PROPERTY, PLANT, AND EQUIPMENT (WITH DEPRECIATION)

1. For application of the concept discussed:

An entity had the following property acquisitions during the year:

 Acquired a tract of land in exchange for 50,000 ordinary shares of P100 par value with a
market price of P150 per share on the date of acquisition. The last property tax bill
indicated assessed value of P4,000,000 for the land. However, the land has a fair value of
P6,000,000. P6,000,000

 Received land as donation from 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. P1,050,000

 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 welding
machine prior to the installation of the new one. Machine supplies were acquired at a
cost of P150,000. P2,700,000

 During the early part of current year, the entity purchased a machine for P500,000 down
and four monthly installments of P1,250,000. The cash price of the machine was
P4,700,000. P4,700,000

 At the beginning of current year, the entity acquired a machine by issuing a four-year
non-interest bearing note for P2,000,000. The entity has a 10% interest of this type of
note. The present value of 1 at 10% for 4 years is 0.68. P1,360,000

 During the year, the entity exchanged an old machine, costing P3,000,000 and 50%
depreciated, for used machine and paid a cash difference of P500,000. The fair value of
the old machine was determined to be P1,800,000. P1,800,000

 At the beginning of current year, the entity purchased a machine for P2,000,000 in
exchange for noninterest bearing note requiring four annual payments of P500,000. The
first payment was made at the end of the current year.

The rate of interest for this note at date of issuance was 10%. The present value of an
ordinary annuity of 1 at 10% is 3.17 for four periods. The present value of an annuity of 1
in advance at 10% is 3.49 for four periods. P1,585,000
2. XYZ and ABC exchanged equipment as follows:

XYZ ABC
Equipment P1,800,000 P2,000,000
Accumulated Depreciation 900,000 1,350,000
Book Value 700,000 650,000
Fair Value 600,000 800,000
Cash paid by XYZ to ABC 200,000 200,000

The Expected Cash flows of the asset received differ from the cash flows of asset transferred. The
acquisition cost of the new equipment in the books of XYZ is?

The Expected Cash flows of the asset received do not differ from the cash flows of asset
transferred. The acquisition cost of the new equipment in the books of ABC is?

DEPRECIATION

1. Turtle Co. purchased equipment on January 2, 2016 for P50,000. The equipment had an
estimated five-year service life. Turtle’s policy for five-year assets is to use the double-
declining depreciation method for the first two years of the assets’s life, and then switch to
the straigh-line method.

In its December 31, 2018 reports, what amount should Turtle report as accumulated
depreciation for the equipment?

2. On January 2, 2015, Therese Co. purchased a machine for P264,000 and depreciated it by the
straight-line method using an estimated useful life of eight years with no salvage value. On
January 2, 2018, Therese determined that the machine had a useful life of six years from the
date of acquisition and will have a salvage value of P24,000. An accounting change was made
in 2018 to reflect the additional data.

The accumulated depreciation for this machine should have a balance at December 31, 2018
of?

3. On January 1, 2017, Benz Company purchased a new machine for P4,000,000. The new
machine has an estimated useful life of eight years and the salvage value was estimated to be
P400,000. Depreciation was computed on the sum of the year’s digit method. What amount
should be shown in the Benz’ statement of financial position at December 31, 2018, net of
accumulated depreciation for this machine?
 Answer:

2 P800,000
P450,000

Depreciation:
1. 38,000
2. P146,000
3. 2,500,000