Problems

Problem:
ABC Co. purchased a plot of land for P4,200,000 as a plant site. There was a small office
building on the plot, valued at P1,800,000 which the entity will continue to maximize with
some modification and renovation. The entity decided to construct a factory building and
incurred the following costs:
Supervision by management
Compensation insurance premium for workers
Clerical and other expenses related to construction
Paving of streets and sidewalks
Plans and specifications
Payment for claim for injuries not covered by insurance
Legal cost of injury claim
Saving on construction
Materials, supplies and construction overhead
Excavation cost
Cost of labor on construction
Office building re-modelling cost
Legal cost of conveying land
Imputed interest on company's own money used during construction
Cash discount on materials purchase, not taken
1) Compute for the cost of the Office building

2) Compute for the cost of the Factory building
3) Compute for the cost of land
Various Depreciation Methods

ABC Corp, whose fiscal year ends on Dec 31, 2021, purchased a unit of equipment for a
total cost of P5,000,000. The equipment is expected to have a 5-year useful life and a
residual value of 10% of its original cost.
1) Using the straight line method, how much is the carrying value of equipment as of Dec 31, 2024?
Cost 5,000,000 Year
Residual value -500,000 2021
Depreciable amount 4,500,000 2022
2023
2024
2025
2) How much is the Accumulated Depreciation balance as of Dec 31, 2024 using SYD method?
Depreciable amount
4,500,000 5/15 1,500,000
4,500,000 4/15 1,200,000
4,500,000 3/15 900,000
4,500,000 2/15 600,000
4,500,000 1/15
5 + 1 /2 x 5 = 15
3) Using the SYD method, how much is the carrying value of equipment as of Dec 31, 2023?
4) If double declining method is applied, how much is the depreciation expense on 2023?
Depreciation Book value
5,000,000
CV, beg x 2/5 = 40% 2,000,000 3,000,000 2021
1,200,000 1,800,000 2022
720,000 1,080,000 2023
5) Assume the company chose to switch its depreciation method from straight line to
double declining balance on Jan 1, 2022. How much is the depreciation expense for 2024?
Carrying value, Jan 1, 2022 4,100,000 Depreciation
CV, x 2/4 = 50% 2,050,000 2,050,000
1,025,000 1,025,000
512,500 512,500
XYZ Inc. provided the following information regarding an equipment:

Acquisition date Apr 1, 2020
Acquisition cost 5,000,000
Useful life 5 years
Residual value 1,000,000
Compute the depreciation expense for 2020 and 2021 using the ff methods:
a. straight line
b. SYD
c. double declining balance
d. 150% declining balance CV, beg x 1.5/life
a) Depreciable amount (5M - 1M) 4,000,000 /5 = 800,000

2020: 800,000 x 9/12 600,000
2021 800,000
b) SYD = 5 x (5 + 1)/2
SYD = 15 4,000,000
2020 5/15 1,333,333
2020 Apr - Dec 9/12 1,000,000 2020
2021, Jan - Mar 31 3/12 333,333

4,000,000
4/15 1,066,666
2021, Apr - Dec 31 9/12 800,000 ans
1,133,333 2021
C) DDBM 12/31/2020 12/31/2021

Cost 5,000,000 5,000,000
Accum depreciation -1,500,000 -2,900,000
Carrying value, 12/31 3,500,000 2,100,000
12/31/20 = 40% x Cost
2,000,000
12/31/21 = 40% x CV
1,400,000
Entity A employs a variety of machineries. The ff data pertains to

machine that was purchased at the start of 2021:
Cash paid for machine, including 12% VAT 2,240,000
Cost of training for personnel who will use the machine 40,000
Cost of safety rails and platform surrounding the machine 110,000
Labor cost of testing machine 90,000
Insurance cost for the current year 35,000
Cost of water device necessary to keep machine cool 140,000
Estimated dismantling cost to be incurred as required by contract 250,000
Cost of transporting machine 50,000
Labor cost of installation by expert fitter 80,000
The dismantling cost on the table pertains to the expenditure that
the company will incurred at the end of the asset's 8-year useful
life. Additional info about Entity A borrowing cost is determined to be
8%.
(1.08)
0.54
1 How much be the cost of the machine? 2,605,000
Trade-in
XYZ Co. traded an old equipment with a dealer for a newer model.
Date relative to the old and new equipment follow: Fair value of the propety given
Old equipment 1,400,000 Cash paid 2,000,000 - 500,000
Accumulated depreciation 1,000,000 cost of new equipment
Fair value 350,000
Trade-in value 500,000 Carrying value
New Equipment Fair value
Cash price without trade-in 2,000,000 Loss on trade-in
1 How much is the cost of the new equipment?

2 How much is the gain (loss) on trade-in?
Cash price without trade-in xx

Less: Cash price with trade-in (xx)
Trade-in value xx
Exchange with and without commercial substance

On Jan 1, 2021, Empleo Inc. and Valix Co. exchanged plant assets.
On the date of the trade, the ff pieces of information are available:
Empleo Valix
Cost 450,000 600,000
Accumulated depreciation 150,000 150,000
Fair value 400,000 400,000
1 Assuming that the exchange has a commercial substance, the journal

entries of Valix would not include all of the following except:
a) Debit for loss on exchange for P100,000
b) Debit for Plant assets-new for P600,000
c) Credit for Plant assets - old for P400,000
x d) Debit for Accumulated depreciation for P150,000
2 Assuming that the exchange has a commercial substance, the journal

entries of Empleo would include all of the following except:
a) Debit for Plant asset-new for P400,000
b) Debit for accum dep for P150,000
c) Credit for Plant assets - old for P450,000
x d) Credit for gain on exchange for P50,000
3 Assuming that the exchange has no commercial substance, the journal

entries of Empleo would include all of the following except:
a) Debit fr accum dep for P150,000
x b) Debit for Plant assets-new for P350,000
c) Credit for Plan assets -old for P450,000
d) Debit for Plant assets-new for P300,000
a small office
o maximize with
ry building and Land Office Bldg Factory bldg
4,200,000 1,800,000
145,000 145,000
90,000 90,000
70,000 70,000
95,000
250,000 250,000
40,000
5,000
410,000
8,500,000 8,500,000
220,000 220,000
5,500,000 5,500,000
650,000 650,000
75,000 75,000
230,000
160,000 - 160,000
4,275,000 2,450,000 14,615,000
uipment for a
ent as of Dec 31, 2024? 1,400,000
900,000
900,000
900,000
900,000 ###
900,000
ing SYD method? 4,200,000

Dec 31, 2023? 1,400,000
nse on 2023? 720,000
5,000,000 x .60 x.60 = 1,800,000
pense for 2024? 512,500
2022
2023
2024
1- n residual value/cost
155,000/1750,000
0.088571
1- 0.78474
0.22
divide by 1.12% = 2,000,000
x .54 = 135,000
(1 + r)
air value of the propety given 350,000
ash paid 2,000,000 - 500,000 1,500,000
ost of new equipment 1,850,000
arrying value 400,000

- 350,000
oss on trade-in 50,000
Books of Valix
Plant Asset-new 400,000
Accum Dep 150,000
Loss on exchange 50,000
Plant asset -old 600,000
Books of Empleo
Plant Asset-New 400,000
Accum dep 150,000
Gain on exchange 100,000
Plant asset-old 450,000
Plant asset-new 300,000

Accum dep 150,000
Plant asset-old 450,000

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Problem:

1) Compute for the cost of the Office building

Various Depreciation Methods

XYZ Inc. provided the following information regarding an equipment:

a) Depreciable amount (5M - 1M) 4,000,000 /5 = 800,000

2021, Jan - Mar 31 3/12 333,333

C) DDBM 12/31/2020 12/31/2021

Entity A employs a variety of machineries. The ff data pertains to

1 How much is the cost of the new equipment?

Cash price without trade-in xx

Exchange with and without commercial substance

1 Assuming that the exchange has a commercial substance, the journal

2 Assuming that the exchange has a commercial substance, the journal

3 Assuming that the exchange has no commercial substance, the journal

ent as of Dec 31, 2024? 1,400,000

ing SYD method? 4,200,000

nse on 2023? 720,000

5,000,000 x .60 x.60 = 1,800,000

pense for 2024? 512,500

arrying value 400,000

Plant asset-new 300,000

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