Property, Plant and Equipment Questions

Topics: Depreciation, Generally Accepted Accounting Principles, Asset Pages: 6 (1115 words) Published: February 9, 2013
PPE – Cost

Problem 11 – 1

On August 1, 2012, Benigno Company purchased a new machinery on a deferred payment basis. A down payment of P 500,000 was made and 4 monthly instalments of P 1,250,000 each are to be made starting September 1, 2012. The cash equivalent price of the machine was P 4,750,000. Benigno incurred and paid installation costs amounting to P 150,000. What si the amount to be capitalized as a cost of the machine?

a. P 4,750,000
b. P 5,500,000
c. P 4,900,000
d. P 5,650,000

Solution 11 – 1Answer is c

Cash PriceP 4,750,000
Installation cost 150,000
TotalP 4,900,000

Problem 11 – 2

On December 31, 2012, Magdalena Company purchased an equipment in exchange for a noninterest bearing note requiring eight payments of P 250,000. The first payment was made on December 31, 2012, and the others are due annually on December 31. At the date of issuance, the prevailing rate of interest for this note is 13%.

PV of an ordinary annuity of 1 at 13% for 8 periods4.799
PV of an annuity of 1 in advance at 13% for 8 periods5.423

What amount should be recorded as initial cost of equipment?

a. P 1,355,750
b. P 2,000,000
c. P 1,199,750
d. P 1,400,000

Solution 11 – 2Answer is a

Present value of future payments (250,000 * 5.423)P 1,355,750

Problem 11 – 3

Honda Company purchased land with a current market value of P 7,680,000. The carrying amount of the land was P 1,305,000. In exchange for the land, Honda issued 64,000 ordinary shares with par value of P 100 and market value of P 140 per share. The shares are traded in an established stock exchange. What amount should Honda record as cost of land?

a. P 4,176,000
b. P 6,400,000
c. P 7,680,000
d. P 8,960,000

Solution 11 – 3Answer is c

Current market value of landP 7,680,000

Problem 11 – 4

Kyrie Company purchased machinery by making a down payment of P 400,000 and issuing a note payable for P 1,800,000. A payment of P 600,000 is to be made at the end of each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity of 1 for three years at 8% is 2.58, and the present value for the future amount of a single sum for three years ay *% is 0.735. Shipping charges for machinery of P 200,000 and installation charges of P 150,000 were incurred. What is the capitalized cost of the equipment?

a. P 1,698,000
b. P 1,548,000
c. P 2,000,000
d. P 2,298,000

Solution 11 – 4Answer is d

DownpaymentP 400,000
PV of note payable (600,000 * 2.58) 1,548,000
Shipping 200,000
Installation 150,000
Cost of MachineryP 2,298,000

PPE – Depreciation/ Revaluation/ Impairment

Problem 12 – 1
Michael Company acquired a drilling machine on October 1, 2010 at a cost of P 8,000,000 and depreciate it at 25% per annum on a straight line basis. On October 1, 2012, the entity spent P 1,600,000 on upgrade to the machine in order to improve its efficiency and increase the inflow of economic benefits over the machine’s remaining life. What depreciation expense should be recognized for the year ended September 30, 2013? a. P 3,600,000

b. P 2,000,000
c. P 2,720,000
d. P 2,800,000
Solution 12 – 1Answer is d.
Original life (100%/25%)4 years
Years expired on October 1, 20122
Remaining life2

Depreciation on original cost (8,000,000 * 25%)P 2,000,000 Depreciation on improvement (1,600,000/ 2) 800,000 Total depreciation for the year ended September 30, 2013P 2,800,000

Problem 12 – 2

The following information is taken from the statement of financial position of Irving Company on December 31, 2013 and December 31, 2012.

| 2013| 2012|
Building Cost| 80,000,000| 80,000,000|
Accumulated depreciation - buildings| 16,000,000| 12,400,000|

Irving did not acquire or dispose...
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