Property, Plant and Equipment

Problem 1
OE: Cash 32,000
Other ope. income 32,000
CE: Cash 32,000
Accumulated depn 12,000
Property & equip. 40,000
Other ope. income 4,000
Adj: Accum. depn 12,000
Other ope. income 28,000
Property & equip. 40,000
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Adj: Revaluation increment 124,000
Accumulated depn 6,000
Property & equipment 130,000
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Per book depreciation - bldg 75,000
Per audit depreciation - bldg 72,000 (540,000-60,000/20 x 3 yrs)
Adjustment 3,000

Adj: Accum. Depreciation 3,000

Operating expenses 3,000
Answer:
1. B 2. A

Problem 2
Entries:
Machinery and equipment 369,000
Cash 369,000
Automobile and trucks 25,000
Cash 25,000
Cash 23,500
Accumulated depreciation 24,750
Automobile and trucks 48,000
Gain on sale 250
Accumulated deprecation - 12/31/02 18,000
Depreciation - 9 mos. (P30,000 x 30% x 9/12) 6,750
Total 24,750

Cash 4,000
Accumulated depreciation 14,025
Machinery and equipment 17,000
Gain on sale 1,025
Depreciation 221,404
Accumulated depreciation - mach. 156,450
Accumulated depreciation - auto. 28,954
Accumulated depreciation - improv. 36,000

Machinery and equipment - P1,380,000/10 years =P 138,000

P 369,000/10 years x 6/12 = 18,450 P 156,450
Leasehold improvement - P432,000/12 years = 36,000
Automobile and trucks - CV of unsold item P 65,680 x 30% = 19,704
Sold item - 30,000 x 30% x 9/12 = 6,750
Current purchase P25,000 x 30% x 4/12= 2,500 28,954
Answer:
1. B 2. D 3. B 4. C 5. B

Problem 3
Entries:
a. Automobile Equipment 24,000
(cash paid, P20,000 plus P4,000 trade-in allow.)
Accum. Depreciation 12,600
Loss on trade-in 1,400
Automobile Equipment 18,000
Cash 20,000
* Trade in allowance is the difference between the cash price and the purchase
price of the equipment.
b. Cash 15,500
Accum. Depreciation 11,500
Machinery and equipment 23,000
Gain on asset disposal 4,000
c. Leasehold improvements 168,000
Cash 168,000
d. Machinery and equipment 310,000
Cash 310,000

Computation of the Depreciation Expense and Accumulated Depreciation:

Building: Book value 1/1/05 (P1,200,000 - P263,100) - P936,900

X declining rate (1/25 x 150%) 6% .
Depreciation for the year P 56,214
Plus; Accum. Depreciation - 1/1/05 263,100
Accum. Depreciation - 12/31/05 P319,314

Machinery and Equipment: Balance - 1/1/05 P900,000

Less: machine destroyed by fire 23,000
P877,000
Divided by 10 yrs. P 87,700
Depn of the Machine destroyed by fire:
(P23,000/10 x 3/12) 575
Depn of the machine purchase for the year:
(P310,000/10 x 6/12) 15,500
Total Depreciation P103,775
Plus: Accum. Depn - 1/1/05 250,000
Less: Accum. Depn - destroyed by fire ( 11,500)
Accum. Depreciation - 12/31/05 P342,275

Automotive Equipment: Depreciation on P115,000 balance, 1/1/05 P 18,000

Less: Depreciation on car traded in
(P18,000 x 2/10) 3,600
Adjusted depreciation on the beg. Bal. P 14,400
Depn on the 1/2/05 Purchase:
(P24,000 x 4/10) 9,600
Total Depreciation expense P 24,000
Plus: Accum. Depreciation - 1/1/05 84,600
Less: Accum. Depn - traded equipment ( 12,600)
Accumulated depreciation - 12/31/05 P 96,000

Leasehold Improvements: P168,000/80 months x 8 mos. for 2005 P 16,800

ANSWER: 1. B 2. B 3. D 4. B 5. B
6. D 7. C 8. C 9. C 10. D

Problem 4

Schedule of Accumulated Depreciation December 31, 2005

Building Mach.& Auto. Eqpt. Total
Equipment
Balance, 1.1.05 P2,631,000 P2,500,000 P846,000 P5,977,000
Add depreciation for 2005 562,140 1,037,750 290,000 1,889,890
P3,193,140 P3,537,750 P1,136,000 P7,866,890
Deduct acc. depr. related to
Mach, destroyed by fire
(5 x 10% x P230,000) 115,000
Car traded in (490,000 - 147,000) _________ _________ 343,000 458,000
Balance, 12.31.05 P3,193,140 P3,422,750 P 793,000 P7,408,890

SCHEDULE OF DEPRECIATION EXPENSE For the Year Ended December 31, 2005
Building
Book value , 1/1/05 (P12,000,000 - P2,631,000) P9,369,000
150% declining balance rate (100% / 25) x 1.5 x 6%
Total depreciation on building P562,140

Machinery and Equipment

Balance, 1.1.05 less machine destroyed by fire P8,770,000
Depreciation x 10% 877,000
Depr. on Machine destroyed by fire, 4.1.05
(P230,000 x 10% x 3/12) 5,750
Depr. on machine purchased on 7.1.05
(P3,100,000 x 10% x 6/12) 155,000
Total depreciation on mach. and equipment P1,037,750

Automotive Equipment
Depreciation on P1,115,000 bal. on 1.1.05 P180,000
Deduct depr. on car traded in , 1.2.05
(SYD 3rd year 2/10 x P490,000) (98,000) 82,000
Depr. on car purchased , 1.2.05 (P520,000 x 4/10) 208,000
Total depreciation on automotive equipment 290,000
Total depreciation expense for 2005 P1,889,890

Gain or Loss from Disposal of Assets For the Year Ended December 31, 2005
Gain on machine destroyed by fire
Insurance recovery P155,000
Book value of machine destroyed
(P230,000 - (5 x 10% x P230,000) 115,000 P40,000
Gain on car traded in on new car purchase
Book value of car traded in P147,000
Trade-in allowed (P520,000 - P350,000) 170,000 23,000
Total gain on asset disposals for 2005 P63,000

Property, Plant and Equipment December 31, 2005

COST ACCUMULATED BOOK VALUE
DEPRECIATION
Land P 1,500,000 ------ P1,500,000
Building 12,000,000 3,193,140 8,806,860
Machinery and Equipment 11,870,000 3,422,750 8,447,250
Automotive equipment 1,180,000 793,000 387,000
Totals P26,550,000 P7,408,890 P19,141,110
Answer:
1. D 2. B 3. C 4. D 5. A
6. D 7. A 8. A 9. C 10. D

Problem 5

a. Accumulated Depreciation 19,500

Depreciation Expense 19,500

Correct depreciation expense for 2005

1995 acquisition : 40,000 x 10% x P2,000
1998 : 390,000 x 10% 39,000
2000 : (500,000 x 10% x ) + (30,000 x 10%) 28,000
2002 : (60,000 x 10% x ) + (360,000 x 10%) 39,000
2004 : 570,000 x 10% 57,000
2005 : (120,000 + 250,000 + 540,000 + 1M) x 10% x 95,500 P260,500
Amount recorded 280,000
Overstatement P 19,500
 b. No AJE necessary

c. Buildings 500,000
Machinery & Equipment 500,000

d. Receivable from Officers 60,000

Machinery & Equipment 60,000

e. 1 Accumulated Depreciation 18,000

Loss on Disposal of Assets 42,000
Machinery & Equipment 60,000
Cost P60,000
Less acc. Depreciation (60,000 x 10% x 3) 18,000
Book value P42,000
Trade in value 4,000
Loss P38,000

e.2 Equipment rental expense (7/12) 21,000

Prepaid equipment rental 15,000
Machinery & Equipment 32,000
Loss on Disposal of Assets 4,000

f. Accumulated Depreciation 150,000

Machinery & Equipment 135,000
Gain on Disposal of Assets 15,000

g. Other Assets - Mach. Held for sale 180,000

Accumulated depreciation 250,000
Loss on Disposal of Assets 70,000
Machinery & Equipment 500,000
BV ( P500,000 x 5/10) P250,000
Estimated selling price 180,000
Loss P70,000

h. Machinery & Equipment 90,000

Equipment Rental Expense 90,000
Rental for the period Feb. 1 to October 31.

i. Machinery & Equipment 687,500

Interest expense 12,500
Equipment contract payable 700,000
Answer:
1. C 2. A 3. A 4. D 5. D
6. B 7. C 8. C 9. A 10. D

Problem 6
1. D
Cost of patent - P 3,200,000
Amortization 2003 - 240,000
Amortization 2004 - 320,000
Net carrying value - P 2,640,000
2. B
Cost of building - P 11,200,000
Depreciation 2004 - 560,000
Net carrying value - P 10,640,000
3. B cost of the land P 2,400,000
4. C
Salaries and benefits - P 7,800,000
Other expenses - 3,080,000
Depreciation - 560,000
Total R and D Cost - P11,440,000

Problem 7
1. B
Jan. 3 500,000 x 12/12 = 500,000
March 31 600,000 x 9/12 = 450,000
June 30 800,000 x 6/12 = 400,000 AAE
Oct 31 600,000 x 2/12 = 100,000 1,450,000 x 10% = P145,000 (Lower than the
actual cost of P580,000)
2. A
Beg bal. 2,500,000 x 6/6 = 2,500,000
145,000 x 6/6 = 145,000
Jan. 31 300,000 x 5/6 = 250,000
Mar 31 500,000 x 3/6 = 250,000
May 31 600,000 x 1/6 = 100,000 3,245,000 AAE

Specific borrowing - P2,000,000 x 10% x 6/12 = 100,000

General borrowing - 1,245,000 x 7.25% x 6/12 = 45,132
Interest to be capitalized 145,132 (Lower than the actual cost
of P580,000)
Average rate (general)
5,000,000 x 8% = P 400,000
3,000,000 x 6% = 180,000
580,000 / 8,000,000 = 7.25%
3. B
Total cost in the construction - P 3,900,000
Interest capitalized - 290,132
Total cost building - P 4,190,132
4. B
Interest expense 2003
Specific borrowing P 2,000,000 x 10% = 200,000
General borrowing P 5,000,000 x 8% = 400,000
P 3,000,000 x 6% = 180,000
Less: Interest capitalized = (145,000)
Total interest expense 2003 = 635,000
5. D
Interest expense 2004
Specific borrowing P 2,000,000 x 10% = 200,000
General borrowing P 5,000,000 x 8% = 400,000
P 3,000,000 x 6% = 180,000
Less: Interest capitalized = (145,132)
Total interest expense 2003 = 634,868

Problem 8
1. C
Annual payment 720,000.00
Less: Executory costs 24,705.10
Minimum annual lease payment 695,294.90
2. B Present value of minimum lease payment - P695,294.90 x 6.32825 = P 4,400,000
3. C
Min. Annual
Payment__ Interest expense Carrying Value
4,400,000.00
1/1/03 695,294.90 - 3,704,705.10
12/1/03 695,294.90 444,564.61 3,453,974.81
12/1/04 695,294.90 414,476.98 3,173,156.89
4. C P4,400,000/10 years = P 440,000
5. A
Cost P 4,400,000
Accumulated depreciation 880,000
Net book value P 3,520,000

Problem 9
1. B
Cost of the land 500,000
Add: tilting cost 10,000
Total 510,000
2. C
Land improvement 190,000
Less: Accumulated depreciation 10,000 (P190,000/57 mos. x 3 mos.)
Carrying value 180,000
3. C
Depreciation - leasehold improvement 10,000
Depreciation - Equipment (P40,000/2) 20,000
Total per audit 30,000
Total per book 16,000
Understatement of depreciation 14,000
4. C
Net book value 64,000
Less: CV after impairment 40,000
Loss on impairment 24,000