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Aliaga Corporation was incorporated on January 2, 2006. The following items relate to the Aliaga’s property and equipment

Cost of land, which included an old apartment building appraised at

P300,000 P3,000,000
Apartment building mortgage assumed, including related interest
due at the time of purchase 80,000
Deliquent property taxes assumed by the Aliaga 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Cost of changes during construction to make new building more
energy efficient 90,000
Interest cost on specific borrowing incurred during construction
Payment of medical bills of employees accidentally injured while
inspecting building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building during construction 30,000
Cost of open house party to celebrate opening of new building
Cost of windows broken by vandals distracted by the celebration

Based on the above and the result of your audit, determine the following:
1. Cost of Land

2. Cost of Building

3. Cost of Land Improvements

4. Amount that should be expensed when incurred

5. Total depreciable property and equipment


On January 1, 2005, Cabiao Corporation purchased a tract of land (site number 101) with a building for P1,800,000. Additionally, Cabiao
paid a real state broker’s commission of P108,000, legal fees of P18,000 and title guarantee insurance of P54,000. The closing statement
indicated that the land value was P1,500,000 and the building value was P300,000. Shortly after acquisition, the building was razed at
a cost of P225,000.

Cabiao entered into a P9,000,000 fixed-price contract with Cabanatuan Builders, Inc. on March 1, 2005 for the construction of an office
building on the land site 101. The building was completed and occupied on September 30, 2006. Additional construction costs were
incurred as follows:
Plans, specifications and blueprints P 36,000
Architect’s fees for design and supervision 285,000

The building is estimated to have a forty-year life from date of completion and will be depreciated using the 150%-declining-balance

To finance the construction cost, Cabiao borrowed P9,000,000 on March 1, 2005. The loan is payable in ten annual installments of
P900,000 plus interest at the rate of 14%. Cabiao used part of the loan proceeds for working capital requirements. Cabiao’s average
amounts of accumulated building construction expenditures were as follows:

For the period March 1 to December 31, 2005 P2,700,000

For the period January 1 to September 31, 2006 6,900,000

Cabiao is using the allowed alternative treatment for borrowing cost.

Based on the above and the result of your audit, determine the following:

1. Cost of land site number 101

2. Cost of office building

3. Depreciation of office building for 2006


In the audit of the books of Yellow Corporation for the year 2017, the following items and information appeared in the Production
Machine account of the client:

Date Particulars Debit Credit

01/01 Balance – Machine 1, 2, 3, and P720,000
4 at P180,000 each
02/28 Machine 5 396,000
Machine 1 P6,000
09/01 Machine 6 192,000
12/01 Machine 7 432,000

The accumulated depreciation account contained no entries for the year 2017. The balance on January 1, 2017 per your audit, was as

Machine 1 P168,750
Machine 2 787,50
Machine 3 67,500
Machine 4 45,000

Based on your further inquiry and verification, you noted the following:
1. Machine 5 was purchased for cash, it replaced Machine 1, which was sold on this date for P6,000.
2. Machine 2 was destroyed by the thickness of engine oil used leading to explosion on December 1, 2017. Machine 7 was to replace
Machine 2.
3. Machine 3 was traded in for Machine 6 at an allowance of P24,000; the difference was paid in cash and charged to Production
Machine account.
4. Depreciation rate is recognized at 25% per annum.

Based on the above and the result of your audit, answer the following:
1. The adjusting entry to correct the entry made on the sale of Machine 1 will be.

2. The adjusting entry to correct the entry made on the sale of Machine 2 will be.
3. The adjusting entry to correct the entry made on trade-in of the sale of Machine 3 will be.

4. The total depreciation for the year ended December 31, 2017.

5. The carrying amount of production machine as of December 31, 2017.


The following data relate on the Plant Assets account of Licab, Inc. at December 31, 2005:

Plant Assets
Original cost P87,500 P127,500 P200,000 P200,000
Year Purchased 2000 2001 2002 2004
Useful life 10 years 37,500 hours 15 years 10 years
Salvage value P7,750 P7,500 P12,500 P12,500
Depreciation SYD Activity Straight-line Double-declining
method balance

Note: In the year an asset is purchased, Licab, Inc. does not record any depreciation expense on the asset.

In the year an asset is retired or traded in, Licab, Inc. takes a full year depreciation on the asset.

The following transaction occurred during 2006:

(a) On May 5, Asset L was sold for P32,500 cash.

(b) On December 31, it was determined that asset A had been used 5,250 hours during 2006.

(c) On December 31, before computing depreciation expense on Asset R, the management of Licab, Inc. decided the useful life
remaining from 1/1/06 was 10 years.

(d) On December 31, it was discovered that a plant asset purchased in 2005 had been expensed completely in that year. This asset
costs P55,000 and has useful life of 10 years and no salvage value. Management has decided to use the double-declining balance
for this asset, which can be referred to as “Asset S.”


Based on the above and the result of your audit, answer the following: (Disregard tax implications)

1. How much is the gain or loss on sale of Asset L?

2. How much is the depreciation of Asset R for 2006?

3. The adjusting entry to correct the error of failure to capitalize Asset S would include a debit/credit to Retained Earnings of

4. How much is the adjusted balance of Plant Assets as of December 31, 2006?

5. How much is the total depreciation expense for 2006?


The draft balance sheet of Manila Corporation as of December 31, 2017 reported the net PPE at P110,000,000. Details of the amount

Land at cost P10,000,000

Buildings at cost P50,000,000
Less: Accumulated depreciation at
12/31/16 (20,000,000) 30,000,000
Plant and equipment, at cost 94,500,000
Less: Accumulated depreciation at
12/31/16 (24,500,000) 70,000,000

The following notes are relevant:

 On June 30, 2017, Manila terminated the production of one of its production lines. From this date, the plant used to
manufacture the product has been actively marketed at an advertised price of P4.2 Million which is considered realistic.
Assume that this plant qualified as held for sale in accordance with PFRS 5. It is included in Plant and Equipment at a cost of
P9 Million with accumulated depreciation (at 1 January 2017) of P5 Million.
 On January 1, 2017, the directors of Manila decided that the financial statements would show an improved position if the
land and buildings were revalued to market value. At that date, an independent valuer valued the land at P12 Million and the
buildings at P35 Million and these were accepted by the directors. The remaining useful life of the buildings at that date was
14 years. Manila does not make a transfer to retained earnings for excess depreciation. Ignore deferred tax on tax on
revaluation surplus.
 Plant and equipment is depreciated at 20% per annum using the reducing balance method and time apportioned as
 All depreciation is charged to cost of sales, but none has yet been charged on any non-current asset for the year ended
December 31, 2017.

Based on the above and the result of your audit, determine the amounts that should be reported as of and for the year ended
December 31, 2017 for the following:

1. Plant and equipment

2. Plant held for sale

3. Property, Plant and Equipment

4. Total depreciation

5. Revaluation surplus


On January 2, 2015, Calamba Company purchased for P450,000, from which it is estimated that 400,000 tons of ore could be
extracted. It estimates that it will cost P80,000 to restore the land, after which it could be sold for P30,000.

During 2015, the company mined 80,000 tons and sold 50,000 tons. During 2016, the company mined 100,000 tons and sold 120,000
tons. At the beginning of 2017, the company spent an additional P100,000, which increased the reserves by 60,000 tons. In 2017, the
company mined 140,000 tons and sold 130,000 tons. The company used a FIFO cost flow assumption.

1. The depletion for 2016 is

2. The depletion for 2017 is

3. The carrying amount of the natural resources as of December 31, 2017 is

4. The depletion included in cost of sales for the year ended December 31, 2017 is