Assignment on Property, Plant and Equipment Part 1

Acquisition on cash basis

1. LOQUACIOUS TALKATIVE Co. acquired a factory equipment overseas on cash basis for
₱400,000. Additional costs incurred include the following: commissions paid to brokers for the
purchase of the equipment, ₱20,000; import duties of ₱100,000; non-refundable purchase
taxes of ₱40,000; freight cost of transferring the equipment to LOQUACIOUS’ premises,
₱4,000; costs of assembling and installing the equipment, ₱8,000; costs of testing the
equipment, ₱6,000; administration and other general overhead costs, ₱16,800; and
advertisement and promotion costs of the new product to be produced by the equipment,
₱15,200. The samples generated from testing the equipment were sold at ₱2,000. How much
is the initial cost of the equipment?
a. 578,000 b. 594,800 c. 576,000 d. 592,800

Acquisition on account
2. PRECLUDE PREVENT Co. acquired an equipment for ₱448,000 on account with a credit term
of 2/15, n/30. Any discount is computed based on the purchase price. The purchase price is
inclusive of 12% value added tax (VAT). PRECLUDE Co. is VAT-registered and any input VAT
paid is refundable through deduction from monthly output VAT remitted to the Bureau of
Internal Revenue (BIR). Additional costs incurred include ₱40,000 cost of training staff who will
be operating the equipment and ₱60,000 cost of relocating the equipment to a new location
after it was installed in a location originally intended by management. How much is the initial
cost of the equipment?
a. 400,000 b. 391,040 c. 491,040 d. 392,000

Deferred settlement – with cash price equivalent

3. On January 1, 2021, SQUAMOUS SCALY Co. purchased furniture with an installment price of
₱520,000 and a cash price equivalent of ₱400,000 by paying ₱40,000 down payment and
issuing a one-year noninterest-bearing note of ₱120,000 payable in equal semi-annual
installments on July 1 and December 31, 2021. How much is the initial cost of the furniture?
a. 520,000 b. 480,000 c. 400,000 d. 360,000

Deferred settlement – no cash price equivalent

4. On January 1, 2021, REEDY SLENDER Co. purchased fixtures with an installment price of
₱520,000 by paying ₱40,000 down payment and issuing a three-year noninterest bearing note
of ₱480,000 payable in three equal annual installments starting December 31, 2021. The
prevailing rate for the note as of January 1, 2021 is 12%. How much is the initial cost of the
fixtures?
a. 520,000 b. 480,000 c. 424,293 d. 360,000

Deferred settlement – no cash price equivalent

5. On January 1, 2021 ABC Co. acquired a building for ₱380,000, including ₱20,000 non-
refundable purchase taxes. The purchase agreement provided for payment to be made in full
on December 31, 2021. Legal fees of ₱8,000 were incurred in acquiring the building and paid
 on January 1, 2021. An appropriate discount rate is 10%. How much is the initial cost of the
building?
a. 368,000 b. 388,000 c. 424,634 d. 353,456

Classes of PPE
6. ABC Co. had the following assets on December 31, 2021.
Land used as plant site 50,000
Land and building classified as held for sale 780,000
Building used as office 500,000
Building rented out under operating lease 420,000
Equipment being sold in the ordinary course of business 330,000
Office furniture 24,000
Fixtures and signage 10,000
Machinery 12,000
Automobiles (used by company officers) 350,000
Delivery trucks (used by the shipping department) 420,000
Computers 70,000
Aircraft rented out to various clients 690,000
Dairy cattle (held to produce milk that is sold to customers) 10,000
Harvested milk 3,000
Apple trees (held to bear fruits to that are sold to customers) 6,000
Harvested apples 2,000

How much is the total of assets classified as property, plant and equipment?
a. 2,132,000 b. 2,126,000 c. 2,142,000 d. 2,148,000

Acquisition on lump-sum price (building not razed)

Use the following information for the next two questions:
On April 1, 2021, ESCULENT EDIBLE Co. purchased land and building by paying ₱40,000,000 and
assuming a mortgage of ₱8,000,000. The land and building have appraised values of ₱20,000,000
and ₱40,000,000, respectively. The building will be used by ESCULENT Co. as its new office.

Additional costs relating to the purchase include the following:

Legal cost of conveying and registering title to land ₱32,000
Payment to tenants to vacate premises 36,000
Option paid on the land and building 24,000
Option paid on similar land and building not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1, 2021 assumed
by ESCULENT Co. – assessed on land 120,000
Real estate taxes after April 1, 2021 80,000
Repairs and renovation costs before the building
is occupied 160,000
Repair costs after the building is occupied 200,000
7. How much is the cost of the land?
a. 16,192,000 b. 17,292,000 c. 15,492,000 d. 14,592,000

8. How much is the cost of the building?

a. 23,420,000 b. 32,640,000 c. 32,240,000 d. 24,440,000

Acquisition on lump-sum price (building demolished)

Use the following information for the next four questions:
On April 1, 2021, ABC Co. purchased land and building for a lump-sum price of ₱48,000,000. The
existing building will be demolished and a new building will be constructed.

Additional costs relating to the purchase include the following:

Title guarantee 80,000
Option paid for the land and old building acquired 24,000
Payments to tenants to vacate premises 48,000
Cost of razing the old building (demolition cost) 240,000
Proceeds from sale of salvaged materials 60,000
Fair value of materials salvaged from the
old building and used in the new building 120,000
Construction cost of new building (completed) 34,000,000

9. The land and old building have fair values of ₱20,000,000 and ₱40,000,000, respectively. How
much are the allocated costs of the land and the new building?
Land New building
a. 16,864,000 33,780,000
b. 16,104,000 34,180,000
c. 15,980,000 36,670,000
d. 16,014,000 34,810,000

10. The land and old building have fair values of ₱20,000,000 and ₱40,000,000, respectively. How
much is charged as loss on initial recognition?
a. 48,000 b. 32,000,000 c. 32,048,000 d. 0

11. The old building is unusable and has an insignificant fair value. How much are the allocated
costs of the land and the new building?
Land New building
a. 46,640,000 33,780,000
b. 46,104,000 34,180,000
c. 48,152,000 34,180,000
d. 46,140,000 34,810,000

12. The old building is unusable and has an insignificant fair value. How much is charged as loss on
initial recognition?
 a. 48,000 b. 32,000,000 c. 32,048,000 d. 0

Cost of self-constructed asset

Use the following information for the next two questions:
LOATH HATE Co. purchased a lot for ₱8,000,000. Immediately after the purchase, LOATH started
construction of a new building on the lot. The following were additional costs incurred by LOATH
Co.
Legal cost of conveying land ₱ 40,000
Special assessment 20,000
Survey costs 60,000
Materials, labor, and overhead costs 22,000,000
Cash discounts on materials purchased not taken 120,000
Clerical and other expenses related to construction 56,000
Excavation costs 400,000
Architectural fees and building permit 240,000
Supervision by management on construction 48,000
Insurance premiums paid for workers 520,000
Payment for claim for injuries not covered by insurance 180,000
Saving on construction 800,000
Cost of changes to plans and specifications due to
560,000
inefficiencies
Paving of streets and sidewalks (not included in
blueprint) 40,000
Income earned on a vacant space rented as parking
lot during construction 36,000

13. How much is the cost of the land?

a. 8,160,000 b. 8,100,000 c. 8,120,000 d. 8,060,000

14. How much is the cost of the building?

a. 23,144,000 b. 23,184,000 c. 23,264,000 d. 23,096,000

Cost of equipment – with decommissioning cost

15. BAWDY INDECENT Co. acquired an oil rig for ₱400,000,000. Installation and other necessary
costs in bringing the equipment to its intended condition for use totaled ₱80,000,000. BAWDY
is required by law to dismantle the equipment and restore the site where it is installed after
20 years. The estimated decommissioning and restoration costs are ₱40,000,000. The imputed
rate of interest is 12%. How much is the initial cost of the equipment?
a. 480,000,000 b. 440,000,000 c. 484,146,672 d. 404,146,672

With fair value of asset given up

Use the following information for the next four questions:
Fact pattern
FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are shown below:
 FEEBLE WEAK,
Co. Inc.
Equipment 4,000,000 8,000,000
Accumulated depreciation 800,000 3,200,000
Carrying amount 3,200,000 4,800,000
Fair value 3,800,000 4,400,000
Cash paid by FEEBLE Co. to 600,000 600,000
WEAK, Inc.

16. How much is the initial cost of the equipment received by FEEBLE Co.?
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000

17. How much is the initial cost of the equipment received by WEAK Co.?
a. 3,800,000 b. 4,400,000 c. 5,000,000 d. 3,400,000

18. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0

19. How much is gain (loss) on exchange recognized by WEAK Co.?

a. (400,000) b. 400,000 c. (1,000,000) d. 0

Fair value of asset given up is indeterminable

Use the fact pattern in the preceding problem except that FEEBLE Co. cannot determine the fair
value of the equipment given up but is aware that the equipment that will be received from WEAK,
Inc. has a fair value of ₱4,400,000.

20. How much is the initial cost of the equipment received by FEEBLE Co.?
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000

21. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0

No commercial substance
Use the fact pattern in the preceding problem except that the exchange has no commercial
substance.
22. How much is the initial cost of the equipment received by FEEBLE Co.?
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,200,000

23. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0

Trade-in
Use the following information for the next two questions:
TRANSCEND EXCEED Co. traded in an old machine for a new model. Pertinent data are as follows:
Old equipment:
Cost 200,000
Accumulated depreciation 80,000
Average published retail value 24,000

New equipment:
List price 380,000
Cash price without trade in 280,000
Cash price with trade in 220,000

24. How much is the initial cost of the equipment received by TRANSCEND Co.?
a. 244,000 b. 280,000 c. 320,000 d. 184,000

25. How much is gain (loss) on exchange recognized by TRANSCEND Co.?

a. 60,000 b. 160,000 c. (60,000) d. 0

Acquisition through issuance of own equity instrument

Use the following information for the next four questions:
Fact pattern
RESILIENT ELASTIC Co. acquired land with fair value of ₱4,000,000 by issuing 10,000 shares with
par value of ₱40 per share and quoted price of ₱360 per share.

26. How much is the initial cost of the equipment received by RESILIENT Co.?
a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000

27. How much is gain (loss) on exchange recognized by RESILIENT Co.?

a. 3,200,000 b. 400,000 c. (400,000) d. 0

28. Use the fact pattern above except that the fair value of the land is indeterminable. How much
is the initial cost of the equipment received by RESILIENT Co.?
a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000

29. How much is gain (loss) on exchange recognized by RESILIENT Co.?

a. 3,200,000 b. 400,000 c. (400,000) d. 0

Acquisition through issuance of bonds payable

Use the following information for the next four questions:
Fact pattern
On January 1, 2021, LABYRINTH MAZE Co. acquired land with fair value of ₱3,800,00 by issuing a
3-year, 10%, ₱4,000,000 bonds. Principal is due on January 1, 2024 but interest is due at each
year-end. The prevailing market rate of interest for a similar instrument on January 1, 2021 is 12%.
The present value of the future cash flows from the bonds discounted at 12% is ₱3,807,852.
30. How much is the initial cost of the equipment received by LABYRINTH Co.?
a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000

31. How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148 b. (192,148) c. (200,000) d. 0

32. Use the fact pattern above except that the fair value of the land is indeterminable. How much
is the initial cost of the equipment received by LABYRINTH Co.?
a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000

33. How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148 b. (192,148) c. (200,000) d. 0

Acquisition by donation
Use the following information for the next two questions:
GROVEL Co. received donation of equipment from CRAWL, Inc., an unrelated foreign corporation.
The equipment has a fair value of ₱4,000,000. Necessary costs incurred by GROVEL Co. to bring
the asset to its intended condition for use amounted to ₱40,000.

34. The entry to record the receipt of the donation includes

a. a credit to share premium of ₱4,040,000
b. a credit to share premium of ₱3,960,000
c. a credit to income from donation of ₱4,040,000
d. a credit to income from donation of ₱3,960,000

35. Assuming the donor is a shareholder of GROVEL Co., the entry to record the receipt of the
donation includes
a. a credit to share premium of ₱4,040,000
b. a credit to share premium of ₱3,960,000
c. a credit to income from donation of ₱4,040,000
d. a credit to income from donation of ₱3,960,000