PROBLEMS –

PROPERTY,
PLANT AND
EQUIPMENT
A C FA R 2 1 3 2
I N T E R M E D I ATE A C CO U N T I N G 1
L EO P O L D O D. M E D I N A , C PA , M S A

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

1. Algiers Company had the following property acquisition during the current year. Prepare
journal entries to record the transactions.

1) Acquired a tract of land in exchange for 50,000 ordinary shares with P100 par value and
market price of P120 per share on the date of acquisition. The last property tax bill indicated
assessed value of P4,500,000 for the land.

This is acquisition by issuance of shares.

Order of priority :
1. FV of property received 2. FV of shares issued 3. Par value of shares issued
Is # 1 determinable? No. Assessed value per tax declaration of real property is not fair
value. Therefore, use priority #2.

entry
Land (50,000 x 120 ) P 6,000,000
Share capital (50,000 x 100) P 5,000,000
Share premium 1,000,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2) Received land from a major shareholder as an inducement to locate a plant in the city.
No payment was required but the entity paid P50,000 for legal expenses for land transfer.
The land is fairly valued at P1,000,000.

Since the donation was received from a shareholder, it shall be recorded at FV with credit to
Donated Capital. Legal expenses (incurred in connection with the donation) is charged to
Donated Capital

entries :
Land P 1,000,000
Donated capital P 1,000,000

Donated capital 50,000

Cash 50,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3) Purchased for P5,500,000, including appraiser fee of P100,000 a warehouse building and the
land on which it is located. The land had an appraised value of P2,000,000 and original cost of
P1,400,000. The building had an appraised value of P3,000,000 and original cost of P2,500,000.

The basket price (lump sum price) of P5.5 million is allocated between land and building
based on their relative appraised values

entry
Land (2/5 x 5.5 M) P 2,200,000
Building (3/5 x 5.5 M) 3,300,000
Cash P5,500,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

4) Purchased an office building and the land on which it is located for P7,500,000 cash and
assumed an existing P2,500,000 mortgage. For realty tax purposes, the property is assessed at
P9,600,000, 60% of which is allocated to building.

The total consideration of P10 million (7.5 M cash and 2.5 M mortgage payable) is allocated
to land (40%) and building (60%) based on their relative assessed values.

entry
Land (40% x 10 M) P 4,000,000
Building (60% x 10 M) 6,000,000
Cash P7,500,000
Mortgage payable 2,500,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2. Luanda Company purchased equipment on January 1, 2020 under the following terms.

a. P200,000 down payment

b. Five annual payments of P100,000, the first installment note to be paid on December
31, 2020.

The same equipment was available at a cash price of P580,000.

Prepare journal entries for 2020 and 2021.

Acquisition on installment ; cash price is given

Total consideration (200,000 + [100,000 x 5]) = 700,000

Cash price 580,000
Discount on note payable 120,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Amortization of the discount on NP

Year Note Payable Fraction Interest expense

2020 500,000 5/15 40,000
2021 400,000 4/15 32,000
2022 300,000 3/15 24,000
2023 200,000 2/15 16,000
2024 100,000 1/15 8,000
1,500,000 120,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

entries
2020
Jan 1 Equipment P 580,000
Discount on note payable 120,000
Cash P 200,000
Note payable 500,000

Dec 31 Note payable 100,000

Cash 100,000
Interest expense 40,000
Discount on note payable 40,000
2021
Dec 31 Note payable 100,000
Cash 100,000
Interest expense 32,000
Discount on note payable 32,000

What is the carrying amount of Note payable on Dec 31, 2021?

Current Noncurrent Total
Note payable 100,000 200,000 300,000
Less : Discount on NP 24,000 24,000 48,000
76,000 176,000 252,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3. On January 1, 2020, Porto Novo Company purchased a machine under the following terms:

a. P100,000 down payment

b. Four annual payments of P200,000, the first installment to be paid on December
31,2020.
The fair value of the machine is not clearly determinable on the date of acquisition.
The prevailing rate of interest for this type of obligation is 10%.

Prepare journal entries for 2020 and 2021.

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Acquisition on installment basis ; cash price is not available

Downpayment P 100,000
+ PV of note payable (200,000 x 3.17) 634,000
Total cost of asset 734,000

Face value of note (200,000 x 4) 800,000

-PV of note payable 634,000
Implied interest → Discount on NP 166,000

Year Payment Interest Principal PV

1.1.20 634,000
12.31.20 200,000 63,400 136,600 497,400
12.31.21 200,000 49,740 150,260 347,140
12.31.22 200,000 34,714 165,286 181,854
12.31.23 200,000 18,146 181,854 0

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2020
1.1 Machinery P 734,000
Discount on note payable 166,000
Cash P 100,000
Note payable 800,000
12.31 Note payable 200,000
Cash 200,000
Interest expense 63,400
Discount on note payable 63,400
2021
12.31 Note payable 200,000
Cash 200,000
Interest expense 49,740
Discount on note payable 49,740

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

What is the carrying amount of note payable on December 31, 2021?
Current Noncurrent Total
Note payable 200,000 200,000 400,000
Less : Discount on NP 34,714 18,146 52,860
Carrying Amount 165,286 181,854 347,140

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

4. Gaborone Company had the following machinery acquisitions during the year. Prepare
journal entries to record the machinery acquisition and related interest.

1) Acquired a machine with an invoice price of P3,000,000 subject to a cash discount of 10%
which was not taken. The entity incurred cost of P50,000 in removing the old machine prior to
the installation of the new one. Machine supplies were acquired at a cost of P150,000.

Machinery P 3,000,000
Accounts payable P 3,000,000

Accounts payable 3,000,000

Purchase discount lost 300,000
Cash 3,000,000
Machinery 300,000 Machinery 2,700,000

Loss on removal of old machine 50,000

Supplies inventory 150,000
Cash 200,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Using net method
Machinery 2,700,000
Accounts payable 2,700,000

Accounts payable 2,700,000

Purchase discount lost 300,000
Cash 3,000,000 Machinery 2,700,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2) During the early part of current year, the entity purchased a machine for P500,000 down
and four annual installments of P1,250,000. The cash price of the machine was P4,700,000.
Machinery P 4,700,000
Discount on note payable 800,000
Cash P 500,000
Note payable (1,250,000 x 4) 5,000,000

Note payable 1,250,000

Cash 1,250,000
Interest expense 320,000
Discount on note payable 320,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

 Year Note Payable Fraction or % Interest expense
1 5,000,000 40 % 320,000
2 3,750,000
3 2,500,000
4 1,250,000
12,500,000 800,000

What is the carrying amount of NP at the end of year 1?

NP 3,750,000
Less : Discount on NP
800T – 320 T 480,000
Carrying amount of NP 3,270,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3) At the beginning of current year, the entity purchased a machine for P2,000,000 in exchange
for a noninterest bearing note requiring four payments of P500,000. The first payment was
made at the end of current year. The implicit rate of interest for this note at date of issuance
was 10%.
Down payment 0
PV of note payable 500,000 x 3.17 1,585,000
Cost of asset 1,585,000

Face of note 500,000 x 4 2,000,000

PV of note 1,585,000
Discount on NP 415,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

 Year Payment Interest Principal PV
1.1.20 1,585,000
12.31.20 500,000 158,500 341,500 1,243,500
12.31.21

Machinery P 1,585,000
Discount on note payable 415,000
Note payable P 2,000,000

Note payable 500,000

Cash 500,000
Interest expense 158,500
Discount on note payable 158,500

Note payable 1,500,000

Less : Discount on NP 256,500
CA of NP 1,243,500

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

4) At the beginning of current year, the entity acquired a machine by issuing a four-year,
noninterest-bearing note for P2,000,000. The entity has an implicit 10% interest for the type of
note.

Term note → lump sum ; not on installment → DO NOT use PV of annuity

Use only PV factor

Downpayment 0
+ PV of note 2,000,000 x 0.683 1,366,000
Cost of asset 1,366,000

Face of note 2,000,000

Less PV note 1,366,000
Discount on NP 634,000

Machinery P 1,366,000
Discount on note payable 634,000
Note payable P2,000,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

 Interest expense 136,600
Discount on note payable 136,600

Date Interest expense DNP PV

1.1.20 - 634,000 1,366,000
12.31.20 136,600 497,400 1,502,600
12.31.21 150,260 347,140 1,652,860
12.31.22 165,286 181,854 1,818,146
12.31.23 181,854 0 2,000,000

as of December 31, 2020

Note payable 2,000,000

Less Discount on NP 497,400
CA of NP 1,502,600 → noncurrent

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Problem 5

1) Namibia Company made the following individual transactions. Prepare journal entries to
record the transactions.
Land and building 6,000,000
Machinery and office equipment 1,800,000
Delivery equipment 500,000

An appraisal disclosed the following fair value:

Land 1,000,000
Building 3,000,000 4,000,000
Machinery 800,000
Office Equipment 400,000 1,200,000
Delivery equipment 350,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

The basket price of land and building at 6 M is allocated to Land and Building based on their
relative fair values.
The basket price of machinery and office equipment at P1.8 M is allocated to Machinery and
Office equipment based on their relative fair values.

Land (1/4 x 6M) P 1,500,000

Building (3/4 x 6 M) 4,500,000
Machinery (8/12 x 1.8 M) 1,200,000
Office equipment (4/12 x 1.8 M) 600,000
Delivery equipment 500,000
Cash P 8,300,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2) The company acquired the assets of another entity with the following fair value:
Land 1,000,000
Building 5,000,000
Machinery 2,000,000

The entity issued 60,000 shares with P100 par value in exchange. The share had a quoted
price of P150 on the date of purchase of the property.

This is acquisition of asset by issuing shares. Priority #1 FV of asset received is

determinable.
Land P 1,000,000
Building 5,000,000
Machinery 2,000,000
Share capital (60T x 100) P 6,000,000
Share premium 2,000,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3) Received a parcel of land located in Tagum City from a philanthropist as an inducement to
locate a plant in the city. The land has a fair value of P1,500,000.

The donated property is from a NON-shareholder.

Land P 1,500,000
Income from Donation P 1,500,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

4) The entity paid cash for machinery, P900,000 subject to 2% cash discount, and freight on
machinery, P35,000.
Machinery P900,000
Accounts payable P900,000
Machinery 35,000
Cash 35,000

If discount was taken

Accounts payable 900,000
Machinery 18,000
Cash 882,000
Machinery 917,000
If discount was not taken
Accounts payable 900,000
Purchase discount lost 18,000
Machinery 18,000
Cash 900,000
Machinery 917,000
Since this is a cash purchase
Machinery
([900,000 x 98%] + 35,000) P 917,000
Cash P 917,000
Machinery 917,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

5) The entity acquired furniture and fixtures by issuing a P400,000 two-year noninterest –
bearing note. In similar transactions, the entity had paid 12% interest.
This is a term note → lump sum → DO NOT use PV of annuity ; use PV factor

Downpayment 0
+ PV of note payable (400,000 x 0.797) 318,800
Cost of asset 318,800

Face of note 400,000

-PV of note 318,800
Discount on NP 81,200

Furniture and fixtures P 318,800

Discount on note payable 81,200
Note payable P 400,000

Interest expense 38,256

Discount on note payable 38,256 → 12 % x 318,800

Interest DNP PV
81,200 318,800
38,256 42,944 357,056

Note payable 400,000

Less Discount on NP 42,944
CA of NP 357,056

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

6. Gitega Company provided the following transactions. Prepare journal entries to record the
transactions.
1) Exchanged a car from inventory for a heavy duty machinery to be used as a long term asset.
Carrying amount of the car 300,000
Listed selling price of the car 450,000
Fair value of the machinery 430,000
Cash difference paid by Gitega Company 50,000

Order of priority
1. FV of asset given (car) none → list price is not FV
2. FV of asset received (machinery) 430,000
3. CA of asset given

Machinery 430,000
Inventory 300,000
Cash 50,000
Gain on exchange 80,000

FV of asset given (not available) 380,000 → FV of asset given 380,000

+ cash paid 50,000 - CA of asset given 300,000
Cost (based on FV of asset received) 430,000 Gain on exchange 80,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2) Exchanged an old packaging machine which cost P240,000 and was 50% depreciated, for
new machine and paid a cash difference of P30,000. The fair value of the old packaging
machine is determined to be P110,000 and the list price of the new machine is P150,000.

FV of asset given P 110,000 → FV of asset given 110,000

+ cash paid 30,000 - CA of asset given 240,000 x 50% 120,000
Cost of asset 140,000 Loss on exchange 10,000

Machinery – new P140,000

Accumulated depreciation 120,000
Loss on exchange 10,000
Machinery-old P240,000
Cash 30,000

*150,000 list price is irrelevant

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3) Exchanged an old equipment costing P3,000,000 with accumulated depreciation of
P1,800,000 and fair value of P1,000,000 for another used equipment with fair value of
P1,200,000. The exchange is nonmonetary.

Nonmonetary exchange means no cash is involved.

FV of asset given P1,000,000 → FV of asset given P 1,000,000

+ cash paid 0 - CA of asset given 3M-1.8M 1,200,000
Cost of asset 1,000,000 Loss on exchange 200,000

Equipment – new P1,000,000

Accumulated depreciation 1,800,000
Loss on exchange 200,000
Equipment – old P 3,000,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

7. Praia Company exchanged used equipment for another equipment from Yaounde Company.
The following information pertains to the exchange:
Praia Yaounde
Equipment 2,400,000 2,200,000
Accumulated depreciation 2,000,000 1,750,000
Fair value of equipment 500,000 500,000

Prepare journal entry on the books of Praia and Yaounde.

The exchange does not involve cash.

Praia Yaounde
FV of asset given 500,000 500,000
CA of asset given (2.4M-2M) 400,000
(2.2M-1.75M) 450,000
Gain on exchange 100,000 50,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Books of Praia

Equipment – new P 500,000

Accumulated depreciation 2,000,000
Equipment – old P2,400,000
Gain on exchange 100,000

Books of Yaounde

Equipment – new P 500,000

Accumulated depreciation 1,750,000
Equipment – old P2,200,000
Gain on exchange 50,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

8. Bangui Company traded a used equipment for a newer model with a dealer.

Old equipment:
Original cost 1,000,000
Accumulated depreciation 600,000
Fair value – unknown
New equipment:
List price 1,600,000
Cash price without trade in 1,400,000
Cash payment with trade in 980,000

Prepare journal entry to record the exchange transaction.

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Since FV of asset given is not available, FV approach cannot be used.
TIV approach is used.
List price is not FV.

Cash price without trade in 1,400,000

-Cash price with trade in 980,000 → cash payment
Trade in value of asset given 420,000

Trade in value of asset given 420,000

+ cash paid 980,000
Cost of asset 1,400,000 → this is actually the FV of asset received

TIV of asset given 420,000

-CA of asset given (1M-600T) 400,000
Gain on exchange 20,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Entry
Equipment – new P 1,400,000
Accumulated depreciation 600,000
Equipment – old P 1,000,000
Cash 980,000
Gain on exchange 20,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

9. N’Djamena Company acquired a delivery truck, making payment of P2,680,000, the payment
being analyzed as follows:

Price of truck 2,500,000

Charge for extra equipment 50,000
Value added tax 300,000
Insurance for one year 120,000
Motor vehicle registration 10,000
Total 2,980,000
Less: Trade in value allowed on old truck 300,000
Cash paid 2,680,000

The old truck cost P1,500,000 and has a carrying amount of P200,000, and fair value of
P50,000. The value added tax is refundable or recoverable.

Prepare journal entry to record the exchange transaction.

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Items which are not part of the cost of asset :
VAT P 300,000 → debit should be Input tax
Insurance 120,000 → debit should be Insurance expense
Motor vehicle registration 10,000 → debit should be Taxes and licenses
Total 430,000

FV of asset given 50,000 → FV of asset given 50,000

+ cash paid 2,680,000 -CA of asset given 200,000
2,730,000 Loss on exchange 150,000
-items not part of cost 430,000
Cost of asset 2,300,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Entry
Delivery equipment - new P 2,300,000
Input tax 300,000
Insurance expense 120,000 (may be debited to Prepaid insurance)
Taxes and licenses 10,000
Accumulated depreciation
(1.5 M – 200T) 1,300,000
Loss on exchange 150,000
Delivery equipment – old P 1,500,000
Cash 2,680,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

10. Moroni Company provided the following information in relation to the Construction of a
building during the year. Compute the cost of Finished goods, and Building.

Total Finished goods Building

Direct labor 6,000,000 4,200,000 1,800,000
Materials 7,000,000 3,000,000 4,000,000
Overhead 2,000,000 ? ?

The following assumptions are made:

1) No overhead is to be assigned to the building.

Finished goods Building
Direct labor 4,200,000 1,800,000
Materials 3,000,000 4,000,000
Overhead 2,000,000 0
Total cost 9,200,000 5,800,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

2) Normal production of finished goods is 180,000 units. Because of the construction of the
building, finished goods production totaled only 135,000 units. The building is to be charged
with the overhead which would have been charged to the 45,000 units which were not
produced.
Finished goods Building
Direct labor 4,200,000 1,800,000
Materials 3,000,000 4,000,000
Overhead
FG : 135/180 x 2M 1,500,000
B : 45/180 x 2M 500,000
Total cost 8,700,000 6,300,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

3) Overhead is to be apportioned in the ratio of direct labor.
Finished goods Building
Direct labor 4,200,000 1,800,000
Materials 3,000,000 4,000,000
Overhead
4.2M + 1.8M = 6M
FG : 4.2/6 x 2M 1,400,000
B : 1.8/6 x 2M 600,000
Total cost 8,600,000 6,400,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

11. Kinshasa Company summarized the following manufacturing and construction activities for
2020.
Finished goods Machinery
Materials 3,000,000 500,000
Direct labor 4,000,000 1,000,000

Overhead for the prior year was 75% of the direct labor cost.
Overhead in 2020 related to both products manufactured and construction activities
amounted to P3,600,000.

a) Compute the cost of the machinery, assuming that manufacturing activities are to be
charged with overhead at the rate experienced in the prior year.
Machinery
Materials 500,000
Direct labor 1,000,000
Overhead
Total OH 3.6 M
(3 M) → 4M x 75% FG
600 T → Machinery 600,000
Total 2,100,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

b) Calculate the cost of the machinery if manufacturing and construction activities are to be
charged with overhead at the same rate.
Finished Goods Machinery
Direct labor 4,000,000 1,000,000
X 75 % X 75 %
Overhead 3,000,000 750,000 3,750,000
% 80 % 20 %

Machinery
Materials 500,000
Direct labor 1,000,000
Overhead 3.6 M x 20 % 720,000
Total 2,220,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

12. During the year, Brazzaville Company purchased a new machine. A P120,000 down
payment was made and three-monthly installments of P360,000. The cash price would have
been P1,160,000. The entity paid no installation charges under the monthly payment plan but
a P20,000 installation charge would have been incurred with a cash purchase. What amount
should be capitalized as cost of the machine?
1,180,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Installment basis ; cash price is given

Take note : monthly NOT annual installments

Cash price P 1,160,000
Installation charge 20,000 → incurred with a cash purchase
Cost P 1,180,000

Total consideration (120,000 + [360,000 x 3]) P 1,200,000 → total installment price

Cost 1,180,000
Interest expense 20,000 *

*charged outright to interest expense ; not Discount on NP,

because it is less than one year

Machinery 1,180,000
Interest expense 20,000
Cash 120,000
Note payable 1,080,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

13. Djibouti Company acquired a machine with a cash price of P2,000,000.

Down payment 400,000

Note payable in 3 equal annual installments 1,200,000
20,000 shares of Djibouti Company at fair value 800,000

Prior to use, installation cost of P50,000 was incurred. The machine has a residual value of
P100,000. What is the initial measurement of the new machine?
2,050,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Installment basis ; cash price is given ; plus issuance of shares

Cash price 2,000,000

+ Installation cost 50,000
Cost of new asset 2,050,000

Total consideration
Downpayment 400,000
Note payable (3 x 400,000) 1,200,000
FV of shares 800,000
2,400,000
Cash price 2,000,000
Discount on note payable 400,000

Machinery 2,050,000
Discount on note payable 400,000
Note payable 1,200,000
Cash (400,000 + 50,000) 450,000
Share capital ] 800,000 → should be par value ; however
Share premium ] par value is not given

*residual value is irrelevant in determining cost

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

14. Cairo Company purchased a van with a list price of P3,000,000. The dealer granted a 15%
reduction in list price and an additional 10% cash discount on the net price payment is made in
30 days. Irrecoverable taxes amounted to P40,000 and the entity paid an extra P30,000 to have
a special horn installed. What amount should be recorded as initial cost of the van?
2,365,000
On account

Invoice price (3,000,000 x 85%) 2,550,000

Less : cash discount (10% x 2,550,000) 255,000
2,295,000
Irrecoverable taxes 40,000
Installation of special horn 30,000
Total cost 2,365,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

15. On December 31, 2020, Oyala Company purchased a machine in exchange for a noninterest
bearing note requiring eight payments of P200,000. The first payment was made on December
31, 2020 and the others are due annually on December 31. At the date of issuance, the
prevailing rate of interest for this type of note was 11%.

1. What amount should be recorded as initial cost of the machine?

1,142,400
2. What is the discount on note payable December 31, 2020?
457,600
3. What is the interest expense for 2021?
103,664
4. What is the carrying amount of note payable on December 31, 2021?
846,064

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Installment basis ; cash price is not given
Downpayment 200,000 → since the 1st payment was made on the date of
Acquisition
+ PV of note payable
200,000 x 4.712 942,400 → use 7 periods ; 8 – 1 = 7
Cost 1,142,400 #1

Face of note payable 200,000 x 7 1,400,000

PV of note payable 942,400
Discount on NP 457,600 # 2

Date Payment Interest Principal PV

12.31.20 942,400
12.31.21 200,000 103,664 96,336 846,064
#3 #4

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

16. At the beginning of current year, Asmara Company purchased a new machine on a deferred
payment basis. A down payment of P200,000 was made and four annual installments of
P600,000 each are to be made every year-end. The cash equivalent price of the machine was
P2,300,000.

Due to an employee strike, the entity could not install the machine immediately and thus
incurred P 30,000 of storage cost. Cost of installation excluding the storage cost amounted to
P80,000. What is the initial amount to be capitalized as the cost of the machine?
2,380,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

Installment basis ; cash price is given

Cash price 2,300,000

Installation cost 80,000
Cost 2,380,000

Total consideration
Downpayment 200,000
Note payable (600,000 x 4) 2,400,000
2,600,000
Cash price 2,300,000
Discount on note payable 300,000

Machinery 2,380,000
Discount on note payable 300,000
Cash 280,000 → 200,000 + 80,000
Note payable 2,400,000

Storage fees expense 30,000

Cash 30,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

17. Mbabane Company recently acquired two items of equipment.

• Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was
taken. Costs of freight and insurance during shipment were P50,000 and installation cost
amount to P200,000.

• Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash discount
which was not taken. Additional welding supplies were acquired at a cost of P100,000.

What is the total increase in the equipment account as result of the transactions?
4,900,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

On account
Press
Invoice price 3,000,000
Discount 5% x 3M ( 150,000 )
Freight & insurance 50,000
Installation cost 200,000 3,100,000
Welding machine
Invoice price 2,000,000
Discount 10% x 2M ( 200,000) 1,800,000
Total cost 4,900,000

*welding supplies is charged to Supplies inventory ; and later expensed when actually used.

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

18. At the beginning of the current year, Libreville Company exchanged an old packaging
machine, which cost P1,200,000 and was 50% depreciated, for a used machine and paid a cash
difference of P160,000. The fair value of the old packaging machine was determined to be
P700,000.

1. What is the cost of the new asset acquired?

860,000
2. What is the gain on exchange?
100,000
FV of asset given 700,000 FV of asset given 700,000
+ cash paid 160,000 - CA of asset given 1.2M-600T 600,000
Cost 860,000 Gain on exchange 100,000

Machinery – new 860,000

Accumulated depreciation 600,000
Machinery – old 1,200,000
Cash 160,000
Gain on exchange 100,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

19. At the beginning of the current year Banjul Company traded in an old machine having a
carrying amount of P1,680,000 and paid in cash difference of P600,000 for a new machine with
a cash price of P2,050,000.

1. What is the cost of the machine acquired in exchange?

2,050,000

2. What amount of loss should be recognized on the exchange?

230,000
Cash price is the FV of asset received 2,050,000

TIV of asset given (not given in the problem)1,450,000 → TIV of asset given 1,450,000
+ cash paid 600,000 -CA of asset given 1,680,000
Cost (cash price or FV of asset received) 2,050,000 Loss on exchange 230,000

*entry cannot be made in this case since cost and accumulated depreciation are not given

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

20. Accra Company exchanged a truck with a carrying amount of P1,200,000 and a fair value
P2,000,000, for a truck and P200,000 cash. The fair value of the truck received was P1,800,000.
The cash flows from the new truck are not expected to significantly different from the cash
flows of the old truck.

1. At what amount should the truck received in the exchange be recorded?

1,000,000
2. What is the gain of exchange?
0 or none

Exchange lacks commercial substance ; so no gain or loss is recognized

FV of asset given is not used
The company is the payee (recipient of cash)

CA of asset given 1,200,000

-Cash received 200,000
Cost 1,000,000

*entry cannot be made because cost and accumulated depreciation are not given

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

21. During the current year, Conakry Company paid P100,000 and exchanged inventory which
has a carrying amount of P2,000,000 and a fair value of P2,100,000 for other inventory in the
same line of business with fair value of P2,200,000.

1. What is the initial measurement of the new inventory received in exchange?

2,200,000
2. What is the gain on exchange?
100,000
FV of asset given 2,100,000 FV of asset given 2,100,000
+ cash paid 100,000 -CA of asset given 2,000,000
Cost 2,200,000 Gain on exchange 100,000

Inventory-new 2,200,000
Inventory-old 2,000,000
Cash 100,000
Gain on exchange 100,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

22. Maseru Company and Monrovia Company are fuel oil distributors. To facilitate the delivery
of oil to their customers, Maseru Company and Monrovia Company exchanged ownership of
1,200 barrels of oil without physical moving the oil. Maseru Company paid Monrovia Company
P300,000 to compensate for the difference in the grade of oil. The configuration of cash flows
from the asset received is not expected to be significantly different from the configuration of
the cash flows of the asset exchanged. On the date of exchange, cost and market value of the
oil were as follows:
Maseru Company Monrovia Company
Cost 1,000,000 1,400,000
Market Value 1,200,000 1,500,000

1) What is the initial measurement of the oil inventory received in exchange by Maseru
Company?
1,300,000

2) What is the initial measurement of the oil inventory received in exchange by Monrovia
Company?
1,100,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132

The exchange lacks commercial substance ; no gain or loss on exchanged in recognized
Maseru Monrovia
CA of asset given 1,000,000 1,400,000
Plus cash paid 300,000
Less cash received (300,000)
Cost 1,300,000 1,100,000

Maseru
Inventory – new 1,300,000
Inventory – old 1,000,000
Cash 300,000

Monrovia
Inventory – new 1,100,000
Cash 300,000
Inventory – old 1,400,000

LEOPOLDO D. MEDINA, CPA, MSA ACFAR 2132