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The document outlines various cases related to the acquisition costs of property, plant, and equipment (PPE) for different companies. Each case presents specific scenarios involving the allocation of purchase prices, cash price equivalents, deferred settlements, exchange transactions, and additional costs related to machinery and buildings. The document also includes calculations required to determine the total amounts to be recorded for each acquisition in the companies' books.

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ZOEZEL ANNLEIH LAYONG
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37 views3 pages

P Pptbased

The document outlines various cases related to the acquisition costs of property, plant, and equipment (PPE) for different companies. Each case presents specific scenarios involving the allocation of purchase prices, cash price equivalents, deferred settlements, exchange transactions, and additional costs related to machinery and buildings. The document also includes calculations required to determine the total amounts to be recorded for each acquisition in the companies' books.

Uploaded by

ZOEZEL ANNLEIH LAYONG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PROPERTY, PLANT AND EQUIPMENT: ACQUISITION COST

CASE 1: ALLOCATION OF PURCHASE PRICE


Tower Company made the following acquisitions 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.
1. What amount should be reported as cost of land?
2. What amount should be reported as cost of building?
CASE 2: CASH PRICE EQUIVALENT
Bamco Company purchased a new machine on a deferred payment basis.
A downpayment of P100,000 was made and 4 monthly installments of P250,000
are to be made at the end of each month.
The cash price equivalent of the machine was P950,000. The entity
incurred and paid installation costs amounting to P30,000.
1. What amount should be capitalized as cost of the machine?
CASE 3: DEFERRED SETTLEMENT
Anxious Company acquired two items of machinery.

• On December 31, 2023, Anxious Company purchased a machine 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 5.56 for ten periods.

• On December 31, 2023, Anxious Company acquired used machinery by


issuing the seller a two-year, noninterest bearing note for
P3,000,000.

In recent borrowing, the entity has paid a 12% interest for this
type of note. The present value of 1 at 12% for two years is .80
and the present value of an ordinary annuity of 1 at 12% for 2
years is 1.69.

1. What amount should be reported as total cost of the machinery?


CASE 4: EXCHANGE TRANSACTION
During the current year, Ewing Company exchanged an old packing machine,
which cost P1,200,000 and was 50% depreciated, for another used machine
and paid a cash difference of P160,000.
The fair value of the old packaging machine was determined to be P700,000
1. What amount should be reported as cost of the machine acquired in
the exchange?
2. What amount should be reported as gain on exchange?
CASE 5: MIX AND MATCH
The following items of PPE were acquired by ABC Inc.:
• A machine on account with a price of P2,000,000 with credit terms 3/10,
n/30. Other costs paid were freight charges of P2,000, repairs of P3,500
for damage during installation, and installation costs of P2,250.
Estimated future dismantling costs of the new equipment is P40,000. The
company paid P20,000 to dismantle the old machine to make room for the
new one. The company paid the purchase price beyond the discount period.
• A delivery car for P500,000. A down-payment of P100,000 was paid and
the balance payable in two equal annual installments through a
noninterest-bearing note. The imputed rate was 12%.
• A brand-new set of monobloc chairs in exchange for used chairs which
originally cost P300,000 and was 50% depreciated. Additional cash of
P50,000 was paid. The fair value of the old chairs was determined to be
P180,000, while the fair value of the new chairs is P250,000. The
exchange has commercial substance.
• A cabinet donated by a shareholder. The cabinet has an appraised value
of P50,000. Delivery and handling costs amounts to P1,500 to bring the
cabinet to the company’s premises.
• Land with a current market value of P2,400,000. The book value of the
land in the accounts of the seller was P1,305,000. In exchange for the
land, the company issued 20,000 ordinary shares with par value of P100
and an estimated market value of P140 per share.

Prepare the journal entries to record each acquisition and compute for
the total amount of PPE to be recorded in the books.
PROPERTY, PLANT AND EQUIPMENT: LAND, BUILDING
AND EQUIPMENT
CASE 1: LAND AND BUILDING
Carmela Company commenced operations at the beginning of the current
year, costs are incurred by the entity:
Payment for land P1,000,000
Payment of property taxes in arrears 40,000
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 on land,
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
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

1. Compute for the amount that should be reported respectively as


initial measurement of land and building.

CASE 2: MACHINERY
ABC Inc. acquired a machine at the beginning of the current year. The
following costs were incurred:
Cash paid for machine, inclusive of 12% VAT P896,000
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

1. Compute for the total amount that should be capitalized as cost of


the machine.

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