OPERTY, PLANT AND EQUIPMENT

1. Determine the cost of the following independent acquisitions of

items of property, plant and equipment:

a. In January 2021, Orient Company entered into a contract to

acquire a new machine for its factory. The machine, which has
a cash price of P285,000, was paid for as follows:

Down payment P 80,000

Notes payable (payable in four equal annual
payments of P50,000 starting 1/1/2022) 200,000
Preference shares of Orient Company,
500 shares, P100 par with a market value
of P110 50,000

b. In January 2021, Occidental Company purchased a new machine

under the following terms:

Down payment P100,000

Non-interest bearing note, payable in annual
installments of P70,000 starting
12/31/2021 280,000

Because of the special nature of the equipment, its cash price

is not readily determinable. The company has an incremental
borrowing rate of 8%.

c. The Coconut Company paid P22,000,000 to acquire land,

buildings, and equipment. At the same time of acquisition,
the company paid P150,000 for an appraisal which revealed
the following values:
Land P10,000,000
Building 12,500,000
 Equipment 2,500,000

d. An equipment with a list price of P1,000,000 was acquired with

the following terms: Trade discount of 10%; 2/10, n/30.
The account was paid at the end of 30 days. The enterprise
has a constructive obligation to dismantle the equipment at
the end of its expected useful life of 8 years. Estimated
dismantling cost is P50,000. The appropriate discount rate is 9%.

e. The Jakarta Company (a VAT-registered company) paid P154,560,

inclusive of 12% value added tax, to buy an equipment. Other
costs incurred relating to this equipment are as follows: Freight
and insurance cost while in transit, P5,000; cost of moving the
equipment into a place at factory, P2,000; fees paid to technician
for testing cost, P1,500; special plumbing fixtures required for
new equipment, P1,800; insurance paid during the first year of
operation, P1,500; maintenance cost incurred during the first
year of operation, P1,500.

2. Uy Company acquired a tract of land on which was located an office

building, a warehouse, and manager's residence for a lump sum of
P49,500,000. The following data were taken relative to these assets.
Appraised Vendor's
Value Orig. Cost
Land P21,875,000 P17,500,000
Office building 20,000,000 18,000,000
Warehouse 9,375,000 10,000,000
Manager's residence 5,000,000 4,500,000
Totals P56,250,000 P50,000,000

Shortly after acquisition, modifications were made on the office

building at a cost of P1,200,000.
 Required:
What costs should be assigned to the land, office building,
warehouse, and manager's residence, respectively?

3. On October 1, 2021, Chang Corporation acquired a machine priced

at P720,000. Payment of this amount may be made within 60 days;
a 10% discount is allowed if cash is paid at the time of purchase.
A contract is signed whereby a down payment of P150,000 is made,
with payments of P25,000 to be made at monthly intervals thereafter
for the next 24 months.

Required:
a. What is the cost of the machine to be recorded at acquisition
date?
b. Assume that there is no known cash price for the machine.
The rate of interest prevailing at that time for similar obligations
is 12%. What is the cost of the machine? Round off present
value factor to 4 decimal places.

4. Planters Company and Producers Company had an exchange of

productive assets. Planters exchanges a building for Producer's
equipment. The following relevant information is available:
Planters Producers
(Building) (Equipment)
Cost of asset exchanged P900,000 P800,000
Accumulated depreciation 540,000 320,000
Fair value of asset exchanged 400,000 350,000
Cash received (paid) 50,000 (50,000)
 Required:
Journal entries to record the exchange in both books. The
transaction cannot be considered as lacking commercial
substance.

5. Black Company and Berry Company had an exchange of productive

assets. Black exchanged a piece of equipment for Berry's equipment.
The following relevant information is available:
Black Co. Berry Co.
Cost of asset exchanged P900,000 P800,000
Accumulated depreciation 540,000 320,000
Fair value of asset exchanged 400,000 350,000
Cash received (paid) 50,000 (50,000)

Required:
Journal entries to record the exchange in both books. The
exchange lacks commercial substance.

6. Abatis Forwarders exchanged a number of used trucks plus cash for

a piece of land that will be used as its parking lot and terminal. The
following information is available for the trucks:

Cost P12,800,000
Accumulated depreciation 4,400,000

The purchasing agent of Abatis Forwarders has had previous dealings

in the second hand markets and has indicated that the trucks' fair
value at this date is P10,000,000. In addition, the company must pay
P340,000 cash for the land.
 Required:
Give the entry in the books of Abatis Forwarders to record the
exchange.

7. Business Processing, Inc. traded its used equipment for a new model.
The old machine had a carrying amount of P32,000 (original cost of
P48,000) and a fair value of P24,000. It was exchanged for a new
model that had a list price of P64,000. A trade-in allowance of
P33,000 was agreed upon on the old machine.

Required:
Give the entry in the books of Business Processing, Inc. to record
this exchange.
 ANSWERS
1
a. Orient Company
Since there are no other accounts stated
which will affect the cost then:
Cash price will be the cost 285,000

b. Occidental Company
Downpayment 100,000
Notes Payable (70,000 x3.3121) 231,847
Cost of the Machine 331,847

c. Coconut Company
Purchase Price 22,000,000
Appraisal Cost 150,000
Total Cost to be Allocated 22,150,000

Allocation:
Land (Allocation Costs x 10,000/25,000) 8,860,000
Building (Allocation Costs x 12,500/25,000) 11,075,000
Equipment (Allocation Costs x 2,500/25,000) 2,215,000

d. Enterprise
Cash Price 882,000
1,000,000 x 90% x 98%
PV of dismantling costs of equipment 25,095
50,000 x 0.5019
Cost of the Machine 907,095

e. Jakarta Company
Purchase Price 138,000
154,560/1.12
Directly Attributable Costs 10,300
5,000 + 2,000 + 1,500 + 1,800
Total Cost 148,300
2. Uy Company
Lump Sum Appraised Value
Land 49,500,000 21,875,000
Office Building 49,500,000 20,000,000
Warehouse 49,500,000 9,375,000
Manager's Residence 49,500,000 5,000,000

3. Chang Corporation
a. Machine Price 720,000
Discount 0.9
Cost of Machine to be Recorded 648,000

b. Down Payment 150,000

Present Value of 24 monthly installments 531,085
25,000 x 21.2434
Total 681,085

4. Planters Company and Producers Company

Planters Company Books Journal Entry
Cash 50,000
Equipment 350,000
Accumulated Depreciation - Building 540,000
Gain on Exchange of Building 40,000
Building 900,000
900,000-540,000=360,000
400,000-360,000=40,000

Producers Company Books Journal Entry

Building 400,000
Accumulated Depreciation - Equipment 320,000
Loss on Exchange of Equipment 130,000
Cash 50,000
Equipment 800,000
800,000-320,000=480,000
480,000-350,000=130,000
5. Black Company and Berry Company
Books of Black Company
Equipment 310,000
Accumulated Depreciation - Building 540,000
Cash 50,000
Building 900,000

Books of Berry Company

Building 530,000
Accumulated Depreciation - Equipment 320,000
Equipment 800,000
Cash 50,000

6. Abatis Forwarders
Land 10,340,000
Accumulated Depreciation - Trucks 4,400,000
Truck 12,800,000
Cash 340,000
Gain on Exchange of Trucks 1,600,000

7. Business Processing, Inc

Equipment 24,000 + 31,000 55,000
Accumulated Depreciation 16,000
Loss on Exchange of Equipment 8,000
Equipment (old) 48,000
Cash (64,000 - 33,000) 31,000
Total Additional
56,250,000 0 19,250,000
56,250,000 1,200,000 18,800,000
56,250,000 0 8,250,000
56,250,000 0 4,400,000