Jackson, Kervin Rey G.

BSA - 2
INTACC2 - Exercise 1
Exercises 1 – Acquisition by Various Modes of Acquisition

On January 1, 2020, Oraller-Cabidog Company acquired a parcel of land. Apart from

the acquisition costs the company also incurred title transfer fees of P100,000 pain in
cash on the same date.

Required: Under each of the cases provide the following.

1. Correct measurement of land

2. All journal entries in 2020, related to the acquisition of and payment of land.

Case 1: The land is acquired by paying for cash of P10,000,000

1. Correct measurement of land.

Land P10,000,000
Cash P10,000,000
To record the acquisition of the land
Land (directly attributable costs) P100,000
Cash P100,000
To record the directly attributable costs

Purchase price of land P10,000,000

Add: Directly attributable cost 100,000
Total cost of the land P10,100,000

2. Journal Entries.
Land P10,000,000
Cash P10,000,000
To record the acquisition of the land.
Land (directly attributable cost) P100,000
Cash P100,000
To record the directly attributable cost

Case 2: The land is acquired on account for P10,000,000. The credit terms were
5/15, n30. The payment was made on January 15, 2020. Oraller-Cabidog uses the
gross method.

1. Correct measurement of land.

Accounts payable P10,000,000
Cash P9,500,000
Land (5% x P10,000,000) P500,000
Purchase price of land P9,500,000
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
Add: Directly attributable cost 100,000
Total cost of the land P9,600,000

2. Journal Entries.
Gross Method:
Land P10,000,000
Accounts payable P10,000,000
To record the acquisition of land
Payment within the discount period:
Accounts payable P10,000,000
Cash P9,500,000
Land (5% x P10,000,000) P500,000
To record the payment of accounts payable

Case 3: The land is acquired on account for P10,000,000. The credit terms were
5/15, n30. The payment was made on January 30, 2020. Oraller-Cabidog uses the
net method.

1. Correct measurement of land.

Accounts payable P9,500,00
Purchase discount lost P500,000
Cash P10,000,000

Purchase price of land P10,000,000

Add: Directly attributable cost 100,000
Total cost of the land P10,100,000
2. Journal Entries
Net Method:
Land P10,000,000
Accounts payable P10,00,000
To record the acquisition of land
Payment beyond the discount period:
Accounts payable P9,500,000
Purchase discount lost P500,0000
Cash P10,000,000
To record the payment of accounts payable

Case 4: The land is acquired by paying P1,000,000 down payment and issuing a
promissory note of P9,000,000, payable in three equal installments of P3,000,000
every December 31 starting in 2020. The land has a cash price equivalent of
P8,000,000.
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
1. Correct measurement of land
Purchase price of land P8,000,000
Add: Directly attributable cost 100,000
Total cost of land P8,100,000

2. Journal Entries
Land P8,000,000
Discount on note payable P2,000,000
Notes payable P9,000,000
Cash P1,000,000
To record the acquisition of the land
Notes payable P3,000,000
Cash P3,000,000
To record the first installment payment
Interest expense P1,000,000
Discount on notes payable P1,000,000
To amortize the discount on note payable
Notes payable P3,000,000
Cash P3,000,000
To record the second installment
Interest expense P666,667
Discount on notes payable P666,667
To amortize the discount on notes payable
Notes payable P3,000,000
Cash P3,000,000
To record last installment payment
Interest expense P333,333
Discount on notes payable P333,333
To amortize the discount on notes payable

Note Payable Fraction Interest Expense

First year P9,000,000 9/18 P1,000,000

Second year P6,000,000 6/18 P666,667

Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
Third year P3,000,000 3/18 P333,333

P18,000,000 P2,000,000

Case 5: The land is acquired by paying P1,000,000 down payment and issuing a
promissory note of P9,000,000, payable in three equal installments of P3,000,000
every December 31 starting in 2020. The land has no cash price equivalent.
However, the implied interest for the same promissory notes in the market is at
10%. The present value factor is 2.49.

1. Correct measurement of land

Annual installment payments P3,000,000
Multiplied by: Present value factor x 2.49
Present value of the notes payable P7,470,000

Total installment payments (P3,000,000 x 3) P9,000,000

Present value of the notes payable (7,470,000)
Discount on note payable P1,530,000

Down payment P3,000,000

Add: Present value of notes payable 7,470,000
Purchase price of the land P10,470,000

2. Journal Entries
Land P8,470,000
Discount on notes payable P1,530,000
Cash P1,000,000
Notes payable P9,000,000
To record the acquisition of the land

Notes payable P3,000,000

Cash P3,000,000
To record the first installment payment

Interest expense P747,000

Discount on notes payable P747,000
To amortize the discount on notes payable
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
Notes payable P3,000,000
Cash P3,000,000
To record the second installment payment
Interest expense P521,700
Discount on notes payable P521,700
To amortize the discount on notes payable

Notes payable P3,000,000

Cash P3,000,000
To record the last installment payment

Interest expense P261,300

Discount on notes payable P261,300
To amortize the discount on notes payable

Year Payment Interest Principal Present value

Jan. 1 P7,470,000

First year P3,000,000 P747,000 P2,253,000 P5,217,000

Second year P3,000,000 P521,700 P2,478,300 P2,738,700

Third year P3,000,000 P261,300 P2,738,700 -

Case 6: The land is acquired by the issuance of 60,000 ordinary share capital with
a P110 par value and currently selling at P160 in the stock market. The land has a
fair value of P10,500,000.

1. Correct measurement of land

Land P10,500,000
Ordinary share capital (60,000 x P110) P6,600,000

Share premium-ordinary shares P3,900,000

To record the acquisition of the land

Land P100,000
Cash P100,000
To record the directly attributable cost
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1

Fair value of the land P10,500,000

Add: Directly attributable cost 100,000
Total cost of the land P10,600,000

2. Journal Entries
Land P10,500,000
Ordinary share capital (P60,000 x P110) P6,600,000
Share premium-ordinary shares P3,900,000
To record the acquisition of the land

Case 7: The land is acquired by the issuance of 60,000 ordinary share capital with
a P110 par value and currently selling at P160 in the stock market. The fair value
of the land could not be determined.

1. Correct measurement of land

Land P9,600,000
Ordinary share capital P6,600,000
Share premium-ordinary shares P3,000,000
To record the acquisition of the land

Land P100,000
Cash P100,000
To record the acquisition of the land

Fair value of share capital P9,600,000

Add: Directly attributable cost 100,000
Total cost of the land P9,700,000

2. Journal Entries
The fair value of the share capital is used:
Land (P60,000 x P160) P9,600,000
Ordinary share capital P6,600,000
Share premium-ordinary shares P3,000,000
To record the acquisition of land
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
Case 8: The land is acquired by the issuance of 60,000 unlisted ordinary share
capital with a P110 par value. The fair value of the land and the share capital
could not be determined.

1. Correct measurement of land

Land P6,600,000
Ordinary share capital P6,600,000
To record the acquisition of land

Par value of share capital P6,600,000

Add: Directly attributable cost 100,000
Total cost of the land P6,700,000

2. Journal Entries
The par value of the share capital is used:
Land P6,600,000
Ordinary share capital P6,600,000
To record the acquisition on the land

Case 9: The land was acquired by the issuance of 2,000 bonds of P4,300
face value for each bond. The bonds have a fair value of P5,200 each while the
land has an appraised fair value of P11,000,000.

1. Correct measurement of land

The fair value of the bonds payable is used:
Land P10,400,000
Bonds payable P8,600,000
Premium on bonds payable P1,800,000
To record the acquisition of the land

Land P100,000
Cash P100,000
To record the directly attributable cost

Fair value of the bonds payable P10,400,000

Add: Directly attributable cost 100,000
Total cost of the land P10,500,000
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
The fair value of the land is used:
Land P11,000,000
Bonds payable P8,600,000
Premium on bonds payable P2,400,000
To record the acquisition of the land

Land P100,000
Cash P100,000
To record the directly attributable costs

Fair value of the land P11,000,000

Add: Directly attributable cost 100,000
Total cost of the land P11,100,000

2. Journal Entries
The fair value of the bonds is used:
Land P10,400,000
Bonds payable P8,600,000
Premium on bonds payable P1,800,000
To record the acquisition of the land

The fair value of the bonds is used:

Land P11,000,000
Bonds payable P8,600,000
Premium on bonds payable P2,400,000
To record the acquisition of the land

Case 10: The land was acquired by the issuance of 2,000 bonds of P5,000 face
value for each bond. The fair value of the bonds cannot be determined while the
land has an appraised fair value of P8,500,000.

1. Correct measurement of land

Land P10,000,000
Bonds payable P10,000,000
To record the acquisition of the land

Land P100,000
Cash P100,000
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
To record the directly attributable cost

Face value of the bonds payable P10,000,000

Add: Directly attributable cost 100,000
Total cost of the land P10,100,000

2. Journal Entries:
The face value of the bonds is used:
Land P10,000,000
Bonds payable P10,000,000
To record the acquisition of the bond

Exercise 2 – Acquisition by Exchange transaction

On January 1, 2020, Remi Company exchanged its old delivery truck with Martin
Dealers Inc. for a brand-new equipment. The following information pertains to the
delivery truck.

Remi
Original cost P1,000,000
Accumulated depreciation 600,000
Carrying/book value 400,000
Cash paid by Remi to Martin Inc. 200,000

Remi incurred P20,000 in transportation and installation of the brand-new equipment.

Required: For each of the following independent cases.

1. The gain or loss as a result of the exchange

2. Prepare the journal entries in 2020 to record the exchange transaction.

Case 1: The old delivery truck has a fair value of P450,000. The brand-new
equipment has a fair market value of P600,000.

1. Gain/Loss
Fair value of the asset given P450,000
Carrying amount (400,000)
Gain P50,000

2. Journal Entries (Book)

Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
Equipment-new P670,000
Accumulated depreciation P600,000
Old truck P1,000,000
Cash P220,000
Gain P50,000
To record the acquisition of the new equipment

Fair value of the asset given P450,000

Cash payment 200,000
DAC’s 20,000
Cost of the new asset P670,000

Case 2: The fair value of the old delivery truck could noy be determined. The
brand-new equipment has a fair market value of P600,000.

1. No gain or loss since the fair value of the asset received in not reliably
measurable

2. Journal Entry (Book)

Equipment-new P420,000
Cash P200,000
Old truck P600,000
Cash P20,000
To record the acquisition of the new equipment

Fair value of the asset given P600,000

Cash received (200,000)
DAC’s 20,000
Cost of the new asset P420,000

Case 3: The fair value could not be determined for either the old delivery truck or
the brand-new equipment.

1. No gain or loss because the carrying value is used

2. Journal Entry (Book)

Equipment-new P620,000
Accumulated depreciation P600,000
Old truck P1,000,000
Cash P220,000
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
To record the acquisition using the carrying value

Carrying value P400,000

Cash 200,000
DAC’s 20,000
Cost of the new asset P620,000

Exercise 3: Acquisition by Trade-in

Dupont Company acquired a new delivery equipment from Baumol Corp. Dupont paid
P4,000,000 and a trade-in of an old service equipment. The new delivery equipment
costs P5,600,000 had it been pain in cash. However, Baumol was considerate enough
to accept a trade-in as a consequence of Dupont being short of cash. The following
information pertains to the old service equipment:

Original cost P4,000,000

Accumulated depreciation 2,800,000
Fair value 1,400,000

Required:

1. Prepare the journal entries to record the transaction under fair value method
2. Prepare the journal entries to record the transaction under trade-in value method.

A. Fair Value Method

Fair value P1,400,000
Cash payment 4,000,000
Cost of the new asset 5,400,000

Fair value P1,400,000

Less: Carrying amount (P4,000,000 – P2,800,000) (1,200,000)
Loss on exchqqqange P200,000

Delivery equipment P5,400,000

Accumulated depreciation P2,800,000
Loss on exchange P200,000
Service equipment - old P4,000,000
Cash P4,000,000
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1
B. Trade-in Value Method
Trade-in value (P5,600,000-P4,000,00) P1,600,000
Cash 4,000,000
Cost of the new asset P5,600,000

Trade-in value P1,600,000

Less: Carrying amount (P4,000,000-P2,000,000)(1,200,000)
Gain on exchange P400,000

Delivery equipment – new P5,600,000

Accumulated depreciation P2,800,000
Service equipment – old P4,000,000
Cash P4,000,000
Gain on exchange 400,000

Exercise 4: Acquisition by donation

A generous shareholder of Touissant Company during its annual shareholder’s meeting

donated a delivery equipment to the company. The equipment has a current fair value
of P800,000 at the time of donation. The company incurred P20,000 legal and other
registration fees to complete the donation. Also, the company incurred P100,000 for
replacement of major parts and testing of the equipment.

Required:

1. What amount was debited to the delivery equipment account?

2. Prepare the journal entries to record the donation?

Solution:

1. Fair value P800,000

DAC’s 100,000
Legal fees (20,000)
Amount debited to Delivery equipment P880,000

2. Journal Entries
Machine P800,000
Donated capital P800,000
To record the receipt of machine through donation
Jackson, Kervin Rey G. BSA - 2
INTACC2 - Exercise 1

Machine P100,000
Cash P100,000
To record the directly attributable costs

Donated capital P20,000

Cash P20,000
To record the cost incurred on the donation

Fair value of the asset P800,000

Add: Directly attributable costs (installation and testing only) 100,000
Total cost of the machine P900,000

Exercise 5: Initial Recognition

Extra Corporation is installing a new plant at is production facility. It has incurred these
costs:

Purchase price of plant P5,000,000

Initial delivery and handling costs 250,000
Cost of site preparation 800,000
Consultants used for advice on the acquisition of the plant 1,400,000
Estimated dismantling costs to be incurred after 7 years 700,000
Operating losses before commercial production 400,000

Required:
The total costs that can be capitalized in accordance with PAS 16 is:

Initial recognition
Purchase price of plant P5,000,000
Add: DAC’s (P250,000 + P800,000 + P1,400,000) 2,450,000
Add: Estimated dismantling cost to be incurred after 7 years 700,000
Total cost capitalized P8,150,000