PPE Exercises Part 1

1. Lindy Co.
acquired machinery with the quoted in the market at P1,000,000, was on January 1, 2019 by issuing 10%
P1,000,000, 3-year bonds when the prevailing rate for such instrument was 12%.
@ 12% @10%
PV of 1 for 3 years 0.7118 0.7513
PV of ordinary annuity of 1 for 3 years 2.4018 2.4869
Also, Lindy incurred the following costs:
A. Refundable purchase taxes of P120,000, paid outright

B. Installation and set-up costs, P56,000 to be paid at year-end
C. 5-years insurance for the machinery, P30,000 paid outright
D. Other direct acquisition costs, P10,000 paid outright
E. Costs of removing the old machine, P5,000 paid outright
F. Initial estimated costs of dismantling the machine at the end of its estimated 8-years life, P401,093
G. The discount rate to be used for all other cost requiring present valuation is 10%
PV of 1 @ 10% for 1 year 0.9091

PV of 1 @ 10% for 8 years 0.4665
Q: At what amount shall Machinery be initially recognized?
Q: The estimated liability for future dismantling cost shall be recognized initially at?
Q: If by December 31, 2019, due to revised regulation, the new estimate of dismantling cost increased to P489,560 and the
discount rate rose to 11%, what is the increase in estimated liability (PV factor of 1 @ 11% for 7 periods is 0.4817)?
2. For Amanda Company, Machinery, with a cash price equivalent of P400,000 was acquired on February 1, 2019 by issuing
10,000, P30 par value, ordinary shares, quoted in exchange market at P45 on same date.
a. Additional 10% discount would have been available on machine if paid on cash
b. Cost to issue the ordinary shares amounted to P15,000
c. Installation and other direct costs, paid outright, aggregated to P30,000
What amount shall the machinery be initially recognized ?
3. Troy Trading, a small entity, acquired machinery from X Company and agreed to issue 1,000 of its P50 par ordinary shares.
The following information is given:
Cash equivalent price of the machinery P80,000

Fair value of Troy’s ordinary shares issued P90.00/share
Net asset value of the equity instruments granted P60.00/share
Troy trading shall record the machinery at?
Assuming the Net asset value of equity instrument granted is P40.00/share.
Troy trading shall record the machinery at?
4. During 2018, Company X made the following property, plant and equipment expenditures:
Land and building acquired from Company A P9,000,000

Repairs made to the building 300,000
Special tax assessment 50,000
Remodeling of office space including new partitions
and walls 400,000
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In exchange for the land and building acquired from Company A, Company X issued 60,000 shares of its P100 par value
common stock. On the date of purchase, the stock had a market value of P150 per share and the land and building had fair
values of P2,000,000 and P6,000,000
During the year, Company X also received land, fairly valued at P1,500,000 from a shareholders to facilitate the construction
of a plant in the city. Company X P100,000 for the land transfer and charged this amount to legal expenses.
Q: The cost of the land and building acquired should be?
5. The following non-monetary exchange are made available for Johnson Company:
Carrying value of old machinery given-up P100,000

Fair value of old machinery given-up 102,000
Cash given up 20,000
The cash flow of the assets exchanged are significantly different
Q: At what amount shall Johnson record the new machinery?
6. Consider the following information:
Carrying value of old machinery given up P250,000

Fair value of old machinery given up 255,000
Cash given up 50,000
The cash flow of the assets exchanged are not significantly different
7. Consider the following information: WITH COMMERCIAL SUBSTANCE

Cash given up 5,000
Fair value of new machinery received 95,000
Q: At what amount shall the new machinery be recorded?
Q: The gain or loss on exchange is?
8. Consider the following information: WITH COMMERCIAL SUBSTANCE

Cash received 5,000
Q: The gain or loss on exchange is?
9. Consider the following information: WITHOUT COMMERCIAL SUBSTANCE

Cash 5,000
Q: The impairment loss is?
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1. Lindy Co.

Also, Lindy incurred the following costs:

A. Refundable purchase taxes of P120,000, paid outright

PV of 1 @ 10% for 1 year 0.9091

Q: At what amount shall Machinery be initially recognized?

What amount shall the machinery be initially recognized ?

Cash equivalent price of the machinery P80,000

Troy trading shall record the machinery at?

Assuming the Net asset value of equity instrument granted is P40.00/share.

Troy trading shall record the machinery at?

Land and building acquired from Company A P9,000,000

Q: The cost of the land and building acquired should be?

Carrying value of old machinery given-up P100,000

The cash flow of the assets exchanged are significantly different

Q: At what amount shall Johnson record the new machinery?

6. Consider the following information:

Carrying value of old machinery given up P250,000

Q: At what amount shall Johnson record the new machinery?

7. Consider the following information: WITH COMMERCIAL SUBSTANCE

Carrying value of old machinery given up P80,000

Q: At what amount shall the new machinery be recorded?

Q: The gain or loss on exchange is?

8. Consider the following information: WITH COMMERCIAL SUBSTANCE

Carrying value of old machinery given up P30,000

Q: At what amount shall Johnson record the new machinery?

Q: The gain or loss on exchange is?

9. Consider the following information: WITHOUT COMMERCIAL SUBSTANCE

Carrying value of old machinery given up P30,000

Q: At what amount shall Johnson record the new machinery?

Q: The impairment loss is?

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