INTACC 2019_PPE_01

Land and Land Improvements Equipment

On 12/31/19, YOU COMPANY purchased ₱4,000,000 On 12/31/19, YOU COMPANY acquired new equipment:
tract of land for a factory site. YOU COMPANY incurred
the following additional costs, and realized proceeds Purchase price 1,000,000
from sale of salvaged materials from the demolition of Customs duties 60,000
the old building and clearing of trees on the property: Handling costs 11,000
Freight-in 40,000
Insurance while in transit 30,000
Cost of razing old building 300,000 Installation cost 20,000
Title insurance and legal fees 200,000 Testing cost 10,000
Broker’s commissions 40,000 Proceeds from testing samples 2,000
Escrow fees 10,000 Dismantling cost at the end of its 5-year
Surveying cost 15,000 useful life – Average borrowing rate: 80,000
LGU special assessment tax 4,000 10% (required as per contract)
Clearing, leveling and filling 52,000
Real property taxes in arrears 6,000
Option fee 11,000 What is the cost of the equipment?
Proceeds from sale of scrap 20,000
Proceeds from sale of timber 19,000 Natural Resources (Wasting Assets)
Investigating & searching for title 8,000
Cost of relocating squatters 100,000 At the beginning of the current year, YOU COMPANY
Mortgage assumed 55,000 purchased a mineral mine for ₱26,400,000. After
Trees, shrubs and landscaping 70,000
extraction of the ore, YOU COMPANY will be required
Fences 80,000
Sidewalks 200,000 by law to restore the land to its original condition at
Driveways 400,000 estimated cost of ₱2,100,000. The present value of the
Parking Lot 200,000 estimated restoration cost is ₱1,800,000. During the
year, YOU COMPANY incurred ₱3,600,000 for drilling,
What is the cost of land? sinking mine shaft and construction of well. Exploration
What is the cost of land improvements? costs such as acquisition of rights to explore and
geological studies related to project 1 and project 2 are
Building ₱800,000 and ₱850,000, respectively. Only project 1 is
On 12/31/19, YOU COMPANY made the following successful.
expenditures to construct a new building:
What is the cost of the wasting asset using successful
Architect fee 100,000 effort method?
Contractor fee 6,000,000 What is the cost of the wasting asset using full cost
Building permit 30,000 method?
Temporary quarters for crew 80,000
Temporary warehouse for tools and 60,000
ACQUISITION METHODS
materials
Excavation 65,000
Special tax assessment 61,000 1. Lump-Sum Purchase
Legal fees on construction contract 25,000 YOU COMPANY acquired land, building and machinery
Capitalizable borrowing cost 75,000 for ₱15M. At the time of acquisition, the fair values of
land, building, and machinery are ₱9M, ₱6M, and ₱3M,
What is the cost of the building? respectively.

Prepare journal entry to record the transaction.

INTACC 2019_PPE_01

2. On account subject to cash discount

Prepare journal entries to record the transactions,
YOU COMPANY purchased equipment for ₱500,000 assuming the condition was not met on the 2nd second
with 2/10, n/30 terms. year.

Prepare journal entry to record the transaction. 9. By exchange

YOU COMPANY and Eye exchange equipment with each
3. On installment basis other with the following information:
YOU COMPANY acquired furniture and fixture by paying
₱100,000 cash and issuing a non-interest-bearing YOU COMPANY Eye
₱200,000 3-year note. The effective rate is 15%. Cost 1,000,000 1,200,000
Acc. Dep’n 400,000 550,000
Prepare journal entry to record the transaction. Fair Value 800,000 600,000

4. Issuance of Share Capital
A piece of equipment is acquired by issuing 5,000 shares
with ₱45 par value. The fair value of the equipment is
₱300,000 while the share is quoted at ₱52 per share.
Prepare journal entry to record the transaction.
Eye paid an additional ₱200,000 to YOU COMPANY for
the exchange.
Prepare the journal entry in the books of YOU
COMPANY and Eye, assuming the exchange has
commercial substance.

5. Issuance of Bonds Payable Prepare the journal entry in the books of YOU
YOU COMPANY acquired machinery by issuing bonds COMPANY and Eye, assuming the exchange has NO
payable with face amount of ₱3,000,000. At the date of commercial substance.
acquisition, the fair value of the machinery is
₱3,500,000 and the quoted price of the bonds is 10. By construction
₱3,800,000. YOU COMPANY is a company engaged in manufacturing
computers. During the year, it manufactured super
Prepare journal entry to record the transaction. computers for its own use. The following information is
available:
6. By donation from a shareholder
A shareholder donated land with a fair value of Computers for Computers for
sale own use
₱600,000.
Direct Materials 25,000,000 4,000,000
Direct Labor 22,500,000 2,500,000
Prepare journal entry to record the transaction.
Total overhead incurred is ₱24,000,000.
7. By donation from an NGO
GMA-CBN5 donated land with a fair value of ₱600,000. Determine the cost of the computer for sale and
computer for own use:
Prepare journal entry to record the transaction, a. Based on direct labor cost
assuming with and without condition. b. Based on normal application of overhead to
production at the rate of 90% of direct labor
8. By donation from government cost
Manila City government donated a piece of land to YOU
COMPANY with a condition of planting 20 trees every
year for 3 years. The land has a fair value of ₱600,000.
INTACC 2019_PPE_01

BORROWING COST c. Specific and General Borrowings

a. Specific Borrowing On January 1, 2019, YOU COMPANY was only able to
At the beginning of the year, YOU COMPANY obtained obtain ₱1,100,000 10% loan to specifically finance the
₱4,000,000 loan at an interest rate of 10% specifically to manufacture of the super computer. Interest earned
finance the manufacture of your super computer. The prior to its disbursement amounted to ₱11,000.
cash was temporarily deposited before disbursement to
earn interest of 2%. ₱2,000,000 was disbursed after the YOU COMPANY also had the following general
second quarter, and ₱2,000,000 was disbursed after the borrowings on January 1, 2019:
third quarter.
Principal Borrowing Cost
How much borrowing costs can be capitalized? 5% long-term loan 3,800,000 190,000
Prepare journal entries to record the borrowing costs. 10% bank loan 4,600,000 460,000

b. General borrowing The manufacture of the supercomputer started on

YOU COMPANY had the following general borrowings January 1 and was completed on December 31 of the
on January 1, 2019: same year. Disbursements or expenditures were made
as follows:
Principal Borrowing Cost
5% long-term loan 3,800,000 190,000 Date Amount
10% bank loan 4,600,000 460,000 January 1 400,000
April 30 1,050,000
The manufacture of the supercomputer started on June 30 1,200,000
September 30 1,000,000
January 1 and was completed on December 31 of the
October 31 300,000
same year. Disbursements or expenditures were made December 31 50,000
as follows:

Date Amount How much borrowing costs can be capitalized?

January 1 400,000 Prepare journal entries to record the borrowing costs.
April 30 1,050,000
June 30 1,200,000
September 30 1,000,000
October 31 300,000
December 31 50,000

How much borrowing costs can be capitalized?

Prepare journal entries to record the borrowing costs.