PPE Activity - 2

6) How much would be the current year depreciation expense and the acquisition cost, if an asset with a 10-year economic
Problem 1: Gibbs Manufacturing Co. was incorporated on 1/2/13 but was unable to begin manufacturing activities until 8/1/13 because life is to be depreciated using SYD was acquired 4 ½ years ago and has a book value of P88,000 and salvage value of
new factory facilities were not completed until that date. The Land and Building account at 12/31/13 per books was as follows: P5,000?
Date Item Amount
1/31/13 Land and dilapidated building P200,000 7) Carly Corporation purchased a new machine on October 31, 2013. A P1,200 down payment was made and three-monthly
2/28/13 Cost of removing building 4,000 installments of P3,600 each are to be made beginning on November 30, 2013. The cash price would have been P11,600. Carly
4/1/13 Legal fees 6,000 paid no installation charges under the monthly payment plan but a P200 installation charge would have been incurred with a
5/1/13 Fire insurance premium payment 5,400 cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2013, would be ______.
5/1/13 Special tax assessment for streets 4,500
5/1/13 Partial payment of new building construction 150,000 8) If land and building with market values of P500 and P1,500 respectively were acquired at a lump-sum cost of P1,500 with the
8/1/13 Final payment on building construction 150,000 intention of razing the building after using it for 5 years even if the building has a remaining useful life of 10 years. How much
8/1/13 General expenses 30,000 would be the carrying value of the building after 2 years from acquisition if assuming DDB method is used without any provision
12/31/13 Asset write-up 75,000 for salvage value?
P624,900
Additional information: 9) If land and building with market values of P500 and P1,500 respectively were acquired at a lump-sum cost of P1,500 with the
intention of razing the building after the acquisition. How much would be the amount to be capitalized as the cost of the land if
1. To acquire the land and building on 1/31/13, the company paid P100,000 cash and 1,000 shares of its ordinary shares (par assuming the company also incurred transfer of title of P20, razing cost net of proceeds from sale of salvage materials P8,
value = P100/share) which is very actively traded and had a market value per share of P170. amount paid to the tenants of the building P20, unpaid real property tax prior to the acquisition P100 of which 40% is for the
2. When the old building was removed, Gibbs paid Kwik Demolition Co. P4,000, but also received P1,500 from the sale of salvaged land?
material.
10) How much would be the amount to be capitalized for an asset with a cash price of P850,000 acquired through the issuance of
3. Legal fees covered the following: P1,000,000, 5-year non-interest bearing promissory note with a market yield of P12%?
Cost of organization P2,500
Examination of title covering purchase of land 2,000 11) If assuming the Land and Building in item number 2 were to be revalued and that their sound values were 150% and 100%
Legal work in connection with the building construction 1,500 greater for land and building respectively than their book value, how much would be the total appraised value of the land and
P6,000 building?
4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2013.
12) If machinery and equipment were acquired by giving a piece of land which is recorded at cost P1,000 and a fair value twice as
5. General expenses covered the following for the period 1/2/13 to 8/1/13. large as its cost and paying P500, how much would be the amount to be capitalized as cost of equipment assuming the fair
President's salary P20,000 value of the machinery and equipment’s were P2,000 and P3,000 respectively?
Plant superintendent covering supervision of new building 10,000
P30,000 Bataan Gold Mining Company paid P1,800,000 for a coal mine which was estimated to contain 300,000 tons of coal. A building was
constructed in the mining camp at a cost of P200,000, and it was estimated to last 10 years with a scrap value of P20,000. During
6. Because of the rising land costs, the president was sure that the land was worth at least P75,000 more than what it cost the the first year, 60,000 tons were mined, of which 5,000 remained unsold at the end of the year with the expectation that the same
company. number of tons could be extracted yearly thereafter.
7. Depreciation is computed using SYD over a useful life of 25 year. 13) How much would be the total depletion and depreciation expense to be reported on December 31, profit or loss?

Required:
1) Determine the proper balances as of 12/31/13 for a separate land account and a separate building account.
2) If assuming at the end of 2018, land and building fair value less cost to sell were equal to 125% and 85% of their carrying
value, determine the impairment loss reported on December 31, 2018?
3) Base on #2, and assume further that after another two years the company have to report the asset at their revalued
amount, how much would be the revaluation surplus if the fair values of the assets in relation to their carrying amount were
equal to 150% for land and 175% for building and that the income tax rate is 30%?
An equipment was acquired on January 1, 2016 by paying 10% down and issuing a 12% interest bearing note payable in five annual
installments of P100,000 including the interest.
14) How much must the cost of the equipment to be recorded?
If on April 1, 2016, LLL enters in a 10-year lease contract on land that requires an annual rental of P180,000 a year, on the same
day a building was constructed and completed on September 30, 2016 at a cost of P5,000,000. The building is estimated to have a
life of 10 years and a salvage value of P250,000 and that SYD method of depreciation is to be used.

Problem 2: If an equipment with a useful life of 10 years and a salvage value of P10,000 is depreciated using SYD that was acquired
3 years ago had a carrying value of P460,000 and a reported revaluation surplus of P35,600.
Required:
4) How much would be the cost of the asset at the date of acquisition?
5) How much would be the impairment loss to be reported on the fifth year of the asset, if the asset recoverable value at the
end of fifth year is P150,000?
15) How much would be the carrying value of the lease improvement on December 31, 2017?
16) If on December 31, 2018 additional improvement were made at a cost of P1,500,000 with an estimated useful life of 12 years,
and that LLL negotiated a 5-year renewal on the lease term, how much would be the carrying value of the improvements on
December 31, 2019?
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