ANSWER THEORIES

1 C
2 D
3 D
4 B
5 B
6 D
7 C
8 D
9 B
10 C
11 C
12 C
13 A
14 C
15 B
16 A
17 D
18 B
19 B
20 B
21 A
22 C
23 B
24 C
25 C
CASE 1 - Agenor Company

Land and old building (Note 1)

Realtor commission for land and building
Legal fees, realty taxes and documentation expense
Amount paid to relocate persons squatting on the property*
Cost of removal of old building (Note 2)
Grading and drainage on land site
Cost of new building (Note 3)
Building permit fee
Excavation
Cost of paving driveways and parking lot
Cost of trees, shrubs, and other landscaping
Cost of installing lights in parking lot
Architect fee
Payment of medical bills of employees accidentally injured while inspecting building construction
Insurance on new building (Note 4) **
Interest expense on new building (Note 5)***
Cost of fencing the property
Invoice cost of the machine acquired****
Freight, unloading, and delivery charges
Custom duties and other charges
Allowances and hotel accommodation paid to foreign technicians during installation and test run of machine
Estimated dismantling cost to be incurred as required by contract (at discounted value)
Cost of adjustment to machine to make is operate more efficiently
Fee paid to consultants for advice on the acquisition of the machine
Cost of training for personnel who will use the machine
Cost of open house party to celebrate opening of building
TOTAL

* this follows demolition cost, because you'll not incur the cost if the building is not demolished to construct the new building
**The amount of 120,000 will be used and not 240,000 because the note is the observation and procedure of the auditor, and th
***The expense is capitalized because it is obatined after the building was completed and is not part of borrowing cost under P
**** The purchase discount loss shall be recognized as expense.
***** old building cost are charge to expense as loss on disposal under PIC 2012-02

1
2
3
4
5
 OLD NEW
LAND BUILDING**** BUILDING LAND IMP MACHINE EXPENSE
5,250,000 1,750,000 1,750,000
375,000 125,000 125,000
112,500 37,500 37,500
150,000
300,000
410,000
12,000,000
210,000
130,000
290,000
110,000
90,000
200,000
50,000
20,000
200,000
1,210,000
4,900,000 100,000
120,000
280,000
800,000
60,000
150,000
50,000
150,000
350,000
6,147,500 1,912,500 12,990,000 1,700,000 6,360,000 2,782,500

uct the new building

of the auditor, and therefore more reliable.
orrowing cost under PAS23.

SUMMARY OF ANSWERS:
6,147,500
12,990,000
1,700,000
6,360,000
2,782,500
Note 1:
Cash 5,500,000
Shares 1,500,000
Total 7,000,000 x45/60 5,250,000
7,000,000 x15/60 1,750,000 charge to profit or loss as loss on disposal

Realtor commission:
500,000 x45/60 375,000
500,000 x15/60 125,000 charge to profit or loss as loss on disposal

Legal fees
150,000 x45/60 112,500
150,000 x15/60 37,500 charge to profit or loss as loss on disposal
CASE 2 - Belus Company

Note 1:
Purchased price 30,000,000
ratio 18/25
Allocated to land 21,600,000

Legal fees 400,000

ratio 18/25
Allocated to land 288,000

Note 2:
Purchase price 1,200,000
Legal fees for purchase contract and recording ownership -
Title guarantee insurance 80,000
TOTAL COST 1,280,000
* the demolition cost of old building is not capitalized since the land if for "future plant site", meaning there is an in
PIC 2012-02 preferably capitalized the cost of demolition as part of the new building, hence, the authors point of vi

Note 3: LAND BUILDING

Purchased price 6,500,000
Cost of razing old building 370,000
Title insurance and legal fees to purchase land 180,000
Architect fee 400,000
New building construction cost 10,130,000
TOTAL 6,680,000 10,900,000

Note 4: LAND BUILDING

Purchase price of land and an old unusable building 7,300,000
Legal fees for contract to purchase land 240,000
Architect fee 320,000
Demolition of old building to make room for
new building construction 215,000
Sale of scrap from old building (45,000)
Construction cost of new building fully completed 12,500,000
Total 7,540,000 12,990,000

OLD
Note 5: LAND BUILDING
Lump sum price (70,000 x 120) x 55% , 45% 4,620,000 3,780,000
Payment to tenants to vacate the building 100,000
Unpaid property taxes on land and building 55%, 45% 143,000 117,000
Assessment by city for sewerage project 50,000
Driveways and parking bays (land improvement)
Cost of grading and leveling 90,000
Cost of new wing attached to the building
Cost of new split type air-conditioning units (machinery)
Professional fees paid in connection to contruct the new wing
Remodeling cost prior to occupancy 200,000
Total 4,903,000 4,197,000
 LAND BUILDING
Purchased price 30,000,000
ratio 7/25
Allocated to building 8,400,000 Amounts allocated 21,600,000 8,400,000 charge to P/L as loss on dis
288,000 112,000 charge to P/L as loss on dis
112,000 20,000,000
Legal fees 400,000 150,000
ratio 7/25 TOTAL 22,000,000 20,150,000
Allocated to building 112,000

t site", meaning there is an intention to construct building on the site

hence, the authors point of view to record the demolition as defered asset.

NEW
BUILDING
840,000

135,000

975,000
charge to P/L as loss on disposal
charge to P/L as loss on disposal
CASE 3 - Chrysaor Corporation

Materials and purchased parts at gross invoice price

(failed to take the 3% cash discount) 450,000 x 97% 441,000
Labor cost 260,000
Overhead cost (fixed - P30,000; variable - P45,000) 205,000
Installation cost 20,000
Total 926,000

Cash paid for equipment 512,000

Freight and insurance cost while in transit 15,000
Cost of moving equipment into place at store 10,000
Wage cost for technicians to test equipment 25,000
Total 562,000
CASE 4 - Dardanus Corporation

LAND BUILDINGS LI
Beginning balances 400,000 3,200,000 2,000,000
a. 4,280,000 - -
b.* 800,000 2,140,000 -
c. - - -
d. - - 300,000
e. - - 260,000
f. - - -
TOTAL 5,480,000 5,340,000 2,560,000
MACHINERY OLD NEW
2,800,000 * note b LAND BLDG BLDG
- Allocation 800,000 400,000
- 120,000
- 1,600,000
- 144,000
- 232,000
738,000 44,000
3,538,000 800,000 400,000 2,140,000

* note d LI
140,000
160,000
300,000
painting of ceilings is expense because the expected life in not more than one year.

* note f MACHINE
700,000
22,000
16,000
738,000
han one year.
CASE 5- Hercules Company
LAND MACHINERY LI
beginning balance 1,100,000 1,700,000 1,200,000
Land site A 2,740,000
Improvement 820,000
Machine pruchased 970,000
Ending 3,840,000 2,670,000 2,020,000

Computation of capitalized interest

2018 2019
31-Mar 5,000,000 3,750,000 1-Jan 5,414,000
Specific borr 1,500,000 1-Jun 3,870,000
To general borr 2,250,000 WAAE
WAR* 10.40% Specific borr
Potential interest - GB 234,000 To general borr
Potential interest - SB 180,000 WAR*
Total potential interest 414,000 Potential interest - GB
Potential interest - SB
* Weighted average rate: Total potential interest
14% 4,000,000 560,000
8% 6,000,000 480,000
10,000,000 1,040,000 Year Expenditures
10.40% 2018 5,000,000
2019 3,870,000
2020 2,300,000
TOTAL 11,170,000

Year Actual interest

2018 1,220,000
2019 1,220,000
2020 1,220,000
 2020
5,414,000 1-Jan 10,105,836 10,105,836
2,257,500 1-Oct 2,300,000 575,000
7,671,500 WAAE 10,680,836
1,500,000 Specific borr 1,500,000
6,171,500 To general borr 9,180,836
10.40% WAR* 10.40%
641,836 Potential interest - GB 954,807
180,000 Potential interest - SB 180,000
821,836 Total potential interest 1,134,807

** Note: interest capitalized is the lower between potential interest and actual interest paid.
Cap. Interest TOTAL
414,000 5,414,000
821,836 4,691,836
1,134,807 3,434,807
2,370,643 13,540,643

Potential Capitalized
414,000 414,000
821,836 821,836
1,134,807 1,134,807
and actual interest paid.
 CASE 6 - Minos Company

Weighted Average Accumulated Expenditure: Weigthed average rate:

1/1 2,400,000 x12/12 2,400,000 1,600,000
3/31 2,000,000 x9/12 1,500,000 2,000,000
7/1 2,200,000 x6/12 1,100,000 3,600,000
9/30 2,000,000 x3/12 500,000
12/31 1,400,000 x0/12 -
Total 5,500,000
Specific borrowing 5,000,000 Interest on specific borrowin
To general borrowings 500,000 1//1 1,250,000
WAR* 11.11% 4/1 1,250,000
Potential interest to GB 55,556 7/1 1,250,000
Potential interest to SB** 272,500 10/1 1,250,000
Total capitalizable interest 328,056 Total
Investment income
Interest expense to SB
Expenditures 10,000,000
Total capitalizable interest 328,056
Total cost 10,328,056

SUMMARY OF ANSWERS
1 328,056
2 11.11%
3 344,444
4 10,328,056
igthed average rate:
10% 160,000
12% 240,000
400,000
3,600,000
11.11%

erest on specific borrowings:

10% 125,000
10% 93,750
10% 62,500
10% 31,250
312,500
(40,000)
272,500
CASE 7 - Neleus Corp

Cost of exchanged machinery 1,100,000

Accumulated deprn.
(1,100,000 /10 x 4) + (1.1M /10 x 5/12) 485,833
CV of machinery exchanged 614,167
Cash paid 150,000
Total CV of asset given up 764,167
Recorded value of new asset
(FV of asset given up) 1,020,000
Gain on exchanged 255,833

Cost of fur and fix sold 800,000

Accumulated deprn.
(800,000 x 34/55) 494,545
(800,000 x 6/55 x 6/12) 43,636 538,182
CV of asset sold 261,818
Selling price 320,000
Gain on sale 58,182

Total deprn expense in 2020:

Leasehold improvement:
Old Leasehold (3M / 5) 600,000
New Leasehold (400,000 / 5 x 10/12) 66,667 666,667

Building:
Net balance (8M - 2,268,856) 5,731,144
New deprn rate (2/16) 12.50% 716,393

Machinery and equipment:

Remaining (10M-1.1M / 10) 890,000
Exchanged (1.1M / 10 x 5/12) 45,833
New (970,000 / 10 x 6/12) 48,500 984,333

Furniture and fixtures:

Remaining (4M - 800,000) x 6/55 349,091
Sold (800,000 x 6/55 x 6/12) 43,636
New* (2M x 10/55 x 5/12) 151,515 544,242
TOTAL DEPRN in 2018 2,911,635

* New F and F
800,000 x 2.486852 1,989,482
Additional cost 10,518
Total 2,000,000

Accu. Deprn . Leasehold improvements

Beginning balance 2,400,000
Current year deprn 666,667
Disposal -
Ending balance 3,066,667

Accu. Deprn . - building

Beginning balance 2,268,856
Current year deprn 716,393
Disposal -
Ending balance 2,985,249

Accumulated deprn - ME
Beginning balance 4,000,000
Current year deprn 984,333
Disposal (485,833)
Ending balance 4,498,500

Accumulated deprn - FF
Beginning balance 2,472,727
Current year deprn 544,242
Disposal (538,182)
Ending balance 2,478,788

Total cost of PPE:

Land 4,200,000
Leasehold improvement 3,400,000
Building 8,000,000
ME (10M +1,020,000 - 1.1M) 9,920,000
FF (4M +2M - 800,000) 5,200,000 30,720,000

Total accu deprn:

LI 3,066,667
Building 2,985,249
ME 4,498,500
FF 2,478,788 13,029,203
PPE net 17,690,797
CASE 8 - Perseus Company

Accumulated deprn. - bulilding, beg 8,341,875

Current deprn.
(40M - 8,341,875) x 7.5% 2,374,359
Accumulated deprn. - bulilding, end 10,716,234

Accumulated deprn. - Machinery, beg. 6,250,000

Current deprn.
Remaining (25.5M - 575,000)/10 2,492,500
New (8,500,000 / 10 x 6/12) 425,000
Destroyed by fire (575,000 / 10 x 3/12) 14,375 2,931,875
less: Accumulated of destroyed
(575,000/10 x 2) (115,000)
Accumulated deprn. - machinery & eqt., end 9,066,875

Accumulated deprn. - Delivery eqt., beg. 2,660,000

Current deprn. 760,000
Less: deprn of tarded in (450,000 x 2/10) (90,000)
Deprn of remaining 670,000
New (600,000 x 4/10) 240,000 910,000
Accumulated of traded in (450,000 - 135,000) (315,000)
Accumulated deprn. - delivery eqt., end 3,255,000

NOTE: Leasehold improvement is depreciated with est. useful life or lease term whichever is shorter.
Estimated useful life (5 x 12) 60 months
Lease term 56 months

Cost 4,200,000
Lease term 56
Monthly deprn 75,000
months 8
Deprn. Exp. / Accum deprn 600,000
whichever is shorter.
CASE 9 - Romulus Company

Cost – 1/1/2020 11,000,000

Accum. depn. (11,000,000 / 10) (1,100,000)
Carrying amount – 12/31/2020 9,900,000
Value in use – higher than fair value 8,550,000
Impairment loss for 2020 1,350,000

Carrying amount – 1/1/2021 8,550,000

Depreciation for 202 (8,550,000 / 9) (950,000)
Carrying amount – 12/31/2021 with impairment 7,600,000

Cost – 1/1/2020 11,000,000

Accum. depn. – 12/31/2021 (11,000,000 / 10 x 2) (2,200,000)
Maximum carrying amount – 12/31/2021 no impairment 8,800,000

Carrying amount – 12/31/2021 no impairment 8,800,000

Carrying amount – 12/31/2021 with impairment 7,600,000
Limit on recovery 1,200,000

Fair value less cost of disposal – 12/31/2021 higher than fair value 8,400,000
Carrying amount – 12/31/2021 with impairment 7,600,000
Gain on reversal of impairment for 2021 800,000 lower

Depreciation for 2022 (8,400,000 / 8) 1,050,000

CASE 10 - Tantalus Company

Replacement cost 8,000,000

Accu deprn (8M/20 x 5) 2,000,000
Sound value 1/1/18 6,000,000
x 14/15 14/15
CV 12/31/18 5,600,000
RA 2,970,000
Decrease in value of asset 2,630,000
RS balance
(2,250,000 x 14/15) 2,100,000
Impairment loss 530,000

Recoverable amount in 2018 2,970,000

Recoverable amount in 2019 4,065,403

CV 12/31/19 (2,970,000 x 13/14) 2,757,857 250,000.00
Increase in the value of asset 1,307,546 212,142.86
Impairment loss (530,000 - 37,857) 492,143 37,857
Revaluation surplus 815,403

RS 12/31/20 (815,403 x 12/13) 752,680

Recovery of impairment loss:

Depreciation if not impaired (5M/20) 250,000
Depreciation recognized in 2019
(2,970,000 / 14) 212,143
Partial recovery 37,857
2018 Recoverable amount 2019 Recoverable amount
NRV (3M - 30,000) 2,970,000 Value in use 4,065,403

Value in use: Value in use:

400,000 0.9090909 363,636 650,000 0.9090909 590,909
400,000 0.8264463 330,579 650,000 0.8264463 537,190
400,000 0.7513148 300,526 650,000 0.7513148 488,355
400,000 0.6830135 273,205 650,000 0.6830135 443,959
400,000 0.6209213 248,369 650,000 0.6209213 403,599
300,000 0.5644739 169,342 550,000 0.5644739 310,461
300,000 0.5131581 153,947 550,000 0.5131581 282,237
300,000 0.4665074 139,952 550,000 0.4665074 256,579
300,000 0.4240976 127,229 550,000 0.4240976 233,254
300,000 0.3855433 115,663 550,000 0.3855433 212,049
100,000 0.3504939 35,049 320,000 0.3504939 112,158
100,000 0.3186308 31,863 320,000 0.3186308 101,962
100,000 0.2896644 28,966 320,000 0.2896644 92,693
100,000 0.2633313 26,333 Total 4,065,403
Total 2,344,661
 SUMMARY OF ANSWERS
1 530,000
2 2,970,000
3 815,403
4 752,680
CASE 11 - Theseus Company

Purchase price 1,000,000

Freight cost 120,000
Insurance while in transit 80,000
Installation cost 150,000
Total cost 1,350,000

Lapsing schedule of no impairment

DATE COST DEP EXP ACCU DEPR
1/1/17 1,350,000
12/31/17 1,350,000 135,000 135,000
12/31/18 1,350,000 135,000 270,000
12/31/19 1,350,000 135,000 405,000
12/31/20 1,350,000 189,000 594,000

Under cost model:

* NO impairmet loss in 2017 because the RA is higher than the CV.
** In 2018, since the CV is higher than the RA, impairment loss is recognized.

CV 12/31/18 1,080,000
RA 12/31/18 1,054,955
Impairment loss 25,045

New Lapsing schedule after the impairment in 2018:

12/31/18 1,350,000 295,045
12/31/19 1,350,000 131,869 426,914
12/31/20 1,350,000 184,617 611,532

*** Since no information is given in 2019 for RA, then, RA is equal to CV, P923,086

RA 12/31/20 882,000
CV 12/31/20 738,469
Increase in value of asset 143,532

Limit:
Cv if not impaired 756,000
CV 12/31/20 738,469
Limit on recovery 17,532
 2017 Recoverable amount
NRV (1,270,000-50,000) 1,220,000

Value in use:
200,000 x 5.328250 1,065,650

CV
1,350,000
1,215,000
1,080,000
945,000
756,000

Under revaluation model:

RA 12/31/17 1,220,000
CV 12/31/17 1,215,000
RS 5,000

RA 12/31/18 1,054,955
CV 12/31/18 (1,220,000 x 8/9) 1,084,444
Decrease in value of asset 29,489
RS (5,000 x 8/9) 4,444
1,054,955 Impairment loss 25,045
923,086
738,469 RA 12/31/20 882,000
CV 12/31/20 738,469
Increase in value of asset 143,532
Impairment loss 17,532
Revaluation surplus 126,000

***Recovery is the amount of impairment loss still to be recovered.

Impairment loss 25,045

Partial recovery 7,514
Recovery in P/L 17,532
 2018 Recoverable amount 2020 Recoverable amount
NRV (given) 1,000,000 NRV 900,000 x 98% 882,000

Value in use:
205,000 x 5.14613 1,054,955

Partial recovery of impairment loss:

Depreciation if not impaired 2019 135,000
Depreciation recognized in 2019 131,869 3,131

Depreciation if not impaired 2020 189,000

Depreciation recognized in 2020 184,617 4,383
Total partial recovery 7,514

ll to be recovered.
CASE 12 - Pelias MINING

Acquisition cost 33,280,000

Less residual value 2,560,000
Depletable cost 30,720,000
Divide by total estimated reserves 25,600,000
Depletion rate 2.40
Tons mined in 2017 2,560,000
Depletion for 2017 3,072,000

Depreciation - Building [(P2,560,000/25,600,000 tons) x 2,560,000 tons x 80%]

Depreciation - Machinery [(P5,120,000-P1,024,000/4]
Total

Depletion (see no. 1) 3,072,000

Direct labor 2,048,000
Depreciation (see no. 2) 1,228,800
Miscellaneous mining overhead 409,600
Total available for sale 6,758,400
Divide by tons mined 2,560,000
Cost per ton 2.64
Tons remaining (2,560,000 - 2,048,000) 512,000
Inventory, 12/31/17 1,351,680

Cost of sales (2,048,000 tons x P2.64) 5,406,720

Sales (2,048,000 x P4.4)

Cost of sales (see no. 4)
Gross profit
Operating expenses
Depreciation - Building [(P2,560,000/25,600,000 tons) x 2,560,000 tons x 20%]
Net income
Realized depletion (2,048,000 tons x P1.2)
Maximum amount that may be declared as dividends
 204,800
1,024,000
1,228,800

9,011,200
(5,406,720)
3,604,480
(1,843,200)
(51,200)
1,710,080
4,915,200
6,625,280
CASE 13- Memnon MINING

Depletable/Depreciable Cost
Mineral property 26,100,000 120,000 217.50
Building 1,080,000 120,000 9.00
Machinery (1/2) 900,000 120,000 7.50
Machinery (1/2) 900,000 120,000 15.00
P27,000,000 – P900,000 = 26,100,000
P900,000/120,000) x 2 = 15

Year 1
Depletion Depreciation
Mineral property (P217.50 x 6,000) 1,305,000
Building (P9 x 6,000) 54,000
Machinery (1/2) (P7.50 x 6,000) 45,000
Machinery (1/2) (P15 x 6,000) 90,000
1,305,000 189,000

Year 5
Depletion Depreciation
Mineral property (P217.50 x 12,000) 2,610,000
Building (P9 x 12,000) 108,000
Machinery (1/2) (P7.50 x 12,000) 90,000
Machinery (1/2) (P15 x 12,000) 180,000
2,610,000 378,000

Year 6
Depletion Depreciation
Mineral property (P217.50 x 12,000) 2,610,000
Building (P9 x 12,000) 108,000
Machinery (1/2) (P7.50 x 12,000) 90,000
Machinery (1/2) (P15 x 6,000) 90,000
2,610,000 288,000

Year 11
Depletion Depreciation
Mineral property (P217.50 x 6,000) 1,305,000
Building (P9 x 6,000) 54,000
Machinery (1/2) (P7.50 x 6,000) 45,000
Machinery (1/2) -
1,305,000 99,000

Year 1
Depletion Depreciation
Mineral property (P217.50 x 5,000) 1,087,500
Building (P9 x 5,000) 45,000
Machinery (1/2) (P7.50 x 5,000) 37,500
Machinery (1/2) (P15 x 5,000) 75,000
1,087,500 157,500
CASE 14 - Cronus

1. No depreciation is reported using FV model, P0

2. P24,0000. under fairvalue model, the asset is reported at its FV.

3. Entry made:

Investment Property Investment Property

25,000,000 1,000,000 26,000,000 2,000,000
24,000,000 24,000,000
4,000,000 4,000,000
28,000,000 28,000,000
2,000,000 2,000,000
30,000,000 30,000,000

Unrealized gain ( 1,000,000 Unrealized gain 2,000,000

Investment Property 1,000,000 Investment Property

Investment Prope 4,000,000 Investment Pro 4,000,000

Unrealized gain (loss) - PL 4,000,000 Unrealized gain (loss) - PL

PAJE as of December 31, 2021

Investment Pro 1,000,000
Retained earnings

4. No amount of revaluation surplus reported in OCI under FV model, P0

 2,000,000

4,000,000

mber 31, 2021

1,000,000
CASE 15 - Poseidon Company
MC CASE 1
1 C
2 A
3 D
4 C
5 B
5 B

MC CASE 2
1 A
2 B
3 A

MC CASE 3
1 B
2 A
3 B
4 D
5 C

MC CASE 4
1
2
3

MC CASE 5
1
2