PPE’s Assignment

Solve the problems below, show your solutions and use yellow sheet of papers

Problem 1. On January 1, 2009, Metro Company started the construction of its new building. The
company follows the policy of capitalizing allowable interest costs. Construction costs were incurred as
follows:

January 1 P 400,000
March 31 1,000,000
August 1 1,200,000
September 20 1,000,000
December 31 400,000

The building was completed on December 31, 2009. (Journalize all the possible entries for each scenario
below)

A. On January 1, 2009, the company obtained a loan for P 4,000,000 at an interest rate of 10%,
specifically for the construction of the building. Prior to their disbursement, the proceeds of the
loan were temporarily invested and earned interest income amounting to P 85,000. How much is
the capitalized interest?

B. The company obtained a loan for P 4,000,000 at an interest rate of 10%, specifically for the
construction of the building. Availments from the loan were made quarterly in equal amounts.
Prior to their disbursement, the proceeds of the loan were temporarily invested and earned
interest income amounting to P 40,000. What is the total cost of the building self-constructed?

C. On January 1, 2009, Metro Co. borrowed P 1,600,000 at an interest rate of 10% specifically for
the construction of its new building. Interest earned from the temporary investment of the
proceeds of the loan prior to their disbursement amounted to P20,000. Metro Co. also had the
following other loans 2009 which were borrowed for general purposes. The proceeds of these
loans were used in part for the construction of the building.
10%, 2-year note P 1,200,000
12%, 5-year note P 1,600,000
How much is the capitalized interest?

D. Metro Co. had the following general borrowings during 2009 which were used to finance the
construction of the company’s new building.
10% bank loan P 2,800,000
10% short-term note P 1,600,000
12% long-term loan P 2,000,000
How much should be r3ecorded as interest expense for the year 2009?

Problem 2. HBO Inc. began operations on October 1,2008. The company’s accountant has started to
gather pertinent information about each of the company’s property, plant and equipment as shown below.
When he was about to prepare a schedule of PPE and depreciation, he was assigned to maintain the
books of the company’s foreign operations. You have been asked to assist in the preparation of this
schedule. In addition to ascertaining that the summarized data below are correct, you have accumulated
the following information from the company’s records and personnel.
a. HBO computes the depreciation from the first month of acquisition to the first of the month of
disposition.
b. Land A and Building A were purchased from Star Inc. HBO paid P12,300,000 for the land and
building together. At the time of acquisition, the land had a fair value of P1,350,000 and the
building had a fair value of P12,150,000.
 c. Land B was acquired on October 3,2008, in exchange for 37,500 ordinary shares of HBO. On the
date of acquisition, Land B had a fair value of P1,125,000 and the company’s P5 par value
ordinary shares had a fair value of P35 per share. HBO paid P240,000 to demolish an old
building on this land for the construction of a new building.
d. Construction of Building B on the newly acquired land began on October 1,2009. By September
30,2010, HBO had paid P4,800,000 of the estimated construction costs of P6,750,000. It is
estimated that the building will be completed and occupied by July 2011.
e. Certain equipment was donated to the corporation by the national government. An independent
appraisal of the equipment when donated placed the fair market value at P450,000 and the
salvage value at P45,000.
f. Machinery A’s total cost of P2,473,500 includes installation cost of P9,000 and normal repairs
and maintenance of P223,500. Salvage value is estimated at P90,000. It was sold on February
1,2010, for P1,600,000.
g. On October 1,2009, Machinery B was acquired with a down payment of P86,100 and the
remaining payments to be made in 11 annual installments of P90,000 each, beginning October
1,2009. The prevailing interest rate was 8%.

The following additional data are also provided:

Land A
Acquisition date: October 1,2008
Building A
Acquisition date: October 1,2008
Salvage value: P600,000
Depreciation method: Straight-line
Depreciation expense:
Year ended Sept. 30,2009 P261,750

Land B
Acquisition date: October 3,2008

Building B
Acquisition date: Under construction
Cost: P4,800,000 to date
Depreciation method: Straight line
Salvage value P0
Estimated life 30 years
Depreciation expense:
Year ended Sept. 30,2009 P0

Donated Equipment
Acquisition date: October 2,2008
Salvage value: P45,000
Depreciation method 150% declining balance
Estimated life 10 years

Machinery A
Acquisition date: October 2,2008
Salvage value: P90,000
Estimated life: 8 years
Depreciation method: Sum of the years’ digit

Machinery B
Acquisition date: October 1,2009
Salvage value: P0
 Depreciation method: Straight line
Estimated life: 20 years

Required: Determine the following:

____________1. Cost of Land A

____________2. Cost of building A
____________3. Estimated useful life of Building A
____________4. Depreciation expense of Building A for the year ended September 30,2010
____________5. Cost of Land B
____________6. Depreciation expense of Building B for the year ended September 30,2010
____________7. Initial measurement of donated equipment
____________8. Depreciation expense of donated equipment for the year ended September 30,2009
____________9. Deprecation expense on the donated equipment for the year ended September 30,2010
____________10. Cost of Machinery A
____________11. Depreciation expense on Machinery A for the year ended September 30,2009
____________12. Depreciation expense on Machinery A for the year ended September 30,2010
____________13. Amount of gain(loss) to be recognized on sale of Machinery A on February 1,2010
____________14. Cost of Machinery B
____________15. Depreciation expense on Machinery B for the year ended September 30,2010

Additional Requirement:

Journalize the transactions for A to G and the Adjusting Entries from 2008 to 2009

Problem 3. Ventures Mining Company quarries limestone at two locations, crushes it and sells it to be
used in the road building. The revenue code provides for 5% depletion on such limestone.

Quarry No 1 is leased, the company paying a royalty of P0.10 per ton of limestone quarried. Quarry No 2
is owned, the company having paid P 1,000,000 for the site. The company estimated that the property
can be sold for P 300,000 after production ceases.

Other data follow:

Quarry No 1 Quarry No 2
Estimated total reserves (in tons) 30,000,000 100,000,000
Tons quarried through 12/31/08 2,000,000 40,000,000
Tons quarried in 2009 800,000 1,380,000
Sales in 2009 P 6,000,000 P 10,000,000

What is the 2009 depletion expense of Quarry No 1 and Quarry No 2?