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NON-CURRENT OPERATING ASSETS

Items 1 and 2

The La Vida Company closes its book every December 31. On August 1, 2006, they bought
a machine for P300, 000. The machine is expected to have a useful life of 10 years with no scrap
value. On August 01, 2010, P36, 000 was paid for the major overhaul of the machine which
extended the life of the machine for another two years. The machine was sold for P185, 000 on
June 30, 2011.

1. The depreciation expense of the machine for 2010 was:


a. P28, 750 b. P30, 000 c. P27, 000 d. P 11,250

2. The sale of the machine resulted in a gain/loss of


a. P33, 250 b. P35, 500 c. P39, 250 d. P6, 250

Items 3 and 4

On an audit engagement for 2010, you handled the audit of fixed assets of Benguet
Copper Mines. This mining company bought the exploration rights of Lawrence Exploration on
June 30, 2010 for P7, 290, 0000. Of this purchase price, P4, 860, 000was allocated to copper ore
which had remaining reserves estimated at P1, 620, 000 tons. Benguet Copper Mines expects to
extract 15, 00 tons of ore a month with an estimated selling price of P50 per ton. Production
started immediately after some new machines costing P600, 000 was bought on June 30, 2010.
These new machineries had an estimated useful life of 15 years with scrap value of 10% of cost
after the ore estimated has been extracted from the property, at which time the machineries will
already be useless.

Among the operating expenses of Benguet Copper Mines at Dec. 31, 2010 were:

Depletion expense P405, 000


Depreciation of machineries 40, 000

3. Recorded depletion expense was


a. Overstated by P90, 000 c. Understated by P90, 000
b. Overstated by P20, 000 d. Understated by P20, 000

4. Recorded depreciation expense was


a. Overstated by P10, 000 c. Understated by P10, 000
b. Overstated by P20, 000 d. Understated by P20,000
5. Trinidad Company purchased for cash on January 01, 2006, three machines which cost a
total of P1, 200, 000. Estimated selling prices of the machines were: Machine 1, P400,
000; Machine 2, P500, 000; Machine 3, P600, 000. The machines were believed to have a
useful life of ten years without residual value. The company records annually on a monthly
basis.

On January 1, 2009, Machine 1 was sold for P250, 000 cash. The proceeds were credited
to the Machinery account.

On July 1, 2010, Machine 3, was traded in, for a new machine (No. 4) which had a cash
price of P500, 000, Trinidad paying P200, 000 for the difference with the trade-in value of
the old machine.

What should be the balance of the Accumulated Depreciation-Machinery on December


31, 2010 after adjustment of the books?

a. P537, 000 b. P321, 000 c. P255, 000 d. none of these