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Audit of PPE

1. The depletion amount for 2005 is P960,000. 2. The total inventoriable depreciation for 2005 is P384,000. 3. The inventory amount as of December 31, 2005 is P425,600. 4. The cost of sales for the year ended December 31, 2005 is P1,702,400. 5.

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152 views2 pages

Audit of PPE

1. The depletion amount for 2005 is P960,000. 2. The total inventoriable depreciation for 2005 is P384,000. 3. The inventory amount as of December 31, 2005 is P425,600. 4. The cost of sales for the year ended December 31, 2005 is P1,702,400. 5.

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Chi Viray
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PROBLEM NO.

1
DELANTAR Company’s property, plant and equipment and accumulated depreciation balances at
December 31, 2004 are:
Accumulated
Cost Depreciation
Machinery and equipment P1,380,000 P 367,500
Automobiles and trucks 210,000 114,326
Leasehold improvements 432,000 108,000

Additional information follows:


Depreciation methods and useful lives:
Machinery and equipment – straight line; 10 years.
Automobiles and trucks – 150% declining balance; 5 years, all acquired after 2000.
Leasehold improvements – straight line
Depreciation is computed to the nearest month.
Salvage values are immaterial except for automobiles and trucks which have estimated salvage values
equal to 15% of cost.

Other additional information:


a. DELANTAR entered into a 12-year operating lease starting January 1, 2002. The leasehold
improvements were completed on December 31, 2001 and the facility was occupied on January
1, 2002.
b. On July 1, 2005, machinery and equipment were purchased at a total invoice cost of P325,000.
Installation cost of P44,000 was incurred.
c. On August 30, 2005, DELANTAR purchased new automobile for P25,000.
d. On September 30, 2005, a truck with a cost of P48,000 and a carrying amount of P30,000 on
December 31, 2004 was sold for P23,500.
e. On December 20, 2005, a machine with a cost of P17,000, a carrying amount of P2,975 on date
of disposition, was sold for P4,000.

QUESTIONS:
Based on the above and the result of your cut-off tests, answer the following:
1. The gain on sale of truck on September 30 is
a. P2,680 b. P250 c. P6,500 d. None
2. The gain on sale of machinery on December 20, 2005 is
a. P1,025 b. P13,000 c. P2,725 d. None
3. The adjusted balance of the property, plant and equipment as of December 31, 2005 is
a. P1,919,000 b. P2,307,000 c. P2,388,500 d. P2,351,000
4. The total depreciation expense to be reported on the income statement for the year ended
December 31, 2005 is
a. P185,402 b. P138,000 c. 245,065 d. P221,402
5. The carrying amount of the property, plant and equipment as of December 31, 2003 is
a. P1,567,497 b. P1,578,547 c. P1,290,547 d. P1,617,322
PROBLEM NO. 7
In connection with your audit of the Josef Mining Corporation for the year ended December 31, 2005,
you noted that the company purchased for P10,400,000 mining property estimated to contain
8,000,000 tons of ore. The residual value of the property is P800,000.

Building used in mine operations costs P800,000 and have estimated life of fifteen years with no
residual value. Mine machinery costs P1,600,000 with an estimated residual value P320,000 after
its physical life of 4 years.

Following is the summary of the company’s operations for first year of operations.
Tons mined 800,000 tons
Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
Operating expenses (excluding depreciation) 576,000

Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be allocated as
follows: 20% to operating expenses, 80% to production. Depreciation on machinery is chargeable to
production.

QUESTIONS:
Based on the above and the result of your audit, answer the following: (Disregard tax implications)
1. How much is the depletion for 2005?
a. P768,000 b. P960,000 c. P192,000 d. P1,040,000
2. Total inventoriable depreciation for 2005?
a. P400,000 b. P362,667 c. P384,000 d. P0

3. How much is the Inventory as of December 31, 2005?


a. P438,400 b. P422,400 c. P425,600 d. P418,133
4. How much is the cost of sales for the year ended December 31, 2005?
a. P1,689,600 b. P1,753,600 c. P1,702,400 d. P1,672,533
5. How much is the maximum amount that may be declared as dividends at the end of the
company’s first year of operations?
a. P1,494,400 b. P1,289,600 c. P1,302,400 d. P1,319,467

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