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A series of illustrative problems related to the acquisition and subsequent expenditure of property, plant, and equipment (ppe) in accordance with philippine accounting standard (pas) 16. The problems cover various scenarios, including the capitalization of costs associated with the purchase and installation of a new plant, the acquisition of machinery through cash and note payable, the exchange of assets, and the fabrication of office furniture and fixtures. The document aims to help students and professionals understand the appropriate accounting treatment for different ppe-related transactions and expenditures. By studying this document, readers can gain insights into the key principles and requirements for the recognition, measurement, and presentation of ppe in financial statements.
Typology: Exercises
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John Corporation - New Plant Installation Purchase price of plant: ₱2,500, Initial delivery and handling costs: ₱200, Cost of site preparation: ₱600, Consultants' fees for plant acquisition advice: ₱700, Estimated dismantling costs after 7 years: ₱300, Operating losses before commercial production: ₱400,
The total costs that can be capitalized in accordance with PAS 16 is the sum of the above items, excluding the operating losses before commercial production.
Mary Company - Machine Acquisition
Invoice price of machine: ₱4,500, Payment terms: 2/10, n/ Delivery cost: ₱80, Installation and testing cost: ₱310, Estimated useful life: 5 years Estimated residual value: ₱800,
The amount to be capitalized as the cost of the machine is the sum of the invoice price, delivery cost, and installation and testing cost, which is ₱4,890,000.
Arbiter Company - Jet Aircraft Acquisition
Purchase price of the used jet aircraft: ₱800, Five-year, 6% note accepted by Jane Airlines Arbiter's incremental borrowing rate: 14% Annual payment of principal and interest: ₱189, Established cash price of the aircraft: ₱651, Present value of an ordinary annuity of ₱1 at 8% for five periods: 3.
The aircraft should be capitalized on Arbiter's books at ₱651,460.
Michael Company - Machinery Acquisition
Acquisition of used machinery: ₱3,000,000 (three-year, 12% interest note) Acquisition of new machinery: ₱3,000,000 (three payments of ₱1,000,000, first payment made on December 30, 2016) Prevailing rate of interest for the type of note: 12% Present value of an ordinary annuity of 1 at 12%: 1.69 for two periods, 2.40 for three periods
The total cost of the machinery is ₱6,000,000.
Ed Company - Land and Building Acquisition
Acquisition of land and building: 60,000 ordinary shares at ₱150 per share Fair value of land: ₱2,000, Fair value of building: ₱6,000, Acquisition of land from a shareholder: ₱100,000 (charged to legal expenses) Fair value of the land received from the shareholder: ₱1,500,
The net increase in Ed Company's equity as a result of these acquisitions is ₱9,400,000.
Company A and Company B - Asset Exchange
Company A's machine carrying amount: ₱450, Company B's delivery vehicle carrying amount: ₱300, Additional cash paid by Company B: ₱90, Fair value of the delivery vehicle: ₱420,
If the exchange has commercial substance, Company A should record a gain of ₱60,000.
Payor Inc. and Recipient Co. - Asset Exchange with No Commercial Substance
Payor Inc.'s asset given up: book value ₱12,000, fair value ₱15, Recipient Co.'s asset given up: book value ₱20,000, fair value ₱19, Boot received by Recipient Co.: ₱4,
Payor Inc. should record the asset received at ₱12,000.
Payor Inc. and Recipient Co. - Asset Exchange with No Commercial Substance
Payor Inc.'s asset given up: book value ₱12,000, fair value ₱15, Recipient Co.'s asset given up: book value ₱20,000, fair value ₱19, Boot received by Recipient Co.: ₱4,
Recipient Co. should record the asset received at ₱23,000.
Delivery Truck Exchange
Special assessment tax for street project: ₱20, Dividends: ₱50, Damages for injuries sustained in construction: ₱84, Cost of construction: ₱29,000, Cost of paving parking lot: ₱400, Cost of landscaping: ₱330, The cost of the building in accordance with PIC Q&A 2016-2 is ₱34,550,500.
Dasmariñas Company - Assembly Line Rearrangement
Cost of new machine: ₱5,000, Labor to install new machine: ₱400, Parts added in rearranging the assembly line: ₱2,000, Labor and overhead to rearrange the assembly line: ₱600, The amount that should be capitalized in 2016 is ₱7,000,000, which includes the cost of the new machine, labor to install the machine, and parts added in rearranging the assembly line.