Use the following information for the next 2 questions:

1. Butuan Co. acquired 40% interest in Jagna Inc. for P1,700,000 on January 1, 2024. The shareholder’s equity of
Jagna Co. on January 1 and December 31, 2024 is presented below:
January 1 December 31
Share capital 3,000,000 3,000,000
Revaluation surplus 1,300,000
Retained earnings 1,000,000 1,500,000
On January 1, 2024, all the identifiable assets and liabilities of Jagna Co. were recorded at fair value. Jagna Co.
reported profit of P700,000, after income tax expense of P300,000 and paid P150,000 to shareholders during the
current year. The revaluation surplus is the result of the revaluation of land recognized by Jagna on December 31,
2024. Additionally, depreciation is provided by Jagna Co. on the diminishing balance method whereas Butuan Co
uses straight line. Had Jagna used straight line, the accumulated depreciation would be increased by P200,000.
30% is the tax rate. What is the carrying amount of Butuan’s investment in Jagna on December 31, 2022?

Solution:
Acquisition cost 1,700,000
Net assets acquired (40% x 4,000,000) (1,600,000)
Goodwill – not amortized 100,000

Acquisition cost 1,700,000

Net income (40% x 700,000) 280,000
Cash dividend (40% x 150,000) (60,000)
Revaluation surplus (40% x 1,300,000) 520,000
Carrying amount of investment – 12/31/2024 2,440,000

2. Maragusan Co. owns 20% of Cateel Co’s preference share capital and 80% of its ordinary share capital on
December 31, 2022: 10% cumulative preference share capital P5,000,000; Ordinary share capital P7,000,000.
Cateel reported net income P3,000,000 for the year ended December 31, 2022. What is the equity in earnings of
the investee for 2022?

Solution:
Net income 3,000,000
Preference dividend (10% x 5,000,000) (500,000)
Net income to ordinary shares 2,500,000
Shar in net income – OS (80% x 2,500,000) 2,000,000

Use the following information for the next 5 questions:

3. Alaminos Inc. completed the construction of a building at the end of 2018 for a total cost of P100,000,000. The
building is estimated to be economically useful for 25 years. The building was constructed for the purpose of
earning rentals under operating leases. The tenants began occupying the building after its completion. The
company opted to use the fair value model to measure the building. An independent valuation expert was used by
the company to estimate the fair value of the building on an annual basis. According to the expert, the fair values of
the building at the end of 2018, 2019 and 2020 were P105,000,000, P120,000,000, and P118,000,000, respectively.
How much should be recognized in profit or loss in 2018 as a result of the completion of the building at the end of
2018?

Solution:
Fair value, 12/31/2018 105,000,000
Cost 100,000,000
Unrealized gain on investment property 5,000,000

4. The depreciation expense in 2019 is:

Solution: investment properties carried at fair value are not depreciated since fair value changes are already recognized in
profit or loss. 0

5. How much should be recognized in profit or loss in 2019 as a result of the fair value changes?

Solution:
Fair value, 12/31/2019 120,000,000
Fair value, 12/31/2018 105,000,000
Unrealized gain on investment property 15,000,000

6. How much should be recognized in profit or loss in 2020 as a result of the fair value changes?

Solution:
Fair value, 12/31/2020 118,000,000
Fair value, 12/31/2019 120,000,000
Unrealized loss on investment property (2,000,000)

7. How much is the carrying amount of the shopping mall on December 31, 2020 if Alaminos used the cost model?

Solution:
Cost 100,000,000
AD: (100,000,000 x 2/25) 8,000,000
Carrying amount, 12/31/2020 92,000,000

Use the following information for the next 5 questions:

8. On December 31, 2023, the statement of financial position of Tinio Co. showed the following property and
equipment after charging depreciation:
Building 3,000,000
Accumulated depreciation (1,000,000) 2,000,000

Equipment 1,200,000
Accumulated depreciation (400,000) 800,000

The company has opted the revaluation model for the valuation of property and equipment. This resulted in the
recognition in prior periods of an asset revaluation surplus for the building of P150,000. On December 31, 2023, an
independent valuer assessed the fair value of the building to be P1,600,000 and the equipment to be P900,000.
The building and equipment had remaining useful lives of 25 years and 4 years, respectively, as of December 31,
2023. Compute the revaluation surplus as of December 31, 2023, after considering the revaluation.

Solution:
Fair value Carrying amount Increase/(decrease) Disposition
Building 1,600,000 2,000,000 (400,000) Debit to revaluation surplus
Equipment 900,000 800,000 100,000 Credit to revaluation surplus

9. Compute the amount to be recognized in 2023 profit or loss related to the revaluation of PPE.

Answer: P250,000
Solution:
Building:
Accumulated depreciation 1,000,000
Revaluation surplus 150,000
Revaluation loss 250,000
Building (3,000,000 – 1,600,000) 1,400,000

Equipment:
Accumulated depreciation 400,000
Equipment (1,200,000 – 900,0000 300,000
Revaluation surplus 100,000

10. Compute the total depreciation in 2024.

Solution:
Depreciation – building (1,600,000/25) 64,000
Depreciation – equipment (900,000/4) 225,000
Total 289,000

11. Compute the carrying amount of property and equipment as of December 31, 2024.

Solution:
Building Equipment Total
CA, 12/31/2023 1,600,000 900,000 2,500,000
Depreciation - 2024 (64,000) (225,000) (289,000)
CA, 12/31/2024 1,536,000 675,000 2,211,000

12. Compute the revaluation surplus of December 31, 2024.

Solution:
Revaluation surplus, 12/31/2023 100,000
Transfer to retained earnings (100,000/4) (25,000)
Revaluation surplus, 12/31/2024 75,000

Use the following information for the next 4 questions:

13. On January 1, 2021, Reyes Co. acquired land containing ore for a total cost of P40,000,000. Other capitalizable
costs incurred for the wasting assets amounted to P20,000,000. On the same date, mining equipment were also
purchased by the company at a total cost of P15,000,000. Geologists estimate that the total units estimated to be
extracted is 4,000,000 tons of ore. It is estimated that 400,000 tons will be extracted each year during the useful life
of the wasting assets. Actual units extracted during 2021 are 450,00 tons. Assuming the equipment are movable,
and its useful life is 15 years, how much is the depreciation expense in 2021?

Solution:
Mining equipment cost 15,000,000
Residual value
Depreciable cost 15,000,000
Divide by: UL 15
DE 2021 1,000,000

14. Assuming the equipment are movable and its useful life is 5 years, how much is the depreciation expense in 2021?

Mining equipment cost 15,000,000

Residual value
Depreciable cost 15,000,000
Divide by: UL 5
DE 2021 3,000,000

15. Assuming the equipment are immovable, and its useful life is 15 years, how much is the depreciation expense in
2021?

Mining equipment cost P15,000,000

Residual value
Depreciable cost 15,000,000
Divide by units estimated to be extracted 4,000,000
Depreciation per unit P3.75
Multiply by units extracted during 2021 450,000
Depreciation expense P1,687,500

Estimated units to be extracted 4,000,000

Divide by average units to be extracted per year 400,000
Life of WA 10 years

Depreciation is based on the life of the equipment or life of the wasting asset whichever is shorter.

16. Assuming the equipment are immovable and its useful life is 5 years, how much is the depreciation expense in
2021?

Mining equipment cost 15,000,000

Residual value
Depreciable cost 15,000,000
Divide by: UL 5
DE 2021 3,000,000

Use the following information for the next 5 questions:

17. On January 1, 2024, Felmar Co. acquired a factory machine for P336,000, P36,000 VAT inclusive. Other related
costs are as follows:
Freight cost 30,000
Removal cost 20,000
Installation and testing costs 10,000
Broker’s commission 15,000
The machine has a residual value of P35,000 at the end of its 5-year useful life. Actual units produced for 2024 was
25,000 units. The total output units are 160,000. Determine the depreciation expense for 2024 using straight-line
method.

Solution:
Purchase price (336,000 – 36,000) 300,000
Freight cost 30,000
Installation and testing costs 10,000
Broker’s commission 15,000
Total costs 355,000
Residual value (35,000)
Depreciable amount 320,000

DE = 320,000/5 = 64,000
DE = 320,000 x 1/5 = 64,000
 18. Determine the depreciation expense for 2024 using output method.

DE = 320,000 X 25,000/160,000 = 50,000

19. Determine the depreciation expense for 2025 using SYD method.

2024 320,000 X 5/15 106,667

2025 320,000 X 4/15 85,333
2026 320,000 X 3/15 64,000

20. Determine the depreciation expense for 2025 using 150% declining balance method.
2024 355,000 X (1/5 X 1.5) 106,667
2025 248,500 X 30% 74,550
2026 173,950 X 30% 52,185

21. Determine the depreciation expense for 2026 using double declining balance method.

2024 355,000 X (1/5 X 2) 142,000

2025 213,000 X 40% 85,200
2026 127,800 X 40% 51,120

Use the following date for the next 4 questions:

22. On August 1, 2023, Sweden Co. purchased land and building for a lump-sum price for P1,500,000. The existing
building will be demolished, and a new building will be constructed. In relation to this, the following costs were
incurred:
Legal cost of conveying the land P20,000 L
Title guarantee 10,000 L
Payments to tenants to vacate the premises 15,000 L (80%); OB (20%)
Option paid on the acquired properties 50,000 L (80%); OB (20%
Option paid on similar properties not acquired 25,000 EXP
Broker’s fees 30,000 L (80%); B (20%)
Unpaid realty taxes prior August 1, 2023 assumed by Sweden assessed on 35,000 L
land
Real estate taxes after August 1, 2023 20,000 EXP
Demolition cost of old building 45,000 NB
Proceeds from sale of salvaged materials 10,000 NB (-)
Special assessments 15,000 L
Survey cost 5,000 L
Excavation before construction of new building 50,000 NB
Materials, labor and overhead costs 3,000,000 NB
Cash discounts on materials purchased but not taken 40,000 NB(-)
Architects fees 40,000 NB
Building permits 30,000 NB
Supervision by management on construction 35,000 NB
Insurance premium paid for construction workers 100,000 NB
Payment of medical bills of employees accidentally injured during construction 30,000 EXP
Cost of grading and leveling 50,000 L
Temporary building to house tools and materials 80,000 NB
Cost of temporary fence 30,000 NB
Cost of removing temporary fence 5,000 NB
Temporary building to house tools and materials 50,000 NB
 Cost of permanent fence (included on the blueprint) 40,000 NB
Cost of paving driveway and parking lot (excluded on the blueprint) 60,000 LI
Cost of installing lights in parking lot (excluded on the blueprint) 15,000 LI
Cost of trees and other landscaping (included on the blueprint) 30,000 NB
Income earned on vacant space rented as parking lot during construction 35,000 INCOME
Savings on construction 50,000 Opportunity cost
Cost of changes to plans and specifications due to inefficiencies 30,000 EXP
Cost of open house party to celebrate opening of new building 60,000 EXP

Assuming on acquisition date, the land and old building have fair values of P800,000 and P200,000, respectively, determine
the cost of land.
23. Determine the cost of new building.
24. Determine the cost of land improvement.
25. Determine the net amount presented in profit or loss.

LAND OB NB LI P/L
1,200,000 300,000
20,000
10,000
12,000 3,000
40,000 10,000
(25,000)
24,000 6,000
35,000
(20,000)
45,000
(10,000)
15,000
5,000
50,000
3,000,000
(40,000)
40,000
30,000
35,000
100,000
(30,000)
50,000
80,000
30,000
5,000
50,000
40,000
60,000
15,000
30,000
35,000
(30,000)
(60,000)
1,411,000 319,000 3,485,000 75,000 (130,000)