SELF TEST 7

PROPERTY, PLANT AND EQUIPMENT

BSA 2102 – INTERMEDIATE ACCOUNTING 1 & 2

JOSE CONRAD NUPIA BAGON

20160149848

PROF. JOSEPH CO
 SELF-TEST PROPERTY, PLANT AND EQUIPMENT

1. The entity purchased land for P2,000,000 as a plant site. There was a small office building
on the land with fair value of P700,000 which the entity will continue to use with some
modification and renovation. The entity decided to construct a factory building and incurred
the following costs:

Materials and supplies 3,000,000

Excavation 100,000
Labor on construction 2,500,000
Cost of remodelling office building 300,000
Legal cost of conveying land 50,000
Imputed interest on money used during construction 150,000
Cash discount on materials purchased 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction 30,000
Paving of street and sidewalk 40,000
Plans and specifications 140,000
Payment for claim for injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000

1. What is the initial cost of land?

a. 1,390,000
b. 1,300,000
c. 1,350,000
d. 1,450,000

2. What is the initial cost of office building?

a. 1,050,000
b. 1,000,000
c. 700,000
d. 850,000

3. What is the initial cost of factory building?

a. 5,750,000
b. 5,950,000
c. 5,800,000
d. 5,600,000

2. During 2020, an entity constructed a building costing P10,000,000. The weighted average
accumulated expenditures on the asset during the year totalled P6,000,000. To help pay for
construction, an amount P4,500,000 was borrowed at 10% on January 1, 2020 and funds
not needed for construction were temporarily invested in short-term securities, yielding
P100,000 in interest revenue. Other than the construction funds borrowed, the only other
debt outstanding during the year was a P8,000,000, 10-year, 9% note payable dated
January 1, 2019. The loans were unpaid on December 31, 2020.

1. What amount of interest should be capitalized during 2020?

a. 600,000
b. 540,000
c. 485,000
d. 500,000

2. What is the interest expense for 2020?

a. 720,000
b. 585,000
c. 315,000
d. 900,000
3. January 1, 2020, an entity disclosed the following balances:
Land 4,000,000
Land improvements 1,300,000
Building 20,000,000
Machinery 8,000,000

During the current year, the following transactions occurred:

• A tract of land was acquired for P2,000,000 cash as a building site.

• A plant facility consisting of land and building was acquired in exchange for 200,000 shares
of the entity. On the acquisition date, each share had a quoted price of P45 on a stock
exchange. The plant facility was carried on the seller’s book at P1,600,000 for land and
P5,400,000 for the building at the exchange date.

Current appraised values for the land and the building, respectively, are P2,000,000 and
P8,000,000. The building has an expected life of 20 years with P200,000 residual value.

• Machinery was purchased for P4,000,000. Additional costs incurred were freight and
unloading P100,000 and installation P300,000. The machinery had a useful life of ten years
with no residual value.

• Expenditure totalling P1,200,000 were made for new parking lot, street and sidewalks at the
entity’s various plant locations. These expenditures had an estimated useful life of fifteen
years.

• Research and development cost totalled P1,100,000 for the year.

• A machine costing P200,000 on January 1, 2012 was scrapped on June 30, 2020. Straight
line depreciation had been recorded on the basis of 10-year life with no residual value.

• A machine was sold for P500,000 on July 1, 2020. Original cost of the machine sold was
P700,000 on January 1, 2017 and it was depreciated on the straight line basis over an
estimated useful life of eight years and a residual value of P50,000.

1. What is the total cost of the land on December 31, 2020?

a. 7,800,000
b. 7,600,000
c. 8,000,000
d. 6,800,000

2. What is the total cost of land improvements on December 31, 2020?

a. 1,200,000
b. 3,600,000
c. 1,300,000
d. 2,500,000

3. What is the total cost of building on December 31, 2020?

a. 28,000,000
b. 25,400,000
c. 27,200,000
d. 27,000,000

4. What is the total cost of machinery on December 31, 2020?

a. 12,400,000
b. 11,500,000
c. 11,000,000
d. 11,700,000
 An entity provided the following information on January 1, 2020.
Vehicle cost 5,000,000
Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000
Actual miles driven
2020 30,000
2021 20,000
2022 15,000

1. What is the accumulated depreciation on December 31, 2021 using the double
declining balance method?
a. 1,200,000
b. 1,600,000
c. 2,560,000
d. 3,200,000

2. What is the accumulated depreciation on December 31, 2022 using the miles driven?
a. 2,000,000
b. 2,600,000
c. 800,000
d. 600,000

4. An entity owned a machine that was bought on January 1, 2017 for P3,760,000. The
machine was estimated to have a useful life of five years and residual value of P240,000.
The entity used the sum of the years’ digits method of depreciation. On January 1, 2020, the
entity determined that the total useful life of the machine should have been four years and
the residual value is P350,000.

What amount should be recorded as a depreciation expense on the machine for 2020?
a. 350,000
b. 944,000
c. 594,000
d. 704,000

5. On June 30, 2020, an entity reported the following information:

Equipment at cost 30,000,000
Accumulated depreciation 10,500,000

The equipment was measured using the cost model and depreciated on a straight line basis
over 10-year period. On December 31, 2020, the management decided to change the basis
of measurement from cost model to revaluation model. The equipment was revalued at the
fair value of 27,000,000 with no change in useful life. The income tax rate is 30%.

1. What is the revaluation surplus on December 31, 2021?

a. 6,300,000
b. 9,000,000
c. 5,250,000
d. 5,670,000

2. What is the depreciation for 2021?

a. 4,500,000
b. 2,700,000
c. 3,000,000
d. 1,500,000

3. What is the deferred tax liability on December 31, 2021?

a. 2,700,000
b. 2,250,000
c. 1,350,000
d. 2,500,000