LAND, BUILDING AND MACHINERY

1. An entity purchased a tract of land as an investment property. The entity razed an old
building on the property.
Purchase price of land and an old building 4,000,000
Fair value of old building 300,000
Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land. 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvement 120,000
What is the cost of the Land?
a. 4,600,000
b. 4,120,000
c. 4,330,000
d. 4,300,000

2. An entity purchased a track of land as a factory site. An old building was demolished and
construction began on the new building.
Purchase price of land and an old building 4,500,000
Fair value of old building 250,000
Cost of demolishing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
Survey before construction 100,000
Building permit or payment to city hall for approval of building construction 150,000
Excavation before new construction 200,000
Liability insurance during construction 100,000
New fence surrounding the new building 100,000
Driveway parking bay and safety lighting 550,000
Cost of trees, shrubs and other land scaping 300,000
1. What is the cost of the land?
a. 4,550,000
b. 4,800,000
c. 4,850,000
d. 4,450,000
2. What is the cost of the new building?

a. 9,700,000
b. 9,750,000
c. 9,800,000
d. 9,950,000
3. What is the cost of land improvements?
a. 950,000
b. 650,000
c. 850,000
d. 400,000

3. Ana entity acquired a machine and incurred the following costs:

Cash paid for machine, including VAT of P96,000
896,000
Cost of transporting machine
30,000
Cost of installation
50,000
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
Cost of repairing damage during installation
45,000
Cost of spare parts to cover breakdowns
155,000
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
What total amount should be capitalized as cost of the machine?
a. 1,400,000
b. 1,296,000
c. 1,200,000
d. 1,160,000

4. During 2019, an entity constructed a new building at a cost of P30,000,000. The

expenditures for the building, which was finished late in 2019, were incurred evenly
during the year. The entity had the following loans outstanding on December 31, 2019:

10% note to finance specifically construction of the building, dated January 1, 2019,
P10,000,000 and unpaid on December 31, 2019. Investments were made on the
proceeds from the loand and income of P100,000 was realized in 2019.

12% 20 year bonds payable issued at face amount on April 30, 2018, P30,000,000.

8% 5 year note payable, dated March 1, 2018, P10,000,000.

What amount of interest is capitalized as cost of the new building?

a. 1,550,000
b. 1,450,000
c. 1,400,000
d. 1,500,000

5. On July 1, 2019, an entity began construction of a plant which was completed on October
31, 2020. On July 1, 2019, the entity obtained a P7,000,000 6% construction loan. The loan was
paid on December 31, 2020. The only other debt was a P15,000,000 9% long-term note which
was outstanding during 2019 and 2020. Expenditures in the plant were:
July 1, 2019 5,000,000 February 1, 2020 3,000,000
October 1, 2019. 4,000,000. April 1, 2020 2,000,000
September 1, 2020
2,000,000
October 1, 2020.
500,000
1. What amount of interest should be capitalized in 2019?
a. 210,000
b. 270,000
c. 540,000
d. 420,000
2. What amount of interest should be capitalized in 2020?
a. 1,000,000
b. 1,350,000
c. 350,000
d. 857,000
3. What is the interest expense for 2020?
a. 1,350,000
b. 1,770,000
c. 913,000
d. 843,000