Practical Accounting 1 SMC 😊 During the year, Ed also received land from a shareholder to facilitate the construction of a plant in

the city. Ed paid P100,000 for the land transfer and charged this amount to legal expenses. The land
P1.003_ Property, Plant and Equipment – Acquisition is fairly valued at P1,500,000.
and Subsequent Expenditures
As a result of these acquisitions, Ed Company’s equity had a net increase of

6. Company A had a machine with a carrying amount of P450,000. Company B had a delivery vehicle
Illustrative Problems with a carrying amount of P300,000. Companies A and B exchanged the machine and vehicle, and
Company B paid an additional P90,000 cash as part of the exchange. Assume that the fair value of
1. John Corporation is installing a new plant at its production facility. It has incurred these costs: the delivery c) vehicle is P420,000. If the exchange has commercial substance, how much gain or loss
Purchase price of plant P2,500,000 should be recorded by Company A?
Initial delivery and handling costs 200,000
Cost of site preparation 600,000 Use the following information for the next two questions.
Consultants used for advice on the acquisition of the plant 700,000 Payor Inc. and Recipient Co. have an exchange with no commercial substance. The asset given up by
Estimated dismantling costs to be incurred after 7 years 300,000 Payor Inc. has a book value of P12,000 and a fair value of P15,000. The asset given up by Recipient Co.
Operating losses before commercial production 400,000 has a book value of P20,000 and a fair value of P19,000. Boot of P4,000 is received by Recipient Co.
The total costs that can be capitalized in accordance with PAS 16 is 7. What amount should Payor Inc. record for the asset received?

2. Mary Company purchased a machine on December 2, 2016 at an invoice price of P4,500,000 with 8. What amount should Recipient Co. record for the asset received?
terms 2/10, n/30. On December 10, 2016, Mary paid the required amount for the machine. On
December 2, 2016, Mary paid P80,000 for delivery of the machine and on December 31, 2016, it paid 9. A used delivery truck was traded in for a new truck. Information relating to the trucks follows:
P310,000 for installation and testing of the machine. It was estimated that the machine would have a Used truck:
useful life of 5 years, and a residual value of P800,000. What amount should be capitalized as cost of Cost P1,600,000
the machine? Accumulated depreciation 1,200,000
Estimated current fair value 320,000
3. Jane Airlines sold a used jet aircraft to Arbiter Company for P800,000, accepting a five-year 6% note New truck:
for the entire amount. Arbiter's incremental borrowing rate was 14%. The annual payment of List price 2,000,000
principal and interest on the note was to be P189,930. The aircraft could have been sold at an Cash price without trade-in 1,900,000
established cash price of P651,460. The present value of an ordinary annuity of P1 at 8% for five Cash price with trade-in 1,560,000
periods is 3.99. The aircraft should be capitalized on Arbiter's books at
The amount that should be capitalized as the cost of the new truck is
4. Michael Company acquired two items of machinery as follows:
• On January 1, 2016, Michael Company acquired used machinery by issuing to the seller a three- 10. The Anthony Furniture Mfg. Co. fabricated furniture and fixtures for its office use in the company’s
year, 12% interest note for P3,000,000. plant during 2016. The following data were taken from the company’s records:
• On December 30, 2016, Michael Company purchased a machine in exchange for a noninterest Materials Direct Labor
bearing note requiring three payments of P1,000,000. The first payment was made on December Finished goods P100,800 P151,200
30, 2016, and the others are due annually on December 30. The prevailing rate of interest for this Office furniture & fixtures 67,200 50,500
type of note at date of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is
1.69 for two periods and 2.40 for three periods. Factory overhead amounted to P134,000. Normal production of finished goods results to 420 units.
Due to the fabrication of office furniture and fixtures, finished goods produced totaled 294 units only
What is the total cost of the machinery? in 2016. The assets are to be charged with the overhead which would have been apportioned to the
126 units which were not produced.
5. Ed Company acquired land and building by issuing 60,000, P100 par value, ordinary shares. On the
date of acquisition, the shares had a fair value of P150 per share and the land and building had fair What is the total cost of office furniture and fixtures?
value of P2,000,000 and P6,000,000 respectively.
11. On May 1, 2016, Nicole Corporation purchased for P690,000 a tract of land on which a warehouse
and office building were located. The following data were collected concerning the property:
 Current Assessed Vendor's Labor to install new machine 400,000
Valuation Original Cost Parts added in rearranging the assembly
Land P280,000 P180,000 line to provide future benefits
Warehouse 320,000 315,000 2,000,000
Office Building 200,000 129,000 Labor and overhead to rearrange the
P800,000 P624,000 assembly line 600,000
Determine the appropriate amount that Nicole should charge to land. What amount of the above expenditures should be capitalized in 2016?

12. Angela Co. purchased land as a factory site for P1,000,000. Angela paid P40,000 to tear down two
buildings on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for title
investigation and making the purchase. Income of P8,000 was earned through using the land as a
car park before construction started. Architect's fees were P41,200. Title insurance cost P2,400, and
liability insurance during construction cost P2,600. Excavation cost P10,440. The contractor was paid
P2,400,000. An assessment made by the city for pavement was P6,400. Interest costs during
construction were P170,000.
The cost of the land that should be recorded by Angela Co. is

13. The following expenditures were incurred by Lyon Enterprises Co. in 2016:

Purchase of land P3,900,000

Land survey 52,000
Fees for search of title for land 6,000
Building permit 35,000
Temporary quarters for construction crews 107,500
Payment to tenants of old building for vacating premises 46,000
Razing old building 470,000
Excavating basement 100,000
Special assessment tax for street project 20,000
Dividends 50,000
Damaged awarded for injuries sustained in construction (no insurance was carried) 84,000
Costs of construction 29,000,000
Cost of paving parking lot adjoining building 400,000
Cost of shrubs, trees, and other landscaping 330,000

Determine the cost of the building in accordance with PIC Q&A 2016-2

14. Dasmariñas Company has a production assembly line to manufacture furniture. In 2016 Dasmariñas
purchased a new machine and rearranged the assembly line to install this machine. The
rearrangement did not increase the estimated useful life of the assembly line but it did result in
significantly more efficient production. The following expenditures were incurred in connection with
this project:
Machine P5,000,000