On April 1, 2021, Atlanta Hawks Corporation purchased a parcel of land as a factory site for P200,000.

An old
unusable building on the property was demolished, and construction began on a new building which was
completed on November 1, 2021. Costs incurred during this period are listed below:

Cost elements Amount

Demolition of old building 20,000
Architect's fees 35,000
Legal fees for title investigation 5,000
Construction costs 1,090,000
Salvaged materials resulting from demolition were sold 10,000

How much is the initial cost of the land?

200,000
225,000
205,000
260,000
How much is the initial cost of the new building?
1,200,000
1,145,000
1,150,000
1,135,000

Solution:
Cost elements Amount Land Building
Purchase price of the land 200,000 200,000
Demolition of old building 20,000 20,000
Architect's fees 35,000 35,000
Legal fees for title investigation 5,000 5,000
Construction costs 1,090,000 1,090,000
Salvaged materials resulting from demolition were sold -10,000 -10,000
Total 1,340,000 205,000 1,135,000
A new machine was acquired by Chicago Bulls Company on March 31, 2021 with the following consideration:

Cost elements Amount

Carrying value of old machine given up with current fair value of P230,000 200,000
Notes payable (non-interest bearing; 3 years; effective rate on this date 10%) 600,000
Estimated cost to be incurred after 5-year life of the machine to dismantle the asset (at 10%
effective rate) 40,000

How much is the cost of the machine?

689,307
819,616
719,307
705,616

Solution:

Cost factors Cost

Fair value of the old Machine 230,000
Notes payable 450,780
Dismantling cost 24,836
Total cost 705,616

Notes payable Notes payable Dismantling cost

Face value 600,000 40,000
Present value factor 0.7513 0.6209
Present value 450,780 24,836
On January 1, 2021, LA Clippers Corporation borrowed P5,000,000 specifically for the construction of its new building payable at the end of 5
years. The interest on the loan is payable at the end of each year. LA Clippers incurred the following costs in connection with the loan (assume
incurred on January 1,2021):
•Commissions paid to its agent P200,000
•Guarantee fees paid to its parent company, LA Lakers, Inc. for the loan guarantee 1.5% of the loan amount
•Bank charges 1.0% of the loan amount
•Effective interest rate- 11 8%
On the same date, LA Clippers temporarily invested P3,000,000 of the proceeds for three months earning interest of 8% per annum. LA Clippers
had also the following other loans during the year for general purposes:
•11% Short-term Note-   1,000,000
•13% Long-term Loan-       600,000
The proceeds of these loans were partly used for the construction of the building. The interests on these loans are payable every December 31 as
well. As early as January 1, 2021, the entity already started the activities associated with obtaining permits prior to commencement of physical
construction. The physical construction of the building began only on April 1, 2021. Expenditures on the building were made as follows:

•January 1, 2021                  1,500,000
The physical construction of the building was completed by the end of 2021. However, routine administrative work is still expected to continue up
to the first quarter of the following year.

Compute the weighted average rate used to determine the amount of borrowing cost eligible for capitalization.
11.00%  Solution:
12.10% General borrowings
11.75%  Loan Interest rate Interest expense
12.55%             1,000,000 11%               110,000
               600,000 13%                 78,000
            1,600,000               188,000
Weighted interest rate 11.75%

How much is the capitalized borrowing cost in 2021?
679,650  Solution:
639,650 Capitalizable specific BC
682,588     Loan amount        5,000,000
644,400 Commission         (200,000)
Guarantee fees           (75,000)
Bank charge           (50,000)
Net borrowings        4,675,000
Interest rate 11.80%
Interest expense          551,650
Interest income           (60,000)
Total          491,650
 Average expenditures
Months Amount # of mons. Total cost
1-Jan-21             1,500,000 12          18,000,000
1-Apr-21             3,500,000 9          31,500,000
1-Jul-21             3,200,000 6          19,200,000
1-Oct-21             2,300,000 3            6,900,000
31-Dec-21             1,000,000 0                      -
Total expediture          75,600,000
Number of months                  12.00
Average exp.            6,300,000

Capitalizable General Borrowings Total Capitazable borrowing cost
Average exp             6,300,000 Specific BC              491,650
Specific BC             4,675,000 General BC              188,000
General BC             1,625,000 Total            679,650
weighted rate 11.75% Construction cost         11,500,000
Total                190,938 Total asset cost       12,179,650
Actual Interest               188,000 Lower

How much is the total cost of self-constructed asset?
12,144,400 
12,182,588
12,139,650 
12,179,650
On January 2, 2017, Denver Nuggets Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated residual value of
P15,000. The depreciation applicable to this equipment was P63,636 for 2020, computed under the sum-of-the-
years'-digits method. What was the acquisition cost of the equipment?
515,000
550,000
541,667
565,000

Solution:
Sum of years 55.00
Years outstanding 4.00
Factor: 7/55
Depreciation 63,636.00
Depreciable cost 499,997.14
Residual value 15,000.00
Total cost 514,997.14
Round-off 515,000.00
Memphis Grizzlies Corporation purchased a truck at the beginning of 2020 for P2,250,000. The truck
is estimated to have a residual value of P90,000 and a useful life of 120,000 miles. It was driven
18,000 miles in 2020 and 32,000 miles in 2021. What is the depreciation expense for 2021?

576,000
960,000
600,000
1,600,000

Solution:
Total
Cost 2,250,000.00
Residual value 90,000.00
Depreciable cost 2,160,000.00

Total mileage 120,000.00

Miles travelled in 2021 32,000.00
Depreciation rate in 2021 26.67%
Depreciation in 2021 576,000.00
During 2021, Phoenix Suns Corporation acquired a mineral mine for P1,500,000 of which
P200,000 was ascribed to land value after the mineral has been removed. Geological surveys
have indicated that 10 million units of the mineral could be extracted. During 2021,
1,500,000 units were extracted, and 1,200,000 units were sold. What is the amount of
depletion expensed for 2021?
130,000 
180,000
156,000 
195,000
Solution:
Total cost 1,500,000
Land 200,000
Depletable amount 1,300,000
Total Available units 10,000,000
Depletion rate per unit 0.13

Units Sold 1,200,000

Depletion rate per unit 0.13
Total depletion 156,000

Purchase price 6,000,000.00

Restoration cost 720,000.00
Net value of the land (after restoration) (630,000.00)
development cost 1,500,000.00
Total depletable cost 7,590,000.00
Total available units 1,500,000.00
Depletion rate 5.06
Total extraction in 2020 450,000.00
Total depletion 2,277,000.00
Golden State Warriors Company had the following outstanding loans during 2021 and 2022.

Loan Amount Rate

Specific construction loan 3,000,000.00 10%
General loan 25,000,000.00 12%

The entity began the self-construction of a new building on January 1, 2021 and the building was completed on June 30, 2022.
The following expenditures were made in 2021 and 2022:
Months Expenditure
1-Jan-21 4,000,000.00
1-Apr-21 5,000,000.00
1-Dec-21 3,000,000.00
1-Mar-22 6,000,000.00

What is the capitalizable borrowing cost in 2022?

900,000
984,000
988,000
884,000
What is the capitalizable cost of the building on December 31, 2021?
12,000,000
12,600,000
12,900,000
12,300,000
How much is the average expenditure in 2022?
16,900,000
14,900,000
29,800,000
15,900,000
 Year 2021
Months Expenditure Outstanding period Amount
1-Jan-21 4,000,000.00 12.00 48,000,000.00
1-Apr-21 5,000,000.00 9.00 45,000,000.00
1-Dec-21 3,000,000.00 1.00 3,000,000.00
1-Mar-22 6,000,000.00 - -
Total 96,000,000.00
Divided by 12
Average expenditure 8,000,000.00

Rate Amount
Average expenditure 8,000,000.00
Applicable to specific loan 3,000,000.00 10% 300,000.00
Applicable to general loan 5,000,000.00 12% 600,000.00
Capitalizable borrowing cost 900,000.00
Construction cost 12,000,000.00
Total cost in 2021 12,900,000.00

Year 2022
Months Expenditure Outstanding period Amount
Capitalized cost in 2021 12,900,000.00 6 77,400,000.00
1-Mar-22 6,000,000.00 4 24,000,000.00
Total 101,400,000.00
Divided by 6
Average expenditure 16,900,000.00

Rate Outstanding in 2022 Amount

Average expenditure 16,900,000.00
Applicable to specific loan 3,000,000.00 10% 1/2 150,000.00
Applicable to general loan 13,900,000.00 12% 1/2 834,000.00
Capitalizable borrowing cost in 2022 984,000.00
Construction cost 18,900,000.00
Total cost in 2021 19,884,000.00
On January 1, 2021, Indiana Pacers Company received a consolidated grant of
P12,000,000. Three-fourths of the grant will be utilized to purchase a college building for
students from underdeveloped countries. The balance of the grant is for subsidizing the
tuition costs of those students for four years from date of grant. The building was
purchased in January 2021 and is to be depreciated using the straight-line method over 10
years. The tuition costs paid in 2021 amounted to P600,000. What amount of income from
government grant should be recognized for 2021?
1,200,000
3,000,000
1,650,000
1,050,000

Grant type Total grant rcenta Amount EUL Income

Grant related to asset 12,000,000.00 75% 9,000,000.00 10 900,000.00
Grant related to income 12,000,000.00 25% 3,000,000.00 4 750,000.00
Income from Government grant 1,650,000.00
Miami Heat Company is provided a grant by a foreign government for the purpose of acquiring land for a building
site. The grant is a zero-interest loan for 5 years evidenced by a promissory note. The loan was granted on
January 1, 2021 for P8,000,000. The market rate of interest is 6%The present value of 1 for five periods at 6% is
.7473. What is the carrying amount of the note payable on December 31, 2022?

a. 8,000,000
b. 6,337,104
c. 6,717,330
d. 6,787,040

Face value of the loan 8,000,000.00

PV factor 0.7473
PV of the loan 5,978,400.00
Discount 2,021,600.00

Date Interest Present value

1-Jan-21 - 5,978,400.00
31-Dec-21 358,704.00 6,337,104.00
31-Dec-22 380,226.24 6,717,330.24
31-Dec-23 403,039.81 7,120,370.05
31-Dec-24 427,222.20 7,547,592.26
31-Dec-25 452,407.74 8,000,000.00
Toronto Raptors Company, a newly formed entity, incurred the following expenditures related to land and building:

Cost elements Amount Key

Cash paid for land and dilapidated building 1,000,000 L
Removal of old building 50,000 B
Payment to tenants for vacating old building 15,000 B
Architect fee for new building 200,000 B
Building permit for new construction 30,000 B
Fee for title search 10,000 L
Survey before construction of new building 20,000 L
Excavation before new construction 100,000 B
New building constructed 6,000,000 B
Assessment by city for drainage project 5,000 L
Cost of grading, leveling and landfill 45,000 L
Driveways and walks to new building from street(part of building plan) 40,000 B
Temporary quarters for construction crew 80,000 B
Temporary building to house tools and materials 60,000 B
Cost of changes during construction to make new building more energy efficient 50,000 B
Cost of windows broken by vandals 25,000 Expense
Cost of trees, shrubs and other landscaping 40,000 LI
New fence surrounding the building 200,000 LI

Account Amount Key

Cost of Land 1,080,000.00 L
Cost of Building 6,625,000.00 B
Cost of Land Improvement 240,000.00 LI

What is the cost of land?

1,145,000
1,215,000
1,130,000
1,080,000
What is the cost of new building?
6,625,000
6,560,000
6,585,000
6,420,000
What is the cost of land improvement?
270,000
200,000
310,000
240,000
On December 31, 2021, a building owned by Cleveland Cavaliers Company was totally destroyed by fire.
The building had fire insurance coverage up to P5,000,000. Other pertinent information on December 31,
2021 follows:
Building, carrying amount 5,100,000
Building, fair value 5,500,000
Removal and clean-up cost 100,000

During January 2022, before the 2021 financial statements were issued, the entity received insurance
proceeds of P5,000,000. On what amount should the determination of the loss on involuntary conversion be
based?
5,200,000
5,300,000
5,500,000
5,600,000

Carrying amount 5,100,000.00

Removal and clean-up cost 100,000.00
Total 5,200,000.00
The San Antonio Spurs (SAS) Company purchased equipment on April 1, 2021 for P800,000. The equipment has the following data:
Estimated service life: 8 years
Estimated physical life: 10 years
Total service hours: 100,000 hours
Total units of output: 900.000
Estimated residual value: 80,000

In 2021 and 2022, the company used the machine for 4,500 and 5,500 hours, respectively, and produced 40,000 and 60,00 units, respectively.

Using the straight-line method, how much depreciation expense to be reported in SAS’s statement of profit and loss in 2022?
a. 80,000 Solution:
b. 72,000 Straight-line
c. 90,000 Cost 800,000.00
d. 86,000 Residual value 80,000.00
Depreciable value 720,000.00
Annual depreciation 90,000.00

Year Depreciation Accumulated depreciation Carrying amount

2021 800,000.00
2021 90,000.00 90,000.00 710,000.00
2022 90,000.00 180,000.00 620,000.00
2023 90,000.00 270,000.00 530,000.00
2024 90,000.00 360,000.00 440,000.00
2025 90,000.00 450,000.00 350,000.00
2026 90,000.00 540,000.00 260,000.00
2027 90,000.00 630,000.00 170,000.00
2028 90,000.00 720,000.00 80,000.00

Using the sum of years’ digit method, how much depreciation expense to be reported in SAS’s statement of profit and loss 2025?
100,000 Solution:
90,000 Cost 800,000.00
85,000 Residual value 80,000.00
60,000 Depreciable value 720,000.00

Year Fraction Depreciation Accumulated depreciation Carrying amount

2021 800,000.00
2021 8 160,000.00 160,000.00 640,000.00
2022 7 140,000.00 300,000.00 500,000.00
2023 6 120,000.00 420,000.00 380,000.00
2024 5 100,000.00 520,000.00 280,000.00
2025 4 80,000.00 600,000.00 200,000.00
2026 3 60,000.00 660,000.00 140,000.00
2027 2 40,000.00 700,000.00 100,000.00
2028 1 20,000.00 720,000.00 80,000.00
36 720,000.00 4,080,000.00

Fraction 2021 2022 2023 2024 2025 2026 2027 2028 2029
1/4 - 160,000.00 140,000.00 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 20,000.00
3/4 160,000.00 140,000.00 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 20,000.00
Jan.-Mar. - 40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00
Apr.-Dec. 120,000.00 105,000.00 90,000.00 75,000.00 60,000.00 45,000.00 30,000.00 15,000.00 -
Total annual Dep 120,000.00 145,000.00 125,000.00 105,000.00 85,000.00 65,000.00 45,000.00 25,000.00 5,000.00
Using the output method, how much depreciation expense to be reported in SAS’s statement of profit and loss 2021?
24,000 Solution: Total output in 2021 40,000.00
48,000 Cost 800,000.00 Overall expected output 900,000.00
32,000 Residual value 80,000.00 Depreciation rate 0.04
35,556 Depreciable value 720,000.00 Depreciable value 720,000.00
Depreciation expense 32,000.00

Using the double declining balance method, how much depreciation expense to be reported in SAS’s statement of profit and loss 2028?
28,990 Solution:
35,596 Cost 800,000.00
26,787 Depreciation rate 1/8
26,697 In % 12.50%
DDB rate 25.00%

Year Depreciation Accumulated depreciation Carrying amount

800,000.00
2021 200,000.00 200,000.00 600,000.00
2022 150,000.00 350,000.00 450,000.00
2023 112,500.00 462,500.00 337,500.00
2024 84,375.00 546,875.00 253,125.00
2025 63,281.25 610,156.25 189,843.75
2026 47,460.94 657,617.19 142,382.81
2027 35,595.70 693,212.89 106,787.11
2028 26,787.11 720,000.00 80,000.00

Fraction 2021 2022 2023 2024 2025 2026 2027 2028 2029
1/4 - 200,000.00 150,000.00 112,500.00 84,375.00 63,281.25 47,460.94 35,595.70 26,787.11
3/4 200,000.00 150,000.00 112,500.00 84,375.00 63,281.25 47,460.94 35,595.70 26,787.11
Jan.-Mar. - 50,000.00 37,500.00 28,125.00 21,093.75 15,820.31 11,865.23 8,898.93 6,696.78
Apr.-Dec. 150,000.00 112,500.00 84,375.00 63,281.25 47,460.94 35,595.70 26,696.78 20,090.33
Total annual Dep 150,000.00 162,500.00 121,875.00 91,406.25 68,554.69 51,416.02 38,562.01 28,989.26 6,696.78
On January 1, 2020, Orlando Magic Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore.
The present value of the estimated cost of restoring the land after the resource is extracted is P450,000 and the land will have a
value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed at a cost
of P8,000,000 and such expenditures are charged to mine improvements.

Operations began on January 1, 2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating
that available resource after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in
the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike.

What amount should be recorded as depletion for 2022?

1,560,000
1,040,000
640,000 
776,000
What amount should be recorded as depreciation for 2022?
1,120,000
2,400,000
1,600,000
1,360,000
2021
Cost of property 5,400,000 Cost of tangible assets 8,000,000
Residual value (650,000) Available resources 2,000,000
Restoration cost 450,000 Depreciation rate 4
Total Depletable cost 5,200,000
Available resources 2,000,000
Depletion rate 2.6

Depletion in 2021 Depreciation in 2021

Amount extracted 600,000.00 Amount extracted 600,000.00
Depletion rate 2.6 Depreciation rate 4
Depletion 1,560,000.0 Depreciation 2,400,000.00

2022 2022
Depletable amount, Beginning 3,640,000.00 Depreciable amount, Beginning 5,600,000.00
Available resources 2,275,000.00 Additional cost 770,000.00
Depletion rate 1.6 Depreciable amount, end 6,370,000.00
Available resources 2,275,000.00
Depletion in 2022 Depreciation rate 2.8
Amount extracted 400,000.00
Depletion rate 1.6 Depreciation in 2021
Depletion                 640,000 Amount extracted 400,000.00
Depreciation rate 2.80
Depreciation            1,120,000
New York Knicks Company takes a full year's depreciation expense in the year of an asset's acquisition, and no
depreciation expense in the year of disposition. Data relating to a depreciable asset on December 31, 2023 are
as follows:

Acquisition year 2020

Cost 1,100,000
Residual value 200,000
Accumulated depreciation 264,110
Estimated useful life 5 years

What amount of depreciation should be recorded in 2024?

16,090
79,233
64,110
64,827

Rate 30%
Date Depreciation Accum Dep Carrying amount
1/1/2020 - - 1,100,000.00
12/31/2020 330,000.00 330,000.00 770,000.00
12/31/2021 231,000.00 561,000.00 539,000.00
12/31/2022 161,700.00 722,700.00 377,300.00
12/31/2023 113,190.00 835,890.00 264,110.00
12/31/2024 64,110.00 900,000.00 200,000.00
On April 1, 2021, Detroit Piston Corporation purchased a 4,950,000 machinery for its operation. The machinery is expected to have a useful life of eight years. The machine is expected to produce
100,000 units on its first year of operations which expected to decline by 5% every year until the end of its useful life. Outputs are expected to be produced evenly on an annual basis.

What is the accumulated depreciation balance as December 31, 2024 if the Company uses the output method?
2,137,500
2,456,250
2,615,625
2,775,000
How much is the carrying amount of the machinery after its sixth year of using the same method in the previous item?
1,012,500
1,153,125
1,575,000
618,750
Using the same information as above, what is the depreciation expense in 2026 if the carrying amount is at P1,546,875 as of December 31, 2024?
515,265
515,625
446,875
446,785
Solution:

Depreciation Rates
3/4 1/4
4,950,000.00 April-December Year January-March Year
100,000.00 750,000.00 562,500.00 2021 187,500.00 2022
95,000.00 712,500.00 534,375.00 2022 178,125.00 2023
90,000.00 675,000.00 506,250.00 2023 168,750.00 2024
85,000.00 637,500.00 478,125.00 2024 159,375.00 2025
80,000.00 600,000.00 450,000.00 2025 150,000.00 2026
75,000.00 562,500.00 421,875.00 2026 140,625.00 2027
70,000.00 525,000.00 393,750.00 2027 131,250.00 2028
65,000.00 487,500.00 365,625.00 2028 121,875.00 2029
660,000.00 4,950,000.00 3,712,500.00 1,237,500.00

Date Carrying amount Accumulated Depreciation Date Carrying amount Accumulated Depreciation
4/1/2021 4,950,000.00 - Beg 4,950,000.00 0
12/31/2021 4,387,500.00 562,500.00 Year 1 4,200,000.00 750,000.00
12/31/2022 3,665,625.00 1,284,375.00 Year 2 3,487,500.00 1,462,500.00
12/31/2023 2,981,250.00 1,968,750.00 Year 3 2,812,500.00 2,137,500.00
12/31/2024 2,334,375.00 2,615,625.00 Year 4 2,175,000.00 2,775,000.00
12/31/2025 1,725,000.00 3,225,000.00 Year 5 1,575,000.00 3,375,000.00
12/31/2026 1,153,125.00 3,796,875.00 Year 6 1,012,500.00 3,937,500.00
12/31/2027 618,750.00 4,331,250.00 Year 7 487,500.00 4,462,500.00
12/31/2028 121,875.00 4,828,125.00 Year 8 - 4,950,000.00
12/31/2029 - 4,950,000.00
 3/4 1/4
4,950,000.00 April-December Year January-March Year
8 22% 1,100,000.00 825,000.00 2021 275,000.00 2022
7 19% 962,500.00 721,875.00 2022 240,625.00 2023
6 17% 825,000.00 618,750.00 2023 206,250.00 2024
5 14% 687,500.00 515,625.00 2024 171,875.00 2025
4 11% 550,000.00 412,500.00 2025 137,500.00 2026
3 8% 412,500.00 309,375.00 2026 103,125.00 2027
2 6% 275,000.00 206,250.00 2027 68,750.00 2028
1 3% 137,500.00 103,125.00 2028 34,375.00 2029
36

4,950,000.00 8
Depreciation CA 7
2021 825,000.00 4,125,000.00 6.00 6 3/4
2022 996,875.00 3,128,125.00 3.75 5 3/4
2023 859,375.00 2,268,750.00 24.75 0.6875
2024 721,875.00 1,546,875.00 36
2025 584,375.00 962,500.00 11.25 0.3125 1,546,875.00
2026 446,875.00 515,625.00 36
2027 309,375.00 206,250.00
2028 171,875.00 34,375.00
2029 34,375.00 -
A land and building were acquired on January 31, 2021 by Utah Jazz Company at a total lump sum price of P5,000,000 and issuance of
12,000 ordinary shares (par P100) with fair value of P115. The building on this date is assessed to have fair value of P1,250,000 while the
land is valued at P3,750,000. Additional costs were incurred to acquire the properties are as follows:

Property taxes assumed by Utah Jazz Company 120,000

Commissions paid to real estate broker 50,000
Land transfer title fee 30,000
Estimated useful life of the Building 20 years

How much is carrying amount of the building as of December 31,2021?

1,637,500
1,562,448
1,555,625
1,580,000

How much is the initial cost of the land?

4,770,000
4,942,500
4,740,000
4,590,500

Total Cost Land Building

Fair Value 5,000,000 3,750,000 1,250,000
Cost Allocation 100% 75% 25%
Cost Elements Total Cost Land Building
Lump sum price 5,000,000 3,750,000 1,250,000
Ordinary Shares* 1,380,000 1,035,000 345,000
Property taxes 120,000 90,000 30,000
Commissions 50,000 37,500 12,500
Land transfer 30,000 30,000 -
Total Cost 6,580,000 4,942,500 1,637,500

Carrying amount of the building 1,637,500.00

Annual Depreciation 81,875.00
Accum Dep 12/31/2021 75,052.08
CA, 12/31/2021 1,562,447.92