CHAPTER 5PROPERTY, PLANT AND EQUIPMENT
PROBLEMS
5-1. a. Cash price is the cost. P215,000
b. Downpayment P100,000Notes payable (70,000 x 3.3121) 231,847Cost of machine P331,847
c. Purchase price P22,000,000Appraisal cost 150,000Total cost to be allocated P22,150,000Allocation:
Land 22,150,000 x 10,000/25,000 P 8,860,000
Building 22,150,000 x 12,500/25,000 P 11,075,000
Equipment 22,150,000 x 2,500/25,000 P 2,215,000
d. Cash price 1,000,000 x .90 x .98 P882,000
Present value of the disposal costs50,000 x 0.5019 25,095
Cost of equipment P907,095
e. Purchase price 154,560/1.12 P138,000Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800 10,300Total cost P148,300
5-2. (Uy Company)Land (49,500,000 x 21,875,000/56,250,000) 19,250,000Office building (49,500,000 x 20,000,000/56,250,000) + 1,200,000 18,800,000Warehouse (49,500,000 x 9,375,000/56,250,000) 8,250,000Manager’s residence (49,500,000 x 5,000,000/56,250,000) 4,400,000
5-3. (Chang Corporation)a. 720,000 x .90 P648,000b. Down payment P150,000
Present value of 24 monthly installments25,000 x 21.2434 531,085
Total P681,085
5-4. (Planters Company and Producers Company)
CashBooks of Planters Company
50,000Equipment 350,000Accumulated Depreciation-Building 540,000Loss on Exchange of Building 60,000
Building 1,000,0001M-540,000 = 460,000; 400,000 – 460,000 = 60,000 L
BuildingBooks of Producers Company
400,000Accumulated Depreciation-Equipment 320,000
Cash 50,000Gain on Exchange of Equipment 70,000Equipment 600,000
600,000-320,000 = 280,000; 350,000-280,000=70,000 G
Chapter 5- Property, Plant and Equipment
280,000 – 350,000 = 70,000 gain5-5. (Black Company and Berry Company)
Books of Black CompanyEquipment 460,000Accumulated Depreciation-Building 540,000
Building 1,000,000
Books of Berry CompanyBuilding 280,000Accumulated Depreciation-Equipment 320,000
Equipment 600,000
5-6. (Abatis Forwarders)
Land 10,340,000Accumulated Depreciation – Trucks 4,400,000
Trucks 12,800,000Cash ` 340,000Gain on Exchange of Trucks 1,600,000
5-7. (Business Processing, Inc.)
Equipment (new) 55,000Accumulated Depreciation 16,000Loss on Exchange of Equipment 8,000
Equipment ((old) 48,000Cash (64,000 – 33,000) 31,000
5-8.King Company
Tooling Machine 172,800Automobile (net) 135,000Gain on Exchange of Automobile 37,800
Princess CompanyMachinery (new) 1,200,000Accumulated Depreciation – Machinery (old) 340,000Loss on Exchange of Machinery 190,000
Machinery (old) 850,000Cash 880,000
5-9. (Urban Corporation)Land
Land Improvements BuildingLand purchase P12,000,000Demolition of old building 300,000Legal fees for land acquisition 150,000Building permit fees P 80,000Interest on loan for construction 270,000Building construction costs 15,000,000Landscaping costs* P3,500,000Equipment purchased of use in excavation
(800,000 – 640,000) 160,000Fixed overhead allocated to building construction
100,000Salvage from the demolished oldbuilding (70,000)Total costs 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
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Chapter 5- Property, Plant and Equipment
permanent in nature.
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 P4,000,000Payments to tenants to vacate premises 200,000Demolition of old building 100,000Legal fees for purchase contract and recording ownership 150,000Delinquent property taxes on land 50,000Proceeds from sale of salvaged materials (20,000)Total P4,480,000
5-11 (Yu Corporation)Machinery
Land andLand Improvements Buildings Equipment
Balances, December 31, 2012 P7,000,000 P500,000 P 9,000,000 P 980,000Cash paid on purchase of land 4,500,000Mortgage assumed on the landbought including interest at 10% 5,000,000Legal fees, realty taxes anddocumentation expenses 50,000Payment to squatters 100,000Razing costs of old building 120,000Salvage value from buildingdemolition (150,000)Cost of fencing the property 500,000Paid to a contractor for buildingerected 12,000,000Building permit fee 20,000Excavation expenses 50,000Architect’s fees 150,000Invoice cost of machines acquired 2,000,000Freight, unloading and deliverycharges 60,000Custom duties and other charges 140,000Allowances, hotel accommodationspaid to technicians duringinstallation and test runs ofmachines 400,000Balances, December 31, 2013 P16,620,000 P1,000,000 P21,220,000 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% P500,000
Less interest income earned on temporary investment of loan ( 125,000)
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Chapter 5- Property, Plant and Equipment
Capitalized interest P375,000
b. 1,250,000 x 10% P 125,0001,250,000 x 10% x 9/12 93,7501,250,000 x 10% x 6/12 62,5001,250,000 x 10% x 3/12 31,250Total interest P 312,500Less interest income earned on temporary investment of loan 40,000Capitalized interest P 272,500Total construction costs 5,000,000Total cost of building P5,272,500
c. Computation of average accumulated expenditures: 1,400,000 x 12/12 P1,400,0001,000,000 x 9/12 750,0001,200,000 x 5/12 500,0001,000,000 x 3/12 250,000400,000 x 0/12 ----------Average accumulated expenditures P2,900,000
Computation of weighted average interest rate:(10% x 1,600,000) + (12% x 2,000,000) 11.11%
1,600,000 + 2,000,000Interest of specific borrowing:
1,800,000 x 10% P180,000Less interest earned 10,000 P170,000
Interest on general borrowing:2,900,000 – 1,800,000 = 1,100,0001,100,000 x 11.11% 122,210
Capitalized interest P292,210
d. 2,800,000 x 10% P280,0001,600,000 x 10% 160,0002,000,000 x 12% 240,000Total interest on loans P680,000Less capitalized interest: (2,900,000 x 10.625%*) 308,125Interest expense for 2013 P371,875
* 680,000 / 6,400,000 = 10.625%
5-13. (Lim Company)3,600,000 x 12/12 P3,600,0006,000,000 x 7/12 3,500,00015,000,000 x 6/12 7,500,00015,000,000 x 1/12 1,250,000Average accumulated expenditures P15,850,000
a. Interest on specific borrowing (30,000,000 x 12%) P 3,600,000Less interest revenue earned from temporary investments of
specific borrowing 249,000Capitalized interest P 3.351,000
b. Interest on specific borrowing (12,000,000 x 12%) P 1,440,000Less interest revenue earned from temporary
investments of specific borrowing 249,000
Interest on general borrowingsP 1,191,000
15,850,000 – 12M = 3,850,000; 3,850,000 x 12.14%* 467,390Capitalized interest P 1,658,390
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Chapter 5- Property, Plant and Equipment
** 6,800,000 ÷ 56,000,000 = 12.14%
5-14. (Alondra Corporation)(a) Average accumulated expenditures:
4,000,000 x 12/12 P 4,000,0008,000,000 x 9/12 6,000,00012,200,000 x 6/12 6,100,0008,800,000 x 3/12 2,200,0007,000,000 x 0/12 ------Average accumulated expenditures 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 interestSpecific borrowing (12% x 17 million) P2,040,000General borrowings
18,200,000 – 17,000,000 = 1,200,0001,200,000 x 11.08% 132,960
Total P2,172,960
(b) Total cost of building = Total construction cost + capitalized interest cost
= P40,000,000 + P2,172,960 = P42,172,960
5-15. (Pifer Corporation)(a) Materials P1,250,000
Direct labor 250,000Overhead 2,200,000 – (150% x 1,000,000) 700,000Total P 2,200,000
(b) Materials P1,250,000Direct labor 250,000Overhead (2,200,000 x 250/1,250) 440,000Total P 1,940,000
5-16. (Pioneer Development Corporation)(a) Land 3,000,000
Cash 50,000Unearned Income from Government Grant 2,950,000
Building 15,000,000Cash 15,000,000
Depreciation Expense 750,000Accumulated Depreciation 750,000
(15,000,000/20 years)
Unearned Income from Government Grant 147,500Income from Government Grant 147,500
(2,950,000/20 years)
(b) Property, Plant and EquipmentLand P3,000,000Less Unearned Income from Government Grant 2,802,500
P 197,500
Alternatively, the unearned income from government grant may be presented as part of the entity’s
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Chapter 5- Property, Plant and Equipment
liabilities.
5-17. (Tan Company)a. Depreciation charges for 2012 and 2013
2012 20131. SL (800,000 – 80,000) / 8 = 90,000
90,000 x 9/12= 67,500 90,0002. Hrs 720,000/100,000 hrs = 7.20/hr.
worked 7.20 x 4,500 hrs = 32,400 7.20 x 5,500 hrs = 39,6003. Units of 720,000/900,000 units = 0.80/unit
output 0.80 x 40,000 units = 32,000 0.80 x 60,000 units = 48,0004. SYD 720,000 x 8/36 x 9/12 = 120,000 720,000 x 7.25/36 =145,0005. DDB 2/8 = 25% 800,000-150,000=650,000
25% x 800,000 x 9/12=150,000 25% x 650,000 = 162,5006. 150% DB 1.5/8 = 18.75% 800,000-112,500=687,500
18.75% x 800,000 x 9/12= 112,500 18.75% x 687,500) = 128,906
b. Carrying amount of the asset at the end of 2013 Depreciation Method Cost Accum. Depr. Carrying amount
1. Straight-line 800,000 157,500 642,5002. Hours worked 800,000 72,000 728,0003. Units of output 800,000 80,000 720,0004. SYD 800,000 265,000 535,0005. DDB 800,000 312,500 487,5006. 150% declining balance 800,000 241,406 558,594
5-18. (De Oro Company)a. Method 1 - Straight-line method
Method 2 - 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
Method 3 - 150% declining-balance method
1.5 ÷ 4 = 37.5%
37.5% x 340,000 = 127,50037.5% x (340,000-127,500)= 79,688
b. Straight line method P80,000Sum-of-the-years digits method
320,000 x 2/10 64,000150% declining balance method
37.5% x (340,000-127,500-79,688) 49,804
5-19. (Real Company)a. 2/5 = 40%; 26,400 ÷ 40% = 66,000b. 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) = P30,000Sum-of-the-years digits(66,000 – 48,000 ) = P18,000Double-declining balance (66,000 – 52,744) = 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 P100,0002011: 25% x (800,000 – 100,000) 175,000
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Chapter 5- Property, Plant and Equipment
2012: 25% x (800,000 – 275,000) 131,2502013: 25% x (800,000 – 406,250) P98,437.50
(or 800,000 x 87.5% x 75% x 75% x 25% P98,437.50b. Sales price P300,000
Carrying value on November 30, 2013Cost P800,000Less accumulated depreciation
720,000 x (3.75/8) 337,500 462,500Loss on sale P162,500
5-21. (Asiaplus Corporation)(a) Depreciation Expense – Equipment 19,200
Accumulated Depreciation - Equipment 19,200(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 = 3,200Total P19,200
(b) Cash 5,000Accumulated Depreciation – Equipment (3,200 x 4) 12,800Loss on Sale of Equipment Part 200
Equipment 18,000
(c) Equipment 20,000Cash 20,000
(d) Depreciation Expense – Equipment 19,200Accumulated Depreciations – Equipment 19,200
(e) Depreciation Expense – Equipment 20,000Accumulated Depreciation – Equipment 20,000
Components 1 – 3 = P16,000Component 4 = 20,000/5 4,000Total depreciation for P20,000
5-22. (Total Company)
a. Cost P1,200,000Less accumulated depreciation (1,100,000 ÷ 10) x 4 440,000Carrying amount of the asset, beginning of 5th year P 760,000Revised depreciation for the 5th year
760,000-100,000 = 660,000; 660,000 x 6/21 P 188,571
b. Revised depreciation for the 5th year(760,000 – 60,000) / 5 years P 140,000
c. Revised depreciation for the 5th year 760,000 / 4 years P 190,000
5-23. (Standard Company)Cost P500,000Less accumulated depreciation:
2009 20% x 500,000 100,0002010 20% x 400,000 80,0002011 20% x 320,000 64,0002012 20% x 256,000 51,200 295,200
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Chapter 5- Property, Plant and Equipment
Carrying amount, January 1, 2013 P204,800Depreciation expense for 2013
204,800 – 10,000 = 194,800; 194,800 ÷ 5 years P 38,960
5-24. (Carmi Company)
(a) Depreciation for 2013 January 1 to August 1
(378,000 – 35,000)/5 x 7/12 P40,017August 1 to December 31
(320,800 – 50,000) / (5 – 2) + 2 = 270,800270,800 / 5 x 5/12 22,567
Total P62,584
(b) Cost P378,000Less: Accumulated Depreciation (378,000–35,000)/5 x 2 137,200Carrying value, August 1, 2013 P240,800Capitalized overhaul costs 80,000Carrying value after overhaul P320,800Depreciation, August 1 – December 31, 2013 (see above) 22,567Carrying value, December 31, 2013 P298,233
5-25. (Chu, Inc.)
Accum, depreciation balance, January 1, 2013 (528,000 x 4/8) P264,000Revised depreciation expense for 2013
528,000 – 264,000 = 264,000264,000/ 2 yrs. 132,000
Accumulated depreciation balance, December 31, 2013 P396,000
5-26. (Imaculada Company)(a) Accumulated Depreciation 137,500
Loss on Disposal of Machine Parts 112,500Machinery 250,000
To remove the carrying value ofthe replaced engine block.250,000/10 years = 25,00025,000 x 5.5 years = 137,500
Machinery 320,000Cash 320,000
To capitalize the cost of replacement.
Depreciation Expense 82,875Accumulated Depreciation 82,875
To record depreciation for 2013.
January 1 – July 1, 2013 (prior to replacement)(1,000,000/10 years) x 6/12 50,000
July 1 – December 31, 2013 (after replacement)Carrying value, July 1
(1M/10) x 4.5 years 450,000CV of old engine block (112,500)Cost of new engine block 320,000Depreciable carrying value 657,500Remaining life ÷ 10 yrsRevised annual depreciation 65,750 x ½ 32,875
Total depreciation expense for 2013 82,875
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Chapter 5- Property, Plant and Equipment
Alternative computation:New engine block
320,000/10 = 32,000; 32,000 x 6/12 16,000Replaced engine block
25,000 x 6/12 12,500Remaining parts of machinery
1,000,000 – 250,000 = 750,000(750,000/10) x 6/12 37,500(750,000/10 years) x 4.5 = 337,500(337,500/10 years) x 6/12 16,875
Total depreciation expense for 2013 82,875
(b) Accumulated Depreciation 176,000Loss on Disposal of Machine Parts 144,000
Machinery 320,000320,000/10 years = 32,00032,000 x 5.5 years = 176,000
Machinery 320,000Cash 320,000
Depreciation Expense 81,300Accumulated Depreciation 81,300
January 1 – July 1, 2013 (prior to replacement)(1,000,000/10 years) x 6/12 50,000
July 1 – December 31, 2013 (after replacement)Carrying value, July 1
(1M/10) x 4.5 years 450,000CV of old engine block (144,000)Cost of new engine block 320,000Depreciable carrying value 626,000Remaining life ÷ 10 yrsRevised annual depreciation 62,600 x ½ 31,300
Total depreciation expense for 2013 81,300
5-27. (Remedios Company)(a) Cost of Leasehold Improvements P1,200,000
Less Accumulated Depreciation1,200,000/10 years = 120,000 x 4 yearsLease term is 10 years; Useful life is 12 years
Shorter period is 10 years 480,000
Carrying value, December 31, 2012 P 720,000
(b) Carrying value, December 31, 2012 P 720,000
Revised remaining lease term is 11 years
(10 – 4 + 5)
Remaining useful life is 8 years
(12 – 4)
Shorter period is ÷ 8 years
Depreciation expense for 2013 P 90,000
5-28. (Joice Company)(a) Recoverable amount is the higher of fair value less cost to sell
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Chapter 5- Property, Plant and Equipment
and the asset’s value in use P420,000Fair value less cost to sell (450,000 – 30,000) P420,000Value in use
100,000 x 3.7908 P379,08020,000 x 0.6209 12,418 P391,498
(b) Carrying value of the asset, December 31, 2013 Cost P860,000Less accumulated depreciation
(810,000/9) x 4 years 360,000 P500,000Recoverable amount (see a) 420,000Impairment loss P 80,000
(c) Depreciation expense for 2013
420,000/5 years P 84,000
5-29. (Island Souvenirs, Inc.)(a) Value in use (1,500,000 – 700,000) x 3.7908 P3,032,640
Residual value (500,000 x 0.6209) 310,450Total P3,343,090
(b) Carrying value (9,000,000 – 1,500,000) P7,500,000Recoverable amount (higher between P3,200,000 and
P3,343,090) 3,343,090Impairment loss P4,156,910
(d) Revised annual depreciation
(3,343,090 – 500,000) / 5 years P 568,618
5-30. (Lu Company)Depreciation Expense 56,250
Accumulated Depreciation 56,250To record depreciation expense for 2012(500,000 – 50,000) / 8
Impairment Loss 131,250Accumulated Depreciation 131,250
To record impairment loss.Carrying value 500,000 – (56,250 x 3 years) P331,250Recoverable value 200,000Impairment loss P131,250
Depreciation Expense 90,000Accumulated Depreciation 90,000
To record depreciation expense for 2013.(200,000 – 20,000) / 2 years
5-31. (Twin Head Corporation)
(a) Depreciation expense 2011 20125,600,000 / 16 years 350,000 350,000
(b) December 31, 2013Depreciation Expense 350,000
Accumulated Depreciation 350,000
Accumulated Depreciation 2,100,000Recovery of Previous Impairment 2,100,000
Recoverable amount 7,500,000
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Chapter 5- Property, Plant and Equipment
Carrying value (5,600,000 – 700,000) 4,900,000Increase in value 2,600,000Limit on recovery:
Impairment loss 2,400,000Recovered impairment
2,400,000 / 16 years = 150,000; 150,000 x 2 years 300,000Limit on recovery 2,100,000
(c) Cost 10,000,000Accumulated depreciation (4,400,000 + 700,000 – 2,100,000) 3,000,000Carrying amount, December 31, 2013 7,000,000
To check: Limit on carrying value without impairment10,000,000 x 14/20 7,000,000
(d) Depreciation expense for 2014
7,000,000 / 14 years 500,000
5-32. (Coco Company)(a) Cost P300,000
Accumulated depreciation 12/31/12 (300,000/10) x 2 ( 60,000)Carrying amount 12/31/12 before impairment P240,000Recoverable amount 192,000Impairment loss P 48,000
(b) Carrying value 12/31/12 after impairment P192,0002013 depreciation (192,000/8) ( 24,000)Carrying amount 12/31/13 before recovery P168,000
(c) Carrying amount before recovery of impairment P168,000New recoverable amount 222,000Increase in value P 54,000Limit on recovery
Previous impairment P48,000Recovered in 2013 (30,000 – 24,000) (6,000)Limit on recovery P42,000
Impairment recovery to be recognized at 12/31/13 P 42,000
5-33.a.
01/01/11 Equipment 2,000,000Revaluation Surplus 1,200,000Accumulated Depreciation 800,000
3,600,000-2,400,000 = 1,200,000 (50% Inc.)50% x 4,000,000 = 2,000,000
b.50% x 1,600,000 = 800,000
12/31/11 Depreciation Expense 600,000Accumulated Depreciation-Equipment 600,000
3,600,000 ÷ 6 yrs = 600,000
12/31/11 Revaluation Surplus 200,000Retained Earnings 200,000
1,200,000 ÷ 6 yrs = 200,000
12/31/12 Depreciation Expense 600,000Accumulated Depreciation-Equipment 600,000
12/31/12 Revaluation Surplus 200,000Retained Earnings 200,000
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Chapter 5- Property, Plant and Equipment
c.01/01/13 Accumulated Depreciation-Equipment 600,000
Revaluation Surplus 400,000Equipment 1,000,000
12/31/13 Depreciation Expense 500,000Accumulated Depreciation-Equipment 500,000
2,000,000 ÷ 4 yrs = 500,000
Revaluation Surplus 100,000Retained Earnings 100,000
1,200,000-200,000-200,000-400,000=400,000400,000 ÷ 4 yrs = 100,000
Original 1/1/11 1/1/11 2011 12/31/12 1/1/13 1/1/13 12//31/13and2012
Cost 4.000M +2.00M 6.000M - 6.00M -1.00M 5.00M 5.00MAccum 1.600M +0.80M 2.400M +1.20M 3.60M -0.60M 3.00M 3.50MCV 2.400M +1.20M 3.600M -1.20M 2.40M -0.40M 2.00M 1.50M
5-34. (Samsung Company)1/1/08 Machinery 3,600,000
Cash 3,600,000
12/31/08 Depreciation Expense (3,600,000/10) 360,000Accumulated Depreciation 360,000
12/31/09 Depreciation Expense 360,000Accumulated Depreciation 360,000
Machinery 300,000Accumulated Depreciation 60,000Revaluation Surplus 240,000
Cost Revalued IncreaseMachinery 3,600,000 3,900,000 300,000Accumulated Depreciation 720,000 780,000 60,000Net 2,880,000 3,120,000 240,000
12/31/10 Depreciation Expense (3,120,000 / 8 years) 390,000Accumulated Depreciation 390,000
Revaluation Surplus 30,000Retained Earnings (390,000 – 360,000) 30,000
12/31/11 Depreciation Expense (3,120,000 / 8 years) 390,000Accumulated Depreciation 390,000
Revaluation Surplus 30,000Retained Earnings (390,000 – 360,000) 30,000
12/31/11 Accumulated Depreciation 220,000Revaluation Surplus (240,000 – 30,000 – 30,000) 180,000Revaluation Loss 150,000
Machinery 550,000New Rev Ledger Bal Decrease
Machinery 3,350,000 3,900,000 550,000Accumulated Depreciation 1,340,000 1,560,000 220,000Net 2,010,000 2,340,000 330,000
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Chapter 5- Property, Plant and Equipment
12/31/12 Depreciation Expense (2,010,000 / 6 years) 335,000Accumulated Depreciation 335,000
12/31/13 Depreciation Expense 335,000Accumulated Depreciation 335,000
12/31/13 Machinery 1,150,000Accumulated Depreciation 690,000Recovery of Previous Revaluation Loss (P & L) 100,000Revaluation Surplus 360,000
Increase in asset value 460,000Unrecovered revaluation loss
Initial revaluation loss 150,000Recovered through lower depreciation
150,000 / 6 = 25,000; 25,000 x 2 years 50,000 100,000Revaluation surplus 360,000
New Rev Ledger Bal IncreaseMachinery 4,500,000 3,350,000 1,150,000Accumulated Depreciation 2,700,000 2,010,000 690,000Net 1,800,000 1,340,000 460,000Check:Carrying value based on cost (no revaluation loss)
(3,600,000 x 4 years) / 10 years 1,440,000Revalued amount, 12/31/12 1,800,000Revaluation Surplus 360,000
12/31/14 Depreciation Expense 1,800,000/4 450,000Accumulated Depreciation 450,000
Revaluation Surplus (360,000 / 4 years) 90,000Retained Earnings 90,000
5-35. (Lakers, Inc.)(a) Cost P100,000
Accumulated depreciation 12/31/10 (100,000/10) ( 10,000)Net 90,000Revalued amount 112,500Revaluation surplus 12/31/10 P 22,500
(b) Carrying amount 12/31/12 (112,500 x 7/9) P 87,500Recoverable amount 67,375Decrease in value P 20,125Remaining balance of Revaluation Surplus (22,500 x 7/9) ( 17,500)Impairment loss in profit or loss P 2,625
(c) As of 1/1/13 P67,375Depreciation expense for 2013 (67,375/7) ( 9,625)Net before revaluation on 12/31/13 57,750Revalued amount 73,000Increase in value P15,250Unrecovered impairment loss (2,625 x 6/7) ( 2,250)Revaluation surplus, December 31, 2013 P13,000
To check: CV without impairment, cost model100,000 x 6/10 P60,000
Revaluation surplus, December 31, 2013 13,000
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Chapter 5- Property, Plant and Equipment
Revalued amount, December 31, 2013 P73,000
5-36. (Allied Company)Purchase price P4,450,000Residual value ( 650,000)Development costs incurred and capitalized during 2010 750,000Depletable cost 1/1/12 P4,550,000Estimated supply of mineral resources ÷3,500,000Depletion expense per ton in 2012 P 1.30Number of tons removed during 2012 x 550,000Depletion expense for 2012 P 715,000
Depletable cost, January 1, 2012 (see above) P4,550,000Less depletion expense for 2012 ( 715,000)Add development costs incurred and capitalized during 2013 961,000Depletable cost for 2013 P4,796,000Revised estimated supply of mineral resource, 2013 ÷4,360,000Revised depletion rate per ton P 1.10Number of tons removed during 2013 700,000Depletion expense for 2013 P 770,000
5-37. (Ong Exploration Company)Purchase price P45,000,000Development costs 1,500,000Salvage value ( 6,000,000)Restoration costs at present value (2,500,000 x 0.4632) 1,158,000Depletable cost P41,658,000Estimated recovery from the property ÷10,000,000Depletion rate per metric ton P 4.1658Resources extracted during 2012 x 1,000,000Depletion expense for 2012 P 4,165,800
Depletable cost, 2012 (see above) P41,658,000Depletion expense for 2012 ( 4,165,800)Development costs in 2013 750,000New depletable cost for 2013 P38,242,200Remaining number of metric tons (9,250,000-1,000,000) ÷ 8,250,000Revised depletion per metric ton (rounded) P 4.64Number of metric tons removed during 2013 x 1,500,000Depletion expense for 2013 P 6,960,000
5-38. (Family Mining Company)Depletion rate per ton:
4,000,000 + 400,000 – 200,0001,400,000 tons P3.00
Depreciation expense per ton:300,000 – 20,0001,400,000 tons P0.20
a. Cost of ending inventory2,000 units x 6 months 12,000Production cost per unit
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Chapter 5- Property, Plant and Equipment
(8.00 + 3.00 + 0.20) x 11.20Ending Inventory, December 31, 2013 P134,400
b. Cost of goods sold18,000 units x 6 months 108,000Production cost per unit x 11.20Cost of goods sold for 2013 P1,209,600
c. Depletable cost in 2013 P4,200,000Less depletion expense for 2013
20,000 units x 6 months 120,000Depletion rate per ton x 3.00 360,000
New depletable cost for 2014 P3,840,000Revised estimated recovery at January 1, 2014 ÷ 800,000Revised depletion rate for 2014 P 4.80
Depreciable cost in 2013 P 280,000Less depreciation expense for 2013 (120,000 units x 0.20) ( 24,000)Depreciable cost for 2014 P 256,000Revised estimated recovery at January 1, 2014 ÷ 800,000Revised depreciation rate for 2014 P 0.32
5-39. (Yap Machine Shop)a.
1. Cash 1,700,000Accumulated Depreciation-Building 450,000Loss on Disposal of Assets 150,000
Land 800,000Building 1,500,000
2. Cash 120,000Accumulated Depreciation-Equipment 250,000Loss on Disposal of Assets 30,000
Equipment 400,000
3. Equipment 298,000Cash 298,000
4. Land 8,000,000Income from Donated Asset 7,800,000Cash 200,000
5. Income from Donated Asset 240,000Cash 240,000
6. Equipment 150,000Accumulated Depreciation-Equipment 15,000
Gain on Disposal of Assets 22,000Equipment 40,000Cash 103,000
7. Building 28,000,000
b.Cash 28,000,000
Property, Plant and Equipment (Net)Beginning balance 2,150,000 (1) 1,850,000(3) 298,000 (2) 150,000(4) 8,000,000(6) 125,000
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Chapter 5- Property, Plant and Equipment
(7) 28,000,000Total 38,813,000 Total 2,000,000Balance 36,573,000
5-40. (Pat Corporation)a. Depreciation and amortization expense for year ended December 31, 2013
Buildings1.5/25 = 6%; (12,000,000-2,631,000) x 6% P 562,140
Machinery and EquipmentBased on beginning balance (9,000,000 x 10%) P900,000
Less depreciation of machine destroyed230,000 x 10% x 9/12 17,250 P 882,750
New machine2,800,000 + 50,000 + 250,000=310,0003,100,000 x 10% x 6/12 155,000
Total P1,037,750Automotive Equipment
Based on beginning balance P180,000Less depreciation of car traded 180,000 x 2/10 36,000 P 144,000New car (240,000 x 4/10) 96,000Total 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) P 40,000Book value of car traded 54,000 P(14,000)
Machine destroyed by fireInsurance recovery P155,000Book value of machine (230,000 x 4/10 ) 92,000 63,000
Net gain from disposal of assets P 49,000
TheoryMULTIPLE CHOICE QUESTIONS
MC1 A MC11 B MC21 D MC31 DMC2 B MC12 A MC22 B MC32 CMC3 D MC13 D MC23 D MC33 CMC4 D MC14 D MC24 B MC34 CMC5 C MC15 B MC25 D MC35 DMC6 A MC16 B MC26 DMC7 C MC17 D MC27 CMC8 B MC18 B MC28 AMC9 C MC19 D MC29 CMC10 B MC20 B MC30 B
ProblemsMC36 D 14,400,000 x 5/20 = 3,600,000MC37 C 200,000 + 3,000 + 6,000 = 209,000MC38 D Cost of equipment is the fair value of FVPL exchangedMC39 D (800,000 – 20,000) x 12/78 x 9/12 = 90,000MC40 C 780,000 x 11.25/78 = 112,500; 90,000 + 112,500 = 202,500
800,000 – 202,500 = 597,500
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Chapter 5- Property, Plant and Equipment
MC41 A 4,500,000 + 30,000 + 6,000 + 40,000 + 60,000 = 4,636,000 Land10,000 + 50,000 + 90,000 + 45,000 + 150,000 + 9,800,000 = 10,145,000 Building
MC42 C 1,800,000 x 10% = 180,000; 180,000 – 45,000 = 135,0002,500,000 – 1,800,000 = 700,000;7 00,000 x 9% = 63,000; 135,000+63,000=198,000
MC43 C 4,000,000 x 10% x 6/12 = 200,000750,000 x 12% x 6/12 = 45,000; 200,000 + 45,000 = 245,000
MC44 C 1,000,000 + (4,000,000÷ 2) = 3,000,000; 2,000,000 x 10% = 200,0001,000,000 x 11% = 110,000; 200,000 + 110,000 = 310,000
MC45 C 20,000 FV – cash received 3,000 = 17,000 cost;40,000 – 30,000 = 10,000; 20,000 – 10,000 = 10,000 Gain
MC46 B 20,500 – 6,000 = 14,500; 14,500 – 16,800 = 2,300MC47 A 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 expense5,950,000 ÷ 201,375 = 29.5 yrs.
MC48 A 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000 total cost201,375 ÷ 6,335,000 = 3.18%
MC49 D 4,500,000 ÷ 40 yrs. = 112,500MC50 C 77,000 x 6/36 = 12,833MC51 A 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 = 9,700MC52 C 270,000 x (8+7)/36 = 112,500
270,000 ÷ 8 = 33,750; 33,750 x 2 = 67,500; 112,500 – 67,500 = 45,000MC53 B 1.5/5 = 30% depreciation rate; 600,000 x 30% x ½ = 90,000
600,000 – 90,000 = 510,000; 510,000 x 30% = 153,000MC54 B 240,000 ÷ 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400MC55 A 90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD
90,000 x 2/15 = 12,000MC56 C 160,000/4 = 40,000; 400,000/40,000 = 10 years
240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000MC57 A 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000MC58 D (900,000 – 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000MC59 D 42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000MC60 C 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 = 800,000MC61 C 54,000,000 – 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 ÷ 2,400,000 = 23MC62 A 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 = 375,000MC63 B 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 = 6,750MC64 D 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 = 9,660MC65 B .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 = 28,980MC66 C (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 = 233,333MC67 D 8,000,000 – 1,000,000 – 233,333 = 7,366,667; 7,500,000 – 7,366,667 = 133,333MC68 C 160,000 x 10 yrs = 1,600,000; 4M – 1.6M = 2.4M; 3,240,000 – 2,400,000 = 840,000MC69 B 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years; 3,240,000 ÷ 15 = 216,000MC70 B 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. = 128,7502,060,000 – 128,750 = 1,931,250; 3,240,000 – 1,931,250 = 1,308,950160,000–128,750=31,250; 500,000–31,250 =468,750; 1,308,750 – 468,750 = 840,000
MC71 A (360,000 ÷ 6) x 2.5 yrs = 150,000360,000 – 150,000 = 210,000 book value; 210,000 – 70,000 = 140,000 loss
MC72 D 70,000 ÷ 3.5 remaining years = 20,000; 70,000 – 20,000 = 50,000MC73 C 1,800,000 – 600,000 = 1,200,000; 600,000 ÷ 3 = 200,000
1,200,000 + 200,000 = 1,400,000MC74 C 3,000,000 – 300,000 = 2,700,000; 2,700,000 ÷ 10 = 270,000
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Chapter 5- Property, Plant and Equipment
270,000 x 4 = 1,080,0003,000,000 – 1,080,000 = 1,920,000; 1,920,000 – 900,000 = 1,020,000
MC75 B 1,920,000 ÷ 6 yrs = 270,000 or 2,700,000 ÷ 10 yrs = 270,000
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Recommended