PROBLEMS
5-1. a. Cash price is the cost. P285,000
b. Downpayment P100,000 Notes payable (70,000 x 3.3121) 231,847 Cost of machine P331,847 c. Purchase price P22,000,000 Appraisal cost 150,000
Total cost to be allocated P22,150,000 Allocation: 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 dismantling costs
50,000 x 0.5019 25,095
Cost of equipment P907,095
e. Purchase price 154,560/1.12 P138,000
Directly attributable costs 5,000 + 2,000 + 1,500 + 1,800 10,300
Total cost P148,300 5-2. (Uy Company) Land (49,500,000 x 21,875,000/56,250,000) 19,250,000 Office building (49,500,000 x 20,000,000/56,250,000) + 1,200,000 18,800,000 Warehouse (49,500,000 x 9,375,000/56,250,000) 8,250,000 Manager’s residence (49,500,000 x 5,000,000/56,250,000) 4,400,000 5-3. (Chang Corporation) a. 720,000 x .90 P648,000 b. Down payment P150,000
Present value of 24 monthly installments
25,000 x 21.2434 531,085
Total P681,085
5-4. (Planters Company and Producers Company) Books of Planters Company
Cash 50,000
Equipment 350,000
Accumulated Depreciation-Building 540,000
Gain on Exchange of Building 40,000
Building 900,000
900,000-540,000=360,000;400,000–360,000=40,000 G
Books of Producers Company
Accumulated Depreciation-Equipment 320,000
Loss on Exchange of Equipment 130,000
Cash 50,000
Equipment 800,000
800,000-320,000 = 480,000; 480,000-350,000=130,000 L 5-5. (Black Company and Berry Company)
Books of Black Company
Equipment 310,000
Accumulated Depreciation-Building 540,000
Cash 50,000
Building 900,000
Books of Berry Company
Building 530,000 Accumulated Depreciation-Equipment 320,000 Equipment 800,000 Cash 50,000 5-6. (Abatis Forwarders) Land 10,340,000
Accumulated Depreciation – Trucks 4,400,000
Trucks 12,800,000
Cash ` 340,000
Gain on Exchange of Trucks 1,600,000
5-7. (Business Processing, Inc.)
Equipment (new) 24,000 + 31,000 55,000
Accumulated Depreciation 16,000
Loss on Exchange of Equipment 8,000
Equipment ((old) 48,000
Cash (64,000 – 33,000) 31,000
5-8. (a) King Company
Tooling Machine 170,000
Automobile (net) 140,000
Gain on Exchange of Automobile 30,000
(b) Princess Company
Machinery (new) 1,200,000
Accumulated Depreciation – Machinery (old) 340,000
Loss on Exchange of Machinery 190,000
Machinery (old) 850,000
Cash 880,000
5-9. (Urban Corporation)
Land ImprovementsLand Building
Land purchase P12,000,00
0 Demolition of old building (net of P70,000
salvaged from demolished building) P 230,000
Legal fees for land acquisition 150,000
Building permit fees 80,000
Interest on loan for construction 270,000
Building construction costs 15,000,000
Landscaping costs* P3,500,000
Equipment purchased of use in excavation
(800,000 – 640,000) 160,000
Total costs P12,150,00
0 P3,500,000 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.
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 P4,000,000
Legal fees for purchase contract and recording ownership 150,000
Delinquent property taxes on land 50,000
Proceeds from sale of salvaged materials (20,000)
Total P4,180,000
5-11. (Yu Corporation)
Land ImprovementsLand Buildings
Machinery and Equipment Balances, December 31, 2014 P7,000,000 P500,000 P
9,000,000 P 980,000 Cash paid on purchase of land 4,500,000
Mortgage assumed on the land bought including interest at
10% 5,000,000
Legal fees, realty taxes and
documentation expenses 50,000
Payment to squatters 100,000
Razing costs of old building 120,000
Salvage value from building
demolition (150,000)
Cost of fencing the property 500,000 Paid to a contractor for building
erected 12,000,000
Building permit fee 20,000
Excavation expenses 50,000
Architect’s fees 150,000
Invoice cost of machines
acquired 2,000,000
Freight, unloading and delivery
charges 60,000
Custom duties and other charges 140,000
Allowances, hotel
accommodations paid to technicians during installation
and test runs of machines 400,000
Balances, December 31, 2015 P16,550,00
0 P1,000,000 P21,290,000 P3,580,000 The interest of P150,000 is an imputed interest and is not reported anywhere in the financial statements.
The royalty payments of machines purchased are charged to operating expense for the period. 5-12. (Metro Company)
a. P4,000,000 x 10% P400,000
Less interest income earned on temporary investment of loan ( 125,000)
Capitalized interest P275,000 b. 1,250,000 x 10% P 125,000 1,250,000 x 10% x 9/12 93,750 1,250,000 x 10% x 6/12 62,500 1,250,000 x 10% x 3/12 31,250 Total interest P 312,500
Less interest income earned on temporary investment of loan 40,000
Capitalized interest P 272,500
Total construction costs 5,000,000
Total cost of building P5,272,500 c. Computation of average accumulated expenditures:
1,400,000 x 12/12 P1,400,000
1,000,000 x 9/12 750,000
1,200,000 x 6/12 600,000
1,000,000 x 3/12 250,000
400,000 x 0/12
---Average accumulated expenditures P3,000,000 Computation of weighted average interest rate:
(10% x 1,600,000) + (12% x 2,000,000) 11.11%
1,600,000 + 2,000,000 Interest of specific borrowing:
1,800,000 x 10% P180,000
Less interest earned 10,000 P170,000 Interest on general borrowing:
3,000,000 – 1,800,000 = 1,200,000 1,200,000 x 11.11% 133,320 Capitalized interest P303,320 d. 2,800,000 x 10% P280,000 1,600,000 x 10% 160,000 2,000,000 x 12% 240,000
Total interest on loans P680,000
Less capitalized interest 680/6,400 x 3M 318,750
Interest expense for 2015 P361,250
5-13. (Lim Company)
3,600,000 x 12/12 P3,600,000
6,000,000 x 7/12 3,500,000
15,000,000 x 6/12 7,500,000
15,000,000 x 1/12 1,250,000
Average accumulated expenditures P15,850,000 a. Interest on specific borrowing (30,000,000 x 12%) P 3,600,000
Less interest revenue earned from temporary investments of
specific borrowing 249,000
Capitalized interest P 3.351,000
b. Interest on specific borrowing (12,000,000 x 12%) P 1,440,000 Less interest revenue earned from temporary
investments of specific borrowing 249,000 P 1,191,000
Interest on general borrowings
15,850,000 – 12M = 3,850,000; 3,850,000 x 12.14%* 467,390
Capitalized interest P 1,658,390
** 6,800,000 ÷ 56,000,000 = 12.14% 5-14. (Alondra Corporation)
(a) Average accumulated expenditures:
4,000,000 x 12/12 P 4,000,000
8,000,000 x 9/12 6,000,000
12,200,000 x 6/12 6,100,000
8,800,000 x 3/12 2,200,000
7,000,000 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 interest
Specific borrowing (12% x 17 million) P2,040,000 General borrowings
18,300,000 – 17,000,000 = 1,300,000
1,200,000 x 11.08% 144,040
Total P2,184,040
(b) Total cost of building = Total construction cost + capitalized interest cost = P40,000,000 + P2,184,040 = P42,184,040 5-15. (Pifer Corporation) (a) Materials P1,250,000 Direct labor 250,000 Overhead 2,000,000 – (150% x 1,000,000) 500,000 Total P2,000,000 (b) Materials P1,250,000 Direct labor 250,000 Overhead (2,000,000 x 250/1,250) 400,000 Total P1,900,000
5-16. (Pioneer Development Corporation)
(a) Land 3,000,000
Cash 50,000
Unearned Income from Government Grant 2,950,000
Building 15,000,000
Cash 15,000,000
Depreciation Expense 750,000
Accumulated Depreciation (15,000,000/20 years) 750,000 Unearned Income from Government Grant 147,500
Income from Government Grant (2,950,000/20 years) 147,500
(b) Property, Plant and Equipment
Land P3,000,000
Less 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 liabilities.
5-17. (Tan Company)
a. Depreciation charges for 2014 and 2015
2014 2015 1. SL (800,000 – 80,000) / 8 = 90,000 90,000 x 9/12= 67,500 90,000 2. Hrs worked 720,000/100,000 hrs = 7.20/hr.7.20 x 5,000 hrs = 36,000 7.20 x 6,000 hrs = 43,200 3. Units of
output 720,000/900,000 units = 0.80/unit0.80 x 45,000 units = 36,000 0.80 x 64,000 units = 51,200 4. SYD 720,000 x 8/36 x 9/12 = 120,000 720,000 x 7.25/36 =145,000 5. DDB 2/8 = 25% 25% x 800,000 x 9/12=150,000 800,000-150,000=650,00025% x 650,000 = 162,500 6. 150% DB 1.5/8 = 18.75% 18.75% x 800,000 x 9/12= 112,500 800,000-112,500=687,50018.75% x 687,500) = 128,906
b. Carrying amount of the asset at the end of 2015
Depreciation Method Cost Accum. Depr. Carrying amount 1. Straight-line 800,000 157,500 642,500 2. Hours worked 800,000 79,200 720,800 3. Units of output 800,000 87,200 712,800 4. SYD 800,000 265,000 535,000 5. DDB 800,000 312,500 487,500 6. 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 = 127,500 37.5% x (340,000-127,500) = 79,688
b. Straight line method P80,000
Sum-of-the-years digits method (320,000 x 2/10) 64,000 150% 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% = 66,000
b. 12,000 x 5 years = 60,000; 66,000 – 60,000 = 6,000 c. Carrying amounts, end of year 3
Straight-line (66,000 – 36,000) = P30,000 Sum-of-the-years digits(66,000 – 48,000 ) = P18,000
Double-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 2015 25% x 1,600,000 x 1/2 P200,000
b. Sales price P300,000
Carrying value on November 30, 2018
Cost P1,600,000
Less accumulated depreciation
1,500,000 x (45/96) 703,125 896,875
Loss on sale P596,875
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 = 3,200 Total P19,200 (b) Cash 5,000
Accumulated Depreciation – Equipment (3,200 x 4) 12,800 Loss on Sale of Equipment Part 200
Equipment 18,000
(c) Equipment 20,000
Cash 20,000
(d) Depreciation Expense – Equipment 19,200
Accumulated Depreciations – Equipment 19,200 (e) Depreciation Expense – Equipment 20,000
Accumulated Depreciation – Equipment 20,000 Components 1 – 3 = P16,000
Component 4 = 20,000/5 4,000 Total depreciation for P20,000 5-22. (Total Company)
a. Cost P1,200,000
Less accumulated depreciation (1,100,000 ÷ 10) x 4 440,000 Carrying amount of the asset, beginning of 5th year P 760,000 Revised 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 P500,000
Less accumulated depreciation:
2015 20% x 500,000 100,000
2017 20% x 320,000 64,000
2018 20% x 256,000 51,200 295,200
Carrying amount, January 1, 2019 P204,800
Depreciation expense for 2019
204,800 – 10,000 = 194,800; 194,800 ÷ 5 years P 38,960 5-24. (Carmi Company)
(a) Depreciation for 2017
January 1 to August 1 (378,000 – 35,000)/5 x 7/12 P40,017 August 1 to December 31 (320,800 – 50,000) / (5 – 2) + 2 = 270,800 270,800 / 5 x 5/12 22,567 Total P62,584 (b) Cost P378,000
Less: Accumulated Depreciation (378,000–35,000)/5 x 2 137,200 Carrying value, August 1, 2017 P240,800
Capitalized overhaul costs 80,000
Carrying value after overhaul P320,800
Depreciation, August 1 – December 31, 2015 (see above) (22,567)
Depreciation for year 2018 (54,160)
Carrying value, December 31, 2018 P244,073 5-25. (Chu, Inc.)
Accum, depreciation balance, January 1, 2019 (528,000 x 4/8) P264,000 Revised depreciation expense for 2019
528,000 – 264,000 = 264,000
264,000/ 2 yrs. 132,000
Accumulated depreciation balance, December 31, 2019 P396,000 5-26. (Imaculada Company)
(a) Accumulated Depreciation 137,500 Loss on Disposal of Machine Parts 112,500
Machinery 250,000
To remove the carrying value of the replaced engine block 250,000/10 years = 25,000 25,000 x 5.5 years = 137,500
Machinery 320,000
Cash 320,000
To capitalize the cost of replacement
Depreciation Expense 82,875
Accumulated Depreciation 82,875
To record depreciation for 2019 January 1 – July 1, 2019 (prior to replacement)
(1,000,000/10 years) x 6/12 50,000 July 1 – December 31, 2019 (after replacement)
Carrying value, July 1
(1M/10) x 4.5 years 450,000 CV of old engine block (112,500) Cost of new engine block 320,000 Depreciable carrying value 657,500 Remaining life ÷ 10 yrs
Revised annual depreciation 65,750 x ½ 32,875 Total depreciation expense for 2019 82,875
Alternative computation: New engine block
320,000/10 = 32,000; 32,000 x 6/12 16,000 Replaced engine block
25,000 x 6/12 12,500
Remaining 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 2019 82,875 (b) Accumulated Depreciation 176,000
Loss on Disposal of Machine Parts 144,000
Machinery 320,000 320,000/10 years = 32,000 32,000 x 5.5 years = 176,000 Machinery 320,000 Cash 320,000 Depreciation Expense 81,300 Accumulated Depreciation 81,300
January 1 – July 1, 2019 (prior to replacement)
(1,000,000/10 years) x 6/12 50,000 July 1 – December 31, 2019 (after replacement)
Carrying value, July 1
(1M/10) x 4.5 years 450,000 CV of old engine block (144,000) Cost of new engine block 320,000 Depreciable carrying value 626,000 Remaining life ÷ 10 yrs
Revised annual depreciation 62,600 x ½ 31,300 Total depreciation expense for 2019 81,300 5-27. (Remedios Company)
(a) Cost of Leasehold Improvements P1,200,000
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 480,000 Carrying value, December 31, 2015 P 720,000 (b) Carrying value, December 31, 2015 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 2016 P 90,000 5-28. (Joice Company)
(a) Recoverable amount is the higher of fair value less cost to sell
and the asset’s value in use P420,000
Fair value less cost to sell (450,000 – 30,000) P420,000 Value in use
100,000 x 3.7908 P379,080
20,000 x 0.6209 12,418 P391,498 (b) Carrying value of the asset, December 31, 2015
Cost P860,000 Less accumulated depreciation
(810,000/9) x 4 years 360,000 P500,000
Recoverable amount (see a) 420,000
Impairment loss P 80,000
(c) Depreciation expense for 2015 (420,000 -20,000)/5 years P 80,000 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) 310,450
Total P3,343,090
(b) Carrying value (9,000,000 – 1,500,000) P7,500,000 Recoverable amount (higher between P3,200,000 and
P3,343,090) 3,343,090
Impairment loss P4,156,910
(c) Revised annual depreciation (3,343,090–500,000)/5 P 568,618
5-30. (Lu Company)
Depreciation Expense 56,250
Accumulated Depreciation 56,250
To record depreciation expense for 2015 (500,000 – 50,000) / 8
Impairment Loss 131,250
Accumulated Depreciation 131,250 To record impairment loss.
Carrying value 500,000 – (56,250 x 3 years) P331,250
Recoverable value 200,000
Impairment loss P131,250
Depreciation Expense 90,000
Accumulated Depreciation 90,000
To record depreciation expense for 2016 (200,000 – 20,000) / 2 years
5-31. (Twin Head Corporation)
(a) Depreciation expense 2013 2014
5,600,000 / 16 years 350,000 350,000
(b) December 31, 2015
Depreciation Expense 350,000
Accumulated Depreciation 350,000
Accumulated Depreciation 2,100,000
Recovery of Previous Impairment 2,100,000
Recoverable amount 7,500,000
Carrying value (5,600,000 – 700,000) 4,900,000
Increase in value 2,600,000
Limit on recovery:
Recovered impairment 2,400,000 / 16 years = 150,000; 150,000 x 2 years 300,000 Limit on recovery 2,100,000 (c) Cost 10,000,000 Accumulated depreciation (4,400,000 + 700,000 – 2,100,000) 3,000,000
Carrying amount, December 31, 2015 7,000,000
To check: Limit on carrying value without impairment
10,000,000 x 14/20 7,000,000
(d) Depreciation expense for 2016 (7,000,000 / 14 years) 500,000 5-32. (Coco Company)
(a) Cost P300,000
Accumulated depreciation 12/31/14 (300,000/10) x 2 ( 60,000) Carrying amount 12/31/14 before impairment P240,000
Recoverable amount 192,000
Impairment loss P 48,000
(b) Carrying value 12/31/14 after impairment P192,000 2015 depreciation (192,000/8) ( 24,000) Carrying amount 12/31/15 before recovery P168,000
(c) Carrying amount before recovery of impairment P168,000
New recoverable amount 222,000
Increase in value P 54,000
Limit on recovery
Previous impairment P48,000 Recovered in 2015 (30,000 – 24,000) (6,000) Limit on recovery P42,000
Impairment recovery to be recognized at 12/31/15 P 42,000 5-33. (a) 01/01/13 Equipment 2,000,000 Revaluation Surplus 1,200,000 Accumulated Depreciation 800,000 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 (b) 12/31/13 Depreciation Expense 600,000 Accumulated Depreciation-Equipment 600,000 3,600,000 ÷ 6 yrs = 600,000 Revaluation Surplus 200,000 Retained Earnings (1.2M/6) 200,000 12/31/14 Depreciation Expense 600,000 Accumulated Depreciation-Equipment 600,000 Revaluation Surplus 200,000 Retained Earnings 200,000 (c) 01/01/15 Accumulated Depreciation-Equipment 600,000 Revaluation Surplus 400,000 Equipment 1,000,000 (d) 12/31/15 Depreciation Expense 500,000
Accumulated Depreciation-Equipment 500,000 2M ÷ 4 yrs = 500,000 Revaluation Surplus 100,000 Retained Earnings 100,000 1.2M-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000 Original 1/1/13 1/1/13 2013 &2014 12/31/14 1/1/15 1/1/15 12//31/15 Cost 4.000M +2.00 M 6.000M - 6.00M -1.00M 5.00M 5.00M Accum 1.600M +0.80 M 2.400M +1.20M 3.60M -0.60M 3.00M 3.50M CV 2.400M +1.20 M 3.600M -1.20M 2.40M -0.40M 2.00M 1.50M 5-34. (Samsung Company) 1/1/15 Machinery 3,600,000 Cash 3,600,000 12/31/15 Depreciation Expense (3,600,000/10) 360,000 Accumulated Depreciation 360,000 12/31/16 Depreciation Expense 360,000 Accumulated Depreciation 360,000 12/31/16 Machinery 300,000 Accumulated Depreciation 60,000 Revaluation Surplus 240,000
Cost Revalued Increase
Machinery 3,600,000 3,900,000 300,000
Accumulated Depreciation 720,000 780,000 60,000
Net 2,880,000 3,120,000 240,000
12/31/17 Depreciation Expense (3,120,000 / 8 years) 390,000
Accumulated Depreciation 390,000
Revaluation Surplus 30,000
Retained Earnings (390,000 – 360,000) 30,000 12/31/18 Depreciation Expense (3,120,000 / 8 years) 390,000
Accumulated Depreciation 390,000 Revaluation Surplus 30,000 Retained Earnings (390,000 – 360,000) 30,000 12/31/18 Accumulated Depreciation 220,000 Revaluation Surplus (240,000 – 30,000 – 30,000) 180,000 Revaluation Loss 150,000 Machinery 550,000
New Rev Ledger Bal Decrease
Machinery 3,350,000 3,900,000 550,000
Accumulated Depreciation 1,340,000 1,560,000 220,000
Net 2,010,000 2,340,000 330,000
12/31/19 Depreciation Expense (2,010,000 / 6 years) 335,000
Accumulated Depreciation 335,000
12/31/19 Depreciation Expense 335,000
Accumulated Depreciation 335,000
12/31/20 Machinery 1,150,000
Accumulated Depreciation 690,000
Recovery of Previous Revaluation Loss (P & L) 100,000
Revaluation Surplus 360,000
Increase in asset value 460,000
Unrecovered revaluation loss
Initial revaluation loss 150,000 Recovered through lower depreciation
150,000 / 6 = 25,000; 25,000 x 2 years 50,000 100,000
Revaluation surplus 360,000
New Rev Ledger Bal Increase
Machinery 4,500,000 3,350,000 1,150,000
Accumulated Depreciation 2,700,000 2,010,000 690,000
Net 1,800,000 1,340,000 460,000
Check:
Carrying value based on cost (no revaluation loss)
(3,600,000 x 4 years) / 10 years 1,440,000
Revalued amount, 12/31/12 1,800,000
Revaluation Surplus 360,000
12/31/21 Depreciation Expense 1,800,000/4 450,000
Accumulated Depreciation 450,000
Revaluation Surplus (360,000 / 4 years) 90,000
Retained Earnings 90,000 5-35. (Lakers, Inc.) (a) Cost P100,000 Accumulated depreciation 12/31/15 (100,000/10) ( 10,000) Net 90,000 Revalued amount 112,500 Revaluation surplus 12/31/15 P 22,500 (b) Carrying amount 12/31/17 (112,500 x 7/9) P 87,500 Recoverable amount 67,375 Decrease in value P 20,125
Remaining balance of Revaluation Surplus (22,500 x 7/9) ( 17,500) Impairment loss in profit or loss P 2,625
(c) As of 1/1/18 P67,375
Depreciation expense for 2018 (67,375/7) ( 9,625) Net before revaluation on 12/31/18 57,750
Revalued amount 73,000
Increase in value P15,250
Unrecovered impairment loss (2,625 x 6/7) ( 2,250) Revaluation surplus, December 31, 2018 P13,000 To check: CV without impairment, cost model
100,000 x 6/10 P60,000
Revaluation surplus, December 31, 2018 13,000 Revalued amount, December 31, 20158 P73,000 5-36. (Allied Company)
Purchase price P4,450,000
Residual value ( 650,000)
Development costs incurred and capitalized during 2013 750,000
Depletable cost 1/1/14 P4,550,000
Estimated supply of mineral resources ÷3,500,000 Depletion expense per ton in 2014 P 1.30 Number of tons removed during 2014 x 550,000
Depletion expense for 2014 P 715,000
Depletable cost, January 1, 2014 (see above) P4,550,000
Less depletion expense for 2014 ( 715,000)
Depletable cost for 2015 P4,796,000 Revised estimated supply of mineral resource, 2015 ÷4,360,000
Revised depletion rate per ton P 1.10 Number of tons removed during 2015 700,000
Depletion expense for 2015 P 770,000
5-37. (Ong Exploration Company)
Purchase price P45,000,000
Development costs 1,500,000
Salvage value ( 6,000,000)
Restoration costs at present value (2,500,000 x 0.4632) 1,158,000
Depletable cost P41,658,000
Estimated recovery from the property ÷10,000,000 Depletion rate per metric ton P 4.1658 Resources extracted during 2015 x 1,000,000
Depletion expense for 2015 P 4,165,800
Depletable cost, 2015 (see above) P41,658,000
Depletion expense for 2015 ( 4,165,800)
Development costs in 2016 750,000
New depletable cost for 2016 P38,242,200
Remaining number of metric tons (9,250,000-1,000,000) ÷ 8,250,000 Revised depletion per metric ton (rounded) P 4.64 Number of metric tons removed during 2016 x 1,500,000
Depletion expense for 2016 P 6,960,000
5-38. (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) Cost of ending inventory
2,000 units x 6 months 12,000 Production cost per unit
(8.00 + 3.00 + 0.20) x 11.20 Ending Inventory, December 31, 2015 P134,400 (b) Cost of goods sold
18,000 units x 6 months 108,000 Production cost per unit x 11.20 Cost of goods sold for 2015 P1,209,600
(c) Depletable cost in 2015 P4,200,000
Less depletion expense for 2015
20,000 units x 6 months 120,000
Depletion rate per ton x 3.00 360,000 New depletable cost for 2016 P3,840,000 Revised estimated recovery at January 1, 2016 ÷ 800,000 Revised depletion rate for 2016 P 4.80
Depreciable cost in 2015 P 280,000 Less depreciation expense for 2015 (120,000 units x 0.20) ( 24,000)
Depreciable cost for 2016 P 256,000
Revised estimated recovery at January 1, 2016 ÷ 800,000 Revised depreciation rate for 2016 P 0.32 5-39. (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.)
(b) Cost P7,500,000
Less depreciation expense for the 1st and 2nd years (1,500,000) Less depreciation for the 3rd and 4th years
6M/8yrs = 750,000; 750,000 x 2 years (1,500,000) Carrying value at the end of the 4th year 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) Carrying value at the end of the 4th year P4,500,000 Less depreciation expense for the 5th and 6th years (1,500,000)
Carrying value at the end of the 6th year P3,000,000 5-40. (Yap Machine Shop)
(a)
1. Cash 1,700,000
Accumulated Depreciation-Building 450,000
Loss on Disposal of Assets 150,000
Land 800,000
Building 1,500,000
2. Cash 120,000
Accumulated Depreciation-Equipment 250,000
Loss on Disposal of Assets 30,000
Equipment 400,000
3. Equipment 298,000
Cash 298,000
4. Land 8,000,000
Income from Donated Asset 7,800,000
Cash 200,000
5. Building 240,000
Cash 240,000
6. Equipment 150,000
Accumulated Depreciation-Equipment 15,000
Gain on Disposal of Assets 22,000
Equipment 40,000
Cash 103,000
7. Building 28,000,000
(b)
Property, Plant and Equipment (Net)
Beginning balance 2,150,000 (1) 1,850,000 (3) 298,000 (2) 150,000 (4) 8,000,000 (5) 240,000 (6) 125,000 (7) 28,000,000 Total 39,053,000 Total 2,000,000 Balance 36,813,000 5-41. (Pat Corporation)
(a) Depreciation and amortization expense for year ended December 31, 2015 Buildings
1.5/25 = 6%; (12,000,000-2,631,000) x 6% P 562,140 Machinery and Equipment
Based on beginning balance (9,000,000 x 10%) P900,000 Less depreciation of machine destroyed
230,000 x 10% x 9/12 17,250 P 882,750 New machine 2,800,000 + 50,000 + 250,000=310,000 3,100,000 x 10% x 6/12 155,000 Total P1,037,750 Automotive Equipment
Based on beginning balance P180,000
Less depreciation of car traded 180,000 x 2/10 36,000 P 144,000
New car (240,000 x 4/10) 96,000
Total P 240,000
Leasehold Improvement (1,680,000 x 8/80) P 168,000 (b) Gain ( loss) from disposal of assets
Car traded in
Fair value of car traded in (240,000 – 200,000) P 40,000
Book value of car traded 54,000 P(14,000)
Machine destroyed by fire
Insurance recovery P155,000
Book value of machine (230,000 x 4/10 ) 92,000 63,000
Net gain from disposal of assets P
49,000
MULTIPLE CHOICE QUESTIONS Theory MC1 B MC8 B MC15 B MC22 B MC29 C MC2 B MC9 C MC16 B MC23 D MC30 B MC3 C MC10 B MC17 D MC24 B MC31 D MC4 C MC11 B MC18 B MC25 D MC32 C MC5 C MC12 A MC19 B MC26 D MC33 C MC6 A MC13 D MC20 D MC27 C MC34 C MC7 C MC14 D MC21 D MC28 A MC35 D Problems MC36 D 14,400,000 x 5/20 = 3,600,000 MC37 C 200,000 + 3,000 + 6,000 = 209,000
MC39 D (800,000 – 20,000) x 12/78 x 9/12 = 90,000 MC40 C 780,000x11.25/78=112,500;90,000+112,500=202,500;800,000–202,500=597,500 MC41 4,500,000 + 30,000 + 6,000 = 4,536,000 10,000+50,000+40,000+60,000+90,000+45,000+150,000+9,800,000= 10,245,000 MC42 C 1,800,000 x 10% = 180,000; 180,000 – 45,000 = 135,000 2,500,000 – 1,800,000 = 700,000;7 00,000 x 9% = 63,000; 135,000+63,000=198,000 MC43 C 4,000,000x10%x6/12=200,000;750,000x12% x 6/12=45,000;200,000+45,000=245,000 MC44 C 1M+(4M÷ 2)=3M; 2M x 10% = 200,000;1M x 11%=110,000; 200,000+110,000=310,000 MC45 C 20,000FV–cash3,000 =17,000 cost; 40,000–30,000=10,000; 20,000–10,000 = 10,000 G MC46 B 205,000 – 60,000 = 145,000; 145,000 – 168,000 = 23,000
MC47 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; 5,950,000 ÷ 201,375 = 29.5 yrs. MC48 A 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000;201,375 ÷ 6,335,000 = 3.18% MC49 D 4,500,000 ÷ 40 yrs. = 112,500 MC50 C 77,000 x 6/36 = 12,833 MC51 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 = 9,700 MC52 C 270,000 x (8+7)/36 = 112,500 270,000 ÷ 8 = 33,750; 33,750 x 2 = 67,500; 112,500 – 67,500 = 45,000 MC53 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% = 153,000 MC54 B 240,000 ÷ 40 = 6,000; 240,000 x .90 x.90 x .10 = 19,440; 72,000 x 2/10 = 14,400 MC55 A 90,000 x (5+4+3)/15 = 72,000 reported accum deprSYD;90,000x2/15=12,000 MC56 C 160,000/4 = 40,000; 400,000/40,000 = 10 years 240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000 MC57 A 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000 MC58 D (900,000 – 300,000) / 3 yrs = 100,000; 600,000 + 100,000 = 700,000 MC59 D 42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000 MC60 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 = 800,000 MC61 C 54,000,000 – 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 ÷ 2,400,000 = 23 MC62 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 = 375,000 MC63 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 = 6,750 MC64 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 = 9,660 MC65 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 = 28,980 MC66 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 = 233,333 MC67 D 8,000,000 – 1,000,000 – 233,333 = 7,366,667; 7,500,000 – 7,366,667 = 133,333 MC68 C 160,000 x 10 yrs = 1,600,000; 4M – 1.6M = 2.4M; 3,240,000 – 2,400,000 = 840,000 MC69 B 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years; 3,240,000 ÷ 15 = 216,000 MC70 B 160,000 x 9 = 1.44M; 4M–1.44M =2.56M; 2.56M–0.5M =2.06M; 2.06M÷16 =128,750 2.06M–128,750=1,931,250; 3.24M–1,931,250=1,308,950 160,000–128,750=31,250; 500,000–31,250 =468,750; 1,308,750 – 468,750 = 840,000 MC71 A (360,000 ÷ 6) x 2.5 yrs = 150,000
360,000 – 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 = 50,000
MC74 C 3,000,000 – 300,000 = 2,700,000; 2,700,000 ÷ 10 = 270,000;270,000 x 4 = 1,080,000
3,000,000 – 1,080,000 = 1,920,000; 1,920,000 – 900,000 = 1,020,000 MC75 B 1,920,000 ÷ 6 yrs = 270,000 or 2,700,000 ÷ 10 yrs = 270,000
