Chapter 17

PROPERTY, PLANT & EQUIPMENT

Acquisition & Subsequent Costs
Historical Cost of Property, Plant and Equipment
Cash basis - is the cash price (net of trade discounts and rebates) and other incidental costs incurred in
connection with its acquisition plus necessary costs incurred to bring the asset to its present location and
condition and to prepare the asset for its intended use.
On account subject to cash discount - is the purchase price (net of trade discounts and rebates), net of the
cash discount whether taken or not and other incidental costs incurred in connection with its acquisition
plus necessary costs incurred to bring the asset to its present location and condition and to prepare the
asset for its intended use.
By installment (but with a cash price) - is the cash price and other incidental costs incurred in connection
with its acquisition plus necessary costs incurred to bring the asset to its present location and condition
and to prepare the asset for its intended use.
By a deferred installment plan (without a cash price) - is the present or discounted value of all future
payments.
Issuance of Debt or Equity securities - is the fair market value of the asset received or securities issued
whichever is clearly determinable.
Donation - the asset received is initially measured at its fair market value with a corresponding credit to
Additional Paid In Capital/Share Premium.
Transfer of PPE from customer - the asset received is measured at its cost. The deemed cost of that asset
is its fair value on the date of the transfer. If there are ' Separately identifiable services received by the
customer in exchange for the transfer, then the recipient should split the transaction into separate
components as required by IAS 18. If there is only one component identified, revenue is recognized when
the service is performed (which could, for example, be as soon as access to a utility network is provided).
IFRIC 18 provides guidance on how to identify the entity's obligation to provide one or more separately
identifiable services in exchange for the transferred asset - and, therefore, how to recognize revenue:
• If the entity has only one service obligation, it would recognize revenue when the service is performed.
• If the entity has more than one separately identifiable service obligation, it should allocate the fair value
of the total consideration received to each service and recognize revenue from each service separately in
accordance with IAS is.
If the entity has an obligation to provide ongoing services, the period over which revenue is recognized is
generally determined by the terms of the agreement with the customer. If the agreement does not specify a
period, the revenue shall be recognized over a period no longer than the useful life of the transferred asset
used to provide the ongoing service.
Exchange with commercial substance - the fair market value of the asset received or asset surrendered
whichever is clearly determinable. Gain or loss is recognized in their entirety.
Exchange without commercial substance - the asset received is initially measured at carrying value or
impaired value. Gain is not recognized however if there's objective evidence that the non-cash asset given
up is impaired the amount of impairment loss is recognized.
An exchange transaction has commercial substance when:
a. The cash flows of the asset received differ from the cash flows of the asset transferred and the
difference is significant relative to the fair value of the asset exchanged.
b. The entity specific value of the portion of the entity's operations affected by the transaction changes as
a result of the exchange is significant relative to the fair value of the asset exchanged. The entity specific
value is the present value of the cash flows an entity expects to arise from the continuing use of an asset
and from its disposal at the end of its useful life.
Examples of Directly Attributable Costs
a. Cost of employee benefits arising directly from construction or acquisition of the item of PPE
b. Costs of site preparation
c. Initial delivery and handling costs
d. Installation and assembly costs
e. Costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling
any items produced while bringing the asset to that location and condition (such as samples produced
when testing the equipment)
f. Professional fees
Examples of costs that are not costs of an item of PPE
a. Cost of opening a new facility
b. Cost of introducing a new product or service (including cost of advertising and promotional activities)
c. Cost of conducting business in a new location or with a new class of customer (including costs of staff
training)
d. Administrative and other general overhead costs
Subsequent Costs - the costs of the day to day servicing of an item of property, plant and equipment are
recognized in the profit or loss as they are incurred. Costs of day-to-day are primarily the , costs of labor
and other consumables, and may include the cost of small parts. The purpose of these expenditures is
often described as "repairs and maintenance" (PAS 16).
Parts of some PPE may require replacement at regular intervals. Items of PPE may also be acquired to
make a less frequently recurring replacements or to make a non-recurring replacements. Such items of
PPE is recognized (when it is probable that future economic benefit associated with the item of PPE will
flow to the entity and the cost of the item can be measured reliably) but the carrying amount of those parts
that are replaced is derecognized (PAS 16).
Measurement after Recognition:
Cost Model – after recognition as an asset, an item of PPE shall be carried at its cost less any accumulated
depreciation and any impairment loss.
Revaluation Model – after recognition as an asset, an item of PPE whose fair value can be measured
reliably shall be carried at a revalued amount, being its fair value at the date of revaluation less any
subsequent accumulated depreciation and any subsequent impairment losses. Revaluation shall be made
with sufficient regularity to ensure that the carrying amount does not differ materially from that which
would be determined using fair value at balance sheet date.

Differences between IFRS for SMEs and FULL IFRS

IFRS for SMEs Full IFRS
No scope exclusion for PPE held for sale and Scope exclusion for PPE held for sale and exploration
exploration and evaluation assets and evaluation assets
Applies to PPE and investment property whose fair Only applicable to PPE Investment property carried at
value cannot be measured reliably without undue cost cost is depreciated by following the principles in IAS
or effort 16 – Property, plant and equipment and cot
reclassified
The scope of any replacement part is capitalized if the Capitalization of replacement parts are based on the
replacement is expected to provide incremental future normal recognition criteria
benefits
If the major components of an item of PPE have Each part of an item of PPE with a cost that is
significantly . different patterns of consumption of significant in relation to the total cost of the item must
economic benefits, an entity must allocate the initial be depreciated separately.
cost of the asset to its major components and
depreciate each component separately over its useful
life.
Borrowing costs are not capitalized Borrowing costs are capitalized
Only the cost model is applied The cost or revaluation model is applied
Re-assessment is only applicable when there is an Annual re-assessment of the residual value,
indication of changes in the residual, depreciation depreciation method, or useful life of PPE is required
method, or useful life of an item of PPE
When an investment property is reclassified due to a When an investment property is reclassified to PPE
reliable estimate of the property not being due to reliable estimate of the property not being
determinable without undue cost or effort, there is no determinable, the residual value must be zero for
prescription or limitation on the residual value for depreciation purposes
depreciation purposes
A plan to dispose of an asset before a previous Non-current assets held for sale are classified
expected date is an indication of impairment separately limited to the fair value less cost to sell

Problem 17 – 1: (Acquisition-Cash Basis)

The Knight Company imported an equipment at a peso equivalent to P330,000. The company has to pay
additional cost of importing the asset such as P10,000 import duties and P15,000 non-refundable purchase
taxes. Costs of bringing and preparing the asset for its intended use include P2,000 transportation cost,
P4,000 installation and testing and trial run costs. How much is the initial cost of the new machine?
a) P330,000
b) P336,000
c) P346,000
d) P361,000
Problem 17 — 2: (Acquisition—On account)
Light Company has recently purchased a computer system for its office. The following information was
gathered in relation to the acquisition of the unit:
List price P152,000
Trade discount and rebates taken 56,000
Installation and assembly cost 3,200
Initial delivery and handling cost 6,400
Purchase discount 2%

What is the acquisition cost of the new computer?

a) P 94,080
b) P103,680
c) P105,680
d) P160,600
Problem 17 — 3: (Acquisition—Deferred Basis)
On August 1, 2014, Bright Company purchased a new machine on a deferred payment basis. A down
payment of P100,000 was made and 4 monthly installments of P250,000 each are to be made beginning
on August 1, 2014. The terms of the agreement is not considered normal. The cash equivalent price of the
machine was P950,000. Bright incurred and paid installation costs amounting to P30,000. How much
should be capitalized as cost of the machine?
a) P950,000
b) P980,000
c) P1,100,000
d) P1,130,000
Problem 17 - 4: (Acquisition Installment Basis W/ a Cash Price)
On August 1, 2014, Flight Corporation purchased a new machine on a deferred payment basis. A down-
payment of P200,000 was made and 4 annual installments of P600,000 each are to be made beginning on
September 1, 2014. Terms of the contract are not normal in the industry where the same types of assets
are being traded. Due to an employee strike, Flight could not install the machine immediately, thus,
incurred : P3,000 of storage costs. Cost of installation (excluding the storage costs) amounted to
P20,000... The cash price of the machine was P2,300,000. How much should be capitalized as the cost of
the machine?
a) P2,300,000
b) P2,320,000
c) P2,323,000
d) P2,500,000
Problem 17 - 5: (Acquisition-Deferred Basis)
Mighty, Inc. purchased a machine under a deferred payment contract on December 31, 2014. Under the
terms of the contract, Mighty is required to make eight annual payments of P490,000 each beginning
December 31, 2015. The applicable interest rate is 8%. What is the purchase price of the machine?
a) P4,862,165
b) P3,041,150
 c) P3,920,000
d) P2,815,834
Problem 17 — 6: (Acquisition—Deferred-Basis)
Night Company bought a new machine and agreed to pay for it in annual installments of P500,000 at the
end of the next five years
Assume that the present value of a prevailing interest rate at 15% for five periods is 3.35. The future
amount of an ordinary annuity of 1 at 15% for five periods is 6.74. The present value of 1 at 15% for five
periods is 0.5. How much should Night record as the cost of the machine?
a) P1,250,000
b) P1,675,000
c) P2,500,000
d) P3,370,000
Problem 17 – 7: (Acquisition-By Trade-In)
On March 31, 2014, Mr. Right Enterprises traded in an old machine having a carrying amount of
P1,600,000 and paid a cash difference of P600,000 for a new machine having a total cash price of
P2,000,000. On March 31, 2014, what amount of loss should Mr. Right recognize on this exchange?
a) None
b) P200,000
c) P400,000
d) P600,000
Problem 17 – 8: (Acquisition-Share Based Payment)
On October 1, 2014, Jet Company issued 10,000 share of 25 par treasury ordinary share for a parcel of
land to be held for a future plant site. The treasury shares were acquired by Jet at a cost of P30 per share.
Jet's ordinary share had a fair market value of P40 per share on October l, 2014. Jet received P50,000
from the sale of scrap when an existing structure on the site was razed. At what amount should the land be
carried?
a) P250,000
b) P300,000
c) P350,000
d) P400,000
Problem 17 – 9: (Acquisition—By Exchange)
In June 2014, Plane Company exchange on old packaging machine, which had a cost of P1,200,000 and
was 50% their first hated for a non monetary asset. The market value of the old packaging machine was
determined to be P700,000. What is the cost of the new asset acquired?
a) P600,000
b) P660,000
c) P700,000
d) P860,000
Problem 17 — 10: (Acquisition—By Exchange)
In October 2014, Ship Company exchanged a use packaging machine having a book value of P240,000
for new machine and paid a cash difference of P30,000, The market value of the used packaging machine
was determined to be P280,000.
Question 1: In its profit or loss for the year ended December 31, 2014, how much gain should Ship
recognize on this exchange, assuming the exchange considered with commercial substance?
a) None
b) P10,000
c) P30,000
d) P40,000
Question 2: On the date of exchange, what amount should Ship Company recognize as the cost of the
asset received, assuming the exchange is considered not lacking in commercial substance?
a) P200,000
b) P250,000
c) P280,000
d) P310,000
Problem 17 – 11: (Acquisition-By Exchange)
Star Company owns a tract of land which it purchased in 2011 for P3,000,000. The land is held as future
plant site and has a fair market value of P4,800,000 on March 1 2014. Struck Company also owns a tract
of land held as future plant site. Struck paid P4,200,000 for the land in 2010 and the land has a fair market
value of P6,000,000 on March 1 2014. On this date, Star exchange its land and paid P1,200,000 cash for
the land owned by Struck. As a result of this transaction, the entity's a specific value was not affected by
the above exchange.
Question 1: How much should Star record the land acquire in the exchange?
a) P4,200,000
b) P4,800,000
c) P5,400,000
d) P6,000,000
Question 2: What amount of gain should Star Company recognize ‘on the xchange?
a) None
b) P80,000
c) P120,000
d) P180,000
Problem 17 — 12: (Acquisition—By Exchange)
Teen Company exchanged a delivery van and P50,000 cash for a newer van owned by Quest Corporation.
The following data relate to the values of the vans on the date of exchange:
Carrying Value Fair Value
Teen P300,000 P450,000
Quest 400,000 500,000
Immediately after the exchange, Teen Company determined that the cash flows of the van received differ
from the cash flows off the van transferred
Question 1: What is the cost of the new asset acquired as basic for recording in the books of Teen
Company?
a) P300,000
b) P400,000
c) P450,000
d) P500,000

Question 2: What amount should Teen report as a gain on exchange of the Vans?
a) None
b) P7,000
c) P10,000
d) P150,000
Problem 17 - 13: (Acquisition—By Exchange)
On March 1, 2014, Extreme Company exchanged an old machine having a cost of P450,000 and
accumulated depreciation of P100,000 for another machine having a fair market value of P300,000.
Extreme Company has to pay P 72,000 to even-up the trade. Immediately after the. Extreme Company
determined that the cash flows of the machine received differ from the cash flows of the machine
transferred.
Question 1: What is the cost of the new machine in the books of Extreme?
a) P280,000
b) P300,000
c) P440,000
d) P600,000
Question 2: What amount of loss should the company recognize on the exchanged?
a) None
b) P50,000
c) P122,000
d) P150,000
Problem 17 — 14: (Acquisition—By Exchange).
On July 1, 2014, Challenger Corporation exchanged its non-monetary asset (equipment) with a110ther
non-monetary asset. The following data were made available:
Equipment P4,400,000
Accumulated Depreciation 2,000,000
Fair value of equipment 3,000,000
Cash received on exchange 900,000
If the cash flows of the non-monetary assets were not the same, what would be the cost of the non-
monetary asset received?
a) P1,500,000
b) P1,680,000
c) P2,100,000
d) P3,000,000
Problem 17 – 15: (Acquisition—By Exchange)
During 2014, Rising Sun Company paid P700,000 and exchanged an equipment which has a carrying
amount P2,000,000 and a fair value of P2,100,000 for another equipment in the same line of business
with fair value od P2,800,000.
Question 1: If the exchange has the necessary commercial substance, Rising Sun Company should record
the new inventory received at
a) P1,700,000
b) P2,000,000
c) P2,100,000
d) P2,800,000
Question 2: If the exchange lacks the necessary commercial substance, Rising Sun Company should
record the inventory at:
a) P2,000,000
b) P2,700,000
c) P2,800,000
d) P2,900,000
Problem 17 — 16: (Acquisition—By Exchange)
On December 31, 2014, Canary Company traded equipment with an original cost of P400,000 and
accumulated depreciation of P 160,000 for another equipment. In addition, Canary received P20,000 cash
in connection with this exchange. The exchange transaction lacks the necessary commercial substance.
Question 1: What is the amount of gain should Canary recognize assuming the fair value of asset received
is P240,000?
a) None
b) P20,000
c) P40,000
d) P60,000
Question 2: What is the amount of loss should Canary recognize assuming the fair value of asset received
is P200,000?
a) None
b) P20,000
c) P40,000
d) P60,000
Problem 17 - 17: (Acquisition—By Donation)
Snow White Corporation, an investor of Wolf Company, owned an idle parcel of real estate consisting of
land and a factory building. Snow White gave title to this realty to Wolf Company as an incentive for
Wolf to establish manufacturing operations in the area. Wolf paid nothing for this realty which had a fair
market value of P2,000,000 at the date of the grant.
How should Wolf record this non-monetary transaction?
a) Memo entry only.
b) Credit to accumulated profits and losses for P2,000,000
c) Credit to unearned revenue for P2,000,000
d) Credit to equity reserve for P2,000,000

Problem 17 — 18: (Cost of Self-Constructed Asset)

Factor Company build an item of plant manufacturing division. The cost’s incurred for the construction of
the plant are as follows:
Contractors’ cost, P20,000,000; Direct materials and labor used in the construction, P8,000,000;
Engineering and technical overheads, P2,000,000; Interest costs incurred to finance construction,
P1,000,000 and general Administrative cost allocated, P1,500,000.
Of the direct materials and labor used, P 1,500,000 is attributable to cost of inefficiencies caused by a
labor strike.
During the construction of the asset, Factor Company entered into an incidental operation wherein the
company uses the vacant plant site as parking lot. Total revenue from the parking lot was P 125,000 and
related cost incurred was P 10,000. At what amount should the manufacturing plant be initially recorded?
a) P29,500,000
b) P31,100,000
c) P32,600,000
d) P34,100,000
Problem 17 — 18: (Cost of Self-Constructed Asset)
Header Company constructed its own special equipment to produce a newly developed product. A bid to
construct the equipment by an outside company was received for P1,200,000. The actual costs incurred by
Header to construct the equipment were as follows:
Direct material P320,000
Direct labor 200,000
It is estimated that incremental overhead costs for construction amount to 140% of direct labor costs. In
addition, fixed costs (exclusive of interest) of P700,000 were incurred during the construction period and
allocated to production on the basis of total prime costs (direct labor plus direct material). The prime costs
incurred to build the new equipment amounted to 35% of the total prime costs incurred for the period.
The company follows the policy of capitalizing all possible costs on self-construction projects.
To assist in financing the construction of the equipment, a P500,000, 10% loan was acquired at the
beginning of the 6-month construction period. The company carries no other debt except for trade
accounts payable. For simplicity, assume that all construction expenditure took place exactly midway
through the project, that is, all expenditures took place with 3 months remaining in the construction
period.
Question 1: What is the cost to be assigned to the new equipment?
a) P 800,000
b) P1,020,000
c) P1,045,000
d) P1,070,000
Question 2: Assuming Header Company is a medium-sized entity, what is the cost to be assigned to the
new equipment?
a) P 800,000
b) 1,020,000
c) P1,045,000
d) P1,070,000
Problem 17 — 19: (Borrowing Cost—Specific Borrowings)
Visage started constructing a building for its own use in January 2014. During 2014, Visage incurred
interest of P 75,000 related to the building construction, and P30,000 on other borrowings. On the same
year, the company incurred P60,000 interest computed on the weighted-average amount of accumulated
expenditures for the building. How much interest cost should Visage capitalize?
a) P30,000
b) P60,000
c) P 75,000
d) P105,000
Problem 17 — 20: (Borrowing Cost—Sp6cific Borrowings)
Faith, Inc. has a fiscal year ending April 30. On May 1, 2013, Faith borrowed P 10,000,000 at 15% to
finance construction of its own building. Repayments of the loan are to commence on the month
following completion of the building. During the year ended, April 30, 2014, expenditures for the
partially completed structure totaled P6,000 000. These expenditures were incurred evenly throughout the
year. Interest earned on the unexpended portion of the loan amount to P400,000 for the year. How much
should be shown as capitalized interest on Faith’s financial statements at April 30, 2014?
a) None
b) P50,000
c) P 450,000
d) P1,100,000
Problem 17 — 21: (Borrowing Cost—General Borrowings)
The following transactions pertain to the general borrowings made during 2014 by Victory Company in
connection with the construction of the Company’s new warehouse:
 Principal Borrowing Costs
8% bank loan P2,400,000 P192,000
6% short-term note 1,600,000 96,000
8% long-term note 2,000,000 160,000

The construction started on January 1, 2014 and the warehouse was completed on December 31, 2014.
Expenditures on the warehouse were as follows:
January 1 P400,000
March 31 1,000,000
June 30 1,200,000
September 30. 1,000,000
December 31 400,000

How much the capitalizable borrowing cost of Victory Company?

a) None
b) 149,400
c) P298,600
d) P448,000
Problem 17 - 22: (Cost of Land)
Perfect Company acquired land on April 1, 2014 on which a new building will be immediately
constructed. The costs related to the acquisition include:
Cash payment 2,000,000
Broker’s fee 50,000
Option paid for the land acquired 20,000
Option paid for an alternative land not acquired 10,000
Delinquent property taxes for 2013 assumed and paid 30,000
Property taxes for 2014, which will be paid on or before,
December 31, 2014 60,000

What is the proper cost of the land?

a) P1,125,000
b) P2,115,000
c) P2,160,000
d) P2,170,000
Problem 17 23: (Acquisition of Land and Building)
Amber Company acquired a building in early 2014, The costs related to the acquisition include:
Acquisition price P7,000,000
Options 300,000
Repairs 600,000
The options include P200,000 on the building acquired and P 100,000 on the building which was not
acquired. The repairs include renovation, remodeling of office space and new partitions prior to the
occupancy of the building.
What is the proper cost of the building?
a) P7,300,000
b) P7,500,000
c) P7,700,000
d) P7,800,000
Problem 17 - 25: (Acquisition of and Building)
During 2014, Torch Company had the following transactions-pertaining to its new office building:
Purchase price-Land P420,000
Legal fees for contracts to purchase land 14,000
Architect’s fee 56,000
Demolition of old building on site 35,000
Sale of scrap from old building 21,000
Construction cost of new building (fully completed) 2,450,000

At what amounts should the cost of land and cost of building be shown in Torch December 31, 2014
statement of financial position?

Land Building
a) P420,000 P2,520,000
b) P434,000 P2,520,000
c) P448,000 P2,506,000
d) P455,000 P2,534,000
Problem 17 — 26: (Acquisition of Land and Building)
On May 9, 2014, Lamb Company purchased for P6,000,000 a warehouse building and the land on which
it is located. The following data were available concerning the property:
Current Appraised Value Sellers Original Cost
Land P2,200,000 P1,800,000
Warehouse/Building 3,300,000 3,000,000
Total P5,500,000 P4,800,000

At what amount should the land be recorded?

a) P1,800,000
b) P2,200,000
c) P2,250,000
d) P2,400,000
Problem 17 — 27: (Acquisition of Land w/ an old Building)
On December 31, 2014, Noah Company purchased a P400,000 tract of land for a factory site. Noah razed
an old building on the property and sold the materials it salvaged from the demolition. Noah incurred
additional costs and realized salvaged proceeds during December 2014 as follows:
Payments to tenants to vacate the premises P200,000
Demolition of old building 100,000
Legal fees for purchase contract and recording ownership 50,000
Title guarantee insurance 30,000
Proceeds from sale of salvaged materials 10,000

In its December 31, 2014 balance sheet, at what amount should the land be reported?
a) P4,350,000
b) P4,370,000
c) P4,380,000
d) P4,390,000
Problem 17 — 28: (Acquisition of Land and Building)
Plant Company acquired land and building for P5,500,000 on October 1, 2014. The land was appraised at
P2,400,000 and the building atP3,600,000. Unpaid property taxes assumed by Plant amounted to
P250,000. Additional costs incurred were:
Building renovation 500,000
Option on alternative land and building not acquired 50,000
Cost of survey 5,000

What is the proper cost of the land for financial accounting purposes?
a) P2,305,000
b) P2,325,000
c) P2,455,000
d) P2,475,000
Problem 17 29: (Purchase & Self-Constructed Assets)
Shadow Company both purchases and constructs equipment for use in its operations. The following items
for two different types of equipment recorded in random order during the calendar year 2014:
Purchases
Cash paid for equipment, including VAT of P 10,000 P110,000
Freight & insurance cost while in transit 2,000
Cost of moving equipment into place at factory 3,100
Wage cost for technicians to test equipment 4,000
Insurance premium paid during 1st year of operation on this equipment 1,500
Special plumbing fixtures required for new equipment. 8,000
Repair cost incurred in 1st year of operation related to this equipment 1,300
Construction
Material & purchased parts (gross cost P200,000 failed
take 2% cash discount) P200,000
Imputed interest on funds used during construction (stock financing) 14,000
Labor costs 190,000
Overhead costs (fixed P20,000; variable P30,000) 50,000
Profit on self-construction 30,000
Cost of installing equipment 4,400
What is the correct cost each Shadow Company should report?

Purchased Constructed
a) P120,600 P454,400
b) P122,100 P440,400
c) P123,400 P410,400
d) P117,100. P440,400
Problem 17 30: (Acquisition of Land’ Building)
On January 1, 2014, Minister Corporation purchased a tract of land (site number 123) with a building for
P6,000,000. Additionally, Minister paid real estate broker’s commission of P150,000, legal fees of
P60,000, and a title guarantee insurance of P 18,000. The closing statement indicated that the land value
was P5,000,000 and the building value was P 1,000,000. Shortly after acquisition, the building was razed
at a cost of P 75,000.
Minister entered into a P3,000,000 fixed-price contract with Prime Builders, Inc. on March 1 2014 for the
construction of an office building on land site number 123. The building was completed and occupied on
September 30, 2015. Additional construction costs were incurred as follows:

Plans, specifications and blueprints P120,000

Architects’ fees for design and supervision 250,000
The building is estimated to have a forty-year life from date of completion and will be depreciated using
the 150%-declining-balance method:
To finance the construction cost, Minister borrowed P3,000,000 on March 1, 2014. The loan is payable in
ten annual installments of P300,000 plus interest at the rate of 14%. Minister’s average amounts
accumulated building construction expenditures were as follows:
For the period March 1 to December 31, 2014 P900,000
For the period January 1 to September 30, 2015 2,300,000
Question 1: What, is the total cost of the land account?
a) P6,000,000
b) P6,210,000
c) P6,228,000
d) P6,303,000
Question 2: If borrowing cost is added to the asset constructed , what is the capitalized cost of the office
building?
a) P3,250,000
b) P3,370,000
c) P3,475,000
 d) P3,716,000 correction 3,716,500
Question 3: What is the amount of depreciation to be recognize on December 31, 2015?
a) P18,372
b) P30,377
c) P32,377
d) P34,842
Problem 17 — 31: (Acquisition of a Machine)
During 2014, Joker Company Installed a production assembly line to manufacture furniture. In 2014,
Joker purchased a new machine and rearranged the assembly line to install this machine. The
rearrangement did not increase the estimated useful life of the assembly line, but it did result in
significantly more efficient production. The following expenditures were incurred in connection with this
project:
Machine 150,000
Labor to install machine 28,000
Parts added in rearranging the assembly line to provide future benefits 30,000
Labor and overhead to rearrange the assembly line 36,000

What amount of the above expenditures should be capitalized in 2014?

a) P150,000
b) P178,000
c) P214,000
d) P294,000
Problem 17 — 32: (Cost Subsequent to Acquisition)
Bernie Company made the following expenditures relating to its plant assets during 2014:
Partial replacement of roof tiles P42,000
Major improvement to the electrical wiring system n. 196,000
Continuing and frequent repair 120,000
As a result of the improvement to the electrical wiling system future economic benefit will flow to the
enterprise. How much should be charged o repairs and maintenance expense 2014?
a) P120,000
b) P138,000
c) P162,000
d) P258,000
Problem 17— 33: (Cost Subsequent to Acquisition)
During 2014, Maine Company made the following expenditures relating to plant, machinery and
equipment:
Continuing frequent and low cost repairs P36,000
Special long protection devices were attached to ten machines 190,000
A broken gear on machine was replaced 2,000
The devices used to the machines are separately identifiable items of property, plant and equipment.
These items of property plant and equipment will last for 5 years. How much should be charged to repairs
and maintenance in 2014?
a) P36,000
b) P38,000
c) P126,000
d) P128,000
Problem 17 — 34: (Cost Subsequent-to Acquisition)
The following expenditures relating to the plant building were made by Sydney Company during the year
ended December 31, 2014:
Replacement of the old shingle roof with a fireproof tile roof P296,000
Repainted the plant building 20,000
Major investments to the electrical wiring system 70,000
How much should be capitalized In 2014?
a) P70,000
b) P90,000
c) P296,000
d) P366,000