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CHAPTER 5

PROPERTY, PLANT AND EQUIPMENT

PROBLEMS

5-1.
a.
Cash price is the cost.
P215,000

b.
Downpayment
P100,000

Notes payable (70,000 x 3.3121)


231,847

Cost of machine
P331,847

c.
Purchase price
P22,000,000

Appraisal cost
150,000

Total cost to be allocated


P22,150,000

Allocation:

Land
22,150,000 x 10,000/25,000
P
8,860,000
Building 22,150,000 x 12,500/25,000
P 11,075,000
Equipment
22,150,000 x 2,500/25,000
P
2,215,000

Cash price

1,000,000 x .90 x .98

P882,000

Present value of the disposal costs

50,000 x 0.5019
25,095

Cost of equipment

P907,095

e.

Purchase price 154,560/1.12

P138,000

Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800


10,300

Total cost

P148,300

5-2.
(Uy Company)

Land

(49,500,000 x 21,875,000/56,250,000)
19,250,000

Office building

(49,500,000 x 20,000,000/56,250,000) + 1,200,000


18,800,000

Warehouse

(49,500,000 x
9,375,000/56,250,000)
8,250,000

Managers residence
(49,500,000 x
5,000,000/56,250,000)
4,400,000

5-3.
(Chang Corporation)

a.
720,000 x .90

P648,000

b.
Down payment

P150,000

Present value of 24 monthly installments

25,000 x 21.2434

531,085

Total

P681,085

5-4.
(Planters Company and Producers Company)

Cash

Books of Planters Company


50,000

Equipment

350,000

Accumulated Depreciation-Building

540,000

Loss on Exchange of Building

60,000

Building

1,000,000

1M-540,000 = 460,000; 400,000 460,000 = 60,000 L

Building

Books of Producers Company


400,000

Accumulated Depreciation-Equipment

320,000

Cash

50,000

Gain on Exchange of Equipment

70,000

Equipment

600,000

600,000-320,000 = 280,000; 350,000-280,000=70,000 G

Chapter 5- Property, Plant and Equipment

280,000 350,000 = 70,000 gain

5-5.
(Black Company and Berry Company)

Books of Black Company

Equipment

460,000

Accumulated Depreciation-Building

540,000

Building

1,000,000

Books of Berry Company

Building

280,000

Accumulated Depreciation-Equipment

320,000

Equipment

600,000

5-6.
(Abatis Forwarders)

Land

10,340,000

Accumulated Depreciation Trucks

4,400,000

Trucks

12,800,000

Cash

`
340,000

Gain on Exchange of Trucks

1,600,000

5-7.
(Business Processing, Inc.)

Equipment (new)

55,000

Accumulated Depreciation

16,000

Loss on Exchange of Equipment

8,000

Equipment ((old)

48,000

Cash (64,000 33,000)

31,000

5-8.
King Company

Tooling Machine

172,800

Automobile (net)

135,000

Gain on Exchange of Automobile

37,800

Princess Company

Machinery (new)

1,200,000

Accumulated Depreciation Machinery (old)

340,000

Loss on Exchange of Machinery

190,000

Machinery (old)

850,000

Cash

880,000

5-9.
(Urban Corporation)

Land

Land
Improvements
Building

Land purchase
P12,000,000

Demolition of old building


300,000

Legal fees for land acquisition


150,000

Building permit fees

P 80,000

Interest on loan for construction

270,000

Building construction costs

15,000,000

Landscaping costs*

P3,500,000

Equipment purchased of use in excavation

(800,000 640,000)

160,000

Fixed overhead allocated to building construction

100,000

Salvage from the demolished oldbuilding


(70,000)

Total costs
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

Chapter 5- Property, Plant and Equipment

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 companys negligence and
could have been avoided had proper planning been done.

5-10. (Day Company)

Purchase price of land


P4,000,000
Payments to tenants to vacate premises
200,000
Demolition of old building
100,000
Legal fees for purchase contract and recording ownership
150,000
Delinquent property taxes on land
50,000
Proceeds from sale of salvaged materials
(20,000)
Total
P4,480,000

5-11

(Yu Corporation)

Machinery

Land

and

Land
Improvements
Buildings
Equipment

Balances, December 31, 2012


P7,000,000
P500,000

P 9,000,000
P 980,000

Cash paid on purchase of land


4,500,000

Mortgage assumed on the land

bought including interest at 10%


5,000,000

Legal fees, realty taxes and

documentation expenses
50,000

Payment to squatters
100,000

Razing costs of old building


120,000

Salvage value from building

demolition
(150,000)

Cost of fencing the property

500,000

Paid to a contractor for building

erected

12,000,000

Building permit fee

20,000

Excavation expenses

50,000

Architects fees

150,000

Invoice cost of machines acquired

2,000,000

Freight, unloading and delivery

charges

60,000

Custom duties and other charges

140,000

Allowances, hotel accommodations

paid to technicians during

installation and test runs of

machines

400,000

Balances, December 31, 2013


P16,620,000
P1,000,000
P21,220,000
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%
P500,000

Less interest income earned on temporary investment of loan


( 125,000)

Chapter 5- Property, Plant and Equipment

Capitalized interest

P375,000
b.
1,250,000 x 10%

P 125,000

1,250,000 x 10% x 9/12


93,750

1,250,000 x 10%
x 6/12
62,500

1,250,000 x 10%
x 3/12
31,250

Total interest

P 312,500

Less interest income earned on temporary investment of loan


40,000

Capitalized interest

P
272,500

Total construction costs


5,000,000

Total cost of building

P5,272,500

Computation of average accumulated expenditures:

1,400,000 x 12/12

P1,400,000

1,000,000 x 9/12

750,000

1,200,000 x 5/12

500,000

1,000,000 x 3/12

250,000

400,000 x 0/12

----------

Average accumulated expenditures

P2,900,000

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%
P180,000

Less interest earned

10,000

P170,000

Interest on general borrowing:

2,900,000 1,800,000 = 1,100,000

1,100,000 x 11.11%

122,210

Capitalized interest

P292,210

d.
2,800,000 x 10%

P280,000

1,600,000 x 10%

160,000

2,000,000 x 12%

240,000

Total interest on loans

P680,000

Less capitalized interest: (2,900,000 x 10.625%*)

308,125

Interest expense for 2013

P371,875

* 680,000 / 6,400,000 = 10.625%

5-13. (Lim Company)

3,600,000 x 12/12

P3,600,000

6,000,000 x 7/12

3,500,000

15,000,000 x 6/12

7,500,000

15,000,000 x 1/12

1,250,000

Average accumulated expenditures

P15,850,000

a.
Interest on specific borrowing (30,000,000 x 12%)

P 3,600,000

Less interest revenue earned from temporary investments of

specific borrowing

249,000

Capitalized interest

P 3.351,000

b.
Interest on specific borrowing (12,000,000 x 12%)

P 1,440,000

Less interest revenue earned from temporary

investments of specific borrowing

249,000

Interest on general borrowings

P 1,191,000

15,850,000 12M = 3,850,000; 3,850,000 x 12.14%*

467,390

Capitalized interest

P 1,658,390

Chapter 5- Property, Plant and Equipment

** 6,800,000 56,000,000 = 12.14%

5-14. (Alondra Corporation)

(a)
Average accumulated expenditures:

4,000,000 x 12/12

P 4,000,000

8,000,000 x 9/12
6,000,000

12,200,000 x 6/12
6,100,000

8,800,000 x 3/12
2,200,000

7,000,000 x 0/12
------

Average accumulated expenditures

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)

P2,040,000

General borrowings

18,200,000 17,000,000 = 1,200,000

1,200,000 x 11.08%

132,960

Total

P2,172,960

Total cost of building = Total construction cost + capitalized interest cost

= P40,000,000 + P2,172,960

= P42,172,960
5-15.
(Pifer Corporation)

(a)
Materials

P1,250,000

Direct labor
250,000

Overhead 2,200,000 (150% x 1,000,000)


700,000

Total

P
2,200,000

(b)
Materials

P1,250,000

Direct labor
250,000

Overhead (2,200,000 x 250/1,250)


440,000

Total

P
1,940,000
5-16.
(Pioneer Development Corporation)

(a)
Land
3,000,000

Cash
50,000

Unearned Income from Government Grant


2,950,000

Building
15,000,000

Cash
15,000,000

Depreciation Expense
750,000

Accumulated Depreciation
750,000

(15,000,000/20 years)

Unearned Income from Government Grant


147,500

Income from Government Grant


147,500

(2,950,000/20 years)

(b)
Property, Plant and Equipment

Land

P3,000,000

Less Unearned Income from Government Grant


2,802,500

P 197,500

Alternatively, the unearned income from government grant may be presented as part of the entitys

Chapter 5- Property, Plant and Equipment

liabilities.

5-17. (Tan Company)

Depreciation charges for 2012 and 2013

2012
2013
1.
SL
(800,000 80,000) / 8 = 90,000

90,000 x 9/12= 67,500


90,000
2.
Hrs
720,000/100,000 hrs = 7.20/hr.

worked
7.20 x 4,500 hrs = 32,400
7.20 x 5,500 hrs = 39,600
3.

Units of
720,000/900,000 units = 0.80/unit

output
0.80 x 40,000 units = 32,000
0.80 x 60,000 units = 48,000
4.
SYD
720,000 x 8/36 x 9/12 = 120,000
720,000 x 7.25/36 =145,000
5.
DDB
2/8 = 25%
800,000-150,000=650,000

25% x 800,000 x 9/12=150,000


25% x 650,000 = 162,500
6.
150% DB
1.5/8 = 18.75%
800,000-112,500=687,500

18.75% x 800,000 x 9/12= 112,500


18.75% x 687,500) = 128,906

Carrying amount of the asset at the end of 2013

Depreciation Method

Cost
Accum. Depr.
Carrying amount
1.
Straight-line
800,000
157,500
642,500
2.
Hours worked
800,000
72,000
728,000
3.
Units of output
800,000
80,000
720,000
4.
SYD
800,000
265,000
535,000
5.
DDB
800,000
312,500
487,500
6.
150% declining balance
800,000
241,406
558,594

5-18. (De Oro Company)

Method 1 -

Straight-line method

Method 2 -

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

Method 3 150% declining-balance method

1.5 4 = 37.5%

37.5% x 340,000
=
127,500

37.5% x (340,000-127,500)=
79,688

b.
Straight line method
P80,000

Sum-of-the-years digits method

320,000 x 2/10
64,000

150% declining balance method

37.5% x (340,000-127,500-79,688)
49,804

5-19. (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)

= P30,000
Sum-of-the-years digits(66,000 48,000
)
= 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 provide the highest gain on disposal at the end of year 3.

5-20. (Citi Company)

Depreciation Expense for 2013


2010:
25% x 800,000 x 1/2
P100,000
2011:
25% x (800,000 100,000)
175,000

Chapter 5- Property, Plant and Equipment

2012: 25% x (800,000 275,000)


131,250

2013: 25% x (800,000 406,250)

P98,437.50

(or 800,000 x 87.5% x 75% x 75% x 25%

P98,437.50

b.
Sales price

P300,000

Carrying value on November 30, 2013

Cost

P800,000

Less accumulated depreciation

720,000 x (3.75/8)

337,500
462,500

Loss on sale

P162,500
5-21.
(Asiaplus Corporation)

(a)
Depreciation Expense Equipment

19,200

Accumulated Depreciation - Equipment

19,200

(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)

Cash

5,000

Accumulated Depreciation Equipment (3,200 x 4)


12,800

Loss on Sale of Equipment Part

200

Equipment

18,000

(c)
Equipment

20,000

Cash

20,000

(d)
Depreciation Expense Equipment

19,200

Accumulated Depreciations Equipment

19,200

(e)
Depreciation Expense Equipment

20,000

Accumulated Depreciation Equipment

20,000

Components 1 3 =

P16,000

Component 4 = 20,000/5
4,000

Total depreciation for

P20,000

5-22.

(Total Company)

a.
Cost

P1,200,000

Less accumulated depreciation (1,100,000 10) x 4

440,000

th

Carrying amount of the asset, beginning of 5 year

P 760,000

th

Revised depreciation for the 5 year

760,000-100,000 = 660,000; 660,000 x 6/21

P 188,571

b.
th

Revised depreciation for the 5 year

(760,000 60,000) / 5 years

P 140,000

th

Revised depreciation for the 5 year

760,000 / 4 years

P 190,000
5-23. (Standard Company)

Cost

P500,000
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
295,200

Chapter 5- Property, Plant and Equipment

Carrying amount, January 1, 2013


P204,800
Depreciation expense for 2013

204,800 10,000 = 194,800; 194,800 5 years


P 38,960

5-24. (Carmi Company)

Depreciation for 2013

January 1 to August 1

(378,000 35,000)/5 x 7/12


P40,017

August 1 to December 31

(320,800 50,000) / (5 2) + 2 = 270,800

270,800 / 5 x 5/12

22,567

Total

P62,584

(b)
Cost

P378,000

Less: Accumulated Depreciation (378,00035,000)/5 x 2


137,200

Carrying value, August 1, 2013

P240,800

Capitalized overhaul costs

80,000

Carrying value after overhaul

P320,800

Depreciation, August 1 December 31, 2013 (see above)


22,567

Carrying value, December 31, 2013

P298,233

5-25.
(Chu, Inc.)

Accum, depreciation balance, January 1, 2013 (528,000 x 4/8)

P264,000

Revised depreciation expense for 2013

528,000 264,000 = 264,000

264,000/ 2 yrs.

132,000

Accumulated depreciation balance, December 31, 2013

P396,000
5-26.
(Imaculada Company)

(a)
Accumulated Depreciation

137,500

Loss on Disposal of Machine Parts


112,500

Machinery

250,000

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

320,000

Cash

320,000

To capitalize the cost of replacement.

Depreciation Expense

82,875

Accumulated Depreciation

82,875

To record depreciation for 2013.

January 1 July 1, 2013 (prior to replacement)

(1,000,000/10 years) x 6/12

50,000

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
32,875

Total depreciation expense for 2013

82,875

Chapter 5- Property, Plant and Equipment

Alternative computation:

New engine block

320,000/10 = 32,000; 32,000 x 6/12


16,000

Replaced engine block

25,000 x 6/12

12,500

Remaining parts of machinery

1,000,000 250,000 = 750,000

(750,000/10) x 6/12

37,500

(750,000/10 years) x 4.5 = 337,500

(337,500/10 years) x 6/12

16,875

Total depreciation expense for 2013

82,875
(b)
Accumulated Depreciation
176,000

Loss on Disposal of Machine Parts


144,000

Machinery

320,000

320,000/10 years = 32,000

32,000 x 5.5 years = 176,000

Machinery

320,000

Cash

320,000

Depreciation Expense

81,300

Accumulated Depreciation

81,300

January 1 July 1, 2013 (prior to replacement)

(1,000,000/10 years) x 6/12

50,000

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

Remaining life

10 yrs

Revised annual depreciation


62,600 x
31,300

Total depreciation expense for 2013

81,300
5-27. (Remedios Company)

(a)
Cost of Leasehold Improvements

P1,200,000

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

480,000

Carrying value, December 31, 2012


P
720,000

(b)
Carrying value, December 31, 2012
P
720,000

Revised remaining lease term is 11 years

(10 4 + 5)

Remaining useful life is 8 years

(12 4)

Shorter period is

8 years

Depreciation expense for 2013

P
90,000

5-28. (Joice Company)

Recoverable amount is the higher of fair value less cost to sell

Chapter 5- Property, Plant and Equipment

and the assets 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

Carrying value of the asset, December 31, 2013

Cost
P860,000

Less accumulated depreciation

(810,000/9) x 4 years
360,000
P500,000
Recoverable amount (see a)

420,000
Impairment loss

P 80,000

Depreciation expense for 2013

420,000/5 years
P 84,000
5-29.
(Island Souvenirs, Inc.)

(a)
Value in use (1,500,000 700,000) x 3.7908
P3,032,640

Residual value (500,000 x 0.6209)


310,450

Total

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

Revised annual depreciation

(3,343,090 500,000) / 5 years

P 568,618

5-30.
(Lu Company)

Depreciation Expense

56,250

Accumulated Depreciation

56,250

To record depreciation expense for 2012

(500,000 50,000) / 8

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

90,000

To record depreciation expense for 2013.

(200,000 20,000) / 2 years

5-31.
(Twin Head Corporation)

(a)
Depreciation expense

2011
2012

5,600,000 / 16 years

350,000
350,000
(b)
December 31, 2013

Depreciation Expense

350,000

Accumulated Depreciation

350,000

Accumulated Depreciation

2,100,000

Recovery of Previous Impairment

2,100,000

Recoverable amount

7,500,000

10

Chapter 5- Property, Plant and Equipment

Carrying value (5,600,000 700,000)


4,900,000
Increase in value
2,600,000
Limit on recovery:

Impairment loss
2,400,000

Recovered impairment

2,400,000 / 16 years = 150,000; 150,000 x 2 years


300,000

Limit on recovery
2,100,000
(c)
Cost
10,000,000

Accumulated depreciation (4,400,000 + 700,000 2,100,000)


3,000,000

Carrying amount, December 31, 2013


7,000,000

To check: Limit on carrying value without impairment

10,000,000 x 14/20
7,000,000

Depreciation expense for 2014

7,000,000 / 14 years

500,000

5-32. (Coco Company)

(a)
Cost

P300,000

Accumulated depreciation 12/31/12 (300,000/10) x 2


( 60,000)

Carrying amount 12/31/12 before impairment


P240,000

Recoverable amount

192,000

Impairment loss

P 48,000

(b)
Carrying value 12/31/12 after impairment

P192,000

2013 depreciation (192,000/8)

( 24,000)

Carrying amount 12/31/13 before recovery

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
Equipment

2,000,000

Revaluation Surplus

1,200,000

Accumulated Depreciation

800,000

3,600,000-2,400,000 = 1,200,000 (50% Inc.)

50% x 4,000,000 = 2,000,000

b.
50% x 1,600,000 = 800,000

12/31/11
Depreciation Expense

600,000

Accumulated Depreciation-Equipment

600,000

3,600,000 6 yrs = 600,000

12/31/11
Revaluation Surplus

200,000

Retained Earnings

200,000

1,200,000 6 yrs = 200,000

12/31/12
Depreciation Expense

600,000

Accumulated Depreciation-Equipment

600,000

12/31/12
Revaluation Surplus

200,000

Retained Earnings

200,000

11

Chapter 5- Property, Plant and Equipment

c.

01/01/13
Accumulated Depreciation-Equipment

600,000

Revaluation Surplus

400,000

Equipment

1,000,000
12/31/13
Depreciation Expense

500,000

Accumulated Depreciation-Equipment

500,000

2,000,000 4 yrs = 500,000

Revaluation Surplus

100,000

Retained Earnings

100,000

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
12/31/12
1/1/13

1/1/13
12//31/13

and

2012

Cost
4.000M
+2.00M
6.000M
6.00M
-1.00M
5.00M
5.00M
Accum
1.600M
+0.80M
2.400M
+1.20M
3.60M
-0.60M
3.00M
3.50M
CV
2.400M
+1.20M
3.600M
-1.20M
2.40M
-0.40M
2.00M
1.50M
5-34. (Samsung Company)

1/1/08
Machinery

3,600,000

Cash

3,600,000
12/31/08
Depreciation Expense (3,600,000/10)

360,000

Accumulated Depreciation

360,000
12/31/09
Depreciation Expense

360,000

Accumulated Depreciation

360,000

Machinery

300,000

Accumulated Depreciation

60,000

Revaluation Surplus

240,000

Cost

Revalued

Increase

Machinery

3,600,000

3,900,000
300,000

Accumulated Depreciation

720,000

780,000
60,000

Net

2,880,000

3,120,000
240,000
12/31/10
Depreciation Expense (3,120,000 / 8 years)

390,000

Accumulated Depreciation

390,000

Revaluation Surplus

30,000

Retained Earnings (390,000 360,000)

30,000
12/31/11
Depreciation Expense (3,120,000 / 8 years)

390,000

Accumulated Depreciation

390,000

Revaluation Surplus

30,000

Retained Earnings (390,000 360,000)

30,000
12/31/11
Accumulated Depreciation

220,000

Revaluation Surplus (240,000 30,000 30,000)

180,000

Revaluation Loss

150,000

Machinery

550,000

New Rev
Ledger Bal
Decrease

Machinery

3,350,000

3,900,000
550,000

Accumulated Depreciation

1,340,000

1,560,000
220,000

Net

2,010,000

2,340,000
330,000

12

Chapter 5- Property, Plant and Equipment

12/31/12
Depreciation Expense (2,010,000 / 6 years)
335,000

Accumulated Depreciation

335,000
12/31/13
Depreciation Expense

335,000

Accumulated Depreciation

335,000
12/31/13
Machinery

1,150,000

Accumulated Depreciation

690,000

Recovery of Previous Revaluation Loss (P & L)

100,000

Revaluation Surplus

360,000

Increase in asset value

460,000

Unrecovered revaluation loss

Initial revaluation loss

150,000

Recovered through lower depreciation

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


50,000
100,000

Revaluation surplus

360,000

New Rev
Ledger Bal

Increase

Machinery

4,500,000
3,350,000
1,150,000

Accumulated Depreciation
2,700,000
2,010,000
690,000

Net
1,800,000
1,340,000
460,000

Check:

Carrying value based on cost (no revaluation loss)

(3,600,000 x 4 years) / 10 years

1,440,000

Revalued amount, 12/31/12

1,800,000

Revaluation Surplus

360,000
12/31/14
Depreciation Expense 1,800,000/4

450,000

Accumulated Depreciation

450,000

Revaluation Surplus (360,000 / 4 years)

90,000

Retained Earnings

90,000
5-35. (Lakers, Inc.)

(a)
Cost

P100,000

Accumulated depreciation 12/31/10


(100,000/10)
( 10,000)

Net

90,000

Revalued amount

112,500

Revaluation surplus 12/31/10

P 22,500
(b)
Carrying amount 12/31/12 (112,500 x 7/9)

P 87,500

Recoverable amount

67,375

Decrease in value

P 20,125

Remaining balance of Revaluation Surplus (22,500 x 7/9)


( 17,500)

Impairment loss in profit or loss

P
2,625

(c)
As of 1/1/13

P67,375

Depreciation expense for 2013 (67,375/7)


( 9,625)

Net before revaluation on 12/31/13

57,750

Revalued amount

73,000

Increase in value

P15,250

Unrecovered impairment loss (2,625 x 6/7)


( 2,250)

Revaluation surplus, December 31, 2013

P13,000

To check: CV without impairment, cost model

100,000 x 6/10

P60,000

Revaluation surplus, December 31, 2013


13,000

13

Chapter 5- Property, Plant and Equipment

Revalued amount, December 31, 2013


P73,000

5-36. (Allied Company)

Purchase price

P4,450,000
Residual value

650,000)

Development costs incurred and capitalized during 2010

750,000

Depletable cost 1/1/12

P4,550,000

Estimated supply of mineral resources

3,500,000
Depletion expense per ton in 2012
P
1.30

Number of tons removed during 2012

x
550,000
Depletion expense for 2012

P
715,000
Depletable cost, January 1, 2012 (see above)
P4,550,000

Less depletion expense for 2012

715,000)
Add development costs incurred and capitalized during 2013

961,000

Depletable cost for 2013

P4,796,000
Revised estimated supply of mineral resource, 2013
4,360,000

Revised depletion rate per ton

P
1.10
Number of tons removed during 2013

700,000

Depletion expense for 2013

P
770,000

5-37. (Ong Exploration Company)

Purchase price

P45,000,000
Development costs

1,500,000
Salvage value

( 6,000,000)
Restoration costs at present value (2,500,000 x 0.4632)

1,158,000

Depletable cost

P41,658,000

Estimated recovery from the property


10,000,000
Depletion rate per metric ton

P
4.1658
Resources extracted during 2012

x 1,000,000
Depletion expense for 2012

P 4,165,800
Depletable cost, 2012 (see above)

P41,658,000
Depletion expense for 2012

(
4,165,800)
Development costs in 2013

750,000

New depletable cost for 2013

P38,242,200

Remaining number of metric tons (9,250,000-1,000,000)


8,250,000
Revised depletion per metric ton
(rounded)

P
4.64

Number of metric tons removed during 2013


x 1,500,000

Depletion expense for 2013

P 6,960,000

5-38. (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.
Cost of ending inventory

2,000 units x 6 months


12,000

Production cost per unit

14

Chapter 5- Property, Plant and Equipment

(8.00 + 3.00 + 0.20)

x 11.20

Ending Inventory, December 31, 2013

P134,400

b.
Cost of goods sold

18,000 units x 6 months


108,000

Production cost per unit

x 11.20

Cost of goods sold for 2013


P1,209,600

c.
Depletable cost in 2013

P4,200,000

Less depletion expense for 2013

20,000 units x 6 months


120,000

Depletion rate per ton

x 3.00
360,000

New depletable cost for 2014

P3,840,000

Revised estimated recovery at January 1, 2014

800,000

Revised depletion rate for 2014

P
4.80

Depreciable cost in 2013

P
280,000

Less depreciation expense for 2013 (120,000 units x 0.20)


( 24,000)

Depreciable cost for 2014

256,000

Revised estimated recovery at January 1, 2014

800,000

Revised depreciation rate for 2014

P
0.32

5-39.
(Yap Machine Shop)

a.

1.
Cash

1,700,000

Accumulated Depreciation-Building

450,000

Loss on Disposal of Assets

150,000

Land

800,000

Building

1,500,000

2.
Cash

120,000

Accumulated Depreciation-Equipment

250,000

Loss on Disposal of Assets

30,000

Equipment

400,000

3.
Equipment

298,000

Cash

298,000

4.
Land

8,000,000

Income from Donated Asset

7,800,000

Cash

200,000

5.
Income from Donated Asset

240,000

Cash

240,000

6.
Equipment

150,000

Accumulated Depreciation-Equipment

15,000

Gain on Disposal of Assets

22,000

Equipment

40,000

Cash

103,000

7.
Building

28,000,000

b.
Cash

28,000,000

Property, Plant and Equipment (Net)

Beginning balance
2,150,000
(1)

1,850,000

(3)

298,000
(2)

150,000

(4)

8,000,000

(6)

125,000

15

Chapter 5- Property, Plant and Equipment

(7)
28,000,000

Total
38,813,000
Total
2,000,000
Balance
36,573,000

5-40. (Pat Corporation)

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

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

Theory

MULTIPLE CHOICE QUESTIONS

MC1
A
MC11
B
MC21
D

MC31
D

MC2
B
MC12
A
MC22
B

MC32
C

MC3
D
MC13
D
MC23
D

MC33
C

MC4
D
MC14
D
MC24
B

MC34
C

MC5
C
MC15
B
MC25
D

MC35
D

MC6
A

MC16
B
MC26
D

MC7
C
MC17
D
MC27
C

MC8
B
MC18
B
MC28
A

MC9
C
MC19
D
MC29
C

MC10
B
MC20
B
MC30
B

Problems

MC36
D
14,400,000 x 5/20 = 3,600,000

MC37
C
200,000 + 3,000 + 6,000 = 209,000

MC38
D
Cost of equipment is the fair value of FVPL exchanged

MC39
D
(800,000 20,000) x 12/78 x 9/12 = 90,000

MC40

C
780,000 x 11.25/78 = 112,500; 90,000 + 112,500 = 202,500

800,000 202,500 = 597,500

16

Chapter 5- Property, Plant and Equipment

MC41
A
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


MC42
C
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
MC43
C
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


MC44
C
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


MC45
C

20,000 FV cash received 3,000 = 17,000 cost;

40,000 30,000 = 10,000; 20,000 10,000 = 10,000 Gain


MC46
B
20,500 6,000 = 14,500; 14,500 16,800 = 2,300
MC47
A
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.
MC48
A
4,800,000
+ 1,400,000 + 82,000 + 53,000 = 6,335,000 total cost

201,375 6,335,000 = 3.18%


MC49
D
4,500,000
40 yrs. = 112,500
MC50
C
77,000 x 6/36 = 12,833

MC51
A
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


MC52
C
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


MC53
B
1.5/5 = 30% depreciation rate; 600,000 x 30% x = 90,000

600,000 90,000 = 510,000; 510,000 x 30% = 153,000


MC54
B
240,000 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400
MC55
A
90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD

90,000 x 2/15 = 12,000


MC56
C
160,000/4 = 40,000; 400,000/40,000 = 10 years

240,000 40,000 = 200,000; 200,000 65,000 = 135,000


MC57
A
900,000 420,000 = 480,000; 480,000 300,000 = 180,000
MC58
D
(900,000 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000
MC59
D
42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000
MC60
C
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


MC61
C
54,000,000 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 2,400,000 = 23
MC62
A
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
MC63
B
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


MC64
D
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


MC65
B
.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


MC66
C
(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


MC67
D
8,000,000
1,000,000 233,333 = 7,366,667; 7,500,000 7,366,667 = 133,333
MC68
C
160,000 x 10 yrs = 1,600,000; 4M 1.6M = 2.4M; 3,240,000 2,400,000 = 840,000
MC69
B
4,000,000
160,000 = 25 years; 25 10 = 15 years; 3,240,000 15 = 216,000
MC70

B
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

160,000128,750=31,250; 500,00031,250 =468,750; 1,308,750 468,750 = 840,000


MC71
A
(360,000 6) x 2.5 yrs = 150,000

360,000 150,000 = 210,000 book value; 210,000 70,000 = 140,000 loss


MC72
D
70,000 3.5 remaining years = 20,000; 70,000 20,000 = 50,000
MC73
C
1,800,000
600,000 = 1,200,000; 600,000 3 = 200,000

1,200,000
+ 200,000 = 1,400,000
MC74
C

3,000,000
300,000 = 2,700,000; 2,700,000 10 = 270,000

17

Chapter 5- Property, Plant and Equipment

270,000 x 4 = 1,080,000

3,000,000 1,080,000 = 1,920,000; 1,920,000 900,000 = 1,020,000


MC75
B
1,920,000 6 yrs = 270,000 or 2,700,000 10 yrs = 270,000

18