1. On January 2, 2024, Mila Co purchased 25% of Bona Co’s ordinary shares; no goodwill resulted from purchase.

Mila
appropriately carries this investment at equity and the balance in Bona’s investment account at December 31, 2024 was
P1,900,000. Bona reported net income of P1,200,000 for the year ended December 31, 2024 and paid ordinary share
dividends totaling P480,000 during 2024. How much did Mila pay for its 25% interest in Bona?

Carrying value of investment, 12/31/24 1,900,000

Share in net income (1,200 x 25%) (300,000)
Share in dividends (480 x 25%) 120,000
Acquisition cost, 1/2/24 1,720,000

2. On January 1, 2023, Gingoog Co. paid P18,000,000 for 50,000 ordinary shares of Baligwas Co which represent 25% interest
in the net assets of Baligwas. The acquisition cost is equal to the carrying amount of the net assets acquired. Gingoog has the
ability to exercise significant influence over Baligwas. Gingoog received a dividend of P35 per share from Baligwas in 2023.
Baligwas reported net income of P9,600,000 for the year ended December 31, 2023. What amount should be reported as
investment in Baligwas Co.?

Acquisition cost – 1/1 18,000,000

Share in net income (9.6M x 25%) 2,400,000
Cash dividend received (50k x P35) (1,750,000)
Carrying value, 12/31 18,650,000

Use the following data for the next 3 questions:

3. on January 1, 2024, Arco Co. acquired 20% interest in Maat Co. for P1,600,000. On this date, the carrying amounts of Maat’s
assets and liabilities approximate their fair values except for the following:
Carrying amount Fair value
Inventory 300,000 400,000
Machinery 1,800,000 1,500,000
The machinery has a remaining useful life of 5 years. Maat’s total equity, at book value, was P8,000,000 on January 1, 2024.
Maat reported profit of P3,000,000 and declared and paid cash dividends of P500,000 in 2024. How much is the implied
goodwill on the investment?
4. How much is the share in the associate’s profit in 2024?
5. How much is the carrying amount of the investment in associate on December 31, 2024?

Solution:

(3) Goodwill

Carrying Fair Under (Over)

amount value valuation

Inventor 400,00
y 300,000 0 100,000

Machine 1,500,00
ry 1,800,000 0 (300,000)

Mobic's equity at book value 8,000,000

Undervaluation 100,000

Overvaluation (300,000)

Mobic's equity at fair value 7,800,000

Purchase cost 1,600,000

Less: Fair value of net assets acquired (7.8M x 20%) (1,560,000)

Goodwill 40,000
(4) Share in profit of associate

Share in profit of associate – net

Sh. in profit, gross

600,000
(3M x 20%)

Undervaluation Overvaluation
20,000 12,000
(100K x 20%) (300K ÷ 5 yrs.) x 20%

Sh. in profit, net 592,000

(5) Carrying amount of investment in associate

Investment in associate

Jan. 1, 20x1 1,600,000

Sh. in profit, gross 600,000 100,000 Dividends (500K x 20%)

Overvaluation 12,000 20,000 Undervaluation

2,092,000 Dec. 31, 20x1

Use the following data for the next 4 questions:

6. Silawan Co. acquired the following assets:
I. Lot – acquired on cash basis for P3,000,000. It is intended to be used as future plant site. After the acquisition date,
Silawan spent P600,000 in constructing riprap/retaining walls and fences on the lot. These were expected to have a
useful life of 20 years.
II. Sport utility vehicle – acquired on cash basis for P2,900,000. It made additional payments for the following:
a. Registration of vehicle with LTO – P12,000.
b. One-year auto insurance – P40,000.
c. Car accessories (window tint, early warning device, matting, steering wheel cover and rain visor) –
P10,000.
The car accessories were installed in the car dealership at the time the vehicle was purchased. Thus, Silawan
prepared a single check disbursement voucher amounting to P2,910,000. Separate vouchers were prepared for the
registration and insurance.
III. Pick-up truck – acquired installment basis, it made a down payment of P200,000. The monthly installment payment
over the next 60 months is P41,666.67. the downpayment was “all-in” meaning it is inclusive of vehicle registration,
insurance, and chattel mortgage fees. The car dealership provided the essential car accessories for free. The cash
price equivalent is P1,800,000. Shortly after purchase, the pickup truck was modified for off-road driving at a total
cost of P280,000. It intended to use the pickup truck in its field offices where the roads are not paved.
IV. Six weeks after the SUV in (II) above was acquired, it had it modified to install some “bling-blings” and improve
the SUV’s aesthetic value. The modification costs was P160,000. This however did not increase the pogi points of
the driver.
V. Machine – acquired through issuance of Silawan’s 1,000 shares with par value of P100 per share. The machine has a
cash price equivalent of P160,000. As Silawan is not listed, a ‘Level 1 Input’ fair value of its share is not available.
Its latest audited financial statements reported a book value per share of P210. Compute the total cost of the land.
7. Compute the total cost of the land improvement.
8. Compute the total cost of the transportation equipment.
9. Compute the total cost of the machinery.

Solution:

(I) Land = 3,000,000

Land improvement = 600,000

(II) Transportation equipment (SUV):

Cash purchase price, including the car accessories 2,910,000

Vehicle registration 12,000

Total cost - SUV 2,922,000

 In practice, the cost of car accessories installed when the vehicle was purchased, and for which a single CDV was prepared for the
vehicle and the car accessories, is included in cost of the vehicle. Accountants do this mainly for convenience in recording.
Subsequent expenditures on car accessories are charged as expenses. Thus, the cost in (d) is charged as expense.
 The cost of a vehicle’s initial registration is capitalized because this is necessary for the entity to obtain the future economic
benefits of the vehicle. It is illegal to use an unregistered vehicle. However, the costs of subsequent annual registrations are
expensed.
 The insurance is recognized as expense (or initially recorded under the “Prepaid insurance” account and subsequently charged as
expense).

(III) Transportation equipment (Pickup truck):

Cash price equivalent 1,800,000

Modification for off-road driving 280,000

Total cost - Pickup truck 2,080,000

 The modification is capitalized because it is necessary in bringing the vehicle to its intended use.

Total cost - SUV 2,922,000

Total cost - Pickup truck 2,080,000

Total Transportation equipment 5,002,000

(IV) See (II) above

(V) Machine: 160,000 – cash price equivalent

Use the following data for the next 4 questions:

10. At the beginning of 2024, Homez Co. purchased a parcel of land as a factory site for P3,200,000. An old building on the
property was demolished and construction started on a new building that was completed at the end of the year. Costs incurred
on the construction project are a s follows:
Demolition of old building 210,000
Architect fee 300,000
Legal fee – title investigation 40,000
Construction cost 8,500,000
Imputed interest based on stock financing 140,000
Landfill for building site 190,000
Clearing of trees from building site 100,000
Temporary building used for construction activities 290,000
Land survey 40,000
 Excavation for basement 130,000
Salvage materials from demolition 20,000
Compute the cost the land.

Solution:
Purchase price 3,200,000
Legal fee – title investigation 40,000
Landfill for building site 190,000
Clearing of trees from building site 100,000
Land survey 40,000
Total 3,570,000

11. Compute the cost the new building.

Solution:
Net demolition cost (210,000 – 20,000) 190,000
Architect fee 300,000
Construction cost 8,500,000
Temporary building 290,000
Excavation for basement 130,000
Total 9,410,000

12. On January 1, 2026, Boston Co. purchased a new building at a cost of P6,000,000. Depreciation was computed on the
straight-line basis at 4% per year. On January 1, 2031, the building was revalued at a fair value of P8,000,000. Compute the
revaluation surplus on January 1, 2031.
Fair value 8,000,000
Carrying amount (6,000,000 x 80%) (4,800,000)
Revaluation surplus – 1/1/31 3,200,000

Accumulated depreciation (4% x 5 years expired) 20%

13. Compute the depreciation for 2031.

Life of asset (5 years/20%) 25
Expired (5)
Remaining life 20

Depreciation for 2031 (8,000,000/20) = 400,000

14. Compute the revaluation surplus on December 31, 2031.

Revaluation surplus – 1/1/31 3,200,000
Realization in 2031 (3,200,000/20) (160,000)
Revaluation surplus – 1/1/31 3,040,000

Use the following data for the next 2 questions:

On December 31, 20x1, the building of Liloan Co. was revalued. Information determined on revaluation date is as follows:
Historical cost 72,000,000
Accumulated depreciation 16,000,000
Initial estimate of residual value 8,000,000
Actual life on revaluation date 10
Replacement cost 144,000,000
Effective life 12
Remaining economic life 20
Income tax rate 30%
The estimate of residual value remained unchanged.
15. Compute the revaluation surplus, net of tax, on December 31, 20x1.
16. Compute the revised annual depreciation in periods subsequent to December 31, 20x1.

Replacement cost 144,000,000

Depreciation (144M - 8M) x 12/32 (51,000,000)
Fair value or Depreciated R.C. 93,000,000
Carrying amount (72M - 16M) (56,000,000)
Revaluation surplus - gross of tax 37,000,000
 Less: Deferred tax (37M x 30%) (11,100,000)

Revaluation surplus - net of tax 25,900,000

Fair value or Depreciated R.C. 93,000,000

Less: Residual value (8,000,000)
Depreciable amount 85,000,000
Divide by: Remaining economic life 20
Revised annual depreciation 4,250,000

Use the following data for the next 5 questions:

17. Sta. Maria acquired a machine for P1,000,000 at the beginning of 2024. It estimated that the machine has a useful life of 10
years and a residual value equal to 5% of cost. At normal capacity, the machine’s estimated service life is 28,000 hours or
total productive capacity of 84,000 units of product. In 2024 and 2025, the actual manufacturing hours were 3,000 and 2,800,
respectively, and the actual units produced were 12,000 and 9,800, respectively. Compute the depreciation expense in 2025
using straight-line method.

 SLM = (1M x 95%) ÷ 10 = 95,000

18. Compute the depreciation expense in 2025 using sum of year’s digit method.

 SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55

SYD depreciation in 20x2 = 950,000 x 9/55 = 155,455

19. Compute the depreciation expense in 2025 using double-declining balance method.

 DDB rate = 2 ÷ 10 = 20%

DDB depreciation in 20x2 = 1M x 80% x 20% = 160,000

20. Compute the depreciation expense in 2025 using units of production method – input measures.

 UOPM (input) depreciation in 20x2 = 950,000 x (2,800/28,000) = 95,000

21. Compute the depreciation expense in 2025 using units of production method – output measures.

 UOPM (output) depreciation in 20x2 = 950,000 x (9,800/84,000) = 110,833

Use the following data for the next 3 questions:

22. Peralejo Co.’s small tools had a balance of P300,000 at the beginning of the year. Acquisitions and disposals of small tools
during the year were as follows:
Mar. May Oct. Dec.
Cost of additions 20,000 - 60,000 44,000
Cost of disposals 12,000 24,000 - 36,000
Net disposal proceeds 1,000 1,600 - 2,000
The balance of small tools per physical count at year-end was P352,000. Compute the depreciation expense using retirement
method.

Cost of disposals (12,000 + 24,000 + 36,000) 72,000

Net disposal proceeds (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 67,400

23. Compute the depreciation expense using replacement method.

Cost of additions as replacements (20,000 + 44,000) 64,000

Cost of disposals but not replaced 24,000
Proceeds from sale of old tools (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 83,400

24. Compute the depreciation expense using inventory method.

 Tools

beg. bal. 300,000 4,600 Proceeds from asset disposals

Additions 124,000 67,400 Depreciation (squeeze)

352,000 end. bal. (per physical count)

25. On January 2, 2018, Belgica Co. has completed the construction of a building for a total cost of P10,000,000. The building is
to be depreciated on a straight-line basis over its estimated useful life of 40 years. On January 2, 2023, it converted the
building into a commercial establishment with only minor renovation costs incurred. In consultation with an appraiser, the
building’s fair value as of January 1, 2023, was P11,970,000. On January 1, 2025, due to sudden change in the economic
environment, it is evaluating possible impairment and determined that the recoverable value of the building was P7,000,000.
What is the amount of impairment loss, if any, on January 1, 2025?

Fair value, 1/1/23 11,970,000

CV:
Cost 10,000,000
AD (1/1/18 – 1/1/23) [10M x 5/40] (1.250,000) (8,750,000)
Revaluation surplus - 2023 3,220,000

Recoverable amount 1/1/24 7,000,000

CV – revalued amount 11.970,000
Depreciation (11,970,000 x 2/35) (684,000) 11,286,000
Revaluation decrease (4,286,000)
Revaluation surplus 3,036,000
Impairment loss (1,250,000)