[PROPERTY, PLANT & EQUIPMENT] AUDITING/FAR

Problem 1
In preparing the 2017 draft financial statement of CPALE 2019 Company, the Land account of P2,500,000.00 to be
reported under PPE included the following:
• P500,000.00 held for long term-term capital appreciation
• P380,000.00 held for a currently undetermined future use
• P100,000.00 building leased out under an operating lease
• P200,000.00 vacant building held to be leased out under an operating lease
• P200,000.00 property that is being developed for future use as investment property
• P270,000.00 held for sale in the ordinary course of business
• P180,000.00 held for production of goods
• P120,000.00 held for administrative purposes
What is the correct amount to be reported under PPE section?

Problem 2
In preparing the 2017 draft financial statement of CPALE 2019 Inc., the Building account of P4,200,000.oo to be
reported under PPE included the following items:
• P450,000.00 in the process of development for sale
• P850,000.00 being developed as an investment property
• P600,000.00 currently being redeveloped for continued use as an investment property
• P250,000.00 occupied by employees(rentals at market rates)
• P250,000.00 occupied by employees(rentals are not at market rates)
• P400,000.00 fair value of a building constructed by TCC Examinees Realty to be used as substation by
CPALE 2019 Inc.(for the use of TCC Examinees Realty’s tenants)
What is the correct amount to be reported under PPE section?

Problem 3
In preparing the draft financial statement of CPALE 2019 Enterprises, the Investment property account of
P1,500,000.00 to be reported includes the following:
• P500,000.00 Equipment held for long term-term capital appreciation
• P500,000.00 Machineries held for a currently undetermined future use
• P500,000.00 Automobiles leased out under an operating lease
What is the correct amount to be reported under Investment Property section?

Problem 4
During 2017, CPALE 2019 Corp. acquired/received the following assets:
1. Land X acquired for P220,000. In addition, to acquire the land, CPALE 2019 Corp. paid a P15,000.00
commission to a real agent. P25,000.00 were incurred to clear the land. During the course of clearing the
land, timber and gravel were recovered and sold for P5,000.00
2. Land Y was acquired on September 30, 2017 on which a new building will be immediately constructed.
The cost related to the acquisition included the following:

• Cash Payment P1,200,000.00

• Broker’s fee P165,000.00
• Option price paid for the land acquired P80,000.00
• Option price paid for the land that was not acquired P120,000.00
• Deliquent property tax for 2016 that was assumed
and paid by CPALE 2019 Corp P72,000.00
• Property taxes for 2017 to be paid on or before
December 31,2017 P96,000.00
• Cost of relocating squatters P25,000.00

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 [PROPERTY, PLANT & EQUIPMENT] AUDITING/FAR

EQ 14 EQ 9
Equipment(cost) P500,000.00 P320,000.00
Accumulated Depreciation P175,000.00 P180,000.00
Fair value of equipment P335,000.00 P185,000.00
The configuration (risk, timing and amount) of the cash flows are determined to be significantly different
a) The initial cost of the new equipment is?
b) The gain(loss) recognized in relation to the exchange is?

Problem 10
All Meat Company acquires machine (MC 24) in exchange for machine (MC 10) plus cash of P5,000. The carrying
and fair value of MC 24 and MC 10 at the date of the exchange are as follows:

MC 24 MC 10
Equipment(cost) P125,000.00 P120,000.00
Accumulated Depreciation P30,000.00 P40,000.00
Fair value of equipment P100,000.00 P95,000.00
The configuration (risk, timing and amount) of the cash flows are determined to be insignificantly different
a) The initial cost of the new machine is?
b) The gain(loss) recognized in relation to the exchange is?

Problem 11
In 2017, Hawaiian Inc constructed a new building and incurred the following:
• Excavation fees P120,000.00
• Architecture design fees P90,000.00
• Building Permit fees P60,000.00
• Imputed interest(on funds used in construction – stock financing) P70,000.00
• Cost of removal of old building P50,000.00
• Labor costs P160,000.00
• Overhead costs P50,000.00
• Materials used P500,000.00
• Profit on self construction P100,000.00
• Safety inspection costs prior to use P25,000.00
The amount initially recorded as the cost of the building is?

Problem 12
The following expenditures were incurred by Pepperoni Corporation during 2017:
• Cost of real estate purchased as a plant site (FV Land P487,500 and
Building P112,500) P500,000.00
o Delinquent Property taxes assumed by Pepperoni P40,000.00
o Commision fees paid to real estate agency P16,000.00
• Cost of demolishing old building P30,000.00
• Proceeds from salvage of demolished building P5,000.00
• Cost of land fill and clearing P316,000.00
• Land survey P40,000.00
• Building Permit P20,000.00
• Excavation costs P30,000.00
• Temporary quarters for construction crews P16,000.00
• Installation of permanent fences around the property P40,000.00
• Cost of paving the driveways and parking bays P20,000.00
• Interest paid on money borrowed for construction P20,000.00
• Payment for construction of building P1,200,000.00

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 [PROPERTY, PLANT & EQUIPMENT] AUDITING/FAR

• 10% 10-year note interest payable annually; issued January 1, 2017 face amount P1,500,000.00 and
remained unchanged during the year
What is the amount of borrowing cost to be capitalized?

Problem 17
On October 1, 2017, CookiesNCream Company purchased equipment for P6,270,000. It estimated that the
equipment will have useful life of 8 years and a salvage value of P160,000. It was estimated that the equipment
could be used for 40,000 hours and that it can produce 90,000 units. In 2017, the equipment was used for 550 hours
producing 14,550 units. In 2018 the equipment was used for 1,800 hours producing 60,000 units
Depreciation Method Depreciation Exp. 2017 Depreciation Exp. 2018 Carrying Value 2018
Straight Line
Sum of the years’ digits
200% declining balance
Activity based(hours)
Activity based(units)

Problem 18
Presented below is information related to Vanilla Company.
Asset Cost Est. Scrap Est. Life(Years)
A P52,500 P5,500 10
B P35,600 P4,800 8
C P24,600 P3,000 9
What is the Composite rate of Depreciation? Composite life of the assets?

Problem 19
Rocky Road Inc. has a balance of P900,000 in its water meters account on January 1, 2017. In 2017, Rocky Road Inc.
installed new meters as follows:
March June October
Cost of new meters installed P280,000 P400,000 P360,000
Cost of old meters replaced P180,000 P200,000
Proceeds from sale of old meters P10,000 P18,000
a. Depreciation for 2017 under the retirement method is?
b. Depreciation for 2017 under the replacement method is?

Problem 20
Machinery was purchased for P1,625,000 by Panda Company, originally estimated to have a useful life of 15 years
with a salvage value of P50,000.00 Depreciation has been entered for 4 years on this basis.
In 2017, the total estimated life was reassessed to be 12 years with a salvage value of P30,000. Jimmy Cricket
company uses the straight line method of depreciation.
a. The 2017 prior period adjustment to the beginning retained earnings is?
b. Depreciation Expense in 2017?

Problem 21
Equipment was purchased for P950,000. It had an estimated residual value of P40,000 and an estimated life of 12
years. Depreciation was recorded under the double-declining balance method for the past three years. In 2017, Pilot
Company decided to change to straight line method.
a. The 2017 prior period adjustment to the beginning retained earnings is?
b. Depreciation Expense in 2017?

Problem 22
Pieces of furniture were purchased for P900,000 on January 1, 2015. Double Declining balance has been recorded
for two years. The estimated residual value of the machine was P60,000 and the estimated life is 8 years. At the start

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