Chapter 5- Property, Plant and Equipment
CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT PROBLEMS 5-1.
a.
Cash price is the cost.
P285,000
b.
Downpayment Notes payable (70,000 x 3.3121) Cost of machine
P100,000 231,847 P331,847
c.
d.
e.
5-2.
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
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
P138,000 10,300 P148,300
(Uy Company) (49,500,000 (49,500,000 (49,500,000 (49,500,000
x 21,875,000/56,250,000) x 20,000,000/56,250,000) + 1,200,000 x 9,375,000/56,250,000) x 5,000,000/56,250,000)
19,250,000 18,800,000 8,250,000 4,400,000
(Chang Corporation) a. b.
5-4.
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 dismantling costs 50,000 x 0.5019 Cost of equipment
Land Office building Warehouse Manager’s residence
5-3.
P22,000,000 150,000 P22,150,000
720,000 x .90 Down payment Present value of 24 monthly installments 25,000 x 21.2434 Total
P648,000 P150,000 531,085 P681,085
(Planters Company and Producers Company) Books of Planters Company Cash Equipment Accumulated Depreciation-Buildin g Gain on Exchange of Building Building 900,000-540,000=360,000;400,000–360,000=40,000 G
50,000 350,000 540,000 40,000 900,000
Books of Producers Company Building Accumulated Depreciation-Equip ment Loss on Exchange of Equipment Cash Equipment 800,000-320,000 = 480,000; 480,000-350,000=130,000 L
43
400,000 320,000 130,000 50,000 800,000
Chapter 5- Property, Plant and Equipment
5-5.
(Black Company and Berry Company) Books of Black Company Equipment Accumulated Depreciation-Buildin g Cash Building Books of Berry Company Building Accumulated Depreciation-Equip ment Equipment Cash
5-6.
310,000 540,000 50,000 900,000 530,000 320,000 800,000 50,000
(Abatis Forwarders) Land Accumulated Depreciation – Trucks Trucks Cash Gain on Exchange of Trucks
5-7.
10,340,000 4,400,000 `
(Business Processing, Inc.) Equipment (new) 24,000 + 31,000 Accumulated Depreciation Loss on Exchange of Equipment Equipment ((old) Cash (64,000 – 33,000)
5-8.
55,000 16,000 8,000 48,000 31,000
(a) King Company Tooling Machin e Automobile (net) Gain on Exchange of Automobile
170,000 140,000 30,000
(b) Princess Company Machinery (new) Accumulated Depreciation – Machinery (old) Loss on Exchange of Machinery Machinery (old) Cash
5-9.
12,800,000 340,000 1,600,000
1,200,000 340,000 190,000 850,000 880,000
(Urban Corporation)
Land purchase Demolition of old building (net of P70,000 salvaged from demolished 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 Total costs
Land P12,000,000
Land Improvements
Building
P
230,000
150,000 80,000 270,000 15,000,000 P3,500,000
P12,150,000
P3,500,000
160,000 100,000 P15,840,000
*Landscaping costs may be charged to the land account if there is an indication that such an expenditure is permanent in nature.
44
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. 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 company’s negligence and could have been avoided had proper planning been done.
5-10.
(Day Company) Purchase price of land Legal fees for purchase contract and recording ownership Delinquent property taxes on land Total
5-11.
P4,000,000 150,000 50,000 P4,200,000
(Yu Corporation)
Balances, December 31, 2014 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, 2015
Land P7,000,000 4,500,000
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
P16,550,000
P1,000,000
P21,290,000
400,000 P3,580,000
The interest of P150,000 is an imputed interest and is not reported anywhere in the financial statements. The royalty pay ments of machin es purchased are charged to operatin g expense for th e period.
5-12.
(Metro Company) a.
P4,000,000 x 10% Less interest income earned on temporary investment of loan Capitalized interest
45
P400,000 ( 125,000) P275,000
Chapter 5- Property, Plant and Equipment
b.
c.
d.
5-13.
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 cos ts Total cost of building Computation of average accumulated expenditures: 1,400,000 x 12/12 1,000,000 x 9/12 1,200,000 x 6/12 1,000,000 x 3/12 400,000 x 0/12 Average accumulated expenditures 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: 3,000,000 – 1,800,000 = 1,200,000 1,200,000 x 11.11% Capitalized interest 2,800,000 x 10% 1,600,000 x 10% 2,000,000 x 12% Total interest on loan s Less capitalized interest 680/6,400 x 3M Interest expense for 2015
P
125,000 93,750 62,500 31,250 P 312,500 40,000 P 272,500 5,000,000 P5,272,500
P1,400,000 750,000 600,000 250,000 ---------P3,000,000 11.11%
P180,000 10,000
P170,000
133,320 P303,320 P280,000 160,000 240,000 P680,000 318,750 P361,250
(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%
46
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 Weighted average interest rate of general borrowings: 10% x 12,000,000 + 12% x 14,000,000 12,000,000 + 14,000,000 Capitalized interest Specific borrowing (12% x 17 million) General borrowings (18,300,000 – 17,000,000) x 11.08% Total
(b)
5-15.
(b)
5-17.
= 11.08%
P2,040,000 144,040 P2,184,040
Total cost of building = Total construction cos t + capitalized inter est cost = P40,000,000 + P2,184,040 P42,184,040
(Dreamworld Company) (a)
5-15.
P 4,000,000 6,000,000 6,100,000 2,200,000 -----P18,300,000
Average accumulated expenditures for 2016 (300,000 x 12/12) + (450,000 x 4/12)
P
Average accumulated expenditures for 2017 1,200,000 + (450,000 x 12%) = 1,254,000 x 9/9 450,000 x 6/9 AAE for 2017
P1,254,000 300,000 P1,554,000
Capitalized interest for 2016 (450,000 x 12%)
P
54,000
Capitalized interest for 2017 (1,554,000 x 12% 9/12)
P
139,860
450,000
(Pifer Corporation) (a)
Materials Direct labor Overhead 2,000,000 – (150% x 1,000,000) Total
P1,250,000 250,000 500,000 P2,000,000
(b)
Materials Direct labor Overhead (2,000,000 x 250/1,250) Total
P1,250,000 250,000 400,000 P1,900,000
(Pioneer Development Corporation) (a)
Land Cash Unearned Income from Government Grant Building Cash
3,000,000 50,000 2,950,000 15,000,000 15,000,000
Depreciation Expense Accumulated Depreciation (15,000,000/20 years)
47
750,000 750,000
Chapter 5- Property, Plant and Equipment
Unearned Income from Government Grant Income from Government Grant (2,950,000/20 years) (b)
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.
5-18.
(Tan Company) a.
Depreciation charges for 2016 and 2017
1. SL 2. Hrs worked 3. Units of output 4. SYD 5. DDB 6. 150% DB b.
5-19.
7.20 x 6,000 hrs = 43,200
720,000/900,000 units = 0.80/unit 0.80 x 45,000 units = 36,000 720,000 x 8/36 x 9/12 = 120,000 2/8 = 25% 25% x 800,000 x 9/12=150,000 1.5/8 = 18.75% 18.75% x 800,000 x 9/12= 112,500
0.80 x 64,000 units = 51,200 720,000 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
Carrying amount of the asset at the end of 2017 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
2017 90,000
Accum. Depr. 157,500 79,200 87,200 265,000 312,500 241,406
(De Oro Company) a.
Method 1 Method 2 -
Method 3 -
b.
5-20.
2016 (800,000 – 80,000) / 8 = 90,000 90,000 x 9/12= 67,500 720,000/100,000 hrs = 7.20/hr. 7.20 x 5,000 hrs = 36,000
Straight-line method Sum-of-the-y ears 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-ye ars digits method (320,000 x 2/10) 150% declining balance method 37.5% x (340,000-127,500-79,688)
(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
48
127,500 79,688 P80,000 64,000 49,804
Carrying amount 642,500 720,800 712,800 535,000 487,500 558,594
Chapter 5- Property, Plant and Equipment
c.
Carrying amounts, end of year 3 Straight-line (66,000 – 36,000) Sum-of-the-y ears digits (66,000 – 48,000) Double-declining balance (66,000 – 52,744)
= P30,000 = P18,000 = P13,256
The method with the lowest carry ing amount at time of sale will yield the highest am ount of gain on disposal. Therefore, the double-declining balance method will provide the highest gain on disposal at the end of year 3.
5-22.
5-22.
(Citi Company) a.
Depreciation Expense for 2016 25% x 1,600,000 x 1/2
P200,000
b.
Sales price Carrying value on November 30, 2019 Cost Less accumulated depreciation 1,500,000 x (45/96) Loss on sale
P300,000
703,125
896,875 P596,875
(Asiaplus Corporation) (a)
(b)
(c)
(d)
(e)
5-23.
P1,600,000
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
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
19,200
18,000
20,000
Depreciation Expense – Equipment Accumulated Depreciations – Equipment
19,200
Depreciation Expense – Equipment Accumulated Depreciation – Equipment Components 1 – 3 = P16,000 Component 4 = 20,000/5 4,000 Total depreciation for 20 19 P20,000
20,000
19,200
20,000
(Total Company) a.
b.
c.
Cost Less accumulated depreciation (1,100,000 ÷ 10) x 4 Carrying amount of the asset, beginning of 5 th year Revised depreciation for the 5 th 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 5 th year (760,000 – 60,000) / 5 years
P 140,000
Revised depreciation for the 5 th year 760,000 / 4 years
P 190,000
49
Chapter 5- Property, Plant and Equipment
5-24.
(Standard Company) Cost Less accumulated depreciation: 2016 20% x 500,000 100,000 2017 20% x 400,000 80,000 2018 20% x 320,000 64,000 2019 20% x 256,000 51,200 Carrying amount, January 1, 2020 Depreciation expense for 2020 204,800 – 10,000 = 194,800; 194,800 ÷ 5 years
5-25.
(b)
Depreciation for 2018 January 1 to Aug ust 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, 2018 Capitalized overhaul costs Carrying value after overhaul Depreciation, August 1 – December 31, 2018 (see above) Depreciation for year 2019 Carrying value, December 31, 2019
P 38,960
P40,017
22,567 P62,584 P378,000 137,200 P240,800 80,000 P320,800 (22,567) (54,160) P244,073
(Chu, Inc.) Accum, depreciation balance, January 1, 2020 (528,000 x 4/8) Revised depreciation expense for 2020 528,000 – 264,000 = 264,000 264,000/ 2 yrs. Accumulated depreciation balance, December 31, 2020
5-27.
295,200 P204,800
(Carmi Company) (a)
5-26.
P500,000
P264,000
132,000 P396,000
(Imaculada Company) (a)
Accumulated Depreciation Loss on Disposal of Machine Parts Machinery To remove the ca rrying value of the replaced engine block 250,000/10 years = 25,000 25,000 x 5.5 years = 137,500
137,500 112,500
Machinery Cash
320,000
250,000
320,000 To capitalize the c ost of replacement
Depreciation Expense Accumulated Depreciation To record depreciation for 2020
50
82,875 82,875
Chapter 5- Property, Plant and Equipment
January 1 – Ju ly 1, 2020 (prior to replaceme nt) (1,000,000/10 years) x 6/12 July 1 – Decemb er 31, 2020 (after replace ment) 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 Total depreciation expe nse for 2020
50,000
!
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 expe nse for 2020 (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
Depreciation Expense Accumulated Depreciation
81,300
16,000 12,500
37,500 16,875 82,875
320,000
320,000
81,300
January 1 – Ju ly 1, 2020 (prior to replaceme nt) (1,000,000/10 years) x 6/12 July 1 – Decemb er 31, 2020 (after replace ment) 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 Total depreciation expe nse for 2020
5-28.
32,875 82,875
50,000
!
31,300 81,300
(Remedios Company) (a)
(b)
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, 2016 Carrying value, December 31, 2016 Revised remaining lease term is 11 years (10 – 4 + 5) Remaining useful life is 8 years (12 – 4) Shorter period is Depreciation expense for 2017
51
P1,200,000
P
480,000 720,000
P
720,000
P
÷ 8 years 90,000
Chapter 5- Property, Plant and Equipment
5-29.
(Joice Company) (a)
(b)
(c)
5-30.
(b)
(c)
P391,498
Carrying value of the asset, December 31, 2016 Cost P860,000 Less accumulated depreciation (810,000/9) x 4 years 360,000 Recoverable amount (see a) Impairment loss
P500,000 420,000 P 80,000
Depreciation expense for 2017 (420,000 -20,000)/5 years
P 80,000
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
Carrying value (9,000,000 – 1,500,000) Recoverable amount (higher between P3,200,000 and P3,343,090) Impairment loss
P7,500,000
Revised annual depreciation (3,343,090–500,000)/5
P
3,343,090 P4,156,910 568,618
(Lu Company) Depreciation Expense 56,250 Accumulated Depreciation To record depreciation expense for 2016 (500,000 – 50,000) / 8 Impairment Loss 131,250 Accumulated Depreciation To record impairment los s. Carrying value 500,000 – (56,250 x 3 years) Recoverable value Impairment loss Depreciation Expense 90,000 Accumulated Depreciation To record depreciation expense for 2017 (200,000 – 20,000) / 2 years
5-32.
P420,000 P420,000
(Island Souvenirs, Inc.) (a)
5-31.
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) Value in use 100,000 x 3.7908 P379,080 20,000 x 0.6209 12,418
56,250
131,250 P331,250 200,000 P131,250
90,000
(Twin Head Corporation) (a)
Depreciation expense 5,600,000 / 16 years
(b)
December 31, 2016 Depreciation Expense Accumulated Depreciation Accumulated Depreciation Recovery of Previous Impairment
2015 350,000
2016 350,000
350,000 350,000 2,100,000 2,100,000
52
Chapter 5- Property, Plant and Equipment
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 (c)
(d)
5-33.
5-34.
7,500,000 4,900,000 2,600,000 2,400,000 300,000 2,100,000
Cost Accumulated depreciation (4,400,000 + 700,000 – 2,100,000) Carrying amount, December 31, 2016 To check: Limit on carrying value without impairme nt 10,000,000 x 14/20
10,000,000 3,000,000 7,000,000 7,000,000
Depreciation expense for 2017 (7,000,000 / 14 years)
500,000
(Coco Company) (a)
Cost Accumulated depreciation 12/31/15 (300,000/10) x 2 Carrying amount 12/31/15 before impairment Recoverable amount Impairment loss
P300,000 ( 60,000) P240,000 192,000 P 48,000
(b)
Carrying value 12/31/15 after impairment 2016 depreciation (192,000/8) Carrying amount 12/31/16 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 2016 (30,000 – 24,000) (6,000) Limit on recovery P42,000 Impairment recovery to be recognized at 12/31/16
P168,000 222,000 P 54,000
(a) 01/01/14
(b) 12/31/14
12/31/15
(c) 01/01/16
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
P 42,000
2,000,000 1,200,000 800,000
Depreciation Expense Accumulated Depreciation-E quipment 3,600,000 ÷ 6 yrs = 600,000 Revaluation Surplus Retained Earnings (1.2M/6)
600,000
Depreciation Expense Accumulated Depreciation-E quipment Revaluation Surplus Retained Earnings
600,000
Accumulated Depreciation-Eq uipment Revaluation Surplus Equipment
600,000 400,000
53
600,000 200,000 200,000
600,000 200,000 200,000
1,000,000
Chapter 5- Property, Plant and Equipment
(d) 12/31/16
Cost Accum CV
5-35.
Depreciation Expense Accumulated Depreciation-E quipment 2M ÷ 4 yrs = 500,000 Revaluation Surplus Retained Earnings 1.2M-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000
Original 4.000M 1.60 0M 2.400M
1/1/14 +2.00M +0.80M +1.20M
1/1/13 6.000M 2.400M 3.600M
2014 & 2015 +1.20M -1.20M
12/31/15 6.00M 3.60M 2.40M
500,000 500,000 100,000 100,000
1/1/16 -1.00M -0.60M -0.40M
1/1/16 5.00M 3.00M 2.00M
12//31/16 5.00M 3.50M 1.50M
(Samsung Company) 1/1/16 12/31/16 12/31/17 12/31/17
12/31/18
12/31/19
12/31/19
12/31/20 12/31/20 12/31/21
Machinery Cash Depreciation Expense (3,600,000/10) Accumulated Depreciation Depreciation Expense Accumulated Depreciation Machinery Accumulated Depreciation Revaluation Surplus
3,600,000
Cost Machinery 3,600,000 Accumulated Depreciation 720,000 Net 2,880,000 Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000) Depreciation Expense (3,120,000 / 8 years) Accumulated Depreciation Revaluation Surplus Retained Earnings (390,000 – 360,000) 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
Depreciation Expense (2,010,000 / 6 years) Accumulated Depreciation Depreciation Expense Accumulated Depreciation 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
54
3,600,000 360,000 360,000 360,000 360,000 300,000 60,000 240,000 Increase 300,000 60,000 240,000 390,000 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
550,000 Decrease 550,000 220,000 330,000
335,000 335,000 335,000 335,000 1,150,000 690,000 100,000 360,000 460,000 150,000 50,000
100,000 360,000
Chapter 5- Property, Plant and Equipment
12/31/22
5-36.
Ledger Bal 3,350,000 2,010,000 1,340,000
(b)
(c)
Cost Accumulated depreciation 12/31/16 Net Revalued amount Revaluation surplus 12/31/16
(100,000/10)
Carrying amount 12/31/18 (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
As of 1/1/19 Depreciation expense for 2019 (67,375/7) Net before revaluation on 12/31/19 Revalued amount Increase in value Unrecovered impairment loss (2,625 x 6/7) Revaluation surplus, December 31, 2019 To check: CV without impairm ent, cost model 100,000 x 6/10 Revaluation surplus, December 31, 2019 Revalued amount, December 31, 2019
450,000 450,000 90,000 90,000
P100,000 ( 10,000) 90,000 112,500 P 22,500
P 87,500 67,375 P 20,125 ( 17,500) P 2,625
P67,375 ( 9,625) 57,750 73,000 P15,250 ( 2,250) P13,000 P60,000 13,000 P73,000
(Allied Company) Purchase price Residual value Development costs incurred and capitalized during 2014 Depletable cost 1/1/15 Estimated supply of mineral resources Depletion expense per ton in 2015 Number of tons removed during 2015 Depletion expense for 2015
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, 2015 (see above) Less depletion expense for 2015 Add development costs incurred and capitalized during 2016 Depletable cost for 2016 Revised estimated supply of mineral resource, 2016 Revised depletion rate per ton Number of tons removed during 2016 Depletion expense for 2016
P4,550,000 ( 715,000) 961,000 P4,796,000 ÷4,360,000 P 1.10 700,000 P 770,000
55
Increase 1,150,000 690,000 460,000
1,440,000 1,800,000 360,000
(Lakers, Inc.) (a)
5-37.
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, 12/31/21 Revaluation Surplus Depreciation Expense (1,800,000/4) Accumulated Depreciation Revaluation Surplus (360,000/4) Retained Earnings
Chapter 5- Property, Plant and Equipment
5-38.
5-39.
(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 2016 Depletion expense for 2016
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, 2016 (see above) Depletion expense for 2016 Development costs in 2017 New depletable cost for 2017 Remaining number of metric tons (9,250,000-1,000,000) Revised depletion per metric ton (rounded) Number of metric tons removed during 2017 Depletion expense for 2017
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
P3.00
Depreciation expense per ton: 300,000 – 20,000 1,400,000 tons
P0.20
(a)
(b)
(c)
Cost of ending inventory 2,000 units x 6 months Production cost per unit (8.00 + 3.00 + 0.20) Ending Inventory, December 31, 2016
12,000 x 11.20 P134,400
Cost of goods sold 18,000 units x 6 months Production cost per unit Cost of goods sold for 2016
108,000 x 11.20 P1,209,600
Depletable cost in 2016 Less depletion expense for 2016 20,000 units x 6 months Depletion rate per ton New depletable cost for 2017 Revised estimated recovery at January 1, 2017 Revised depletion rate for 2017
P4,200,000 120,000 x 3.00
Depreciable cost in 2016 Less depreciation expense for 2016 (120,000 units x 0.20) Depreciable cost for 2017 Revised estimated recovery at January 1, 2017 Revised depreciation rate for 2017
5-40.
360,000 P3,840,000 ÷ 800,000 P 4.80 P 280,000 ( 24,000) P 256,000 ÷ 800,000 P 0.32
(Dungeon Mining) (a)
7,500,000/1,000,000 = 7.50/ton; 7.50 x 100,000 = P750,000 each year (Note: mining period, which is 10 years, 1,000,000/100,000, is shorter than the useful life in years; hence, unit of output method is used.)
56
Chapter 5- Property, Plant and Equipment
(b)
Cost Less depreciation expense for the 1 st and 2nd years Less depreciation for the 3 rd and 4 th years 6M/8yrs = 750,000; 750,000 x 2 years Carrying value at the end of the 4 th year
P7,500,000 (1,500,000) (1,500,000) P4,500,000
(During shutdown period, the depreciation shall be computed based on remaining life, on a time-factor basis, generally straight-line.) (c)
150,000 tons/ year x 6 years = 900,000 4,500,000/900,000 = 5/ton; 5 x 150,000
P
750,000
With new estimate of annual production, mining period is shorter, at the beginning of the fifth year. The company shall compute depreciation using unit of output. (d)
5-41.
Carrying value at the end of the 4 th year Less depreciation expense for the 5 th and 6 th years Carrying value at the end of the 6 th year
P4,500,000 (1,500,000) P3,000,000
(Yap Machine Shop) (a) 1.
2.
3.
4.
5.
6.
7.
Cash Accumulated Depreciation-B uilding Loss on Disposal of Assets Land Building
1,700,000 450,000 150,000 800,000 1,500,000
Cash Accumulated Depreciation-E quipment 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
Building Cash
240,000
Equipment Accumulated Depreciation-E quipment 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) (5) (6) (7) Total Balance
Property, Plant and Equipment (Net) 2,150,000 (1) 298,000 (2) 8,000,000 240,000 125,000 28,000,000 39,053,000 Total 36,813,000
57
1,850,000 150,000
2,000,000
Chapter 5- Property, Plant and Equipment
5-42.
(Pat Corporation) (a)
(b)
Depreciation and amortization expense for year ended December 31, 2016 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) 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 P155,000 92,000
P(14,000)
63,000 P 49,000
MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7
B B C C C A C
MC8 MC9 MC10 MC11 MC12 MC13 MC14
B C B B A D D
MC15 MC16 MC17 MC18 MC19 MC20 MC21
B B D B B D D
MC22 MC23 MC24 MC25 MC26 MC27 MC28
B D B D D C A
MC29 MC30 MC31 MC32 MC33 MC34 MC35
C B D C C C D
Problems MC36
D
Allocated cost of the building (14,400,000 x 5/20)
MC37
C
Purchase price of new cooler Freight charge Installation cost Total cost of new cooler
MC38
D
Cost of equipment is the fair value of FVPL exchanged, 1,000 shares x 34 = 34,000; The excess over most recent fair value (34 – 30) is taken to profit or loss.
MC39
D
Depreciation expense for 2016 (800,000 – 20,000) x 12/78 x 9/12
P3,600,000 P200,000 3,000 6,000 P209,000
58
P90,000
Chapter 5- Property, Plant and Equipment
MC40
MC41
C
D
Cost of equipment Accumulated depreciation 2016 90,000 2017 780,000 x 11.25/78 112,500 Carrying value, December 31, 2017 Cost of land Expenses of land survey Expenses for search of land title Total cost of land
MC43
MC44
MC45
C
C
C
C
202,500 P597,500 P4,500,000 30,000 6,000 P4,536,000
Building permit fee Temporary building to house materials and construction worker s Demolition of old building Payments to tenants to vacate premises Interest on construction loan Cost of paving parking lot adjoining building Excavation expenses for building foundation Construction costs Total cost of building MC42
P800,000
Interest on specific borrowing 1,800,000 x 10% = 180,000 Interest revenue on temporary investment of borrowings Net interest cost on specific borrowing Interest on general borrowings 2,500,000 – 1,800,000 = 700,000; 700,000 x 9% Total capitalized interest Interest on specific borrowing 4,000,000 x 10% x 6/12 Interest on general borrowings 4,750,000 – 4,000,000 = 750,000; 750,000 x 12% x 6/12 Total capitalized interest Average accumulated expenditures 1.0M + (4.0M ÷ 2) = 3.0M Interest on specific borrowing (2.0M x 10%) Interest on general borrowings (3.0M – 2.0M = 1.0M; 1.0M x 11%*) Total capitalized interest *Weighted average interest rate 12% x 5.0M = 600,000; 8.5% x 2.0M = 170,000 600,000 + 170,000 = 770,000; 770,000/7.0M = 11%
P
10,000 50,000 40,000 60,000 90,000 45,000 150,000 9,800,000 P10,245,000
P180,000 (45,000) P135,000 63,000 P198,000
P200,000 45,000 P245,000
P200,000 110,000 P310,000
Fair value of Bancnet’s asset Cash received by Bancnet Cost of office equipment (or the fair value of Megalink’s asset)
P20,000 (3,000) P17,000
Fair value Carrying value of Bancnet’s asset (40,000 – 30,000) Gain on exchange
P20,000 10,000 P10,000 P14,500 16,800 P 2,300
MC46
B
Fair value of asset given up (20,500 – 6,000) Carrying value of asset given up Loss on exchange
MC47
A
Total annual deprec iation 112,500 + 66,000 + 9,625 + 13,250 Total depreciable cost 4,500,000 + 1,320,000 + 77,000 + 53,000 Composite life (5,950,000/201,375)
59
P201,375 5,950,000 29.5 years
Chapter 5- Property, Plant and Equipment
MC48
MC49
MC50
MC51
A
D
C
A
Total cost of the as sets in the group 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000 Composite rate based on cost 201,375 / 6,335,000
3.18%
Depreciation of factory building on third year using straight line 4,500,000 ÷ 40 yrs. Depreciation of small tools on third year using sum-of-the-years’ digits 77,000 x 6/36 Sales price Carrying amount of machine Cost Accumulated depreciation 228,000/120 mos = 1,900/mo; 1,900 x 63 mos. Gain on sale
P112,500
P12,833 P130,000
240,000 119,700
120,300 P 9,700
MC52
C
SYD 270,000 x (8+7)/36 Straight line (270,000/8 = 33,750; 33,750 x 2 Excess of SYD over SL accumulated depreciation
P112,500 67,500 P 45,000
MC53
B
Depreciation expense for 2016 1.5/5 = 30% rate; 600,000 x 30% x ! = 90,000 600,000 – 90,000 = 510,000; 510,000 x 30%
P153,000
MC54
B
Factory building (260,000 – 20,000) ÷ 40 Plant equipment (240,000 x .90 x .90 x .10) Other fixtures (72,000 x 2/10)
P 6,000 P19,440 P14,400
MC55
A
Reported accumulated depreciation is 72,000 which agrees with the use of sum-of-the years digits method, computed as follows: 90,000 x (5+4+3)/15 = 72,000 Hence, depreciation expense for 2016 (4 th year) is 90,000 x 2/15
P12,000
MC56
C
This is an adjusting event after the reporting date. recognized in 2016, loss computed as: Carrying value Net realizable value/Impaired value Impairment loss
The loss is P200,000 65,000 P135,000
MC57
A
Carrying value (900,000 – 420,000) Recoverable amount Impairment loss
P480,000 300,000 P180,000
MC58
D
Accumulated depreciation prior to impairment Impairment loss credited to accumulated depreciation Depreciation expense for the year after impairment (300,000/3 years) Accumulated depreciation balance, December 31, 2016
P420,000 180,000 100,000 P700,000
MC59
D
Depreciable cost (42,000 ÷ 7/55) Residual value Acquisition cost
P330,000 5,000 P335,000
MC60
C
Cost of building Carrying value, December 31, 2016 Accumulated depreciation for period July 1, 2012 to December 31, 2016 (or 4.5 years) Depreciation per year (5,445,000/4.5 years) Cost of building Depreciable cost (1,210,000 x 40 years) Residual value
60
P49,200,000 43,755,000 P 5,445,000 P 1,210,000 P49,200,000 48,400,000 P 800,000
Chapter 5- Property, Plant and Equipment
MC61
C
Purchase price Salvage value Estimated restoration costs Depletable cost Depletion rate per ton (55,200,000/2,400,000)
MC62
A
Depletable cost (3,400,000 – 200,000 + 800,000) Estimated removable ore Depletion rate per ton Number of tons sold during the period Depletion expense included in cost of goods sold
MC63
B
Depletion expense 3,600,000 ÷ 800,000 = 4.50; 4.50 x 60,000 Depreciation expense 96,000 – 6,000 = 90,000 90,000 ÷ 800,000 = 0.1125 0.1125 x 60,000
MC64
D
No depletion expense is recognized for quarry no. 1. The asset is not owned. Depletion expense for quarry no. 2 1M– 300,000 = 700,000 700,000 ÷ 100 M = 0.007/ton; 0.007 x 1,380,000
P54,000,000 (6,000,000) 7,200,000 P55,200,000 P23.00 P4,000,000 ÷ 4,000,000 P1.00 375,000 P375,000
P270,000
P6,750
P0
P9,660
MC65
B
Cost Accumulated depletion (0.007 x 40 million Carrying amount, beginning of 2016 Revised estimated recoverable tons Revised depletion charge per ton Depletion expense for 2016 (0.21 x 1,380,000 tons)
MC66
C
Cost Accumulated depreciation (8,600,000-600,000) ÷ 40 yrs = 200,000; 200,000 x 5 yrs. Carrying value, beginning of 2016 Revised depreciation charge (7,600,000 – 600,000) / 30 years
1,000,000 P7,600,000 P 233,333
P700,000 280,000 P420,000 ÷ 20,000,000 P0.21 P28,980 P8,600,000
MC67
D
Sales price Carrying value, December 31, 2016 (7,600,000 – 233,333) Gain on sale
P7,500,000 7,366,667 P 133,333
MC68
C
Fair market value Carrying value 4,000,000 – (160,000 x 10 years) Revaluation surplus
P3,240,000 2,400,000 P 840,000
MC69
B
Estimated useful life is 25 years (4,000,000/160,000) Remaining life is 15 years (25 – 10) Revised depreciation expense for 2016 (3,240,000/15 years
MC70
B
Cost Accumulated depreciation (160,000 x 9 years) Carrying value Impairment loss Recoverable amount, December 31, 2015 Depreciation expense for 2015 (2,060,000/16 years) Carrying value, December 31, 2016 Fair market value Increase in value Unrecovered impairment loss (500,000 x 15/16) Revaluation surplus, December 31, 2016
61
P216,000 P4,000,000 1,440,000 P2,560,000 (500,000) P2,060,000 128,750 P1,931,250 3,240,000 P1,308,750 468,750 P 840,000
Chapter 5- Property, Plant and Equipment
MC71
A
Cost Accumulated depreciation (360,000/6 = 60,000; 60,000 x 2.5 years Carrying value Recoverable value Impairment loss
MC72
D
Recoverable value Depreciation expense for the year (70,000/3.5 years) Carrying amount, December 31, 2016
MC73
C
Accumulated depreciation, December 31, 2015 (1,800,000 – 600,000) Depreciation expense for 2016 (600,000/3 years) Accumulated depreciation, December 31, 2016
P1,200,000 200,000 P1,400,000
MC74
C
Replacement cost Accumulated depreciation based on appraisal 3,000,000 – 300,000 = 2,700,000 2,700,000/10 = 270,000; 270,000 x 4 years Appraised value/Fair value Book value (1,500,000 – 600,000) Revaluation surplus
P3,000,000
1,080,000 P1,920,000 900,000 P1,020,000
Annual depreciation subsequent to revaluation 1,920,000 ÷ 6 yrs. or 2,700,000 ÷ 10 yrs.
P270,000
MC75
B
62
P360,000 150,000 P210,000 70,000 P140,000 P70,000 20,000 P50,000
