Instructions: Box your final answers. Solutions are required. No solutions, no point.

Round off your

final answers to the nearest peso.

Problem 1: Pampabawi Assignment had the following property acquisitions during the current year:

a. Acquired a tract of land in exchange of 50,000 ordinary shares of 100 par value with a market
price of 150 per share on the date of acquisition. The last property tax bill indicated assessed
value of 4,000,000 for the land. However, the land has a fair value of 6,000,000.
b. Acquired a building by issuing a bonds payable with a face amount of 5,000,000. At the time of
acquisition, the fair value of the building is 5,500,000 and the quoted price of the bonds is
5,300,000.
c. Acquired a machine with an invoice price of 3,000,000 subject to cash discount of 10% which
was not taken. The entity incurred cost of 50,000 in removing the old welding machine prior to
the installation of the new one. Machine supplies were acquired at a cost of 150,000.
d. Pampabawi exchanged an equipment with Salamat Company. Pampabawi paid 1,500,000 to
Salamat Company to compensate for the difference. It was reliably determined that the
configuration of the cash flows of the asset received does not differ from the configuration of
the cash flows of the asset transferred. On the date of exchange, the equipment of Pampabawi
Company has a carrying amount of 5,000,000 and the fair value is 6,000,000. The equipment of
Salamat Company has a carrying amount of 6,000,000 and has a fair value of 7,500,000.
e. Pampabawi Company exchanged an old machine, costing 3,000,000 and 50% depreciated for
used machine of Kasagli Company and received a cash difference of 300,000. The fair value of
the old machine of Pampabawi was determined to be 1,800,000. The carrying amount of the
machine of Kasagli Company is 1,300,000 and it has a fair value of 1,500,000.
f. Pampabawi received equipment as a donation from a major shareholder. No payment was
required but the entity paid 50,000 for legal expenses. Installation cost of the equipment
amounting to 100,000. The equipment has fairly valued at 1,000,000.
1. What is the total cost to be capitalized of all property, plant and equipment acquisitions?

Problem 2: Mikatas ku din Grade Company received the following government grants during the current
year:

a. The entity purchased a machine for 3,000,000 on January 1,2017. The entity received a
government grant of 500,000 in respect of this asset. The policy is to depreciate the asset over 5
years on a straight line basis and to treat the grant as deferred income. On January 1, 2019, the
grant became fully repayable because of noncompliance with conditions.
b. The entity purchased a machine for 6,000,000 on January 1, 2017 and received a government
grant of 600,000 towards capital cost. The policy is to treat the grant as a reduction of cost of
the asset. The machine is to be depreciated on a straight line basis over 5 years with residual
value of 500,000. On January 1, 2019, the grant became fully repayable because of non-
compliance with conditions.
c. On January 1, 2017, the entity received from government a 5,000,000 three-year, zero-interest
loan evidenced by a promissory note. The prevailing rate of interest for a loan of this type is
10%.
2. What is the total income from government grant for the year ended December 31, 2017?
3. What is the total depreciation expense for the year ended December 31, 2019?
 4. What is the loss on repayment of grant in 2019?
5. What is the net effect of the government grant related to the zero-interest loan to be reported
in the Profit or Loss statement for the year 2019?

Problem 3: Commencement of Borrowing Cost Company had 10% 3,000,000 specific construction loan.
Funds not needed immediately for construction were invested temporarily and earned a dividend
income of 30,000 and 25,000 for the year ended December 31,2017 and December 31, 2018,
respectively.

In addition, the company has also a 12% 25,000,000, general loan outstanding during 2017 and 2018. A
portion of this 25,000,000 loan were temporarily invested and earned an investment income of 20,000
each for the year ended 2017 and 2018.

The entity began the self-construction of the building on March 1, 2017 and was completed on July 31,
2018. The following expenditures were made during 2017 and 2018:

March 1, 2017 7,000,000

May 1, 2017 8,000,000
December 1, 2017 7,000,000
March 1, 2018 8,000,000
6. What is the total cost of building at the date of completion?
7. What is the total interest capitalized as borrowing cost from January 1, 2017- December 31,
2018?
8. What is the total interest expense that should be reported for the year ended December 31,
2018?

Problem 4: Lasing Bago Matulog Company purchased a tract of land with an old building to be use as a
factory site on March 30, 2017. The old building is usable. It was demolished immediately to make room
for the construction of the new building.

Purchased price of land and an old building 4,500,000

Fair value of land 4,750,000
Fair value of old building 250,000
Cost of demolishing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
Survey before construction 100,000
Building permit or payment to city hall for approval of building construction 150,000
Excavation before new construction 200,000
Liability insurance during construction 100,000
New fence surrounding the factory 100,000
Driveways, parking bays and safety lightning(part of the blueprint) 550,000
Cost of trees, shrubs and other landscaping 250,000
Proceeds from sale of salvaged materials during demolition of old building 20,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000
Payment to tenants to induce them to vacate the land 50,000
Cost of clearing, grading and levelling 30,000
Cost of temporary safety fence during construction 150,000
Cost of immovable cabinets in the new building 180,000
Cost of ventilating and lighting system installed after construction 100,000
9. What is the total amount capitalized as cost of the land?
10. What is the total amount capitalized as cost of the land improvement?
11. What is the total amount capitalized as cost of the building?
12. What is the total amount capitalized as cost of the building improvement?
13. Assume that the building has a useful life of 5 years and a residual value of 50,000, what is the
total depreciation expense for the year 2017 using the declining balance method?
14. Assume that the building improvement has a useful life of 5 years and a residual value of 5,000.
Using the double declining balance method, what is the total depreciation expense for the year
2017?

Problem 5: Capali Company acquired a machine on April 1, 2017 and incurred the following cost:

Cash paid for machine, including VAT 96,000 896,000

Cost of transporting machine 30,000
Cost of installation 50,000
Cost of testing machine 40,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Cost of repairing damage during installation 45,000
Cost of spare parts to cover breakdown 155,000
Estimated dismantling cost to be incurred as required by contract 65,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000
15. What total amount should be capitalized as cost of machine?
16. Assume that the machine has a useful life of 5 years and a residual value of P50,000. The
company uses the SYD method in computing depreciation expense, what is the total
depreciation expense to be recognized in 2017?
17. Continuing Item # 14, assume that on January 31, 2018, Capali incurred cost of 100,000 to
improve the efficiency of the machine. Capali also incurred repair cost of 25,000. What is the
total depreciation expense for the year ended December 31, 2018?
18. Continuing Item # 15, assume that the company replace a major part of the machine on January
1, 2019. The replace part has an original cost of 100,000 with no residual value. The cost of
replacement is 120,000. The company changed its depreciation method from SYD to straight line
method. What is the total depreciation expense to be reported in 2019?

Problem 6: Kadakal Company provided the following schedule of machinery as of January 1, 2017:

Date of Acquisition Machinery Total Cost Residual Value Useful Life

January 1, 2012 A 6,000,000 500,000 11
January 1, 2012 B 2,000,000 200,000 6
January 1, 2012 C 1,000,000 500,000 5
Machinery A was retired on January 1, 2017 and the same is replaced by a machinery with a total cost of
2,500,000 and a residual value of 500,000. The new machinery has a useful life of 3 years. The entity
uses composite method in computing for the depreciation expense.

19. What is the total depreciation expense to be recognized in 2017?

Problem 7: On January 1, 2017, Sana Lagi na Lang Assignment Company purchased a mineral mine for
26,400,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, the entity
will be required by law to restore the land to the original condition at an estimated cost of 2,200,000.
The present value of the estimated restoration cost is 1,800,000. The property can be sold afterwards
for 3,000,000. During 2017, the entity incurred 2,000,000 exploration cost and 1,600,000 development
cost preparing the mine for production. Exploration cost include 500,000 incurred after the entity
demonstrated technical feasibility. Before the technical feasibility, there was a cost of drilling dry holes
amounted to 200,000 which is also included in exploration cost. The entity is using a full cost method in
accounting for exploration cost. Development cost include tangible equipment amounting to 300,000.
The entity removed 80,000 tons of ore and sold 60,000 tons of ore in the current year.

20. What amount of depletion should be included in cost of sale for the current year?
21. Assume that on the beginning of January 1, 2018, there was an additional development cost of
1,000,000 and removable ore are estimated to be 1,200,000 tons at the beginning of 2018, what
is the total amount of depletion if the entity extracted 200,000 tons?

Problem 8: On July 1, 2017, Hindi Ako Mangogopya ng Assignment Company purchased the rights to a
mine for 13, 200,000 of which 1,200,000 was allocable to land. Estimated reserve were 1,500,000 tons.
The entity expects to extract and sell 25,000 tons per month. There was a shutdown of extraction from
July 1, 2018 to June 30 2019. The entity purchased mining equipment on July 1, 2017 for 9,500,000. The
mining equipment has a useful life of 8 years. However, after all the resources is removed, the
equipment will be of no use and will be sold for 500,000.

22. What is the depletion for the year ended 2019?

23. What is the depreciation for 2018?
24. What is the depreciation for 2019?

Problem 9: Sobrang Bawi Company provided the following balances on December 31, 2017:

Wasting asset, at cost 41,000,000

Accumulated Depletion 15,000,000
Capital Liquidated 5,000,000
Retained Earnings 10,000,000
Depletion based on 100,000 units extracted at 30 per unit 3,000,000
Inventory of resource deposit(20,000 units) 2,000,000
25. What is the maximum dividend that can be declared on December 31, 2017?

Problem 10: On December 31, 2017, Kadakal kuna Points Company showed land with a carrying amount
of 10,000,000 and building with cost of 63,000,000 and accumulated depreciation of 18,000,000. The
building has a residual value of 3,000,000 The original useful life of the building is 20 years. The entity
used the revaluation model in accounting for PPE. The fair value of the land on December 31, 2017 is
11,000,000 while the building has a fair value less cost of disposal amounting to 40,000,000 and value in
use amounting to 38,000,000.

On December 31, 2019, the land has a fair value of 12,000,000 and the building revealed a replacement
cost of 70,000,000, residual value of 4,000,000 and a revised useful life of 22 years from the date of
acquisition. Income tax rate is 30%.

26. What is the revaluation surplus on December 31, 2020?

27. What is the depreciation expense for the year ended December 31, 2019?
28. What is the depreciation expense for the year ended December 31, 2020?

Problem 11: SB Company determined that the electronics division is a cash generating unit. The entity
calculated the value in use of the division at 8,000,000 and fair value less cost of disposal at 7,000,000.
The carrying amounts of the assets are building 5,000,000, equipment 3,000,000, inventory 2,000,000
and good will of 1,000,000. The entity also determined that the fair value less cost of disposal of the
building is 4,500,000.

29. What is the impairment loss on equipment?

30. What is the impairment loss on building?

Note: Impairment loss for goodwill shall not be reversed in subsequent period.

Problem 12: Shine Company incurred 1,600,000 of research and development costs to develop a
product for which a patent was granted on January 1, 2017. Legal fees and other costs associated with
registration of the patent totaled 300,000. Research and development cost from the time that a patent
application has been made amounting to 100,000. During the year, the entity paid 450,000 for legal fees
in a successful defense of the patent. The patent has a useful life of 10 years and a legal life of 15 years.

On January 1, 2018, the entity purchased a competing patent for 200,000. The competing patent has 16
years remaining useful life.

On January 1, 2019, a related patent for 200,000 was acquired extending the useful life of the original
patent to 18 years from grant date.

31. What amount should be capitalized as cost of the patent?

32. What is the net amount of the patent as of December 31, 2019?

Problem 13: Paeng Company is planning to sell the business to new interests. The cumulative net
earnings for the past five years amounted to 16,500,000 including expropriation loss of 1,000,000. The
normal rate of return is 20%. The fair value of net assets of the entity at current year end was
10,000,000.

33. What is the acquisition cost if goodwill is measured by capitalizing excess earnings at 25%?
34. What is the acquisition cost if goodwill is measured by capitalizing average annual earnings at
25%?

Problem 14: Ger Company purchased another entity for 9,000,000 cash. The assets and liabilities of
acquire are as follows:

Carrying Amount Fair Value

Cash 1,000,000 1,000,000
Inventory 400,000 500,000
In process R and D 6,000,000 5,000,000
Assembled Workforce 1,100,000 1,200,000
Liabilities 2,500,000 3,000,000
35. What is the goodwill arising from the acquisition?

Problem 15: On January 1, 2015, Marits Company acquired a trademark for 3,000,000. The trademark
has eight years remaining in legal life. It is anticipated that the trademark will be renewed in the future
indefinitely without problem. On December 31, 2015, the trademark is assessed for impairment.
Because of a decline in economy, the trademark is expected to generate cash flows of just 120,000
annually. The useful life of the trademark still extends beyond the foreseeable horizon. The appropriate
discount rate is 6%.

36. What amount should be recognized as impairment loss on trademark for 2015?
37. What amount should be recognized as impairment loss if the renewal of trademark has a
significant cost to the entity?

Problem 16: On January 1, 2012, Marie Company signed a 12-year lease for a building. The entity has an
option to renew the lease for an additional 6-year period on or before January 1, 2016. During January
1, 2015, the entity made substantial improvement to the building. The cost of the improvement was
4,500,000 with an estimated useful life of 10 years. This improvement has a residual value of 500,000.
On December 31, 2015, the entity intended to exercise the renewal option. The entity has taken a full
year depreciation on this improvement.

38. On December 31, 2015, what is the carrying amount of the leasehold improvement?

Problem 18: Celina Company incurred the following research and development cost in the current year:

Materials used in research and development projects 400,000

Equipment acquired that will have alternate future use in future research and 2,000,000
development projects
Depreciation on above equipment 500,000
Personnel cost of persons involved in research and development projects 1,000,000
Consulting fees paid to outsiders for research and development projects 100,000
Indirect cost allocable to research and development projects 200,000
Laboratory research aimed at discovery of new knowledge 750,000
Design of tools, jigs, molds and dies involving new technology 220,000
Quality control during commercial production including routine testing 350,000
Equipment that have no alternate future use 500,000
R&D services performed by Star to Celina Company 250,000
R&D Services performed by Celina to Star Company 200,000
Engineering follow through in the early phase of commercial production 100,000
Routine design of tools, jigs and molds 50,000
39. What amount of research and development expense should be reported in current year?

Note: Internally generated intangible assets shall not be recognized as intangible assets. (e.g
customer list)