Property, Plant and Equipment (Part 1)

PROBLEM 1: TRUE OR FALSE

1 FALSE 6 TRUE
2 FALSE 7 FALSE
3 TRUE 8 FALSE
4 FALSE 9 FALSE
5 FALSE 10 FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1 D 6 C
2 D 7 A
3 D 8 C
4 B 9 D
5 D 10 C

PROBLEM 3: EXERCISES
1. Solutions:
Requirement (a):
Initial cost of equipment 144,500
Requirement (b):
Date Factory equipment 144,500
Cash 144,500
Date Cash 500
Sales 500
800
Cost of sales
Inventory 800
Date General and administrative costs 4,200
Advertising expense 3,800
Cash 8,000

2. Solution:
Land Building
Totals 2,024,000 4,030,000
3. Solutions:
Case 1: Old building has fair value
Old New
Land
building building
Totals 2,013,000 4,006,000 4,280,000

Case 2: Old building has no fair value

Old New
Land
building building
Totals 6,019,000 - 4,280,000

4. Solution:
Land New
Land
improvement building
Totals 4,060,000 - 11,592,000

5. Solutions:
Case 1:
Major Co. Minor, Inc.
Equipment (new) 2,180,000 (a) Equipment (new) 1,920,000 (a)
Accumulated Dep. 400,000 Cash 280,000
Cash 280,000 Accumulated Dep. 1,600,000
Equipment (old) 2,000,000 Loss on exchange 200,000
Gain on exchange (squeeze) 300,000 Equipment (old) 4,000,000
Case 2:
Major Co. Minor, Inc.
Equipment (new) 2,200,000 (b)
Accumulated Dep. 400,000
Cash 280,000
Equipment (old) 2,000,000
Gain on exchange (squeeze) 320,000
Case 3:
Major Co. Minor, Inc.
Equipment (new) 1,880,000 (c) Equipment (new) 2,120,000 (c)
Accumulated Dep. 400,000 Cash 280,000
Cash 280,000 Accumulated Dep. 1,600,000
Equipment (old) 2,000,000 Equipment (old) 4,000,000
6. Solutions:
Case 1:
Date Land 2,000,000
Share capital (20,000 x ₱10) 200,000
Share premium 1,800,000
Case 2:
Date Land (20,000 x ₱90) 1,800,000
Share capital (20,000 x ₱10) 200,000
Share premium 1,600,000
7. Solutions:
Case 1:
Jan. 1, Land 2,000,000
20x1
Discount on notes payable 200,000
Cash 400,000
Notes payable 1,800,000
Case 2:
Jan. 1, Land (a) 1,918,777
20x1
Discount on N/P (1.8M – 1,518,777) 281,223
Cash 400,000
Notes payable 1,800,000

Dec. 31, Notes payable 600,000

20x1
Interest expense 136,690
Discount on notes payable 136,690
Cash 600,000
Dec. 31, Notes payable 600,000
20x2
Interest expense 94,992
Discount on notes payable 94,992
Cash 600,000
Dec. 31, Notes payable 600,000
20x3
Interest expense 49,541
Discount on notes payable 49,541
Cash 600,000

8. Solution:
Donor is a shareholder Donor is an unrelated party
Equipt. (FV of asset received) 2M Equipt. (FV of asset received) 2M
Donated capital 2M Income from donation
2M
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL
1 A 6 B
2 D 7 C
3 B 8 A
4 C 9 A
5 A 10 A

Property, Plant and Equipment (Part 2)

PROBLEM 1: TRUE OR FALSE
1 FALSE 6 FALSE
2 FALSE 7 TRUE
3 TRUE 8 TRUE
4 FALSE 9 FALSE
5 TRUE 10 FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1 D 6 D
2 B 7 D
3 A 8 B
4 D 9 D
5 D 10 D

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1 D 6 A 11 D 16 D
2 C 7 D 12 C 17 D
3 C 8 C 13 A 18 B
4 B 9 C 14 B 19 B
5 A 10 C 15 A 20 B

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solutions:
Requirement (a): Straight line method
Annual depreciation 112,500

Requirement (b): Sum-of-the-years’ digits method

➢ Depreciation table:
Depreciable SYD Accumulated Carrying
Date amount rate Depreciation depreciation amount
1/1/x1 500,000
12/31/x1 450,000 4/10 180,000 180,000 320,000
12/31/x2 450,000 3/10 135,000 315,000 185,000
12/31/x3 450,000 2/10 90,000 405,000 95,000
12/31/x4 450,000 1/10 45,000 450,000 50,000
450,000

Requirement (c): Double declining balance method

➢ Depreciation table:
Date Depreciation Accumulated Carrying amount
depreciation
Jan. 1, 20x1 500,000
Dec. 31, 20x1 250,000 250,000 250,000
Dec. 31, 20x2 125,000 375,000 125,000
Dec. 31, 20x3 62,500 437,500 62,500
Dec. 31, 20x4 12,500 450,000 50,000
450,000

2. Solutions:
Requirement (a): Based on Input
Depreciation rate = Depreciable amount ÷ Estimated total hours
Depreciation rate = 37.5 per hour of input

Requirement (a): Based on Output

Depreciation rate = 1.25 per unit of output

3. Solution: (450,000 ÷ 5 yrs. remaining lease term) = 90,000

4. Solution:
SYD depreciation in 20x8 611,429
5. Solutions:
Requirement (a):
Jan. 1, Accumulated depreciation (2.5M x 6/10) 1,500,000
20x7
Loss on replacement (squeeze) 1,000,000
2,500,000
Equipment (old part)
to derecognize the old part
 Jan. 1, Equipment (new part) 3,000,000
20x7
Cash 3,000,000
to recognize the new replacement part

Requirement (b):
Jan. 1, Accumulated depreciation (3M x 6/10) 1,800,000
20x7
Loss on replacement (squeeze) 1,200,000
3,000,000
Equipment (old part)
to derecognize the old part
Jan. 1, Equipment (new part) 3,000,000
20x7
Cash 3,000,000
to recognize the new replacement part

6. Solutions:
Requirement (a):
Revaluation surplus - net of tax 2,940,000

Requirement (b):
➢ Proportional method
Date Building (36M – 30M) 6,000,000
Accum. depreciation (10.8M – 1,800,000
9M) 1,260,000
Deferred tax liability 2,940,000
Revaluation surplus

➢ Elimination method
Date Accumulated depreciation (elimination) 9,000,000
Deferred tax liability 1,260,000
Revaluation surplus 2,940,000
Building (balancing figure) 4,800,000
Requirement (c):
Revised annual depreciation 3,000,000

7. Solutions:
Requirement (a):
Revaluation surplus – net of tax 6,496,000
Requirement (b):
➢ Proportional method
Date Building (see table above) 8,000,000
Accumulated depreciation 1,280,000
Revaluation surplus 6,496,000
Deferred tax liability 2,784,000

➢ Elimination method
Date Accumulated depreciation (elimination) 7,680,000
Building (balancing figure) 1,600,000
Revaluation surplus 6,496,000
Deferred tax liability 2,784,000
Requirement (c):
Revised annual depreciation 1,280,000
8. Solution:
Annual transfer to retained earnings - 400,000

9. Solution:
Dec. 31, Impairment loss 1,200,000
20x4
Land 1,200,000

➢ Dec. 31, 20x7:

Dec. 31, Land 3,200,000
20x7
Impairment gain 1,200,000
Revaluation surplus 2,000,000
➢ Dec. 31, 20x9:
Dec. 31, Revaluation surplus 2,000,000
20x9
Impairment loss 100,000
Land 2,100,000

10. Solution:
Accumulated depreciation as of date of sale 2,560,000
➢ Journal entry:
July 20, Cash (1.8M – 40K) 1,760,000
20x3
Accumulated depreciation 2,560,000
Machine 4,000,000
Gain on sale (squeeze) 320,000