CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT PROBLEMS 5-1.
a.
Cash price is the cost.
P215,000
b.
Downpayment Notes payable (70,000 x 3.3121) Cost of machine
P100,000 231,847 P331,847
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.
P 8,860,000 P 11,075,000 P 2,215,000
Cash price 1,000,000 x .90 x .98 Present value of the disposal costs 50,000 x 0.5019 Cost of equipment
P882,000 25,095 P907,095
Purchase price 154,560/1.12 Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800 Total cost
5-2.
(Uy Company) Land Office building Warehouse Manager’s residence
5-3.
(Chang Corporation) a. 720,000 x .90 b. Down payment Present value of 24 monthly installments 25,000 x 21.2434 Total
5-4.
P22,000,000 150,000 P22,150,000
(49,500,000 (49,500,000 (49,500,000 (49,500,000
x x x x
P138,000 10,300 P148,300
21,875,000/56,250,000) 20,000,000/56,250,000) + 1,200,000 9,375,000/56,250,000) 5,000,000/56,250,000)
19,250,000 18,800,000 8,250,000 4,400,000
P648,000 P150,000 531,085 P681,085
(Planters Company and Producers Company) Books of Planters Company Cash Equipment Accumulated Depreciation-Building Loss on Exchange of Building Building 1M-540,000 = 460,000; 400,000 – 460,000 = 60,000 L Books of Producers Company Building Accumulated Depreciation-Equipment Cash Gain on Exchange of Equipment Equipment 600,000-320,000 = 280,000; 350,000-280,000=70,000 G 280,000 – 350,000 = 70,000 gain
50,000 350,000 540,000 60,000 1,000,000
400,000 320,000 50,000 70,000 600,000
Chapter 5- Property, Plant and Equipment 5-5.
5-6.
(Black Company and Berry Company) Books of Black Company Equipment Accumulated Depreciation-Building Building
460,000 540,000
Books of Berry Company Building Accumulated Depreciation-Equipment Equipment
280,000 320,000 600,000
(Abatis Forwarders) Land Accumulated Depreciation – Trucks Trucks Cash Gain on Exchange of Trucks
5-7.
1,000,000
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
5-8. 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 5-9.
1,200,000 340,000 190,000 850,000 880,000
(Urban Corporation) Land purchase Demolition of old building Legal fees for land acquisition Building permit fees Interest on loan for construction Building construction costs Landscaping costs* Equipment purchased of use in excavation (800,000 – 640,000) Fixed overhead allocated to building construction Salvage from the demolished oldbuilding Total costs
Land P12,000,000 300,000 150,000
Land Improvements
Building
P
80,000 270,000 15,000,000
P3,500,000 160,000 100,000 (70,000) 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 permanent in nature.
36
Chapter 5- Property, Plant and Equipment 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. 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. 5-10.
(Day Company) Purchase price of land Payments to tenants to vacate premises Demolition of old building Legal fees for purchase contract and recording ownership Delinquent property taxes on land Proceeds from sale of salvaged materials Total
5-11
(Yu Corporation)
Balances, December 31, 2012 Cash paid on purchase of land Mortgage assumed on the land bought including interest at 10% Legal fees, realty taxes and documentation expenses Payment to squatters Razing costs of old building Salvage value from building demolition 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, hotel accommodations paid to technicians during installation and test runs of machines Balances, December 31, 2013
Land P7,000,000 4,500,000
P4,000,000 200,000 100,000 150,000 50,000 (20,000) P4,480,000
Land Improvements P500,000
Buildings P 9,000,000
Machinery and Equipment P 980,000
5,000,000 50,000 100,000 120,000 (150,000) 500,000 12,000,000 20,000 50,000 150,000 2,000,000 60,000 140,000
P16,620,000
P1,000,000
P21,220,000
400,000 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% Less interest income earned on temporary investment of loan Capitalized interest
37
P500,000 ( 125,000) P375,000
Chapter 5- Property, Plant and Equipment b.
1,250,000 x 10% 1,250,000 x 10% x 9/12 1,250,000 x 10% x 6/12 1,250,000 x 10% x 3/12 Total interest Less interest income earned on temporary investment of loan Capitalized interest Total construction costs Total cost of building
P 125,000 93,750 62,500 31,250 P 312,500 40,000 P 272,500 5,000,000 P5,272,500
c.
Computation of average accumulated expenditures: 1,400,000 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
P1,400,000 750,000 500,000 250,000 ---------P2,900,000
Computation of weighted average interest rate: (10% x 1,600,000) + (12% x 2,000,000) 1,600,000 + 2,000,000 Interest of specific borrowing: 1,800,000 x 10% Less interest earned Interest on general borrowing: 2,900,000 – 1,800,000 = 1,100,000 1,100,000 x 11.11% Capitalized interest d.
11.11% P180,000 10,000
2,800,000 x 10% 1,600,000 x 10% 2,000,000 x 12% Total interest on loans Less capitalized interest: (2,900,000 x 10.625%*) Interest expense for 2013
P170,000 122,210 P292,210 P280,000 160,000 240,000 P680,000 308,125 P371,875
* 680,000 / 6,400,000 = 10.625% 5-13.
(Lim Company) 3,600,000 x 12/12 6,000,000 x 7/12 15,000,000 x 6/12 15,000,000 x 1/12 Average accumulated expenditures a.
b.
P3,600,000 3,500,000 7,500,000 1,250,000 P15,850,000
Interest on specific borrowing (30,000,000 x 12%) Less interest revenue earned from temporary investments of specific borrowing Capitalized interest
P 3,600,000
Interest on specific borrowing (12,000,000 x 12%) Less interest revenue earned from temporary investments of specific borrowing
P 1,440,000
Interest on general borrowings 15,850,000 – 12M = 3,850,000; 3,850,000 x 12.14%* Capitalized interest ** 6,800,000 ÷ 56,000,000 = 12.14%
38
249,000 P 3.351,000
249,000 P 1,191,000 467,390 P 1,658,390
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
P 4,000,000 6,000,000 6,100,000 2,200,000 -----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) General borrowings 18,200,000 – 17,000,000 = 1,200,000 1,200,000 x 11.08% Total (b) 5-15.
5-16.
Materials Direct labor Overhead (2,200,000 x 250/1,250) Total
(Pioneer Development Corporation) (a) Land Cash Unearned Income from Government Grant Building Cash
P1,250,000 250,000 700,000 P2,200,000 P1,250,000 250,000 440,000 P1,940,000 3,000,000 50,000 2,950,000 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)
132,960 P2,172,960
Total cost of building = Total construction cost + capitalized interest cost = P40,000,000 + P2,172,960 = P42,172,960
(Pifer Corporation) (a) Materials Direct labor Overhead 2,200,000 – (150% x 1,000,000) Total (b)
P2,040,000
Property, Plant and Equipment Land Less Unearned Income from Government Grant
147,500 147,500
P3,000,000 2,802,500 P 197,500
Alternatively, the unearned income from government grant may be presented as part of the entity’s liabilities.
39
Chapter 5- Property, Plant and Equipment 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.
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
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)
Carrying amount 642,500 728,000 720,000 535,000 487,500 558,594
127,500 79,688 P80,000 64,000 49,804
(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) Sum-of-the-years digits(66,000 – 48,000 ) Double-declining balance (66,000 – 52,744)
= P30,000 = P18,000 = 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) a. Depreciation Expense for 2013 2010: 25% x 800,000 x 1/2 2011: 25% x (800,000 – 100,000) 2012: 25% x (800,000 – 275,000) 2013: 25% x (800,000 – 406,250) (or 800,000 x 87.5% x 75% x 75% x 25%
40
P100,000 175,000 131,250 P98,437.50 P98,437.50
Chapter 5- Property, Plant and Equipment b.
5-21.
Sales price Carrying value on November 30, 2013 Cost Less accumulated depreciation 720,000 x (3.75/8) Loss on sale
(c) (d) (e)
337,500
462,500 P162,500
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
19,200
Depreciation Expense – Equipment Accumulated Depreciation – Equipment
20,000
Components 1 – 3 = Component 4 = 20,000/5 Total depreciation for
19,200 20,000
P16,000 4,000 P20,000
(Total Company) a.
b. c.
5-23.
P800,000
(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)
5-22.
P300,000
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
P1,200,000 440,000 P 760,000 P 188,571
Revised depreciation for the 5th year (760,000 – 60,000) / 5 years
P 140,000
Revised depreciation for the 5th year 760,000 / 4 years
P 190,000
(Standard Company) Cost 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 Carrying amount, January 1, 2013 Depreciation expense for 2013 204,800 – 10,000 = 194,800; 194,800 ÷ 5 years
41
P500,000
295,200 P204,800 P 38,960
Chapter 5- Property, Plant and Equipment 5-24.
(Carmi Company) (a)
(b)
5-25.
Depreciation for 2013 January 1 to August 1 (378,000 – 35,000)/5 x 7/12 August 1 to December 31 (320,800 – 50,000) / (5 – 2) + 2 = 270,800 270,800 / 5 x 5/12 Total Cost Less: Accumulated Depreciation (378,000–35,000)/5 x 2 Carrying value, August 1, 2013 Capitalized overhaul costs Carrying value after overhaul Depreciation, August 1 – December 31, 2013 (see above) Carrying value, December 31, 2013
22,567 P62,584 P378,000 137,200 P240,800 80,000 P320,800 22,567 P298,233
(Chu, Inc.) Accum, depreciation balance, January 1, 2013 (528,000 x 4/8) Revised depreciation expense for 2013 528,000 – 264,000 = 264,000 264,000/ 2 yrs. Accumulated depreciation balance, December 31, 2013
5-26.
P40,017
(Imaculada Company) (a) Accumulated Depreciation 137,500 Loss on Disposal of Machine Parts 112,500 Machinery 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 Cash
P264,000 132,000 P396,000
250,000
320,000 320,000 To capitalize the cost of replacement.
Depreciation Expense 82,875 Accumulated Depreciation To record depreciation for 2013. January 1 – July 1, 2013 (prior to replacement) (1,000,000/10 years) x 6/12 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 ½ Total depreciation expense for 2013
42
82,875
50,000
32,875 82,875
Chapter 5- Property, Plant and Equipment Alternative computation: New engine block 320,000/10 = 32,000; 32,000 x 6/12 Replaced engine block 25,000 x 6/12 Remaining parts of machinery 1,000,000 – 250,000 = 750,000 (750,000/10) x 6/12 (750,000/10 years) x 4.5 = 337,500 (337,500/10 years) x 6/12 Total depreciation expense for 2013 (b)
Accumulated Depreciation Loss on Disposal of Machine Parts Machinery 320,000/10 years = 32,000 32,000 x 5.5 years = 176,000
176,000 144,000
Machinery Cash
320,000
5-28.
37,500 16,875 82,875
320,000
81,300 81,300
January 1 – July 1, 2013 (prior to replacement) (1,000,000/10 years) x 6/12 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 ½ Total depreciation expense for 2013 (Remedios Company) (a) Cost of Leasehold Improvements 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 Carrying value, December 31, 2012 (b)
12,500
320,000
Depreciation Expense Accumulated Depreciation
5-27.
16,000
Carrying value, December 31, 2012 Revised remaining lease term is 11 years (10 – 4 + 5) Remaining useful life is 8 years (12 – 4) Shorter period is Depreciation expense for 2013
(Joice Company) (a) Recoverable amount is the higher of fair value less cost to sell and the asset’s value in use 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
43
50,000
31,300 81,300 P1,200,000
480,000 P 720,000 P 720,000
P
÷ 8 years 90,000
P420,000
Chapter 5- Property, Plant and Equipment (b)
(c) 5-29.
P500,000 420,000 P 80,000
Depreciation expense for 2013 420,000/5 years
P 84,000
(Island Souvenirs, Inc.) (a) Value in use (1,500,000 – 700,000) x 3.7908 Residual value (500,000 x 0.6209) Total
P3,032,640 310,450 P3,343,090
(b)
P7,500,000
(d) 5-30.
Carrying value of the asset, December 31, 2013 Cost P860,000 Less accumulated depreciation (810,000/9) x 4 years 360,000 Recoverable amount (see a) Impairment loss
Carrying value (9,000,000 – 1,500,000) Recoverable amount (higher between P3,200,000 and P3,343,090) Impairment loss Revised annual depreciation (3,343,090 – 500,000) / 5 years
3,343,090 P4,156,910 P 568,618
(Lu Company) Depreciation Expense 56,250 Accumulated Depreciation To record depreciation expense for 2012 (500,000 – 50,000) / 8
56,250
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 To record depreciation expense for 2013. (200,000 – 20,000) / 2 years 5-31.
90,000
(Twin Head Corporation) (a)
Depreciation expense 5,600,000 / 16 years
2011 350,000
(b)
December 31, 2013 Depreciation Expense Accumulated Depreciation
350,000
2012 350,000
350,000
Accumulated Depreciation Recovery of Previous Impairment
2,100,000 2,100,000
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
44
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, 2013
10,000,000 3,000,000 7,000,000
To check: Limit on carrying value without impairment 10,000,000 x 14/20 (d) 5-32.
5-33.
7,000,000
Depreciation expense for 2014 7,000,000 / 14 years
500,000
(Coco Company) (a) Cost Accumulated depreciation 12/31/12 (300,000/10) x 2 Carrying amount 12/31/12 before impairment Recoverable amount Impairment loss
P300,000 ( 60,000) P240,000 192,000 P 48,000
(b)
Carrying value 12/31/12 after impairment 2013 depreciation (192,000/8) Carrying amount 12/31/13 before recovery
P192,000 ( 24,000) P168,000
(c)
Carrying amount before recovery of impairment New recoverable amount Increase in value Limit on recovery Previous impairment P48,000 Recovered in 2013 (30,000 – 24,000) (6,000) Limit on recovery P42,000
P168,000 222,000 P 54,000
Impairment recovery to be recognized at 12/31/13
P 42,000
a. 01/01/11
b. 12/31/11
12/31/11
12/31/12 12/31/12 c. 01/01/13
12/31/13
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
600,000
200,000
600,000 200,000
45
1,000,000 500,000
Chapter 5- Property, Plant and Equipment
Revaluation Surplus Retained Earnings 1,200,000-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000
Cost Accum CV 5-34.
Original
1/1/11
1/1/11
4.000M 1.600M 2.400M
+2.00M +0.80M +1.20M
6.000M 2.400M 3.600M
2011 and 2012 +1.20M -1.20M
12/31/09
1/1/13
1/1/13
12//31/13
6.00M 3.60M 2.40M
-1.00M -0.60M -0.40M
5.00M 3.00M 2.00M
5.00M 3.50M 1.50M
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
360,000 360,000
Cost 3,600,000 720,000 2,880,000
Machinery Accumulated Depreciation Net 12/31/10
Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000)
12/31/11
Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000)
12/31/11
12/31/12 12/31/13
100,000
12/31/12
(Samsung Company) 1/1/08 Machinery Cash 12/31/08
100,000
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
Revalued 3,900,000 780,000 3,120,000 390,000
390,000 30,000 30,000 390,000 390,000 30,000 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
46
60,000 240,000 Increase 300,000 60,000 240,000
550,000 Decrease 550,000 220,000 330,000 335,000 335,000
Chapter 5- Property, Plant and Equipment 12/31/13
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 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, 12/31/12 Revaluation Surplus
12/31/14
Depreciation Expense 1,800,000/4 Accumulated Depreciation Revaluation Surplus (360,000 / 4 years) Retained Earnings
5-35.
(Lakers, Inc.) (a) Cost Accumulated depreciation 12/31/10 (100,000/10) Net Revalued amount Revaluation surplus 12/31/10
1,150,000 690,000 100,000 360,000 460,000 150,000 50,000
100,000 360,000
Ledger Bal 3,350,000 2,010,000 1,340,000
Increase 1,150,000 690,000 460,000 1,440,000 1,800,000 360,000
450,000 450,000 90,000 90,000 P100,000 ( 10,000) 90,000 112,500 P 22,500
(b)
Carrying amount 12/31/12 (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
P 87,500 67,375 P 20,125 ( 17,500) P 2,625
(c)
As of 1/1/13 Depreciation expense for 2013 (67,375/7) Net before revaluation on 12/31/13 Revalued amount Increase in value Unrecovered impairment loss (2,625 x 6/7) Revaluation surplus, December 31, 2013
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, 2013 Revalued amount, December 31, 2013
P60,000 13,000 P73,000
47
Chapter 5- Property, Plant and Equipment 5-36.
5-37.
5-38.
(Allied Company) Purchase price Residual value Development costs incurred and capitalized during 2010 Depletable cost 1/1/12 Estimated supply of mineral resources Depletion expense per ton in 2012 Number of tons removed during 2012 Depletion expense for 2012
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, 2012 (see above) Less depletion expense for 2012 Add development costs incurred and capitalized during 2013 Depletable cost for 2013 Revised estimated supply of mineral resource, 2013 Revised depletion rate per ton Number of tons removed during 2013 Depletion expense for 2013
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 2012 Depletion expense for 2012
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, 2012 (see above) Depletion expense for 2012 Development costs in 2013 New depletable cost for 2013 Remaining number of metric tons (9,250,000-1,000,000) Revised depletion per metric ton (rounded) Number of metric tons removed during 2013 Depletion expense for 2013
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
(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.
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, 2013 Cost of goods sold 18,000 units x 6 months Production cost per unit Cost of goods sold for 2013
12,000 x 11.20 P134,400 108,000 x 11.20 P1,209,600
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Chapter 5- Property, Plant and Equipment
c.
Depletable cost in 2013 Less depletion expense for 2013 20,000 units x 6 months Depletion rate per ton New depletable cost for 2014 Revised estimated recovery at January 1, 2014 Revised depletion rate for 2014
P4,200,000 120,000 x 3.00
360,000 P3,840,000 ÷ 800,000 P 4.80
Depreciable cost in 2013 Less depreciation expense for 2013 (120,000 units x 0.20) Depreciable cost for 2014 Revised estimated recovery at January 1, 2014 Revised depreciation rate for 2014 5-39.
P ( P ÷ P
(Yap Machine Shop) a. 1. Cash Accumulated Depreciation-Building Loss on Disposal of Assets Land Building 2.
3. 4.
5. 6.
7.
280,000 24,000) 256,000 800,000 0.32
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
Equipment Accumulated Depreciation-Equipment Gain on Disposal of Assets Equipment Cash
150,000 15,000
240,000
Building Cash
22,000 40,000 103,000 28,000,000 28,000,000
b. Beginning balance (3) (4) (6) (7) Total Balance
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
49
1,850,000 150,000
2,000,000
Chapter 5- Property, Plant and Equipment 5-40.
(Pat Corporation) a. 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 b.
Gain ( loss) from disposal of assets Car traded in Fair value of car traded in (240,000 – 200,000) Book value of car traded Machine destroyed by fire Insurance recovery Book value of machine (230,000 x 4/10 ) Net gain from disposal of assets
P 40,000 54,000
P(14,000)
P155,000 92,000
63,000 P 49,000
MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10
A B D D C A C B C B
Problems MC36 D MC37 C MC38 D MC39 D MC40 C MC41
A
MC42
C
MC43
C
MC44
C
MC45
C
MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20
B A D D B B D B D B
MC21 MC22 MC23 MC24 MC25 MC26 MC27 MC28 MC29 MC30
D B D B D D C A C B
MC31 MC32 MC33 MC34 MC35
D C C C D
14,400,000 x 5/20 = 3,600,000 200,000 + 3,000 + 6,000 = 209,000 Cost of equipment is the fair value of FVPL exchanged (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;7 00,000 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 20,000 FV – cash received 3,000 = 17,000 cost; 40,000 – 30,000 = 10,000; 20,000 – 10,000 = 10,000 Gain
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Chapter 5- Property, Plant and Equipment
MC46 MC47
B A
MC48
A
MC49 MC50 MC51
D C A
MC52
C
MC53
B
MC54 MC55
B A
MC56
C
MC57 MC58 MC59 MC60
A D D C
MC61 MC62
C A
MC63
B
MC64
D
MC65
B
MC66
C
MC67 MC68 MC69 MC70
D C B B
MC71
A
MC72 MC73
D C
MC74
C
MC75
B
20,500 – 6,000 = 14,500; 14,500 – 16,800 = 2,300 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; 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% = 153,000 240,000 ÷ 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400 90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD 90,000 x 2/15 = 12,000 160,000/4 = 40,000; 400,000/40,000 = 10 years 240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000 (900,000 – 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000 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 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 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 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 .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 (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; 4M – 1.6M = 2.4M; 3,240,000 – 2,400,000 = 840,000 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years; 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
51
