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PROBLEM NO.

1 – AUDIT OF PROPERTY, PLANT, AND EQUIPMENT (PPE)

The KOKOTATAYO Company commenced operations on January 1, 2014. The company’s machinery
account is shown below. 1) What is the total amount of gain on the sale/trade-in of the machinery acquired on January 1,
2014?
DATE PARTICULARS DEBIT CREDIT BALANCE A. P50,400
1-Jan-14 Purchase P157,200 B. P40,200
120000 C. P36,450
132000 P409,200 D. P86,850
30-Sep-14 Purchase on installment 2) What is the adjusted balance of the Machinery account on December 31, 2018?
A. P694,200
Payments from Sept. to Dec. 72000 481200
B. P705,000
3-Oct-14 Freight and installation 6000 487200 C. P700,200
31-Dec-14 Depreciation P97,440 389760 D. P703,950
7-Jul-15 Installment payments for 3) What is the adjusted balance of the Accumulated depreciation account on December 31,
acquisition on Sept. 30, 2014 2018?
144000 533760
A. P465,600
30-Jun-15 Purchase 240000 773760
B. P457,140
31-Dec-15 Depreciation 154752 619008 C. P462,240
Acquisition – trade in of old D. P397,740
30-Jun-16 150000 769,008
machine 4) What is the correct total depreciation provision for the years 2014-2018?
31-Dec-16 Depreciation 153802 615206 A. P737,400
1-Jan-17 Sale 71250 543956 B. P734,040
31-Dec-17 Depreciation 108791 435165 C. P728,940
D. P669,540
1-Oct-18 Sale 24000 411165
5) The entry to correct the depreciation provision for the years 2014-2018 should include a debit
31-Dec-18 Depreciation 82233 328932 (credit) to
Depreciation Expense Retained Earnings
The details of the transactions are as follows: A. P75,807 P61,215
a) On September 30, 2014, a machine was purchased on an installment basis. The list price was B. (P18,492) P79,707
P180,000, but 12 payments of P18,000 each were made by the company. Only the monthly C. P18,492 (P79,707)
payments were recorded in the machinery account starting with September 30, 2014. Freight
D. P75,807 P55,249
and installation charges of P6,000 were paid and charged to the machinery account on October
3, 2014.
b) On June 30, 2015, a machine was purchased for P240,000, 2/10, n/30, and recorded at
P240,000 when paid for on July 5, 2015.
c) On June 30, 2016, the machine acquired for P157,200 was traded for a larger one having a list
price of P279,000. Allowance of P129,000 was received on the old machine, the balance of the
list price being paid in cash and charged to the machinery account.
d) On January 1, 2017, the machine acquired on January 1, 2014 with cost of P132,000 was sold
for P75,000. The cost of removal and crating totaled P3,750.
e) On October 1, 2018, the machine purchased on January 1, 2014 was sold for P24,000 cash.
Assume a 5-year useful life for KOKOTATAYO Company’s machinery.
SOLUTIONS
4. B
1. D Trade-in – June 30, 2016
Date of
Cost P157,200 COST 2014 2015 2016 2017 2018 TOTAL
Acquisition
Accum. depreciation, 1/1/14 – 6/30/16 (P157,200 x 20% x 2.5yrs.) (78,600)
1-Jan-14 157,200 31,440 31,440 15,720 0 0 78,600
Carrying value 78,600
120,000 24,000 24,000 24,000 24,000 18000 114,000
Trade-in value 129,000
132,000 26,400 26,400 26,400 0 0 79,200
P50,400
30-Sep-14 186,000 9,300 37,200 37,200 37,200 37,200 158,100
Sale – Jan. 1, 2017
30-Jun-15 235,200 0 23,520 47,040 47,040 47,040 164,640
Cost P132,000
30-Jun-16 279,000 0 0 27,900 55,800 55,800 139,500
Accum. depreciation, 1/1/14 – 1/1/17 (P132,000 x 20% x 3 yrs.) (79,200)
Carrying value 52,800 Correct Depreciation 91,140 142,560 178,260 164,040 158,040 734,040
Net proceeds 71,250 Depreciation per Client 97,440 154,752 153,802 108,791 82,233 597,018
18,450 Over(under) Statement 6,300 12,192 (24,458) (55,249) (75,807) (137,022)
Sale – October 1, 2018
Cost P120,000 5. A Depreciation expense (2018) 75,807
Accum. depreciation, 1/1/14 – 10/1/18 (P120,000 x 20% x 4 9/12) (114,000) Retained earnings (2014 – 2017) 61,215
Carrying value 6,000 Accumulated depreciation 137,022
Proceeds 24,000
18,000

Total Gain (50400+18450+18000) 86,850

2. C Machine acquired on Sept. 30, 2014 (P180,000 + P6,000) P186,000


Machine acquired on June 30, 2015 (P240,000 x 98%) 235,200
Machine acquired on June 30, 2016 (list price) 279,000
Total P700,200

3. C Machine acquired on:


Sept. 30, 2014 (P186,000 x 20% x 4 3/12) P158,100
June 30, 2015 (P235,200 x 20% x 3 6/12) 164,640
June 30, 2016 (P279,000 x 20% x 2 6/12) 139,500
Accumulated depreciation, December 31, 2018 P462,240