The following items are included in the PPE section of the audited statement of financial position of

Drums Corp. as of December 31, 2017:

Land P 3,410,000
Buildings 13,310,000
Leasehold improvements 9,900,000
Machinery and equipment 13,121,000

The following transactions occurred during 2018:

a. Land A was acquired for P12,910,000. In connection with the acquisition, Drums paid a P761,000
commission to a real estate agent. Costs of P321,000 were incurred to clear the land. During the course
of clearing the land, timber and gravel were recovered and sold for P191,000.

b. Land 8 with an old building was acquired for P 7,100,000. On the acquisition date, the fair value of
the land was P 4,200,000 and the fair value of the building was P1,800,000. The old building was
demolished at a cost of P611,000 shortly after acquisition (scrap recovered 121,000). A new building to
be used as an owner-occupied property was constructed for P4,910,000 plus the following costs:

Excavation fees P 170,000

Architectural design fees 161,000
Building permit fee 37,100
Imputed interest on funds used 127,100
during construction (stock financing)

The building was completed and occupied on December 30,

c. A group of machine was purchased under a royalty agreement that provides for payment of royalties
based on units of production for the machines. The invoice price of the machines was P1,510,000,
freight costs were P49,100, installation costs were P36,000, and royalty premiums for 2018 were
P262,100.

Based on the preceding information, determine the balances of Machinery and equipment as of
December 31, 2018: Ans: 14,716,100

Based on the preceding information, determine the balances of Building as of December 31, 2018:
Ans: 19,078,100

Based on the preceding information, determine the balances of Land as of December 31, 2018:
Ans: 22,181,000

Flute Corp. constructed a building at a total cost of P43,000,000. The building could have been
purchased for P41,000,000. The company’s controller made the following entry:
Building 41,000,000
Loss on construction 2,000,000
Cash 43,000,000
The correcting entry includes a debit to (If more than 1 account, choose 1 only) (Example: Cash 5,000)
Ans: Loss on Construction 2,000,000
ABC COMPANY incurred the following expenditures in 2018.
Purchase of land P 7,812,000
Land survey 104,000
Fees for search of title for land 12,000
Dividends 100,000
Excavation of basement 200,000
Special assessment for street project 40,000
Cost of construction 58,000,000
Damages awarded for injuries sustained in construction
(no insurance carried) 168,000
Scrap from demolition of old building 140,000
Building permit fee 70,000
Temporary quarters for construction crews 215,000
Cost to demolish old building 140,000
Cost of paving parking lot adjoining building 800,000
Cost of shrubs, trees, and other landscaping 660,000

A portion of the building site had been temporarily used by Accordion to operate a car park while the
building was being constructed. A total of P325,000 was earned by Accordion from this incidental
activity.

What is the cost of the Land Improvements? Ans: 1,460,000

What is the cost of the Building? Ans: 58,485,000

What is the cost of the Land? Ans: 7,968,000

ABC CORP. has been experiencing a significant increase in customers' demand for its product.
To expand its production capacity, ABC decided to purchase equipment from XYZ Company on
January 2, 2018. ABC issues a P1,400,000 4-year, noninterest-bearing note to XYZ for the new
equipment when the prevailing market rate of interest for obligations of this nature is 12%.
The company will pay off the note in four P350,000 installments due at the end of each year
over the life of the note. ABC's financial year-end is December 31. Round off present value factor into
5 decimal places. What is the cost of the new equipment? Ans: 1,063,073
What is the carrying value of the note at December 31, 2020? Ans: 312,501

TRUMPET, INC. purchased factory equipment by making a P200,000 cash down payment and signing
a 3-year P 400,000, 10% note payable. The acquisition was recorded as follows:
Factory equipment 540,000
Cash 200,000
Note payable 340,000
The correcting entry includes a debit to (If more than 1 account, choose 1 only) (Example: Cash 5,000)
Ans: Factory Equipment 60,000
 HARP COMPANY, whose financial year-end is December 31, purchased a new manufacturing
equipment on April 1, 2011. The equipment has a special component that requires replacement before
the end of the equipment’s useful life. This equipment was initially recognized in two accounts: one is
for the main unit and the other for the special component. Harp uses the straight—line method of
depreciation for all of its manufacturing equipment. Depreciation is recorded to the nearest month,
residual values being disregarded.

On April 1, 2017, the special component is removed from the main unit and is replaced with a
similar component. This component is expected to have a residual value of approximately 20% of cost
at the end of the main unit's useful life. Because of its materiality, the residual value will be considered
in calculating depreciation. Specific information about this equipment is as follows:

Main unit
Purchase price in 2011 187,200
Residual value 13,200
Estimated useful life 10 years
Component 1
Purchase price P 30,000
Residual value 750
Estimated useful life 6 years
Component 2
Purchase price P 45,750

What is the depreciation charge to be recognized for the year 2017? Ans: 26,833

What is the depreciation charge to be recognized for the year 2018? Ans: 27,870

What is the depreciation charge to be recognized for the year 2011? Ans: 17,790

Song Company started construction of its administration building at an estimated cost of P50,000,000
on January 1, 2014. The construction is expected to be completed by December 31, 2016. Gong has the
following debt obligations outstanding during 2014:

Construction loan — 12% interest, payable

semiannually, issued December 31, 2013 P 18,000,000
Short-term loan — 10% interest, payable monthly, and
principal payable at maturity on May 31, 2015 14,000,000
Long-term loan — 11% interest, payable on January 1
of each year. Principal payable on January 1, 2018 10,000,000

What amount of interest incurred in 2014 would be included in the cost of building being
constructed? Ans: 4,035,600

What are the weighted average expenditures? Ans: 36,000,000

The amount of actual interest is Ans: 4,660,000
 On January 1, 2018, Smart Company purchased a machine for P500,000. Smart paid shipping
expense of P5,000 as well as installation cost of P15,000. The machine was estimated to have a useful
life of eight years and an estimated salvage value of P30,000. In July 2019, additions costing P58,500
were made to the machine in order to comply with pollution control ordinances. These additions neither
prolonged the life of the machine nor did they have any salvage. If Smart records depreciation under
the straight line method, depreciation for 2019 is?
Ans: 65,750

On January 1 of the current year, ABC Company obtained a loan of P4,000,000 at an interest
rate of 12%, especially to finance the construction of its new building. Availments from the loan were
made quarterly in equal amounts on the first day of each quarter. Prior to their disbursement, the
proceeds of the borrowing were temporarily invested and earned interest income of P30,000.The
capitalizable borrowing cost is
Ans: 270,000

Bergen Company purchased factory equipment which was installed and put into service March
31, 2018 at a total cost of P1,950,000. Salvage value was estimated at P200,000. The equipment is
being depreciated over ten years by the 200% declining balance method. For the year 2019 how much
depreciation expense should Bergen record on this equipment?
Ans: 331,500

ABC Company had the following borrowings on January 1 of the current year. The borrowings
were made for general purposes and the proceeds were partly used to finance the construction of a new
building.
Principal
10% bank loan 2,000,000
10% short-term note 1,500,000
12% long-term loan 2,500,000

The construction of the building was started on January 1 and was completed on December 31
of the current year. Expenditures on the building were made as follows:

January 1 300,000
March 31 1,000,000
June 30 1,000,000
September 30 1,000,000
December 1 600,000
Total cost 3,900,000

The capitalizable borrowing cost is Ans: 200,417 or 200,355

 On January 1 of the current year. ABC Company borrowed P1.500.000 at an interest of 12%
specifically for the construction of a new building. An interest of P22.500 was earned from the
temporary investment of the proceeds prior to their disbursement.

ABC Company also had a 12% long term note of P2,500.000 in the current year which was
borrowed for general purposes but the proceeds was used in part for the construction of the
building.

The construction of the building was started on January 1 and was completed on October 31
of the current year. Expenditures on the construction were made as follows:

January 1 800,000
April 1 1,000,000
May 1 450,000
September 1 900,000
October 1 500,000
Total cost 3,650,000

The capitalizable borrowing cost is Ans: 177,500

The following data pertain to a revalued machinery on January 1, 2018.

Cost Replacement cost
Machinery 800,000 1,000,000
Accumulated depreciation (4-year life, 2 years expired) 400,000
On January 1. 2019. an impairment is detected and the recoverable amount on this date of the
machinery is determined to be P130000.
The impairment loss to be debited on January 1. 2019 is Ans: 70,000

ABC Company has the following information on January 1, 2019 relating to its property, plant and
equipment.
Land 2,000,000
Building 20,000,000
Accumulated depreciation - building 3,500,000
Machinery 30,000,000
Accumulated depreciation - machinery 10,500,000
There were no additions or disposals during 2019. Depreciation is computed using straight line
over 20 years for building and 10 years for machinery. On June 30. 2019. all of the property. plant and
equipment were revalued as follows:
Replacement cost
Land 3,000,000
Building 40,000,000
Machinery 55,000,000
The December 31, 2019 statement of financial position should show revaluation surplus at?
Ans: 30,250,000
On January 1, 2019. the historical balances of the land and building of Sabangan Company are:
Cost Accumulated depreciation
Land 10,000,000
Building 90,000,000 20%

The land and building were appraised on same date and the revaluation revealed the following:
Sound value
Land 15,000,000
Building 120,000,000

There were no additions or disposals during 2019. Depreciation is computed on the straight line.
The estimated life of the building is 25 years. The December 31, 2019 statement of financial position
should show revaluation surplus at? Ans: 50,600,000

Brother Company acquired a tract of land containing an extractable natural resource. Brother is
required by its purchase contract to restore the land to a condition suitable for recreational use after it
has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be
2,000,000 tons, and that the land will have a value of P1,200,000 after restoration.
Relevant cost information is as follows:
Land 12,000,000
Estimated restoration cost 1,500,000
Development cost- production equipment 4,000,000

If Brother maintains no inventories of extracted material. what should be the charge to depletion
expense per ton of extracted material? Ans: 6.15

On December 31, 2019, XYZ Company has a machinery with the following cost and
accumulated depreciation:
Machinery 7,000,000
Accumulated depreciation (4-year life 1 year expired) 1,750,000
Due to obsolescence and physical damage, the machinery is found to be impaired.
On December 31, 2019, XYZ Company has determined the following:
Fair value of the machinery 4,200,000
Present value of future net cash flows from the asset 4,500,000
The impairment loss in 2019 is Ans: 750,000

An independent revaluation of a building on July 1. 2019 shows the following details:

Cost Replacement cost
Machinery 6,000,000 9,200,000
Residual value 400,000 300,000
Accumulated depreciation 1,400,000
The original useful life is 10 years and the revaluation shows a revised useful life of 8 years from the
date of revaluation.
The total depreciation in 2019 is? Ans: 697,188
The following data pertain to a machinery on the date of revaluation:
Cost Replacement cost
Machinery 2,500,000 3,500,000
Accumulated depreciation 600,000
The revaluation surplus is? Ans: 760,000

Jade Company acquired a mineral right for P20,000,000 in January 2018. The mine has a
recoverable ore estimated at 2,500,000 tons. After it has extracted all the ore, Jade will be required by
law to restore the land to its original condition at an estimated cost of P1,500,000. Jade believes that the
property can be sold afterwards for P2,000,000. Early in 2018, roads were constructed and other
development costs were incurred to aid in the extraction and transportation of the mine ore at a cost of
P4,000,000. In 2018, 300,000 tons of ore were mined and sold. On December 31, 2018 a new survey
made by a new mining engineer indicated that 3,200,000 tons of ore were available for mining. In
2019, 400,000 tons of ore were extracted and sold. How much was the 2019 depletion expense?
Ans: 2,585,000

In January 2019, Vorst Company purchased a mineral mine for P25,000,000 with removable ore
estimated at 1,000,000 tons. After it has extracted all the ore, Vorst will be required by law to restore
the land to its original condition at an estimated cost of P1,500,000. The present value of the estimated
restoration cost is P1,200,000. Vorst believes it will be able to sell the property afterwards for
P2,500,000. During 2019, Vorst incurred P3,500,000 of development costs preparing the mine for
production and removed and sold 45,000 tons of ore. In its 2019 income statement, what amount
should Vorst report as depletion? Ans: 1,224,000

In January 2019, Vorst Company purchased a mineral mine for P25,500,000 with removable ore
estimated at 1,000,000 tons. After it has extracted all the ore, Vorst will be required by law to restore
the land to its original condition at an estimated cost of P1,500,000. Vorst believes it will be able to sell
the property afterwards for P2,000,000. During 2019, Vorst incurred P3,200,000 of development costs
preparing the mine for production and removed and sold 50,000 tons of ore. In its 2019 income
statement, what amount should Vorst report as depletion? Ans: 1,410,000

Susan Company acquired a copyright to a best seller novel for P450,000 on January 1, 2018.
The copyright has a legal life of 30 years. Sales of the novel are estimated as follows:

2018 40,000 copies

2019 30,000 copies
2020 15,000 copies
2021 6,000 copies
2022 5,000 copies
2023 5,000 copies

How much is the amortization of copyright in 2019? Ans: 135,000

Assume the following data:

Net assets at book value, excluding goodwill 6,000,000

Net assets at fair value, excluding goodwill 6,500,000
Normal rate of return in the industry 10%

Past earnings for 5 years preceding the sale:

2016 450,000
2017 700,000
2018 700,000
2019 950,000
2020 1,000,000

Compute the goodwill using the present value method. The average excess earnings are expected to be
earned for 5 years. Ans: 417,010

Compute the goodwill if it is valued at average excess earnings for 5 years. Ans: 550,000

West Company made the following expenditures relating to Product Y:

Legal costs to file a patent on Product Y. Production of the finished

product would not have been undertaken without the patent 250,000
Special equipment to be used solely for development of Product Y.
The equipment has no other use and has an estimated useful life of
four years. 700,000
Design, testing and construction of prototype 3,000,000
Advertising expense to introduce the new product 1,000,000

What is the total amount of costs that will be expensed when incurred? Ans: 4,700,000

On January 2, 2019, Judd Company bought a trademark from King Company for 1,500,000.
Judd retained an independent consultant, who estimated the trademark’s remaining life to be 20 years.
Its unamortized costs on King’s accounting records was P1,200,000. Judd decided to amortize the
trademark over the maximum period allowed. In Judd’s December 31, 2019 income statement, what
amount should be reported as accumulated amortization? Ans: 75,000

During 2018, Digital Software Company developed a new personal computer database
management software package. Total expenditures on the project were P6,000,000, of which 60%
occurred before and up to the point the technological feasibility of the product has been established.
The product was completed and offered for sale on March 31, 2019. During 2019, revenues from sales
of the product totaled P5,000,000. The package is expected to be successfully marketable for 6 years,
and the total revenues over the life of the product will be P25,000,000.The capitalized computer
software in 2019 is? Ans: 2,400,000
 Tobin Company incurred P2,00,000 of research and development costs to develop a product for
which a patent was granted on January 2, 2019. Legal fees and other costs associated with registration
of the patent totaled P500,000. The total amount capitalized for this patent through March 31, 2019
should be Ans: 500,000

On March 31, 2015, Taft company purchased a patent for P5,450,000. The patent is being
amortized over its remaining legal life of 10 years expiring on January 1, 2025. During 2019, Taft
determined that the economic benefits of the patent would not last longer than 9 years from the date of
acquisition. What amount should be reported in the statement of financial position for the patent, net of
accumulated amortization, at December 31, 2019? Ans: 2,757,440

ABC CORPORATION expended P550,000 in research and development costs. These activities
resulted to a new product called the ABC Organ. It was patented at additional legal and other costs of
P60,000. The patent application was filed on July 1, 2014, and the patent was estimated to have a
useful life of 10 years. On June 1, 2016, Andes spent P28,440 to successfully prosecute a patent
infringement. In addition, the patent's estimated useful life was extended to 12 years from June 1, 2016.
At the beginning Of 2018, Andes determined that a competitor's product would make the Oido Organ
obsolete and the patent worthless by December 31, 2019.

Based on the preceding information, calculate the patent amortization expense for 2015.
Ans: 6,000

Based on the preceding information, calculate the patent amortization expense for 2018.
Ans: 21,050

XYZ COMPANY constructs its own buildings. In 2017, a total of P1,228,500 interest was included as
part of the cost of a new building just being completed.

The following is a summary of construction expenditures in 2018:

Accumulated in 2017, including capitalized interest P 18,228,500
March 1 7,000,000
September 1 4,000,000
December 31 5,000,000
Total P 34,228,500

Maracas has the following outstanding loans at December 31, 2018:

12% note related directly to new building;
term, 5 years from beginning of construction P 10,000,000
General borrowings:
10% note issued prior to construction of new building;
term, 10 years P 5,000,000
5% note issued prior to construction of new building;
term, 5 years P 10,000,000

The total cost of the new building is? Ans: 36,428,500

What is the total machine-related expenses in 2017? Ans: 54,540