NATIONAL UNIVERSITY – Manila

Intermediate Accounting 2

LAND, BUILDING AND MACHINERY

1. Noeme Company commenced operations at the beginning of the current year. The following costs are
incurred by the entity.

Payment for land and an old building which is to be demolished 1,000,000

Payment of property taxes in arrears 130,000
Title search and insurance 50,000
Option paid for an alternative land which was not acquired 30,000
Cost of relocating squatters 10,000
Special assessment for city improvements on water and sewer system 150,000
Demolition of old building, net of salvage of P10,000 100,000
Survey before construction of new building 60,000
Contract price for factory building 5,000,000
Architect Fee 230,000
Building permit or payment to city hall for approval of building construction 120,000
Excavation before new construction 110,000
Liability insurance during construction 55,000
Safety fence around construction site 35,000
Safety inspection on building 30,000
Removal of safety fence after completion of factory building 20,000
New fence surrounding the factory 80,000
Driveways, parking bays and safety lighting 550,000
Cost of trees, shrubs and other landscaping 250,000

What amount should be reported respectively as initial measurement of the land and building?

2. During the current year, Jocelyn Company purchased a second hand machine at a price of P5,000,000.
A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was issued for the
balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has
a second hand market value of P4,500,000. A new machine would cost of P6,500,000. The following
costs were incurred during the year.

Cost of removing old machine that is replaced 350,000

Cash proceeds from the sale of the old machine replaced 100,000
Cost of hauling the machine from vendor to entity premises 40,000
Overhaul and repairs to recondition machine prior to use 220,000
Cost of Installation 190,000
Cost of testing machine prior to use 150,000
Safety device added to the machine 300,000
Cost of spare parts to cover breakdowns 80,000
Cost of repairing damage to machine caused when the machine was dropped
During installation 150,000
Repairs incurred during the first year of operation 160,000
Cost of training workers to operate the machine 25,000

What total amount should be capitalized as cost of the second hand machine?

3. Paula Company acquired at the beginning of the current year.

Cash paid for machine, including VAT of P96,000 896,000

Cost of transporting machine 30,000
Labor cost of installation by expert fitter 50,000
Labor cost of testing machine 40,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred as required by contract 65,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000

What total amount should be capitalized as cost of the machine?