CHAPTER 6-EXERCISE 9:

PQR Corp. presented to you the following Property, plant and equipment schedule as of December 31,
2013, in line with your audit of the same for 2014:

Cost Accumulated Useful Life/

Depreciation Depreciation Method

Land 4,200,000 - -

Building 9,000,000 3,095,100 20 years/Double Declining

Machinery and equipment 15,000,000 6,000,000 10 years/Straight line

Furniture and fixture 6,000,000 3,709,091 10 years/SYD

Audit notes:

a. The assets were acquired at the beginning of 2010 when the company started its operations.
b. On March 1, 2014 PQR incurred P230,000 in repairs cost to the various parts of the building
c. On June 30, 2014 an old machinery which originally costs P2,400,000 was exchanged for a
machinery of Perchart Company. Perchart Company acquired the said machinery at P5,000,000
on July 1, 2009. The fair value of PQR Corp.’s machinery on the exchange date was at
P1,250,000. PQR Corp. paid additional cash at P200,000 on the exchange which was deemed to
have the necessary commercial substance.
d. On March 1, 2014 some furniture and fixtures were sold for P400,000. These furniture were
originally acquired at P1,800,000. Replacement furniture were acquired on June 30, 2014 at a
total installment price of P2.4M payable in 3 equal installments start June 30, 2015. Prevailing
market rate of interest on this date was at 8%. Additional freight and handling cost were paid at
P138,322

Requirements:

Determine the correct depreciation expenses on the following:

1. Building
a. 590,490 c. 932,000
b. 613,490 d. 900,000

2. Machinery and equipment

a. 1,452,500 c. 1,525,000
b. 1,572,500 d. 1,515,000

3. Furniture and fixture

a. 685,455 c. 609,091
b. 690,909 d. 824,242
 4. What is the gain or loss on the exchange transaction on June 30, 2014?
a. 190,000 c. 287, 273
b. 250,000 d. 254, 545
5. What is the gain or loss on sale of the furniture and fixture in 2014?
a. 278,723 c. 287,273
b. 245, 454 d. 254,545

CHAPTER 6-EXERCISE 10:

The Cauliflower Corp. started business on January 1, 2010, by purchasing three equipment having the
following costs:

Equipment A P157.200

Equipment B 120,000

Equipment C 132,000

Since that date of purchase, the company has charged depreciation at 20% on the balance of the asset
account at the end of each year. The amount of depreciation computed on each year has been credited
directly to the asset account. Moreover, all purchases since the inception of the operations have been
debited to the equipment account. Cash proceeds from the disposal of equipment were credited to the
same account. All the Equipment were estimated to have a useful life of 5 years and were supposed to
be depreciated under the straight=line method.

Your first time audit of the equipment account revealed the following information:

 On September 30, 2010, an equipment (Equipment D) with a list price of P180,000 was
purchased on an installment basis. The installment contract called for 12 monthly September
30, 2010 has been debited to the equipment account. Freight and installation charges
amounting to P6,000 were paid and charged to an equipment account upon payment.
 On June 30, 2011, another equipment (Equipment E) was purchased for P240,000, 2/10, n/30.
The amount was paid on July 15, 2012. The equipment account was debited for the amount paid
on the same date.
 On June 30, 2012, Equipment A was traded for a more superior equipment (Equipment F) having
a cash price of P279,000. An allowance amounting to P129,000 was received on the old
 equipment with the balance being paid in cash. The company recorded the trade-in by merely
debiting the equipment account for the cash payment.
 On January 1, 2013, the Equipment C was sold for P75,000. The company incurred crating costs
on the machinery amounting to P3,750. The equipment account was credited for the net cash
received from the disposal.
 On October 1, 2014, Equipment B was sold for P24,000. The amount received was credited to
the equipment account.

Requirements:

Based on the results of your audit answer the following:

1. What is the unadjusted balance of the Equipment accounts as of December 31, 2014?
a. 305,339 b. 314,677 c. 238,932 d. 335,445
2. What is the carrying value of Equipment as of December 31, 2014?
a. 237,960 b. 241,268 c. 275,160 d. 286,000
3. What is the gain on the sale of Equipment C?
a. 48,600 b. 44,850 c. 22,200 d. 18,450
4. What is the gain on sale of Equipment B?
a. 28,600 b. 24,850 c. 18,450 d. 18,000
5. What is the gain on the trade in of Equipment F?
a. 129,000 b. 71,400 c.50,400 d. 0
6. What is the correct depreciation expense to be reported in 2014?
a. 140,040 b. 146,040 c. 158,040 d. 164,040

CHAPTER 6-EXERCISE 10:

You were assigned to audit Rolling Corp.’s property, plant and equipment for the year ended December
31, 2014. The following information were made available:

Balance as of January 1, 2014:

Cost Accumulated Depreciation

Land P5,000,000 P3,150,000
Building 10,000,000 3,904,000
Factory Equipment 8,000,000 2,700,000

All the company’s properties were acquired upon the commencement of the operations three years ago
(from January 1, 2014) and remained the same until the current year. The depreciation were computed
based on the following methods and useful lives. Salvage value is assumed to be at 10% of the assets’
cost.
 Depreciation Method Useful Life
Building SYD 15 years
Factory Equipment Double-declining 10 years
Automotive Equipment Straight-line 5 years

The following transactions occurred during the year:

a. A new factory equipment was acquired on June 1, replacing an old factory equipment originally
acquired at P1,500,000, and was disposed on the same date at P250,000. The new equipment
was acquired at P2,000,000 payable 50% down payment, with the balance payable in four equal
installments every June 1 starting the next year. Freight and unloading cost amounted to
P50,000. Installation cost amounted to P70,000/ The company estimates that it will incur
significant dismantling cost upon the retirement of the same factory equipment. Future
estimated dismantling cost is at P227,041. The market rate on interest that reflects all
transactions on this date was at 10%.
b. On August 1, a new automotive equipment was traded in for an old one which was originally
acquired at P1,000,000. The company paid P500,000 in the trade-in. The new automotive
equipment had a cash price of P1,200,000.
c. Significant improvements on the ventilating system and electrical wiring system of the building
were made at the beginning of the current year. Total cost incurred were P400,000 for the
ventilating system and P380,000 for electrical wiring system. The improvements have no salvage
value.

Requirements:
1. What is the correct gain/loss on disposal for the factory equipment on June 1?
a. 250,000 c. 518,000
b. 454,000 d. 377,200

2. What is the correct initial cost of the new factory equipment acquired on June 1?
a. 2,000,000 c. 1,792,446
b. 1,792,466 d. 1,120,000

3. What is the correct gain/loss on trade-in on August 1?

a. 240,000 c. 345,000
b. 416,667 d. 360,000

4. What is the correct depreciation expense on the building for 2014?

a. 900,000 c. 1,008,000
b. 978,000 d. 1,020,000

5. What is the correct depreciation expense on the factory equipment for 2014?
a. 908,933 c. 962,933
b. 938,933 d. 1,065,600
6. What is the correct depreciation expense on the automotive equipment for 2014?
a. 1,016,667 c. 915,000
b. 925,000 d. 936, 000

7. How much should be presented as property, plant and equipment, net on the face of the
statement of financial position as of December 31, 2014?
a. 11,500,067 c. 13,370,067
b. 12,609,067 d. 18, 269,067