M8 Auditing PPE

PRACTICE PROBLEM

1. On February 1, 2019, CORONA Corporation purchased a parcel of land as a factory site for
P320,000. An old building on the property was demolished and construction begun on a new
warehouse that was completed April 15, 2020. Costs incurred on the construction project are
listed below.

Demolition of old building ........................... P 21,000

Architect's fees ..................................... 31,700
Legal fees--title investigation ...................... 4,100
Construction costs ................................... 950,000
Imputed interest based on stock financing ............ 14,000
Landfill for building site ........................... 19,300
Clearing of trees from building site ................. 9,600
Temporary buildings used for construction activities . 29,000
Land survey .......................................... 4,000
Excavation for basement .............................. 13,200
   (Salvage materials from demolition sold for P1,800)
   (Timber sold for P3,300)

If the building was constructed by the other company it will cost P1,500,000. The savings
on construction will be recognized after the audit as part of other income.

1. 1. As auditor, determine the cost of the land and new building.

2. How much savings to be recognized as part of other income?

2. On May 1, 2019, COVID Corporation purchased for P690,000 a tract of land on which a
warehouse and office building were located. The following data were collected concerning
the property:

Current Assessed Vendor's

Valuation Original Cost
Land ............................. P280,000 P180,000
Warehouse ........................ 320,000 315,000
Office Building .................. 200,000 129,000
P800,000 P624,000

Your audit shows that COVID the account used for the acquisition was Land and Building
with a total balance of P690,000 and the related accumulated depreciation account with
P69,000 balance as of December 31, 2019 for 10 year life. Straight line method was used
and the the estimated life used was correct.

1. As auditor, determine the appropriate amounts that COVID should record for the land,
warehouse, and office building and the related accumulated depreciation.

2. Give the entry for the audit adjustments.