FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets

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PAS 16: PROPERTY, PLANT AND EQUIPMENT

Theory of Accounts
1.   The cost of a capital asset is the total of the following except
a.   carrying costs directly attributable.
b.   discounts on purchase price.
c.   freight-in.
d.   purchase price.
2.   An asset with a purchase price of ₱100,000 is expected to last 5 years. Using the double declining method of
amortization, the rate for amortization would be
a.   10%
b.   20%
c.   40%
d.   50%
3.   Which of the following would be classified as a betterment for a delivery truck?
a.   routine maintenance
b.   replacement of a motor
c.   installation of an air conditioning unit
d.   new tires
4.   Which of the following is not an asset that falls under the scope of PAS 16?
a.   Tangible assets
b.   Assets held for the production or supply of goods or services
c.   Assets held for sale in the normal course of business
d.   Assets expected to be used for more than one period
5.   When it is _______ that future economic benefits associated with an asset will flow to the entity, and the costs can be
_____ measured, it should be recognised as an asset.
a.   Possible, reasonably
b.   Possible, reliably
c.   Probable, reliably
d.   Probable, reasonably
6.   When an item of property, plant and equipment is revalued, what should be revalued?
a.   A selection of assets decided by management
b.   The whole class of assets to which it belongs
c.   The individual asset
d.   A selection of assets picked at random
7.   If one large asset has a number of individual components with different useful lives, how should this be depreciated?
a.   Treat as one asset
b.   Break down into different parts
c.   Expense it all
d.   Treat as one asset, but disclose in the notes to the financial statements

8.   When an asset is sold or disposed of, where is the gain or loss recognised?
a.   Asset disposal account
b.   Profit and loss
c.   Revaluation reserve
d.   Depreciation
9.   Under IAS 16, if assets are exchanged in an arms length, commercial transaction, their value will be measured at:
a.   Written down value
b.   Fair value
c.   Carrying value
d.   Net present value
10.   A change in depreciation method is a…
a.   Change in accounting policy
b.   Change in accounting estimate
c.   Change in accounting method
d.   Change in accounting standard
11.   Under IAS 16, how often should the useful life of an asset be reviewed?
a.   At least at each financial year end
b.   Every six months
c.   At management’s discretion
d.   Never
12.   Which of the following is not a component of cost of an asset?
a.   Purchase price
b.   Import duties
c.   Refundable sales tax
d.   Estimate of compulsory future dismantling costs
13.   Under IAS 16, if an asset is idle…
a.   Depreciation is paused
b.   Depreciation for the entire period does not apply
c.   Depreciation continues
d.   Depreciation is ignored

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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets

14.   What is an impairment loss?

a.   The amount by which the carrying amount of an asset exceeds the recoverable amount
b.   The amount by which the market value of an asset exceeds the net present value
c.   The difference between the fair value of an asset and the net realisable value of the asset
d.   The amount by which the carrying amount of an asset exceeds the book value
Problems
1.   Classification of Acquisition Cost: The property, plant and equipment section of Cheer and Var Corporation’s
balance sheet at December 31, 2014 included the following items:
Land ₱ 2,500,000
Land improvements 560,000
Machinery and equipment 6,600,000

During 2015 the following data were available to you upon your analysis of the accounts:
Cash paid on purchase of land ₱ 10,000,000
Mortgage assumed on the land bought, including interest at 16% 16,000,000
Realtor’s commission 1,200,000
Legal fees, realty taxes and documentation expenses 200,000
Amount paid to relocate persons squatting on the property 400,000
Cost of tearing down an old unusable building on the land 300,000
Amount recovered from the salvage of the building demolished 200,000
Cost of fencing the property 440,000
Amount paid to a contractor for the building erected 8,000,000
Building permit fees 50,000
Excavation expenses 250,000
Architect’s fee 600,000
Interest that would have been earned had the money used during the period of
construction been invested in the money market 100,000
Invoice cost of machinery acquired 8,000,000
Freight, unloading, and delivery charges 240,000
Customs duties and other charges 560,000
Allowances, hotel accommodations, etc., paid to foreign technicians during
instillation and test run of machines 1,600,000
Royalty payment on machines purchased (based on units produced and sold) 480,000

Based on the above information compute for:


a.   Land

b.   Land improvements
c.   Building

d.   Machinery and equipment

e.   Total depreciable property, plant and equipment

2.   Lumpsum Acquisition
On January 1, 2016, Kath Company purchased for P8,550,000, including appraiser’s fee of P50,000, a factory building, an
office building and the land which the buildings are located. The following data were available concerning the property:
Assessed Value
Current Appraised (City assessor's Seller's original
Value office) cost
Land ₱ 4,000,000 ₱ 2,500,000 ₱ 3,500,000
Office Building 2,000,000 1,500,000
Factory building 4,000,000 - 2,000,000
₱ 10,000,000 ₱ 2,500,000 ₱7,000,000

What is the initial measurement of the (a) land (b) office building (c) Factory building?

3.   Construction: During 2015, Vince Company constructed a new building incurred the following:
Excavation fees ₱ 70,000
Architect design fees 80,000
Building permit fees 30,000
Imputed interest on funds used during construction
(stock financing) 50,000
Cost of removal of old building 40,000
Labor costs 150,000
Overhead costs 50,000
Materials used 500,000
Profit on self-construction 60,000
Safety inspection costs prior to use 15,000

The amount initially recorded as the cost of the building is?

4.   Nonmonetary Exchange with Cash

Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On
the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before
long, the accountant, who had never before seen such a machine, managed to break the machine. Busytown Corporation
gave the machine plus ₱340 to Dick Tracy Business Machine Company (dealer) in exchange for a new machine. Assume the
following information about the machines.
Busytown Corp. Dick Tracy Co.
(Old Machine) (New Machine)
Machine Cost 290 270

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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets
Accumulated Depreciation 140 0
Fair Value 85 425

Required: For each company, prepare the necessary journal entry to record the exchange.

5.   Nonmonetary Exchanges with Cash

On August 1, Arna, Inc. exchanged productive assets with Bontemps, Inc. Arna’s asset is referred to below as “Asset A,” and
Bontemps’ is referred to as “Asset B.” The following facts pertain to these assets.
Asset A Asset B
Original Cost ₱ 96,000 ₱ 110,000

Accumulated depreciation (to date of exchange) 45,000 52,000

Fair market value at date of exchange 60,000 75,000
Cash paid by Arna, Inc. 15,000
Cash received by Bontemps, Inc. 15,000

Required: Record the exchange for both Arna, Inc. and Bontemps, Inc. in accordance with generally accepted accounting
principles.

6.   Accounting for Self-Constructed Assets : Shanette Medical Laboratory, Inc., began operations 5 years ago
producing meditrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for
meditrics far exceeded initial expectations, and the company was unable to produce enough meditrics to meet demand.

The company was manufacturing its product on equipment that it built at the start of its operations. To meet demand, more
efficient equipment was needed. The company decided to design and build the equipment, because the equipment currently
available on the market was unsuitable for producing meditrics.

In 2004, a section of the plant was devoted to development of the new equipment and a special staff was hired. Within 6
months a machine developed incurring the following costs:
Research, modifications of blueprints and designs 10,000
Labor directly related to the development of the new equipment 250,000
Total cost of materials utilized in the new equipment 300,000
Total factory overhead for the last 6 months of 2003 1,650,000
Total factory overhead for the 6 months of development of new equipment 1,840,000
75% of Direct
Applied factory overhead on production Labor

The new equipment has increased production dramatically and reduced labor costs substantially. Elated by the success of
the new machine, the company built three more machines of the same type at a cost of ₱441,000 each.

Required:
(a) Compute for the cost that should be capitalized for self-constructed equipment using the following assumptions for the
overhead: 

  (1) The increase in overhead caused by the self-construction of fixed assets. 

  (2) A proportionate share of overhead on the same basis as that applied to goods manufactured 
for sale. 

(b) What is the proper accounting treatment of the excess by which the cost 
of the first machine exceeded the cost of the
subsequent machines?

SUBSEQUENT MEASUREMENT – SUBSEQUENT EXPENDITURES, DEPRECIATION, REVALUATION AND IMPAIRMENT

7.   Analysis of Subsequent Expenditures
Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any
errors will affect both the balance sheets and income statements for a number of years.

Required: For each of the following items, indicate whether the expenditure should be capitalized or expensed in the period
incurred.
a.   Improvement.

b.   Replacement of a minor broken part on a machine.

c.   Expenditure that increases the useful life of an existing asset.

d.   Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage
value.

e.   Expenditure that increases the efficiency and effectiveness of a productive asset and in- creases the asset’s salvage
value.

f.   Expenditure that increases the quality of the output of the productive asset.
g.   Improvement to a machine that increased its fair market value and its production capacity by 30% without
extending the machine’s useful life.

h.   Ordinary repairs.

i.   Interest on borrowing necessary to finance a major overhaul of machinery. The overhaul extended the life of the
machinery.

8.   Analysis of Subsequent Expenditures

King Donovan Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous
repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently ₱800,000,
as indicated below.
Original cost ₱ 1,200,000
Accumulated depreciation 400,000
₱ 800,000
During the current year, the following expenditures were made to the plant facility.
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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets
a.   Because of increased demands for its product, the company increased its plant capacity by building a new addition at a
cost of ₱270,000.
b.   The entire plant was repainted at a cost of ₱23,000.
c.   The roof was an asbestos cement slate. For safety purposes it was removed and replaced with a wood shingle roof at a
cost of ₱61,000. Book value of the old roof was ₱41,000.
d.   The electrical system was completely updated at a cost of ₱22,000. The cost of the old electrical system was not known.
It is estimated that the useful life of the building will not change as a result of this updating.
e.   A series of major repairs were made at a cost of ₱47,000, because parts of the wood structure were rotting. The cost of
the old wood structure was not known. These extensive repairs are estimated to increase the useful life of the building.

Required: Indicate how each of these transactions would be recorded in the accounting records.
9.   Improvements and Replacements
Use the following information for the next two questions:
ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for a total cost of P24,000,000. The aircraft is estimated
to have a useful life of 10 years. ENTREAT Co. uses the straight line method of depreciation. On January 1, 20x5, a major
part of the equipment was replaced for a total cost of P3,200,000.

1.   Assuming ENTREAT Co. determined that the cost of the replaced part is P2,000,000, how much is the loss on
replacement?
a. 1,920,000 b. 1,200,000 c. 2,000,000 b. 0

2.   Assuming it is impracticable to determine the cost of the replaced part, how much is the loss on replacement?
a. 1,920,000 b. 1,200,000 c. 2,000,000 b. 0

10.  Component Depreciation

Presented below are the components related to an office block that Veenman Company is considering purchasing for
₱10,000,000.

Component Useful Life Value

Land Indefinite life 3,000,000
Building structure 60 - year life 4,200,000
Building engineering 30 - year life 2,100,000
Building external
works 30 - year life 700,000

Required: (a) Compute depreciation expense for 2010, assuming that Veenman uses component depreciation. (b) Assume
that the building engineering was replaced in 20 years at a cost of ₱2,300,000. Prepare the entry to record the replacement
of the old component with the new component.

11.  Depreciation: Pearson Manufacturing Inc. purchased a new machine on August 1, 2014, that was built to perform one
function on its assembly line. Data pertaining to this machine are:
Acquisition cost P990,000
Residual value P 90,000
Estimated service life 5 Years
Service hours 250,000
Production output 300,000

Using each of the following methods, compute the annual depreciation rate and charge for the years ended December 31, 2014
and 2015:

(1) Straight-line
(2) Service hours (assume 19,000 hours for 2014 and 36,000 hours for 2015).
(3) Productive-output (assume 18,000 units for 2014 and 37,000 units for 2015).
(4) Sum of years’ digits
(5) Double declining balance

12.  Depreciation: The following is a schedule of machinery owned by Parallel Manufacturing Company.
Total Cost Estimated Salvage Value Estimated Life in Years
Machine A P1,800,000 P330,000 20
Machine B 945,000 90,000 10
Machine C 252,000 - 15
Machine D 321,000 21,000 5
P3,318,000
All of the machines were acquired on January 1, 2013. Based on the information presented, compute the:
(1) Composite life of these assets (in years).
(2) Composite depreciation rate.
(3) Prepare the journal entry to record the depreciation for 2013 following the composite method.

(4) Prepare the journal entry to record the sale of Machine D on December 31, 2015, assuming
that the machine was sold for P200,000.
(5) Prepare the journal entry to record the depreciation for the year 2016.
13.  Change in depreciation method (from DDB to SL). On January 1, 20x1, DISCORDANT DISAGREEING Co. acquired
machinery for a total cost of P80,000,000. The machinery is depreciated using the double declining balance method over
a period of 10 years. On January 1, 20x4, DISCORDANT Co. changed its depreciation method to straight line method.
How much is the depreciation expense in 20x4?
a. 5,815,428 b. 7,314,286 c. 6,581,342 d. 5,851,428
14.  Revaluation: On January 1, 2006 DEF Corp. acquired a building which it used as a factory site at a total purchase price
of P60,000,000. The building is depreciated over a 20-year useful life to zero salvage value.

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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets
On January 1, 2012, the building was appraised to have a gross replacement cost of P80,000,000. The estimated useful life
of the building was also revaluated to be at 25 years from date of purchase.

Required:
A.   Prepare the entries for the following items under the proportional method and elimination method of accounting for
revaluation:
1.   Entry upon revaluation of the asset on January 1, 2012.
2.   Entry/ies on December 31, 2012.
B.   What is the carrying value of the building as of December 31, 2012?
C.   What is the balance of the revaluation surplus as of December 31, 2012?

15.  Revaluation: Appraised value: On December 31, 20x1, the building of HISTRIONAL THEATRICAL Co. with a historical
cost of P80,000,000, accumulated depreciation of P20,000,000, and an estimated useful life of 20 years has been
assessed by an external valuer to have a fair value of P100,000,000. How much is the revaluation surplus?
a. 40,000,000 b. 28,000,000 c. 20,000,000 d. 10,000,000

16.  Revaluation of non-depreciable asset: On December 31, 20x1, the land of FARCICAL ABSURD Co. with a historical
cost of P80,000,000 has been appraised at P140,000,000. Income tax rate applicable to profits is 30% and the tax rate
applicable to profits made on the sale of property is 6%. How much is the revaluation surplus?
a. 42,000,000 b. 56,400,000 c. 45,000,000 d. 51,428,572

17.  Sale of item of PPE measured under revaluation model: OBDURATE STUBBORN Co. disposed of a machinery on
December 31, 20x1 for a total net disposal proceeds of P6,800,000. Information of the machinery as of December 31,
20x1 is as follows:
Cost at revalued amount P9,200,000
Accumulated depreciation 3,200,000
Revaluation surplus (presented in equity) 4,800,000

How much is the gain (loss) on the sale?

a. 5,600,000 b. 4,000,000 c. (800,000) d. 800,000

18.  Impairment: MNO Co. acquired a building on January 1, 2003 and was used as a manufacturing plant. The total
purchase price of the building was at P12,000,000 and is being depreciated using straight-line method over a 15 year
useful life to zero residual value.

A fire during the last part of 2012, in a neighboring building caused a partial damage to the factory of MNO Co. Thus by the
end of 2012, the MNO Co. tested the building for possible impairment. The company estimates that the future net cash flows
from the building’s continued use shall be at P791,390 for its remaining useful life. The company also had the building be
appraised by an independent appraiser and had established the fair value of the building at P3,200,000 Cost to sell the building,
which include taxes, duties and brokers’ fees at P250,000. The prevailing effective interest rate by the end of 2012 was at
10%. (Hint: Round-off present value factor to 4 decimal points)

Required:
A.   What is the value in use of the building?
B.   What is the recoverable value of the building?
C.   What is the total impairment loss on the building if there are any?

19.  Impairment
VWX Co. ascertained as of December 31, 2012, that its textile division (considered as a separate cash generating unit) has
been impaired due to the entry of a new competitor in the industry. The new competitor is using a more advanced production
technology that the company’s. The following were deemed relevant:
Assets of the CGU CV (12/31/12)
Cash P5,000,000
Accounts receivable 10,000,000
Inventories 15,000,000
Building 10,000,000
Manufacturing equipment 15,000,000
Goodwill 2,500,000
It was determined that the value in use of the textile division is at P50,000,000.

Required:
A.  
What is the impairment loss on the cash generating unit?
B.  
Prepare the entry to recognize the impairment of the cash generating unit.
C.  
What are the carrying values of the assets of the cash generating unit after the impairment recognition?
D.  
Assuming that the manufacturing equipment has a fair value less cost to sell of P14,000,000, what is the carrying value of
the assets of the cash generating unit after the impairment recognition?

WASTING ASSETS
1.   The most common method of computing depletion for accounting purposes is the
A.   Percentage depletion method
B.   Decreasing charge method
C.   Straight line
D.   Production method

2.   Depletion expense
A.   Is usually part of cost of goods sold.
B.   Includes tangible equipment cost in the depletable cost.
C.   Excludes intangible development cost from the depletable cost.
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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets
D.   Excludes restoration cost from the depletable cost.

3.   Information needed to compute a depletion change per unit includes the

A.   Estimated total amount of resources available for removal.
B.   Amount of resources removed during the period.
C.   Cumulative amount of resources removed.
D.   Amount of resources sold during the period.

4.   Which of the following most accurately describes the generally accepted accounting principle regarding the accounting for
the costs of drilling dry wells in the oil and gas industry?
A.   Only the successful effort method may be used.
B.   Only the full cost method may be used.
C.   Both the successful effort and full cost methods may be used.
D.   Neither the successful effort method nor the full cost method may be used pending the promulgation by the
Securities and Exchange Commission of its own approach to accounting for the costs of drilling dry wells.

5.   Which type of expenditure is included in the term “exploration and evaluation” of mineral resources.
I.   The extraction and processing of mineral resources for transport to market.
II.   The commercial review of possible areas for mineral extraction before bidding for the legal rights to explore a
specific area.
A.   I only
B.   II only
C.   Either I or II
D.   Neither I nor II

6.   Exploration and evaluation expenditures are incurred

A.   When searching for an area that may warrant detailed exploration, even though the entity has not yet obtained
the legal rights to explore a specific area.
B.   When the legal rights to explore a specific area have been obtained, but the technical feasibility and commercial
viability of extracting a mineral resource are not yet demonstrable.
C.   When a specific area is being developed and preparations for commercial extraction are being made.
D.   In extracting mineral resource and processing the resource to make it marketable or transportable.

7.   Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an asset?
A.   Yes, but only to the extent such expenditure is recoverable in future periods.
B.   Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated mineral
resource have been demonstrable.
C.   Yes, but only to the extent required by the entity’s accounting policy for recognizing exploration and evaluation
asset.
D.   No, such expenditure is always expensed in profit or loss as incurred

8.   Which of the following expenditures would never qualify as an exploration and evaluation asset?
A.   Expenditure for acquisition of rights to explore.
B.   Expenditure for exploratory drilling.
C.   Expenditures related to the development of mineral resource.
D.   Expenditures for activities in relation to evaluating the technical feasibility and commercial viability of extracting
a mineral resource.

9.   Which measurement model applies to exploration and evaluation asset subsequent to initial recognition?
A.   The cost model.
B.   The revaluation model.
C.   Either the cost model or the revaluation model.
D.   The recoverable amount model

10.  Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for
impairment?
A.   The expiration of the period for which the entity has the right to explore in the specific area, unless the right is
expected to be renewed
B.   The absence of budgeted or planned substantive expenditure on further exploration and evaluation activities in
the specific area.
C.   A decision to discontinue exploration and evaluation activities in the specific area when those activities have not
led to the discovery of commercially viable quantities of mineral resources.
D.   Lack of sufficient data to determine whether the carrying amount of the exploration and evaluation asset is unlikely
to be recovered in full from successful development or by sale.

PROBLEMS
Problem 1: Exploration and evaluation. Lepanto Mining Corporation acquired a drilling rig to be used for drilling of core
samples for the purpose of analysis as part of exploration and evaluation activities in a new are (Bakugan Barangay) it has
recently acquired the rights to explore. The following transactions occurred during 2013-2014.

On July 1, 2013, the company acquired the rig at a cost of P5,600,000 and capitalized as tangible exploration and evaluation
asset with an estimated useful life of 14 years. The drilling rig is used solely for the purpose of drilling core samples in Bakugan
Barangay, as expected. Lepanto Mining Corporation’s financial year ends every June 30.
1. What is the carrying value of the Equipment (drilling rig) as of June 30, 2014? [A] None [B] 400,000 [C] 5,200,000 [D]
5,600,000

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FAR PUNP Undergraduate Review: Property, Plant and Equipment; GOVERNMENT GRANTS; Wasting Assets
2. What amount should be recognized as intangible exploration and evaluation asset as of June 30, 2014? [A] None [B]
400,000 [C] 600,000 [D] 800,000

Problem 2: Depletion. Nickel Corporation purchased a land for P12,000,000. The company expected to extract 2,000,000
tons of mine from this land over the next 20 years at which time, the residual value of the asset shall be zero. During the first
2 years of the mine’s operations, 60,000 tons were mined each year and sold for P80 per ton. The estimate of the remaining
lifetime capacity of the mine was raised to 2,400,000 tons at the start of the third year and the residual value was to be
P960,000. What is the depletion in the third year, assuming that total production for the third year is 100,000 tons? [A]
430,000 [B] 455,000 [C] 450,000 [D] 470,000
Problem 3: Cost of goods sold. MCD Inc. has the flowing information pertaining to its mining operations:
Cost of land P12,000,000
Sales value of land after mining 600,000
Estimated cost of restoring property after mining is completed 800,000
Development costs incurred 1,000,000
Additional information:
Estimated number of tons of ore to be mined 800,000
Number of tons mined during the current year 100,000
Number of tons sold during the current year 70,000
Unit production cost excluding depletion P7 per ton
The company already recognized the estimated restoration cost immediately after the resource property was acquired. How
much would be the company’s cost of goods sold? [A] 1,050,000 [B] 1,207,400 [C] 1,575,000 [D] 1,645,000

GOVERNMENT GRANTs
Grant related to asset (Gross and Net presentation)
Use the following information for the next four questions:
On January 1, 20x1, CHIDE SCOLD Co. received cash of P16,000,000 from a local government to be used in constructing a
building. The construction was completed on December 31, 20x1 for a total cost of P40,000,000. The building will be
depreciated over 20 years.

1.   If CHIDE Co. uses the gross presentation of government grants, how much is the carrying amount of the deferred
income from the government grant on December 31, 20x5?
a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0

2.   If CHIDE Co. uses the net presentation of government grants, how much is the carrying amount of the deferred income
from the government grant on December 31, 20x5?
a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0

Grant related to income (Gross and Net presentation)

Use the following information for the next four questions:
On January 1, 20x1, MACABRE HORRIBLE Co. received cash of P16,000,000 from a local government to be used to defray
safety and other hazard-related costs over a five-year period. It was estimated that such costs will total P32,000,000 over
the next five years. In 20x1 and 20x2, actual costs of safety and other hazard-related costs amounted to P4,000,000 and
P4,800,000, respectively.

3.   If MACABRE Co. uses the gross presentation of government grants, how much safety expense is recognized in 20x1?
a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0

4.   If MACABRE Co. uses the net presentation of government grants, how much is safety expense is recognized in 20x1?
a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0

Grant related to non-depreciable asset

5.   On January 1, 20x1, UNFLEDGED IMMATURE Co. received land from the government with the condition that a factory
building should be constructed on it. The fair value of the land was estimated at P20,000,000. The construction of the
factory building was completed on January 1, 20x2 for a total cost of P80,000,000. The building will be depreciated using
SYD over a useful life of 10 years. The estimated residual value is P8,000,000. CHIDE Co. uses the gross presentation of
government grants. How much is the carrying amount of the deferred income from the government grant on December
31, 20x2?
a. 20,000,000 b. 16,363,636 c. 13,090,908 d. 0

J -- END OF HANDOUT -- J

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