AUDITING AND ASSURANCE

07 TASK PERFORMANCE

Case 1

1. The revaluation surplus balance at December 31, 201C, before recognition of the impairment loss
is P12,500.

Fair value at time of revaluation

112,500

Original cost of the asset (100,000)

Revaluation surplus balance at

December 31, 201C 12,500

2. The amount of impairment loss to be reported on Love's income statement for the year 201C is
P5,000.

73,000
Fair value of the asset at the time of impairment
Recoverable amount of the asset (68,000)

Impairment loss to be reported on Love's

5,000
income statement for the year 201C
Case 2

3. Depreciation expense for 201F on Buildings would be P4,822,750. This is calculated by multiplying
the cost of the buildings (P30,000,000) by the depreciation rate of 150% declining balance
method, then multiplying the result by (1/25) to get the depreciation for the first year, then
multiplying that by the remaining useful life of the building at the end of 201F.

4. Depreciation expense for 201F on Machinery and equipment would be P21,925,000. This is
calculated by taking the cost of the machinery and equipment (P225,500,000) and subtracting the
accumulated depreciation as of January 1, 201F (P6,250,000) then dividing by the useful life of 10
years.

5. Depreciation expense for 201F on Delivery equipment would be P1,368,000. This is calculated by
using the sum-of-the-years'-digit method. You would take the cost of the delivery equipment
(P5,750,000) and multiply by the sum of the digits (10+9+8+7+6+5+4+3+2+1)/10 and then divide
by the useful life of 4 years.

6. Depreciation expense for 201F on Leasehold improvements would be P1,050,000. This is

calculated by taking the cost of the leasehold improvements (P8,400,000) and dividing by the
useful life of 8 years.
 7. Accumulated depreciation – Buildings December 31, 201F would be P11,400,250. This is
calculated by adding the depreciation expense for 201F to the accumulated depreciation as of
January 1, 201F (P6,577,500)

8. Accumulated depreciation – Machinery and equipment, December 31, 201F would be

P28,750,000. This is calculated by adding the depreciation expense for 201F to the accumulated
depreciation as of January 1, 201F (P6,250,000)

9. Accumulated depreciation – Delivery equipment, December 31, 201F would be P5,598,000. This
is calculated by adding the depreciation expense for 201F to the accumulated depreciation as of
January 1, 201F (P4,230,000)

10. The gain (loss) on the trade-in of the truck on January 2, 201F would be P30,000. This is calculated
by subtracting the book value of the old truck (P270,000) from the cost of the new truck
(P1,000,000) and then subtracting the cash price of the new truck (P1,200,000).

Case 3

11. Machine 3, purchased on January 3, 201E, should be recorded at P176,600 (171,000 + 1,320 +
5,280)

12. The second-hand vehicle purchased on June 22, 201E should be recorded at P48,561 (45,600 +
1,965 + 1,035)

13. The office furniture acquired on August 14, 201E should be recorded at P35,880 (37,500 -
34,500 + 72,300)

14. The gain (loss) to be recognized on the exchange of machine 1 for office furniture on August 14,
201E should be P3,620 (37,500 - 34,500)

15. Total depreciation for 201E is P26,842 (depreciation for machines 1,2,3 + vehicles + building)

16. The gain or loss to be recognized on the sale of the vehicle on May 25, 201F is P11,132 (140,400
- 58,968 - 19,800)

17. The total depreciation expense for 201F is P28,716 (depreciation for machines + vehicles +
building + land improvements)

18. After the overhaul, machine 2’s revised annual depreciation is P18,000 (36,000/2)

19. What is the cost of the new vehicle acquired on June 20, 201G? P58,800 (69,900 - 11,100)

20. The total depreciation expense for 201G is P30,874 (depreciation for machines + vehicles +
building + land improvements)