000,000 x 10% x 1,000,000 x 10% x 1,000,000 x 10% x Total interest Less interest income Capitalized interest

9/12 6/12 3/12 earned on temporary investment of loan

Computation of average accumulated expenditures: 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

Computation of weighted average interest rate: (10% x 1,200,000) + (12% x 1,600,000) 1,200,000 + 1,600,000 Interest of specific borrowing: 1,600,000 x 10% Less interest earned Interest on general borrowing: 300,000 x 11.14% Capitalized interest d.

P100,000 75,000 50,000 25,000 P250,000 40,000 P210,000 P 400,000 750,000 500,000 250,000 ---------P1,900,000

11.14% P160,000 20,000

2,800,000 x 10% 1,600,000 x 10% 2,000,000 x 12% Total interest on loans Less capitalized interest: (1,900,000 x 10.625%*) Interest expense for 2012

P140,000 33,420 P173,420 P280,000 160,000 240,000 P680,000 201,875 P478,125

* 680,000 ÷ 6,400,000 = 10.625% 5-13

(Lim Company) 360,000 x 12/12 600,000 x 7/12 1,500,000 x 6/12 1,500,000 x 1/12 Average accumulated expenditures

P 360,000 350,000 750,000 125,000 P1,585,000

a.

Interest of specific borrowing (3,000,000 x 12%) Less interest revenue earned from temporary investments of specific borrowing Capitalized interest

P 360,000

Interest on specific borrowing (1,200,000 x 12% ) Less interest revenue earned from temporary investments of specific borrowing

P 144,000

b.

Interest on general borrowings 385,000* x 12.14%** Capitalized interest * 1,585,000 – 1,200,000 = 385,000 ** 680,000 ÷ 5,600,000 = 12.14%

44

49,000 P 311,000

P

49,000 95,000

P

46,739 141,739

Chapter 5- Property, Plant and Equipment

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

P4,000,000 6,000,000 6,100,000 2,200,000 -----P18,300,000

Average interest rate 12%(17,000,000) + 10%(12,000,000) + 12%(14,000,000) = 11.44% 17,000,000 + 12,000,000 + 14,000,000

(b) 5-15

5-16

Capitalized interest is 11.44% x P18,300,000 (lower than actual interest cost) = P2,093,520 Total cost of buiding = Total construction cost + capitalized interest cost = P40,000,000 + P2,093,520 = P42,093,520

(Pifer Corporation) (a)

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

1,250,000 250,000 700,000 2,200,000

(b)

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

1,250,000 250,000 440,000 1,940,000

(Pioneer Development Corporation) (a)

Land Cash Unearned Income from Government Grant

3,000,000

Building Cash

15,000,000 15,000,000

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

750,000 750,000

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

50,000 2,950,000

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

45

147,500 147,500

3,000,000 2,802,500 197,500

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 2012 and 2013 2012 1. SL (800,000 – 80,000) / 8 = 90,000 90,000 x 9/12= 67,500 2. Hrs 720,000/100,000 hrs = 7.20/hr. worked 7.20 x 4,500 hrs = 32,400 3. Units of 720,000/900,000 units = 0.80/unit output 0.80 x 40,000 units = 32,000 4. SYD 720,000 x 8/36 x 9/12 = 120,000 5. DDB 2/8 = 25% 25% x 800,000 x 9/12=150,000 6. 150% 1.5/8 = 18.75% DB 18.75% x 800,000 x 9/12= 112,500 b.

5-18

Carrying amount of the asset at the end of 2013 Depreciation Method Cost 1. Straight-line 800,000 2. Hours worked 800,000 3. Units of output 800,000 4. SYD 800,000 5. DDB 800,000 6. 150% declining balance 800,000

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

Method 3 -

b.

5-19

(Real a. b. c.

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) Company) 2/5 = 40%; 26,400 ÷ 40% = 66,000 12,000 x 5 years = 60,000; 66,000 – 60,000 = 6,000 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)

46

2013 90,000 7.20 x 5,500 hrs = 39,600 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. 157,500 72,000 80,000 265,000 312,500 241,406

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

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

= P30,000 = P18,000 = P13,256

Chapter 5- Property, Plant and Equipment

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 2012 Double-declining balance method 800,000 x 25% x ½ Sum-of-the-years digits method 720,000 x 8/36 x 1/2

P100,000 80,000

Depreciation Expense for 2013 Double declining 700,000 x 25%

P175,000

Sum-of-the-years’ digits method 720,000 x 8/36 x 1/2 720,000 x 7/36 x ½ b.

5-21

P80,000 70,000

Carrying (book) value at December 31, 2013 Double-declining balance method Date Depreciation Expense for the year 12/31/12 800,000 x 25% X ½ = P100,000 12/31/13 700,000 x 25% = 175,000

CV, end P700,000 525,000

Sum of the years’ digit method Cost Accumulated Depreciation, 12/31/13 (720,000 x 11.5/36) Carrying value, 12/31/13

P800,000 230,000 P 570,000

(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)

(c) (d)

P150,000

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

47

19,200 19,200

Chapter 5- Property, Plant and Equipment

Depreciation for 2013 (additional discussion) Components 1 – 3 = P16,000 Component 4 = 20,000/5 4,000 Total depreciation for P20,000 5-22

(Total Company) 1. The company changes to the sum-of-the-years digits method 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 2.

5-23

It was estimated that the asset’s remaining life is 5 years. Revised depreciation for the 5th year (760,000 – 100,000) / 5 years

(Chartered Company) Cost Less accumulated depreciation 30,000 x Carrying amount, January 1, 2012

(5+4) / 15

Depreciation expense for 2009 (14,000 x 7/28) 5-24

5-25

5-26

(Standard Company) Cost Less accumulated depreciation: 2008 20% x 500,000 100,000 2009 20% x 400,000 80,000 2010 20% x 320,000 64,000 2011 20% x 256,000 51,200 Carrying amount, January 1, 2012 Depreciation expense for 2012 204,800 – 10,000 = 194,800; 194,800 ÷ 5 years (Koh Trading) Carrying amount of the asset, January 1, 2012 Estimated remaining life in years Depreciation expense for year ended December 31, 2012

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

P 132,000 P 32,000 18,000 P 14,000 P 3,500 P500,000

295,200 P204,800 P 38,960 P153,600 ÷ 8 P 19,200

(Carmi Company) Cost P378,000 Less: Accumulated Depreciation, August 1, 2012(378,000–35,000)/5 x 2 137,200 Carrying value, August 1, 2012 P240,800 Overhaul costs (capitalized) 80,000 Carrying value after overhaul P320,800 Depreciation (August – December 31, 2012 see below) 22,567 Carrying value, December 31, 2012 P298,233 Depreciation for 2012 (378,000 – 35,000)/5 x 7/12 (320,800 – 50,000) / (5 – 2) + 2 = 270,800 / 5 x 5/12 Total

48

P40,017 22,567 P62,584

Chapter 5- Property, Plant and Equipment

5-27

5-28

(Chu, Inc.) Accumulated depreciation at January 1, 2012 (528,000 x 4/8) Revised depreciation expense for 2012 528,000-264,000 = 264,000; 264,000 / 2 yrs. Accumulated depreciation at December 31, 2012 (Lu Company) January 1, 2012 Impairment Loss – Machinery Accumulated Depreciation Cost Accumulated Depreciation 1/1/12 Carrying value 1/1/12 Recoverable amount Impairment loss

131,250 P500,000 168,750 331,250 200,000 P131,250

(Island Souvenirs) a. Value in use (1,500,000 – 700,000) x 3.7908 Residual value (500,000 x 0.6209) b.

c. 5-30

132,000 P396,000

131,250

December 31, 2012 Depreciation Expense (200,000 – 20,000) /2 Accumulated Depreciation 5-29

P264,000

90,000 90,000 3,032,640 310,450

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

3,343,090 7,500,000 3,343,090 4,156,910

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

568,618

(Twin Head Corporation) (a)

Depreciation expense 5,600,000 / 16 years

2010 350,000

(b)

December 31, 2011 Depreciation Expense Accumulated Depreciation

350,000

2011 350,000

350,000

Accumulated Depreciation Recovery of Previous Impairment 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

49

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

Chapter 5- Property, Plant and Equipment

(c)

Cost Accumulated depreciation (4,400,000 + 700,000 – 2,100,000) Carrying amount, December 31, 2011

10,000,000 3,000,000 7,000,000

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

7,000,000

Depreciation expense for 2012 7,000,000 / 14 years

500,000

5-31 a. 01/01/10

b. 12/31/10

12/31/10

12/31/11 12/31/11 c. 1/1/12

12/31/12

Cost Accum CV

Equipment 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

2,000,000 1,200,000 800,000

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

600,000

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

200,000

Depreciation Expense Accumulated Depreciation-Equipment

600,000

Revaluation Surplus Retained Earnings

200,000

Accumulated Depreciation-Equipment Revaluation Surplus Equipment

600,000 400,000

Depreciation Expense Accumulated Depreciation-Equipment 2,000,000 ÷ 4 yrs = 500,000

500,000

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

100,000

Original

1/1/10

1/1/10

4.000M 1.600M 2.400M

+2.00M +0.80M +1.20M

6.000M 2.400M 3.600M

600,000

200,000

600,000 200,000

2010 and 2011 +1.20M -1.20M

50

1,000,000 500,000

100,000

12/31/11

1/1/12

1/1/12

12//31/12

6.00M 3.60M 2.40M

-1.00M -0.60M -0.40M

5.00M 3.00M 2.00M

5.00M 3.50M 1.50M

Chapter 5- Property, Plant and Equipment

5-32

(Samsung Company) 1/1/07 Machinery Cash 12/31/07 12/31/08

3,600,000 3,600,000

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

360,000

Depreciation Expense Accumulated Depreciation

360,000

Machinery Accumulated Depreciation Revaluation Surplus

300,000

360,000

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

Machinery Accumulated Depreciation Net 12/31/09

12/31/10

12/31/10

12/31/11 12/31/12

360,000

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

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

390,000

Revaluation Surplus Retained Earnings (390,000 – 360,000)

30,000

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

390,000

Revaluation Surplus Retained Earnings (390,000 – 360,000)

30,000

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

60,000 240,000 Increase 300,000 60,000 240,000 390,000 30,000 390,000 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

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

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 150,000 / 6 = 25,000; 25,000 x 2 years Revaluation surplus

51

1,150,000 690,000 100,000 360,000 460,000 150,000 50,000

100,000 360,000

Chapter 5- Property, Plant and Equipment

New Rev Machinery 4,500,000 Accumulated Depreciation 2,700,000 Net 1,800,000 Check: Carrying value based on cost (no revaluation loss) (3,600,000 x 4 years) / 10 years Revalued amount, 12/31/10 Revaluation Surplus 12/31/13

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

5-33

5-34

(Coco Company) (a) Cost Accumulated depreciation 12/31/11 300,000/10 x 2 Carrying amount 12/31/11 before impairment Recoverable amount Impairment loss

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

1,440,000 1,800,000 360,000 450,000 450,000 90,000 90,000 P300,000 ( 60,000) P240,000 192,000 P 48,000

(b)

Carrying value 12/31/11 after impairment 2012 depreciation (192,000/8) Carrying amount 12/31/ 12 before recovery

P192,000 ( 24,000) P168,000

(c)

Carrying amount before recovery of impairment New recoverable amount Increase in value Limit on recovery Previoius impairment P48,000 Recovered in 2012 (30,000 – 24,000) (6,000) Limit on recovery P42,000

P168,000 222,000 P 54,000

Impairment recovery to be recognized at 12/31/12

P 42,000

(Lakers, Inc.) (a) Cost Accumulated depreciation 12/31/09 100,000/10 Net Revalued amount Revaluation surplus 12/31/09 (b)

Carrying amount 12/31/11 112,500 x 7/9 Recoverable amount Decrease in value Remaining balance of Revaluation Surplus (22,500 x 7/9) Impairment loss in profit or loss

52

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

P100,000 ( 10,000) 90,000 112,500 P 22,500 P 87,500 67,375 P 20,125 ( 17,500) P 2,625

Chapter 5- Property, Plant and Equipment

(c)

5-35

5-36

As of 1/1/12 Depreciation expense for 2012 67,375/7 Net before revaluation on 12/31/12 Revalued amount Increase in value Unrecovered impairment loss (2,625 x 6/7) Revaluation surplus, December 31, 2012

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, 2012 Revalued amount, December 31, 2012

P60,000 13,000 P73,000

(Allied Company) Purchase price Residual value Development costs incurred and capitalized during 2010 Depletable cost 1/1/11 Estimated supply of mineral resources Depletion expense per ton in 2011 Number of tons removed during 2011 Depletion expense for 2009

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, 2011 (see above) Less depletion expense for 2009 Add development costs incurred and capitalized during 2012 Depletable cost for 2012 Revised estimated supply of mineral resource, 2012 Revised depletion rate per ton Number of tons removed during 2012 Depletion expense for 2012

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 2011 Depletion expense for 2011

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, 2011 (see above) Depletion expense for 2011 Development costs in 2012 New depletable cost for 2012 Remaining number of metric tons (9,250,000-1,000,000) Revised depletion per metric ton (rounded) Number of metric tons removed during 2012 Depletion expense for 2012

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

53

Chapter 5- Property, Plant and Equipment

5-37

(Family Mining Company) Depletion rate per ton: 4,000,000 + 400,000 – 200,000 1,400,000 tons Depreciation expense per ton: 300,000 – 20,000 1,400,000 tons a.

b.

c.

5-38

P3.00 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, 2011

x 11.20 P134,400

Cost of goods sold 18,000 units x 6 months Production cost per unit Cost of goods sold for 2011

108,000 x 11.20 P1,209,600

Depletable cost in 2011 Less depletion expense for 2011 20,000 units x 6 months 120,000 Depletion rate per ton x 3.00 New depletable cost for 2012 Revised estimated recovery at January 1, 2012 Revised depletion rate for 2012

P4,200,000

Depreciable cost in 2011 Less depreciation expense for 2011 (120,000 units x 0.20) Depreciable cost for 2012 Revised estimated recovery at January 1, 2012 Revised depreciation rate for 2012

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

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

3. 4.

5.

12,000

360,000 P3,840,000 ÷ 800,000 P 4.80

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

Equipment Cash

298,000

400,000 298,000

Land Income from Donated Asset Cash

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

Income from Donated Asset Cash

240,000 240,000

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Chapter 5- Property, Plant and Equipment

6.

7.

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

150,000 15,000 22,000 40,000 103,000 28,000,000 28,000,000

b. Beginning balance (3) (4) (6) (7) Total Balance 5-39

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, 2012 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%) 900,000 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 180,000 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 Machine destroyed by fire Insurance recovery P155,000 Book value of machine (230,000 x 4/10 ) 92,000 Net gain from disposal of assets

55

P(14,000) 63,000 P 49,000

Chapter 5- Property, Plant and Equipment

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

D D C D A

MC6 MC7 MC8 MC9 MC10

Problems MC26 D MC27 B MC28 B MC29 D MC30 B MC31 D MC32 D MC33 C MC34 D MC35 C MC36

A

MC37

C

MC38

C

MC39

C

MC40

A

MC41

A

MC42 MC43 MC44

D C A

MC45

C

MC46

B

MC47

A

MC48 MC49

B C

MC50

D

MC51

A

D D B C B

MC11 MC12 MC13 MC14 MC15

D B B D D

MC16 MC17 MC18 MC19 MC20

D C A B D

MC21 MC22 MC23 MC24 MC25

C B C C C

Cost is FV of trading securities exchanged = 1,000 x 34 = 34,000 14,400,000 x 5/20 = 3,600,000 200,000 + 3,000 + 6,000 = 209,000 (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 = 700,000 700,000 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 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 77,000 x 6/36 = 12,833 240,000 – 12,000 = 228,000; 228,000 ÷ 120 mos = 1,900 per mo 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 90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD 90,000 x 2/15 = 12,000 240,000 ÷ 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400 160,000/4 = 40,000; 400,000/40,000 = 10 years 240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000 (900,000 – 300,000) / 3 yrs = 100,000 600,000 + 100,000 = 700,000 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000

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Chapter 5- Property, Plant and Equipment

MC52 MC53

D C

MC54

C

MC55 MC56 MC57

B C A

MC58

D

MC59

B

MC60

B

MC61

C

MC62

D

MC63

C

MC64

B

MC65

B

MC66

A

MC67 MC68

D C

MC69

C

MC70

B

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 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 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 P0 for Quarry No. 1 since the asset is only being leased. 1,000,000 – 300,000 = 700,000; 700,000 ÷ 100 M = 0.007 per 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 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 (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; 4,000,000 – 1,600,000 = 2,400,000 3,240,000 – 2,400,000 = 840,000 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years remaining 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

57