Answer Key of Ppe Recognition Problem

SISC-JPIA PROJECT CPALE TEST BANK
FINANCIAL ACCOUNTING AND REPORTING PROPERTY, PLANT AND EQUIPMENT - RECOGNITION
Item No.: 1 to 50
Reference: Intermediate Accounting 1B 2021 Edition
Author: Zeus Vernon B. Millan
1. Summer Rain Co. has the following assets:
Land sold in the ordinary course of business ₱ 1,000,000

Land used as plant site ₱ 5,000,000
Building under construction to be used as new office ₱ 12,000,000
Building leased out under various operating leases ₱ 6,000,000
Land and building classified as 'held for sale assets' ₱ 5,000,000
Spare parts and minor tools (with average useful life of 1 yr.) ₱ 800,000
Equipment held for rental under various operating leases ₱ 1,200,000
Fixtures used in rendering services ₱ 500,000
Bearer animals ₱ 200,000
Bearer plants ₱ 100,000
How much is classified as property, plant and equipment?

a. 18,800,000
b. 24,800,000
c. 27,900,000
d. 28,200,000
2. Bach Co., a VAT-registered business, acquired a piece of equipment for ₱224,000 on account. The
purchase price is inclusive of 12% VAT. A P4,480 prompt payment discount is available on purchase, but
Bach Co. opted not to take it. Bach Co. also incurred ₱20,000 cost of training the personnel who will be
operating the equipment. Two months after the equipment was installed, Bach Co. decided to redeploy
the equipment to another location. Bach Co. incurred ₱30,000 in the relocation and reinstallation.
The cost of the equipment is:

a. 245,520
b. 230,000
c. 204,480
d. 195,520
3. Overtime Co. acquired a new printing press machine for ₱12,000,000. Overtime Co. incurred the
following additional costs:
Freight ₱ 250,000
Transit Insurance ₱ 20,000
Special foundation for the machine ₱ 50,000
Assembling and installation ₱ 280,000
Testing ₱ 30,000
Dismantling and removal of old printing press ₱ 60,000
● Materials salvaged from the trial runs were sold for ₱3,000.
● Overtime Co's old printing press machine needed to be removed before the new machine was
installed. Materials (electrical wirings, steel bars, iron plates, and wood from the old platform)
salvaged from the removal of the old machine were sold for ₱5,000. The old printing press
machine has a second-hand value of ₱1,400,000. An advertisement, costing ₱1,000, was placed
in a local newspaper for the sale of the old machine.
How much is capitalized as the cost of the new machine?

a. 12,627,000
b. 12,630,000
c. 12,690,000
d. 12,685,000
4. Cider Co. acquired a piece of land and an old building for ₱5,850,000. Cider intends to use the vacant
space adjacent to the old building as plant site but will continue to use the old building after renovation.
The professional appraiser hired by Cider Co. appraised the land at ₱5,000,000 and the old building at
₱1,000,000. Information on costs is as follows:
Appraisal fee ₱ 150,000

Renovation costs of old building ₱ 500,000
Plans and specifications for new building ₱ 2,900,000
A Project launched by SISC-JPIA under the guidance of Jason G. Bugatan, BSA Program Coordinator 1 | Page
Construction materials and supplies for new building ₱ 11,000,000

Labor on construction ₱ 6,500,000
Excavation of footings ₱ 1,000,000
Structural works ₱ 1,200,000
Supervision by management, including clerical works ₱ 100,000
Uninsured injury claims during construction ₱ 30,000
Subcontracted works on new building’s finishing ₱ 5,000,000
Savings on self-construction ₱ 200,000
Imputed interest on Cider Co’s own funds used in construction ₱ 80,000
Cider Co. assessed that the appraisal does not provide future economic benefits. How much are the
allocated costs of the following assets?
Land Old building New building
a. 4,875,000 1,475,000 27,620,000
b. 5,000,000 1,500,000 27,700,000
c. 4,875,000 1,475,000 27,700,000
d. 5,000,000 1,500,000 27,780,000
5. Palawan Co. acquired a piece of land to be used as plant site for ₱4,000,000. An old building on the
property was demolished and the construction of a new building was started. The fair value of adjacent
lots with similar size and terrain but without an old building is ₱3,600,000. The fair value of the old building
is not readily determinable. However, Palawan Co. believes that the excess of the lump. sum purchase
price over the fair value of the land would reasonably approximate the fair value of the old building.
Palawan Co. incurred the following additional costs:
Legal fees on the transfer of title over the property ₱ 180,000

Demolition of old building ₱ 50,000
Survey ₱ 25,000
Architectural and consultancy fees ₱ 260,000
Building and occupancy permits ₱ 120,000
Contract price on construction of new bldg. (completed) ₱ 9,000,000
Fees on application for electricity and water connections ₱ 80,000
Real property tax after occupancy ₱ 40,000
Utilities paid after occupancy ₱ 12,000
Wi-Fi connection (Globe broadband) ₱ 2,800
Internet fees after occupancy ₱ 16,000
Salvaged materials resulting from demolition were sold for ₱10,000. The costs of the land and the new
building, respectively are:
a. 3,805,000; 9,500,000 c. 3,845,000; 9,460,000
b. 3,805,000; 9,900,000 d. 4,205,000; 9,500,000
6. Sebastian Co. acquired a piece of equipment. The invoice price was ₱2,500,000 subject to a prompt
discount of 3% which is not taken. Installation costs amounted to ₱50,000. Legislation requires Sebastian
Co. to decommission the asset at the end of the asset's useful life of 10 years. Sebastian Co. estimated
that the decommissioning activities would cost ₱200,000. The appropriate discount rate on initial
recognition was 12%. How much is the initial cost of the equipment?
a. 2,550,000 b. 2,539,395 c. 2,614,395 d. 2,750,000
Use the following information for questions 7 and 8:

Liempo Co. exchanged equipment with Monggo Co. Information on the assets exchanged is as follows:
____________________________________________________________________________________
________Equipment_______________Carrying Amount______________Fair Value______________
- relinquished by Liempo 3,500,000 1,875,000
- relinquished by Monggo 1,200,000 1,000,000
Monggo paid Liempo an additional cash of ₱700,000.
7. If the exchange transaction has commercial substance, what amounts are recognized in Liempo and
Monggo's books for (1) the equipment received and (2) the gain (loss) on the exchange?
Liempo’s books Monggo’s books

a. 300,000; (1,125,000) 1,175,000; (200,000)
b. 1,175,000; 0 1,700,000; 0
c. 1,175,000; (1,625,000) 1,700,000; (200,000)
d. 2,575,000; (1,625,000) 300,000; (200,000)
8. If the exchange transaction has no commercial substance, what amounts are recognized in Liempo
and Mongo's books for (1) the equipment received and (2) the gain (loss) on the exchange?
Liempo’s books Monggo’s books
a. 2,800,000; 0 1,900,000; 0
b. 1,175,000; 0 1,700,000; 0
c. 4,200,000; 0 500,000; 0
d. 2,800,000; (1,125,000) 1,900,000; (200,000)
9. Rub Co. exchanged equipment with Liniment Co. Rub’s equipment has a historical cost of ₱100,000
and an accumulated depreciation of ₱70,000. The fair value of Rub’s equipment cannot be determined
reliably. The equipment received from Liniment has a fair value of P40,000. Rub paid Liniment ₱8,000.
The exchange has commercial substance. What amounts are recognized in Rub's books for (1) the
equipment received and (2) the gain (loss) on the exchange?
a. 40,000; 2,000 c. 48,000; (10,000)
b. 40,000; 10,000 d. 48,000; 2,000

Seiler Co. purchased land as a factory site for ₱600,000. Seiler paid ₱60,000 to tear down two buildings
on the land. Salvage was sold for ₱5,400. Legal fees of ₱3,480 were paid for title investigation and
making the purchase. Architect’s fees were ₱31,200. Title insurance cost ₱2,400, and liability insurance
during construction cost ₱2,600. Excavation cost ₱10,440. The contractor was paid ₱2,200,000. An
assessment made by the city for pavement was ₱6,400. Interest costs during construction were
₱170,000.
10. The cost of the land that should be recorded by Seiler Co. is
a. ₱660,480
b. ₱612,280
c. ₱666,880
d. ₱676,280
11. The cost of the building that should be recorded by Seiler Co. is
a. ₱2,403,800
b. ₱2,404,840
c. ₱2,414,240
d. ₱2,468,840
12. On February 1, 20x1, Morgan Corporation purchased a parcel of land as a factory site for ₱200,000.
An old building on the property was demolished, and construction began on a new building which was
completed on November 1, 20x1. Costs incurred during this period are listed below:

Architect’s fees ₱ 35,000
Legal fees for title investigation and purchase contract ₱ 5,000
Construction costs ₱ 1,090,000
(Salvaged materials resulting from demolition were sold for ₱10,000)
Morgan should record the cost of the land and new building, respectively, as
a. ₱205,000 and ₱1,135,000
b. ₱210,000 and ₱1,130,000
c. ₱210,000 and ₱1,125,000
d. ₱215,000 and ₱1,125,000
13. Tyson Chandler Company purchased equipment for ₱10,000. Sales tax on the purchase was ₱500.
Other costs incurred were freight charges of ₱200, repairs of ₱350 for damage during installation, and
installation costs of ₱225. What is the cost of equipment?
a. ₱10,000
b. ₱10,500
c. ₱10,925
d. ₱11,275
14. Carpenter Company purchased equipment for ₱12,000. Sales tax on the purchase was ₱600. Other
costs incurred were freight charges of ₱240, repairs of ₱420 for damage during installation, and
installation costs of ₱270. What is the cost of the equipment?
a. ₱12,000
b. ₱12,600
c. ₱13,110
d. ₱13,530
15. During self-construction of an asset by Jannero Pargo Company, the following were among the costs
incurred:
Fixed overhead for the year ₱ 1,000,000
Portion of ₱1,000,000 fixed overhead that would be
allocated to asset if it were normal production ₱ 40,000
Variable overhead attributable to self-construction ₱ 35,000
What amount of overhead should be included in the cost of the self-constructed asset?
a. ₱0
b. ₱35,000
c. ₱40,000
d. ₱75,000
16. During self-construction of an asset by Mitchellson Company, the following were among the costs
incurred:
Fixed overhead for the year ₱ 1,000,000
What amount of overhead should be included in the cost of the self-constructed asset?
a. ₱0
b. ₱55,000
c. ₱60,000
d. ₱115,000
17. On December 1, Wynne Corporation exchanged 2,000 shares of its ₱25 par value common stock
held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by
Wynne at a cost of ₱40 per share, and on the exchange date the common shares of Wynne had a fair
market value of ₱50 per share. Wynne received ₱6,000 for selling scrap when an existing building on the
property was removed from the site. Based on these facts, the land should be capitalized at
a. ₱74,000
b. ₱80,000
c. ₱94,000
d. ₱100,000
18. Carly Corporation purchased a new machine on October 31, 20x1. A ₱1,200 down payment was
made and three monthly installments of ₱3,600 each are to be made beginning on November 30, 20x1.
The cash price would have been ₱11,600. Carly paid no installation charges under the monthly payment
plan but a ₱200 installation charge would have been incurred with a cash purchase. The amount to be
capitalized as the cost of the machine on October 31, 20x1 would be
a. ₱12,200
b. ₱12,000
c. ₱11,800
d. ₱11,600
19. Taylor Company buys a delivery van with a list price of ₱30,000. The dealer grants a 15% reduction in
list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes
amount to ₱400 and the company paid an extra ₱300 to have a special horn installed. What should be the
recorded cost of the van?
a. ₱24,990
b. ₱25,645
c. ₱25,690
d. ₱25,390
20. On August 1, 20x1, Limon Corporation purchased a new machine on a deferred payment basis. A
down payment of ₱3,000 was made and 4 monthly installments of ₱2,500 each are to be made beginning
on September 1, 20x1. The cash equivalent price of the machine was ₱12,000. Limon incurred and paid
installation costs amounting to ₱500. The amount to be capitalized as the cost of the machine is
a. ₱12,000
b. ₱12,500
c. ₱13,000
d. ₱13,500
21. On April 1, Renner Corporation purchased for ₱855,000 a tract of land on which was located a
warehouse and office building. The following data were collected concerning the property:
Current Assessed Valuation Vendor’s Original Cost
Land ₱300,000 ₱280,000
Warehouse ₱200,000 ₱180,000
Office Building ₱400,000 ₱340,000
₱900,000 ₱800,000
What are the appropriate amounts that Renner should record for the land, warehouse, and office building,
respectively?
a. Land, ₱280,000; warehouse, ₱180,000; office building, ₱340,000
b. Land, ₱300,000; warehouse, ₱200,000; office building, ₱400,000
c. Land, ₱300,000; warehouse, ₱192,375; office building, ₱363,375
d. Land, ₱285,000; warehouse, ₱190,000; office building, ₱380,000
22. On August 1, 20x1, Tanner Corporation purchased a new machine on a deferred payment basis. A
down payment of ₱2,000 was made and 4 annual installments of ₱6,000 each are to be made beginning
on September 1, 20x1. The cash equivalent price of the machine was ₱23,000. Due to an employee
strike, Tanner could not install the machine immediately, and thus incurred ₱300 of storage costs. Costs
of installation (excluding the storage costs) amounted to ₱800. The amount to be capitalized as the cost
of the machine is
a. ₱23,000
b. ₱23,800
c. ₱24,100
d. ₱26,000
23. On January 2, 20x1, Quick Delivery Company traded in an old delivery truck for a newer model. The
exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original Cost ₱ 24,000
Accumulated depreciation as of January 2, 20x1 ₱ 16,000
Average published retail value ₱ 7,000
New Truck
List Price ₱ 40,000
Cash price without trade-in ₱ 36,000
Cash paid with trade-in ₱ 30,000
What should be the cost of the new truck for financial accounting purposes?
a. ₱30,000
b. ₱36,000
c. ₱38,000
d. ₱40,000
24. On December 1, 20x1, Fiene Company acquired a new delivery truck in exchange for an old delivery
truck that it had acquired in 20x8. The old truck was purchased for ₱35,000 and had a book value of
₱13,300. On the date of the exchange, the old truck had a market value of ₱14,000. In addition, Fiene
paid ₱45,500 cash for the new truck, which had a list price of ₱63,000. The exchange lacked commercial
substance. At what amount should Fiene record the new truck for financial accounting purposes?
a. ₱45,500
b. ₱58,800
c. ₱59,500
d. ₱63,000

A machine costs ₱120,000, has annual depreciation of ₱20,000, and has accumulated depreciation of
₱95,000 on December 31, 20x0. On April 1, 20x1, when the machine has a market value of ₱27,500, it is
exchanged for a machine with a fair value of ₱135,000 and the proper amount of cash is paid. The
exchange lacked commercial substance.
25. The gain to be recorded on the exchange is

a. ₱0
b. ₱2,500 gain
c. ₱5,000 gain
d. ₱15,000 gain
26. The new machine should be recorded at

a. ₱107,500
b. ₱122,500
c. ₱132,500
d. ₱135,000
27. Jeter Company purchased a new machine on May 1, 2021, for ₱176,000. At the time of acquisition,
the machine was estimated to have a useful life of ten years and an estimated salvage value of ₱8,000.
The company has recorded monthly depreciation using the straight-line method. On March 1, 2030, the
machine was sold for ₱24,000. What should be the loss recognized from the sale of the machine?
a. ₱0
b. ₱3,600
c. ₱8,000
d. ₱11,600
28. On January 1, 2021, Hite Corporation purchased for ₱152,000, equipment having a useful life of ten
years and an estimated salvage value of ₱8,000. Hite has recorded monthly depreciation of the
equipment on the straight-line method. On December 31, 2029, the equipment was sold for ₱28,000. As a
result of this sale, Hite should recognize a gain of
a. ₱0
b. ₱5,600
c. ₱13,600
d. ₱28,000
Use the following information for questions 29 through 31:

Two independent companies, Mintz Co. and Pine Co., are in the home building business. Each owns a
tract of land held for development, but each would prefer to build on the other's land. They agree to
exchange their land. An appraiser was hired, and from her report and the companies' records, the
following information was obtained:
Mintz’s Land Pine’s Land
Cost and book value ₱192,000 ₱120,000
Fair value based upon appraisal ₱240,000 ₱210,000
The exchange was made, and based on the difference in appraised fair value, Pine paid ₱30,000 to
Mintz. The exchange lacked commercial substance.
29. For financial reporting purposes, Mintz should recognize a pre-tax gain on this exchange of
a. ₱0
b. ₱6,000
c. ₱30,000
d. ₱48,000
30. The new land should be recorded on Mintz’s books at

a. ₱168,000
b. ₱192,000
c. ₱210,000
d. ₱240,000
31. The new land should be recorded on Pine’s books at

a. ₱120,000
b. ₱150,000
c. ₱210,000
d. ₱240,000
32. During the year, Ewing company exchanged an old packing machine, which cost ₱1,200,000 and was
50% depreciated, for another used machine and paid a cash difference of 160,000. The fair value of the
old packaging machine was determined to be ₱700,000. What is the cost of the machine acquired in the
exchange?
a. ₱860,000
b. ₱700,000
c. ₱760,000
d. ₱540,000
33. Noach Company traded machinery with a book value of ₱190,000 and a fair value of ₱180,000. It
received in exchange from Hinrich Company a machine with a fair value of ₱200,000. Noach also paid
cash of ₱20,000 in the exchange. Hinrich’s machine has a book value of ₱190,000. What amount of gain
or loss should Noach recognize on the exchange?
a. ₱20,000 gain
b. ₱0
c. ₱1,000 loss
d. ₱10,000 loss
34. Caine Company exchanged a car from inventory for a computer to be used as a long-term asset. The
following information relates to this exhange:
Carrying amount of the car 600,000
List selling price of the car 900,000
Fair value of the computer 860,000
Cash difference paid by Caine 100,000
What amount of gain should be recognized in the exchange

a. ₱260,000
b. ₱160,000
c. ₱200,000
d. ₱0
35. Keach Company traded machinery with a book value of ₱285,000 and a fair value of ₱270,000. It
received in exchange from Marlin Company a machine with a fair value of ₱300,000. Keach also paid
cash of ₱30,000 in the exchange. Marlin’s machine has a book value of ₱285,000. What amount of gain
or loss should Keach recognize on the exchange?
a. ₱30,000 gain
b. ₱0
c. ₱1,500 loss
d. ₱15,000 loss
36. On December 1, 20x1, Logan Co. purchased a tract of land as a factory site for ₱800,000. The old
building on the property was razed, and salvaged materials resulting from demolition were sold. Additional
costs incurred and salvage proceeds realized during December 20x1 were as follows:
Cost to raze old building ₱ 70,000

Legal fees for purchase contract and to record ownership ₱ 10,000
Title guarantee insurance ₱ 16,000
Proceeds from sale of salvaged materials ₱ 8,000
In Logan’s December 31, 20x1 balance sheet, what amount should be reported as land?
a. ₱826,000
b. ₱862,000
c. ₱888,000
d. ₱896,000
37. On September 10, 20x1, Flint Co. incurred the following costs for one of its printing presses:
Purchase of attachment ₱ 55,000

Installation of attachment ₱ 5,000
Replacement parts for renovation of press ₱ 18,000
Labor and overhead in connection with renovation of press ₱ 7,000
Neither the attachment nor the renovation increased the estimated useful life of the press. However, the
renovation resulted in significantly increased productivity. What amount of the costs should be
capitalized?
a. ₱0
b. ₱67,000
c. ₱78,000
d. ₱85,000

Aliaga Corporation was incorporated on January 2, 20x1. The following items relate to the Aliaga’s
property and equipment transactions:
Cost of land, which included an old apartment building

appraised at ₱300,000 ₱ 3,000,000
Apartment building mortgage assumed, including related
interest due at the time of purchase ₱ 80,000
Delinquent property taxes assumed by the Aliaga ₱ 30,000
Payments to tenants to vacate the apartment building ₱ 20,000
Cost of razing the apartment building ₱ 40,000
Proceeds from sale of salvaged materials ₱ 10,000
Architects fee for new building ₱ 60,000
Building permit for new construction ₱ 40,000
Fee for title search ₱ 25,000
Survey before construction of new building ₱ 20,000
Excavation before construction of new building ₱ 100,000
Payment to building contractor ₱ 10,000,000
Assessment by city for drainage project ₱ 15,000
Cost of grading and leveling ₱ 50,000
Temporary quarters for construction crew ₱ 80,000
Temporary building to house tools and materials ₱ 50,000
Cost of changes during construction to make new building
more energy efficient ₱ 90,000
Interest cost on specific borrowing incurred during construction ₱ 360,000
Payment of medical bills of employees accidentally injured
while inspecting building construction ₱ 18,000
Cost of paving driveway and parking lot ₱ 60,000
Cost of installing lights in parking lot ₱ 12,000
Premium for insurance on building during construction ₱ 30,000
Cost of open house party to celebrate opening of new building ₱ 50,000
Cost of windows broken by vandals distracted by the celebration ₱ 12,000
Based on the information above determine the following:
38. Cost of land

a. ₱2,980,000 c. ₱3,185,000
b. ₱3,270,000 d. ₱3,205,000
39. Cost of building

a. ₱10,860,000 c. ₱10,875,000
b. ₱10,895,000 d. ₱11,110,000
40, Cost of land improvements

a. ₱12,000 c. ₱122,000
b. ₱72,000 d. ₱0
41. The amount that should be expensed when incurred

a. ₱80,000 c. ₱62,000
b. ₱110,000 d. ₱50,000
42. Total depreciable property and equipment

a. ₱11,182,000 c. ₱10,947,500
b. ₱10,967,000 d. ₱10,882,000
43. The following items relate to the acquisition of a new machine by Bongabon Corporation in 20x1:
Invoice price of machinery ₱ 2,000,000

Cash discount not taken ₱ 40,000
Freight on new machine ₱ 10,000
Cost of removing the old machine ₱ 12,000
Loss on disposal of the old machine ₱ 150,000
Gratuity paid to operator of the old machine who was laid off ₱ 70,000
Installation cost of new machine ₱ 60,000
Repair cost of new machine damaged in the process of installation ₱ 8,000
Testing costs before machine was put into regular operation ₱ 15,000
Salary of engineer for the duration of the trial run ₱ 40,000
Operating cost during first month of regular use ₱ 250,000
Cash allowance granted because the new machine proved
to be of inferior quality ₱ 100,000
How much should be recognized as the cost of the new machine?

a. ₱1,985,000 c. ₱1,930,000
b. ₱1,993,000 d. ₱2,025,000

On January 1, 20x1, Cabiao Corporation purchased a tract of land (site number 101) with a building for
₱1,800,000. Additionally, Cabiao paid a real estate broker’s commission of ₱108,000, legal fees of
P18,000 and title guarantee insurance of ₱54,000. The closing statement indicated that the land value
was ₱1,500,000 and the building value was ₱300,000. Shortly after acquisition, the building was razed at
a cost of ₱225,000.
Cabiao entered into a ₱9,000,000 fixed-price contract with Cabanatuan Builders, Inc. on March 1, 20x1
for the construction of an office building on the land site 101. The building was completed and occupied
on September 30, 20x2. Additional construction costs were incurred as follows:
Plans, specifications and blueprints ₱ 36,000

Architect’s fees for design and supervision ₱ 285,000
The building is estimated to have a forty-year life from date of completion and will be depreciated using
the 150% declining balance method.
To finance the construction cost, Cabiao borrowed ₱9,000,000 on March 1, 20x1. The loan is payable in
ten annual installments of ₱900,000 plus interest at the rate of 14%. Cabiao used part of the loan
proceeds for working capital requirements. Cabio’s average amounts of accumulated building
construction expenditures were as follows:
For the period March 1 to December 31, 20x1 ₱ 2,700,000

For the period January 1 to September 31, 20x2 ₱ 6,900,000
Cabio is using the allowed alternative treatment for borrowing cost.
Based on the information above, determine the following:
44. Cost of land site number 101

a. ₱1,980,000 c. ₱2,205,000
b. ₱1,800,000 d. ₱2,151,000
45. Cost of office building

a. ₱10,585,500 c. ₱10,329,000
b. ₱10,360,500 d. ₱10,960,500

In connection with your audit of Cuyapo Company’s financial statements for the year 20x1, you noted the
following transactions affecting the property and equipment items of the company:
Jan. 1 Purchased real property for ₱5,026,000, which included a charge of ₱146,000
representing property tax for 20x1 that had been prepaid by the vendor;
20% of the purchase price is deemed applicable to land and the balance to
buildings. A mortgage of ₱3,000,000 was assumed by Cuyapo on the
purchase. Cash was paid for the balance
Jan. 15 Previous owners had failed to take care of normal maintenance and repair req-
-uirements on the buildings, necessitating current reconditioning at a cost of
₱236,800.
Feb. 15 Demolished garages in the rear of the building, ₱36,000 being recovered on the
lumber salvage. The company proceeded to construct a warehouse. The cost of
such warehouse was ₱540,800, which was ₱90,000 less than the average bids
made on the construction by independent contractors. Upon completion of cons-
truction, city inspectors ordered extensive modifications to the building as a result
of failure on the part of the company to comply with building safety code. Such
modifications, which could have been avoided, cost ₱76,800.
Mar. 1 The company exchanged its own stock with a fair value of ₱320,000 (par
₱24,000) for a patient and new equipment. The equipment has a
fair value of ₱200,000.
Apri. 1 The new machinery for the new building arrived. In addition, a new franchise was
acquired from the manufacturer of the machinery. Payment was made by issuing
bonds with a face value of ₱400,000 and by paying cash of ₱144,000.
The value
of the franchise is set at ₱160,000, while the machine’s fair value is ₱360,000.
May 1 The company contracted for parking lots and waiting sheds at a cost of ₱360,000
and ₱76,800, respectively. The work was completed and paid for on June 1.
Dec 31 The business was closed to permit taking the year-end inventory. During this time
required redecorating and repairs were completed at a cost of ₱60,000.
Based on the information above determine the following:
46. Cost of land

a. ₱940,000
b. ₱1,005,200
c. ₱976,000
d. ₱1,052,800
47 Cost of building
a. ₱4,645,600
b. ₱5,005,600
c. ₱4,762,400
d. ₱4,681,600
48. Machinery and equipment

a. ₱360,000
b. ₱560,000
c. ₱576,615
d. ₱659,692
49. Land improvements

a. ₱360,000
b. ₱76,800
c. ₱436,800
d. ₱0
50. Total property, plant, and equipment

a. ₱6,764,400
b. ₱6,731,200
c. ₱6,718,092
d. ₱6,618,400
Answer Key
1. A
Solution:
Land used as plant site ₱ 5,000,000
Building under construction to be used as new office ₱ 12,000,000
Equipment held for rental under various operating leases ₱ 1,200,000
Fixtures used in rendering services ₱ 500,000
Bearer plants ₱ 100,000
Total PPE ₱ 18,800,000
2. D
Solution:
Purchase price inclusive of VAT ₱224,000
Divided by: 112%
Purchase price exclusive of VAT ₱200,000
Cash/Prompt discount (₱4,480)
Cost of equipment ₱195,520
3. A
Solution:
Purchase price ₱12,000,000
Freight ₱250,000
Transit insurance ₱20,000
Special foundation for the machine ₱50,000
Assembling and installation ₱280,000
Testing ₱30,000
Salvaged materials from trial runs (₱3,000)
Cost of New Machine ₱12,627,000
4. C
Solution:
____________________________________________________________________________________
________________________________Land______Old Bldg._____New Bldg.______Others________
Lump-sum price 4,875,000
[5.85M x (⅚); (⅙)] 0 975,000
Appraisal fee expensed
Renovation costs 500,000
Plans and spec. 2,900,000
Construction mats. 11,000,000
Labor 6,500,000
Excavation 1,000,000
Structural works 1,200,000

Supervision 100,000
Injury Claims expensed
Subcontracted 5,000,000
Savings ignored
Imputed interest ignored
Allocated Costs 4,875,000 1,475,000 27,700,000
Appraisal fees do not normally meet the asset recognition criteria under the PFRS. It should be noted
though that the Internal Revenue Service (IRS) in the U.S. requires the capitalization of appraisal fees as
cost of the appraised property for taxation purposes.This, however, does not mean that appraisal fees
should also be capitalized as cost of PPE for financial reporting purposes.
5. A
Solution:
____________________________________________________________________________________
________________________________Land______Old Bldg._____New Bldg.______Others________
Lump-sum price 3,600,000
(3.6M); (4M - 3.6M) 0 400,000
Legal fees 180,000
Demolition 50,000
Survey 25,000
Architectural 260,000
Bldg. permit 120,000
Price of new bldg. 9,000,000
Elec. and water 80,000
Real property tax expensed
Utilities expensed
Wi-Fi connection expensed
internet fees expensed
Salvaged materials (10,000)
Allocated Costs 3,805,000 400,000 9,500,000
The allocated cost of the old building is charged as loss.
6. B
Solution:
Invoice price ₱2,500,000
Multiply: Prompt Discount (3%) 97%
installation costs ₱ 50,000
Decommissioning act. cost ₱ 200,000
Multiply: PV of 1 @12%, n=10) 0.3220
Initial Cost of the
equipment ₱2,539,395
7. C
Solution:
Liempo:
1) Equipment received: (1,875,000 – 700,000) = 1,175,000
2) Gain (loss) on exchange: (1,875,000 – 3,500,000) = (1,625,000)
Monggo:
1) Equipment received: (1,000,000 + 700,000) = 1,700,000
2) Gain (loss) on exchange: (1,000,000 – 1,200,000) = (200,000)
8. A
Solution:
Liempo:
1) Equipment received: (3,500,000 – 700,000) = 2,800,000
2) Gain (loss) on exchange: 0
Monggo:
1) Equipment received: (1,200,000 + 700,000) = 1,900,000
2) Gain (loss) on exchange: 0
9. A
Solution:
1) Equipment received: 40,000, the fair value of the asset received
2) Gain (loss) on exchange:
Date Equipment – new (FV of asset 40,000
received) 70,000
Accumulated depreciation 100,000
Equipment - old 8,000
Cash 2,000
Gain on exchange (squeeze)
10. B
Solution:
Cost of land ₱ 600,000
Legal fees ₱ 3,480
Title insurance ₱ 2,400
Assessment made by the city for pavement ₱ 6,400
11. D
Solution:
Demolition cost ₱ 60,000
Salvage cost ( ₱ 5,400)
Liability insurance ₱ 2,600
Excavation cost ₱ 10,440
Interest costs during construction ₱ 170,000
Cost of building ₱ 2,468,840
12. D
Solution:
Land
Legal fees for title investigation and purchase contract ₱ 5,000
Cost of Land ₱ 205,000
Building
Salvaged materials ( ₱ 10,000)
Construction costs ₱ 1,090,000
Cost of Building ₱ 1,135,000
13. C
Solution:
Purchase equipment ₱ 10,000
Sales tax on the purchase ₱ 500
Freight ₱ 200
Installation cost ₱ 225
Cost of equipment ₱ 10,925
14. C
Solution:
Purchase equipment ₱ 12,000
Sales tax on the purchase ₱ 600
Freight ₱ 240
Installation cost ₱ 270
Cost of equipment ₱ 13,110
15. D
Solution:
Cost of self-constructed asset ₱ 75,000
16. D
Solution:
Cost of self-constructed asset ₱ 115,000
17.C
Solution:
Shares of ₱25 par value common stock 2,000
Multiply:Fair market value ₱ 50
Scrap sold when an existing building on the property
was removed from the site ₱ 6,000
Capitalized land cost ₱ 94,000
18 C
Solution:
Cash price ₱ 11,600
Installation charge ₱ 200
Cost of the machine on October 31, 20x1 ₱ 11,800
19. C
Solution:
List price ₱ 30,000
Multiply: 15% reduction .85
Multiply: 2% addt. cash discount .98
Sales taxes ₱ 400
Installation Cost ₱ 300
Cost of van ₱ 25,690
20. B
Solution:
Cash equivalent price of machine ₱ 12,000
Installation costs ₱ 500
Cost of machine ₱ 12,500
21. D
Solution:
Land:
Fraction 30/90
Tract of Land ₱855,000
Cost of Land ₱285,000

Warehouse:
Fraction 20/90
Cost of Warehouse ₱190,000
Office Building:
Fraction 40/90
Cost of Office Building ₱380,000
22. B
Solution:
Cash equivalent price of machine ₱ 23,000
Installation costs ₱ 800
23. B
Solution:
Fair market value of new truck ₱ 36,000
Cash Price without Trade In ₱ 36,000

Cash paid with Trade In ( ₱ 30,000)
List price less Cash Price without Trade In ( ₱ 4,000)
Loss: ₱ 2,000
New Machine:
Original Cost less Accu. Dep of Jan 2, 20x1 ₱ 8,000
Cash paid with Trade In ₱ 30,000
( ₱ 2,000)
New machine (cost of new truck) ₱ 36,000
24. B
Solution:
Book Value of Old Truck ₱ 13,300
Cost of New Truck ₱ 45,500
New Truck ₱ 58,800
25. A
Answer:
$0, gain on exchange of similar assets when the cash is paid.
26. C
Solution:
Accumulated Depreciation ₱ 95,000
₱ 25,000
Market Value of the machine ₱ 27,500
₱ 25,000
Gain to be recorded ₱ 2,500
Fair Value of machine ₱ 135,000

Gain to be recorded ₱ 2,500
New machine to be recorded ₱ 132,500
27. B
Solution:
Machine Cost (5/01/21) ₱ 176,000
Less: Salvage value of machine ₱ 8,000
₱ 168,000
Divided by: Useful life of 10 years x 12 120
₱ 1,400 per month
Machine Cost (3/01/30) ₱ 24,000

Less:
Machine Cost (5/01/21) ( ₱ 176,000)

Less: Accumulated Depreciation of ₱ 1,400 x 106 months ( ₱ 148,400) ₱ 27,600
Loss recognized from the sale of the machine (₱ 3,600)
28. B
Solution:
Equipment Cost (01/01/21) ₱ 152,000
Less: Salvage value of equipment ₱ 8,000
₱ 144,000
Divided by: Useful life of 10 years x 12 120
₱ 1,200 per month
Equipment Cost (12/31/29) ₱ 28,000

Less:
Equipment Cost (01/01/21) ( ₱ 152,000)
Less: Accumulated Depreciation of ₱ 1,200 x 108 months ( ₱ 129,600) ₱ 22,400
Gain recognized from the sale of the equipment ₱ 5,600
29. B
Solution:
Payment to Mintz ₱ 30,000
Divided by: (Payment + Fair Value Pines Land) ₱ 240,000
.125
Multiply: (Fair Value - Cost and Book Value) Mintz’s Land ₱ 48,000
Pre-tax gain ₱ 6,000
30. A
Solution:
Fair Value of Pine’s Land ₱ 210,000
48,000 less pre-tax gain ( ₱ 42,000)
New land on Mint’z books ₱ 168,000
31. B
Solution:
Cost and Book Value of Pine’s Land ₱ 120,000
Exchange cost ₱ 30,000
New land on Pine’s books ₱ 150,000
32. A
Solution:
Fair value of old machine ₱ 700,000
Add: Cash Payment ₱160,000
Cost of new machine ₱ 860,000
33. D
Solution:
Fair value of Noach Company ₱ 180,000
Book value of Hinrich’s Machine ( ₱ 190,000)
Gain/Loss recognized, Noach’s Company ( ₱ 10,000
34. B
Solution:
Fair value of computer ₱ 860,000
Less: Cash paid by Caine ( ₱ 100,000)
Fair value of car - asset given ₱ 760,000
Less: Carrying amount of car ₱ 600,000
Gain on exchange ₱ 160,000
35.D
Solution:
Fair value of Keach Company ₱ 270,000
Book value of Keach Company ₱ 285,000

Gain/Loss recognized, Keach Company (₱ 15,000)
36.C
Solution:
Tract of land ₱ 800,000
Cost to raze old building ₱ 70,000
Legal fees for purchase contract and to record ownership ₱ 10,000
Proceeds from sale of salvaged materials ( ₱ 8,000)
Land ₱ 888,000
37.D
Solution:
Purchase of attachment ₱ 55,000
Installation of attachment ₱ 5,000
Replacement parts for renovation of press ₱ 18,000
Labor and overhead in connection with renovation of press ₱ 7,000
Capitalized Cost ₱ 85,000
38.B
Solution:
Cost of land ₱ 3,000,000
Apartment building mortgage assumed, including
related interest due at the time of purchase ₱ 80,000
Delinquent property taxes assumed by the Aliaga ₱ 30,000
Proceeds from sale of salvaged materials (₱10,000)
Fee for title search ₱ 25,000
Survey before construction of new building ₱ 20,000
Assessment by city for drainage project ₱ 15,000
Cost of grading and leveling ₱ 50,000
Total cost of Land ₱ 3,270,000
39.A
Solution:
Architects fee for new building ₱ 60,000
Building permit for new construction ₱ 40,000
Excavation before construction of new building ₱ 100,000
Temporary quarters for construction crew ₱ 80,000
Temporary building to house tools and materials ₱ 50,000
Cost of changes during construction to make new
building more energy efficient ₱ 90,000
Interest cost on specific borrowing incurred during construction ₱ 360,000
Proceeds from sale of salvaged materials ( ₱ 10,000)
Premium for insurance on building during construction ₱ 30,000
Total cost of Building ₱ 10,860,000
40.B
Solution:
Cost of paving driveway and parking lot ₱ 60,000
Cost of installing lights in parking lot ₱ 12,000
Total cost of Land Improvements ₱ 72,000
41.A
Solution:
Payment of medical bills of employees ₱ 18,000
Cost of open house party ₱ 50,000
Cost of windows broken by vandals ₱ 12,000
Total cost amount that should be expensed ₱ 80,000
42.D
Solution:
Building (see no. 39) ₱ 10,810,000

Land improvements (see no. 40) ₱ 72,000
Total depreciable PPE ₱ 10,882,000
43.A
Solution:
Invoice price of machinery ₱ 2,000,000
Cash discount not taken (₱ 40,000)
Freight on new machine ₱ 10,000
Installation cost of new machine ₱ 60,000
Testing costs ₱ 15,000
Salary of engineer for the duration of the trial run ₱ 40,000
Cash allowance (₱100,000)
Cost of the new machine ₱ 1,985,000
44. A
Solution:
Acquisition cost ₱ 1,800,000
Real estate broker's commission ₱ 108,000
Legal fees ₱ 18,000
Total cost of land site 101 ₱ 1,980,000
45. A
Solution:
Fixed-price contract cost ₱ 9,000,000
Plans, specifications and blueprints ₱ 36,000
Architect's fees and design supervision ₱ 285,000
Cost of razing the existing building ₱ 225,000
Capitalizable borrowing cost:
Mar. 1 to Dec. 31, 20x1
(₱2,700,000 x 14% x 10/12) ₱ 315,000
Jan. 1 to Sept. 30, 20x2
(₱6,900,000 x 14% x 9/12) ₱ 724,500 ₱ 1,039,500
Total cost of office building ₱ 10,585,500
46.C
Solution:
Total contract price ₱ 5,026,000
Less: property taxes for 20x1 ₱ 146,000
Adjusted cost of land and building ₱ 4,880,000
Percentage applicable to land 20%
Cost of Land ₱ 976,000
47.A
Solution:
Cost allocated to building (P4,880,000 x 80%) ₱ 3,904,000
Reconditioning costs prior to use ₱ 236,800
Salvage proceeds from demolition of garages (₱ 36,000)
Construction cost of warehouse ₱ 540,800
Cost of Buildings ₱ 4,645,600
Notes:
1. The savings on construction of P90,000 should be ignored.
2. The modification costs of P76,800 and the redecorating and repair costs of P60,000 should be
expensed
48.B
Solution:
Fair value of equipment acquired on Mar.1 ₱ 200,000
Fair value of machine acquired on Apr.1 ₱ 360,000
Cost of Machinery and equipment ₱ 560,000
49.C
Solution:
Parking lots ₱ 360,000
Waiting sheds ₱ 76,800
Cost of Land improvements ₱ 436,800
50.D
Solution:
Land ₱ 976,000
Buildings ₱ 4,645,600
Machinery and equipment ₱ 560,000
Land improvements ₱ 436,800
Total cost of property, plant and equipment ₱ 6,618,400

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SISC-JPIA PROJECT CPALE TEST BANK

FINANCIAL ACCOUNTING AND REPORTING PROPERTY, PLANT AND EQUIPMENT - RECOGNITION

1. Summer Rain Co. has the following assets:

Land sold in the ordinary course of business ₱ 1,000,000

How much is classified as property, plant and equipment?

The cost of the equipment is:

How much is capitalized as the cost of the new machine?

Appraisal fee ₱ 150,000

Construction materials and supplies for new building ₱ 11,000,000

Legal fees on the transfer of title over the property ₱ 180,000

Use the following information for questions 7 and 8:

Monggo paid Liempo an additional cash of ₱700,000.

Liempo’s books Monggo’s books

Use the following information for questions 10 and 11:

Demolition of old building ₱ 20,000

Use the following information for questions 25 and 26:

25. The gain to be recorded on the exchange is

26. The new machine should be recorded at

Use the following information for questions 29 through 31:

30. The new land should be recorded on Mintz’s books at

31. The new land should be recorded on Pine’s books at

What amount of gain should be recognized in the exchange

Cost to raze old building ₱ 70,000

Purchase of attachment ₱ 55,000

Use the following information for questions 38 through 42:

Cost of land, which included an old apartment building

Based on the information above determine the following:

38. Cost of land

39. Cost of building

40, Cost of land improvements

41. The amount that should be expensed when incurred

42. Total depreciable property and equipment

Invoice price of machinery ₱ 2,000,000

How much should be recognized as the cost of the new machine?

Use the following information for questions 44 and 45:

Plans, specifications and blueprints ₱ 36,000

For the period March 1 to December 31, 20x1 ₱ 2,700,000

Based on the information above, determine the following:

44. Cost of land site number 101

45. Cost of office building

Use the following information for questions 46 through 50:

Based on the information above determine the following:

46. Cost of land

48. Machinery and equipment

49. Land improvements

50. Total property, plant, and equipment

Salvaged materials from trial runs (₱3,000)

Cost of New Machine ₱12,627,000

Structural works 1,200,000

The allocated cost of the old building is charged as loss.

Cost of self-constructed asset ₱ 75,000

Cost of self-constructed asset ₱ 115,000

Cost of Land ₱285,000

Cash Price without Trade In ₱ 36,000

Fair Value of machine ₱ 135,000

Machine Cost (3/01/30) ₱ 24,000

Machine Cost (5/01/21) ( ₱ 176,000)

Equipment Cost (12/31/29) ₱ 28,000