Problem No.

Tower Company made the following acquisition during the year:

Purchased for P5,400,000, including appraiser fee of P50,000 a warehouse building and the land
on which it is located. The land had an appraised value of P2,000,000 and original cost of
P1,400,000. The building had an appraised value of P3,000,000 and original cost of P2,800,000.

What amount should be reported as cost of land?

What amount should be reported as cost of building?

Problem No. 2

Grab Company purchased a ten-ton draw press at a cost of P3,600,000 with subject to a 5% cash
discount which was not taken. Shipping cost was P90,000 which included P4,000 for insurance
in transit. Installation cost totaled P240,000 which included P80,000 for taking out a section of a
wall and rebuilding it because the press was too large for the doorway.

What amount should be capitalized as cost of the ten-ton draw press?

Problem No. 3

Bamco Company purchased a new machine on a deferred payment basis. A down payment of
P100,000 was made and 4 monthly installments of P250,000 are to be made at the end of each
month.

The cash equivalent price of the machine was P950,000. The entity incurred and paid installation
costs amounting to P30,000.

What amount should be capitalized as cost of the machine?

Problem No. 4

Anxious Company acquired machinery on December 31, 2023 in exchange for a non-interest-
bearing note requiring ten payments of P500,000. The first payment was made on December 31,
2024, and the others are due annually on December 31.

The prevailing rate of interest for this type of note at date of issuance was 12%. The present
value of an ordinary annuity of 1 at 12% is 5.33 for nine periods and 5.65 for ten periods.

What amount should be reported as cost of the machinery?

Problem No. 5
A piece of land is acquired by issuing 50,000 shares with par value of P100. At the time of
acquisition, the fair value of the land is P6,000,000 and the share is quoted at P110 per share.

What amount should be reported as cost of the land?

Problem No. 6

Amiable Company exchanged an old truck with a carrying amount of P1,200,000 and a fair
value of P2,000,000 for a new truck and P200,000 cash. The fair value of the new truck received
was P1,800,000. The cash flows from the new truck are expected to be significantly different
from the cash flows of the old truck.

At what amount should the new truck received in the exchange be recorded?

Problem No. 7

Yola Company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil to
their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically
moving the oil. Yola paid Zaro P300,000 to compensate for a difference in the grade of oil. It is
reliably determined that the exchange lacks commercial substance. On the date of the exchange,
cost and fair value of the oil of Yola Company were P1,000,000 and P1,200,000, respectively.

What amount should Yola Company record as cost of the oil inventory received in
exchange?

Problem No. 8

Jilmar Company acquired a new truck and made payment of P2,870,000. The cost of the old
truck traded was P1,500,000 with carrying amount of P400,000 and fair value of P350,000.

Piece of new truck 2,500,000

Charge for extra equipment 150,000
VAT-recoverable 300,000
Insurance for one year 100,000
Motor vehicle registration 20,000
Total 3,070,000
Trade in value of old truck (200,000)
Cash paid 2,870,000
What amount should be recorded as cost of the new truck acquired in exchange?
Problem No.9

Belarus Company constructed a building during the current year. The following data were taken
from the accounting records:
 Materials Direct Labor
Finished Goods 3,000,000 4,200,000
Building 4,000,000 1,800,000

Factory overhead amounted to P2,00,000. Normal production of finished goods is 180,000 units.
Due to the fabrication of the building finished goods produced totaled 135,000 units only in the
current year.

The building is to be charged with the overhead which would have been apportioned to the
45,000 units which were not produced.

What amount should be reported as cost of the building after the apportionment of factory
overhead?

Problem No. 10

Jam Company started construction on a building at the beginning of the current year and
completed construction at year end. The entity had only two interest notes outstanding during the
year and both of these notes were outstanding for all 12 months of the year.

Average accumulated expenditures 2,500,000

Ending balance in construction in progress before 3,600,000
capitalization of interest
6% note incurred specifically for the project 1,500,000
9% long term note 5,000,000

What amount should be recorded as cost of the building?

Problem No.11
Congo Company commenced construction of a new plant on February 1, 2023. The cost of
P24,000,000 was paid in full to the contractor on February 1, 2023 and was funded from existing
general borrowings. The construction was completed on September 30, 2023.

The borrowings during 2023 comprised the following:

Bank A- 6% 8,000,000
Bank B- 6.6% 10,000,000
Bank C- 7% 30,000,000

What amount of borrowing cost should be capitalized in relation to the plant?

Problem No. 12
Warhead Company has loans outstanding during 2023 and 2024.

Specific construction loan 2,000,000 10%

General loan 25,000,000 12%

The entity began the self-construction of a new building on January 1, 2023 and the building was
completed on December 31, 2024.

Expenditures during 2023 and 2024 were:

January 1, 2023 2,000,000
July 1, 2023 4,000,000
November 1, 2023 3,000,000
July 1, 2024 1,000,000

What amount should be reported as cost of the new building on December 31, 2023?
What amount should be reported as cost of the new building on December 31, 2024?
What amount should be reported as interest expense for 2024?

Problem No. 13

At year end, Zee Company has an equipment with the following cost and accumulated
depreciation:

Equipment 9,000,000
Accumulated Depreciation 3,000,000

Due to obsolescence and physical damage, the equipment is found to be impaired.

At year end, the entity has determined the following information related to the equipment:
FV less cost of disposal 4,500,000
Value in Use or Discounted net cash inflows 4,000,000
Undiscounted net cash inflows 5,500,000

What amount should be reported as impairment loss for the year?

Problem No. 14

Zambia Company purchased four convenience store buildings on January 1, 2017 for a total of
25,000,000. The buildings have been depreciated using the straight-line method with a 20-year
useful life and the 10% residual value.

On January 1, 2023, the entity converted the buildings into a hotel and restaurant. Because of the
change in the use of buildings, the entity is evaluating the building for possible impairment.
The entity estimated that the buildings have a remaining useful life of 10 years with zero residual
value. The undiscounted net cash inflows from the buildings amount to P1,500,000 per year and
the current fair value of the four buildings is P10,000,000.

The appropriate discount rate is 12%. The present value of an ordinary annuity of 1 at 12% for
10 periods is 5.65.

What amount of impairment loss should be recognized for 2023?

What amount should be recorded as depreciation for 2023?

Problem No. 15

Amiable Company provided the following data:

Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale contract 100,000
Items in receiving department, returned by customer in good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not received. Freight is on account 300,000
of seller.
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused because of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000

What amount should be reported as inventory?

Problem No. 16

At year-end, Kerr Company purchased goods costing P500,000 FOB destination. These goods
were received at year-end. The cost incurred in connection with the sale and delivery of goods
were:

Packaging for shipment 10,000

Shipping 15,000
Special handling charges 25,000

What total cost should be included in inventory?

 Problem No. 17

Brilliant Company incurred the following costs during the current year:
Cost of purchases based on vendors’ invoices 5,000,000
Trade discounts on purchases already deducted from vendors’ 500,000
invoices
Import duties 400,000
Freight and insurance on purchases 1,000,000
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
After sales warranty costs 250,000

What amount should be recognized as total cost of purchases?

Problem No. 18

Hilltop Company sells a new product. During a move to a new location the inventory records for
the product were misplaced. The entity has been able to gather some information from the
purchases and sales records. The July purchases are as follows:
Date Quantity Unit Total Cost
Cost
July 5 10,000 65 650,000
July 10 12,000 70 840,000
July 15 15,000 60 900,000
July 25 14,000 55 770,000
On July 31, 17,000 units were on hand.

the sales for July amount to P6,000,000 or 60,000 units at P100 per unit. Gross profit on sales for
July was P2,400,000.

The entity has always used a periodic FIFO inventory costing system.

What amount should be reported as cost of the inventory on July 31?

What amount was reported as cost of inventory on July 1?
What is the number of units available for sale on July 1?

Problem No. 19

Lane Company provided the following inventory card during February:

Purchase Units Balance
Price Units Used Units
 Jan 100 20,000 20,000
10
3 10,000 10,000
1
Feb 8 Returns from factory (Jan. 10 110 30,000 40,000
lot)
(1,000) 41,000
9
2 11,000 30,000
8

Using the weighted average method, what amount should be reported as cost of inventory
on February 28?

Problem No. 20

At year-end, Julie Company reported ending inventory at P3,000,000 and the allowance for
inventory writedown before any adjustment at P150,000.

Product 1 Product 2 Product 3 Product 4

Historical Cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
Net Realizable 550,000 1,100,000 950,0000 350,000
Value
Normal Profit 250,000 150,000 300,000 300,000

What amount of loss on inventory writedown should be included in cost of goods sold?

Problem No. 21
At year-end, Frenzy Company had a fire which completely destroyed the goods in process
inventory. A physical inventory was taken after the fire.

December January 1
31
Finished goods 4,500,000 6,000,000
Goods in process 0 4,300,000
Raw materials 2,000,000 1,700,000
Factory supplies 400,000 500,000
During the year, the entity reported sales P20,000,000, purchases P3,800,000, freight P200,000,
direct labor P5,000,000 and manufacturing overhead at 60% of direct labor. The average gross
profit rate is 30% on sales.

What amount should be reported as cost of goods sold?

What amount should be reported as cost of goods manufactured?
What amount should be reported as estimated cost of the ending goods in process
completely destroyed by fire?

Problem No. 22

Empress Company used the retail inventory method to approximate the ending inventory.

Cost Retail
Beginning inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Mark Up 400,000
Mark up cancellation 100,000
Mark down 1,200,000
Mark down cancellation 200,000
Sales 9,500,000
Sales discount 100,000
Employee discounts 500,000
Estimated normal shoplifting loss 600,000
Estimated normal shrinkage 400,000

What amount should be reported as estimated cost of ending inventory using the
conservative approach?
What amount should be reported as estimated cost of ending inventory using the average
cost approach?