UNIVERSAL COLLEGES OF PARANQUE INC.

APPLIED AUDITING
PROBLEM 1
THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
The Quezon Manufacturing Company was incorporated on January 2, 2014,
but was unable to begin manufacturing activities until July 1, 2014
because new factory facilities were not completed until that date.

The Land and Building Account at December 31, 2014 was as follows:

Date Particulars Amount

1/3 Land and building acquisition P1,108,000
1/15 Property taxes paid on the real property 20,000
2/05 Option payments 20,000
2/28 Cost of removal of the old building 22,000
3/1 Partial payment on new construction to induce
the of start construction 700,000
3/1 Legal fees paid 15,000
3/1 Insurance premium for 1 year (3/1/14-2/28/15)24,000
6/1 Second payment on new construction 600,000
6/30 General expenses 60,000
7/1 Final payment of new construction 200,000
7/1 Construction gain 500,000
Total P3,269,000
12/31 Depreciation at one per cent of the balance(32,690)
Carrying value P3,236,310

Your audit investigation revealed the following information:

A To acquire the land and building the company paid P108,000 cash and
10,000 shares of its 10% preference shares with par value of P100 per
share. The shares were then selling at P120 per share.
B The property taxes paid was for two years covering 2013 and 2014.
C P15,000 from the total option payments were for the property acquired
while the balance were for other real properties not acquired.
D Legal fees covered the following: Cost of incorporation, P9,500;
Examination of title covering purchase of land, P4,000; Legal work in
connection with the construction contract, P1,500.
E General expenses covered the salaries for the period from Jan. 1 to
June 30 of the:
President P20,000
Plant superintendent while
supervising the construction 12,000
Office Staff 28,000
F A gain on the construction was recognized for the difference of the
actual payments made to the contractor against the fair value of the
asset upon completion.
G The estimated useful life of the building is 25 years.
 UNIVERSAL COLLEGES OF PARANQUE INC.
APPLIED AUDITING
Required; What is the adjusted balances of the following:
1. Land:
2. Building;
3. Correct depreciation expense on the building for the year 2014
4. The correct cost of the land should be:
5. The capitalized cost of the completed factory building should be;

PROBLEM 2
THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
You are auditing the various items of Delite Corp.'s property, plant and
equipment for the period ended December 31, 2014 and discovered the
following information;

A Delite Corp. purchased a machinery (AB001) in 2004 for P5,000,000.

The machine was being depreciated a straight-line basis over an
estimated useful life of 20 years with no salvage value. At the
beginning of 2014, Delite Corp. estmated that the useful life of the
machine would be exted by an additional five years with salvage value
at P600,000.

B Another machinery (DE020) was purchased on January 1, 2012 for

P6,500,000, On the date of purchase, Delite Corp. incurred the
following additional costs: Loss on sale of an old machinery P150,000;
Freight cost on the new machinery (DE020), P50,000; Installation cost
of the new machinery (DE020), P200,000, and; Testing cost of the new
machinery (DE020) prior to regular operations, P40,000, The estimated
salvage value of the machine was at P500,000 after its 20 year useful
life. On January 2014, you discovered that accessories costing
P486,000 were added to the machinery in order to reduce its operating
costs. These accessories neither prolonged the useful life of the
machinery nor did it provide any additional salvage value.

C In early July 2014, the company purchased machinery GH033. The company
paid P1,000,000 cash downpayment and signed a P9,000,000 non-interst
bearing promissory note for the balance. The note is payable in 3
equal annual installments starting July 1, 2015. Market rate of
interest on similar debt security was at 8%. The estimated salvage
value is P600,000 after its 8-year useful life. The asset is
depreciated using the double declining balance method.

D Delite Corp. also acquired, at a total cost P18M, a piece of land

with natural resources that can be extracted. Delite is required by
its pruchase agreement to restore the land to a condition suitable
for recreational use after it has depleted the resources. The
estimated restoration cost was at P2M. Geological survey estimate
that the recoverable minerals will be at 7.6M tons and that the land
will have a value of P1M after the said restoration. During the
current year, total minerals extracted was at 1.2M tons, 900,000 tons
of which were sold during the year.
 UNIVERSAL COLLEGES OF PARANQUE INC.
APPLIED AUDITING
Required: Determine the depreciation expense of the following
machineries in 2014:
1. AB001
2. DE020
3. GH033
4. What is the total depletion on the wasting asset for 2014?
5. What is the depletion expense on the wasting asset for 2014?
6. What is the gain on the sale of Equipment C?

PROBLEM 3:
On January 1, 2012, Labanos Corp. acquired a factory equipment at a cost
of P500,000. The equipment is being depreciated using the straight-line
method over its projected useful life of 10 years with P50,000 salvage
value.

On December 31, 2013, a determination was made that the asset's

recoverable amount was only P338,000. You ascertained that this was
properly computed and that recognition of the impairment was warranted.

On December 31, 2015, the asset's replacement cost was determined to be

P555,000 with a total life of 12 years from date of acquisition with no
change in salvage value. You also ascertained that this valuation is
reasonable in the circumstance.

You have been asked to assist the company's accountant in the application
of PAS 36, the standard on impairment of assets.

Required:
1. How much impairment loss should be recognized on December 31, 2013?
2. What is the carrying value of the asset on December 31, 2014?
3. What is the assets fair market value as of December 31, 2015?
4. How much impairment recovery should be reported in the 2015 income
statement?
5. What is the balance of any revaluation surplus at the end of 2016, under
the piecemeal realization?

PROBLEM 4:
MINA MINING CO. has acquired a tract of mineral land for P27,000,000.
Mina Mining estimates that the acquired property will yield 120,000
tons of ore with sufficient mineral content to make mining and
processing profitable. It further estimates that 6,000 tons of ore
will be mined the first and last year and 12,000 tons every year in
between. (Assume 11 years of mining operations.) The land will have a
residual value of P900,000.

Mina Mining builds necessary structures and sheds on the site at a

total cost of P1,080,000. The company estimates that these structures
can be used for 15 years but, because they must be dismantled if they
 UNIVERSAL COLLEGES OF PARANQUE INC.
APPLIED AUDITING
are to be moved, they have no residual value. Mina Mining does not
intend to use the buildings elsewhere.

Mining machinery installed at the mine was purchased secondhand at a

total cost of P1,800,000. The machinery cost the former owner
P4,500,000 and was 50% depreciated when purchased. Mina Mining
estimates that about half of this machinery will still be useful when
the present mineral resources have been exhausted but that dismantling
and removal costs will just about offset its value at that time. The
company does not intend to use the machinery elsewhere. The remaining
machinery will last until about one-half the present estimated mineral
ore has been removed and will then be worthless. Cost is to be
allocated equally between these two classes of machinery.
NARREND: Mina

1. What are the estimated depletion and depreciation charges

for the first year?
2. What are the estimated depletion and depreciation charges
for the 5th year?
3. What are the estimated depletion and depreciation charges
for the 6th year?
4. What are the estimated depletion and depreciation charges for
the 11th year?
5. What are the depletion and depreciation charges for the first
year assuming actual production of 5,000 tons of mineral ore?
(Nothing occurred during the year to cause the company
engineers to change their estimates of either the mineral
resources or the life of the structures and equipment.)