Problem 1
In connection with your examination of the financial statements of the Maraat Corporation
for the year 2007, the company presented to you the Property, Plant and Equipment section
of its balance sheet as of December 31, 2006, which consists of the following:
Land P 400,000
Buildings 3,200,000
Leasehold improvements 2,000,000
Machinery and equipment 2,800,000
The following transactions occurred during 2007:
1. Land site number 5 was acquired for P4,000,000. Additionally, to acquire the land,
Maraat Corporation paid a P240,000 commission to a real estate agent. Costs of P60,000
were incurred to clear the land. During the course of clearing the land, timber and gravel
were recovered and sold for P20,000.
2. The second tract of land (site number 6) with a building was acquired for P1,200,000.
The closing statement indicated that the land value was P800,000 and the building value
was P400,000. Shortly after acquisition, the building was demolished at a cost of
P120,000. The new building was constructed for P600,000 plus the following costs:
Excavation fees P 44,000
Architectural design fees 32,000
Building permit fees 4,000
Imputed interest on funds used during construction 24,000
The building was completed and occupied on September 1, 2007.
3. The third tract of land (site number 7) was acquired for P2,400,000 and was put on the
market for resale.
Extensive work was done to a building occupied by Maraat Corporation under a lease
agreement. The total cost of the work was P500,000, which consisted of the following:
Particular Amount Useful life
Painting of ceilings P 40,000 one year
Electrical work 140,000 Ten years
Construction of extension to current
working area 320,000 Thirty years
The lessor paid one-half of the costs incurred in connection with the extension to the
current working area.
5. A group of new machines was purchased under a royalty agreement which provides for
payment of royalties based on units of production for the machines. The invoice price of
the machines was P300,000, freight costs were P8,000, unloading charges were P6,000,
and royalty payments for 2007 were P52,000.
Question
1. Land at year-end is
2. Buildings at year-end is
3. Leasehold improvements at year-end is
4. Machinery and equipment at year-end is
Problem 2
Information pertaining to Highland Corporation’s property, plant and equipment for 2005 is
presented below:
Account balances at January 1, 2005:
Debit Credit
Land P 150,000
Buildings 1,200,000
Accumulated depreciation – Buildings P263,100
Machinery and equipment 900,000
Accumulated depreciation – Machinery and equipment 250,000
Automotive equipment 115,000
Accumulated depreciation – Automotive equipment 84,600
Depreciation data:
Depreciation method Useful life
Buildings 150% declining-balance 25 years
Machinery and equipment Straight-line 10 years
Automotive equipment Sum-of-the-years’-digits 4 years
Leasehold improvements Straight-line -
The salvage values of the depreciable assets are immaterial. Depreciation is computed to
the nearest month.
Transactions during 2005 and other information are as follows:
a. On January 2, 2005, Highland purchased a new car for P20,000 cash and trade-in of a 2-
year-old car with a cost of P18,000 and book value of P5,400. The new car has a cash
price of P24,000; the market value of the trade-in is not known.
b. On April 1, 2005, a machine purchased for P23,000 on April 1, 2000, was destroyed by
fire, Highland recovered P15,500 from its insurance company.
c. On May 1, 2005, costs of P168,000 were incurred to improve leased office premises. The
leasehold improvements have a useful life of 8 years. The related lease terminates on
December 31, 2011.
d. On July 1, 2005, machinery and equipment were purchased at a total invoice cost of
P280,000; additional costs of P5,000 for freight and P25,000 for installation were
incurred.
e. Highland determined that the automotive equipment comprising the P115,000 balance
at January 1, 2005, would have been depreciated at a total amount of P18,000 for the
year ended December 31,2005.
Questions
Based on the information above, answer the following questions:
1. The adjusted balance of Machinery and Equipment (at cost) at December 31, 2005 is:
2. The adjusted balance of Automotive Equipment (at cost) at December 31, 2005 is:
3. The adjusted balance of Accumulated Depreciation of Building at December 31, 2005 is:
4. The adjusted balance of Accumulated Depreciation of Machinery and Equipment at
December 31, 2005 is:
5. The adjusted balance of Accumulated Depreciation of Automotive Equipment at
December 31, 2005 is:
6. The adjusted balance of Accumulated Depreciation of Leasehold Improvements at
December 31, 2005 is:
7. The total adjusted balance of Accumulated Depreciation of Property and Equipment at
December 31, 2005 is:
8. The total gain(loss) from disposal of assets at December 31, 2005 is:
9. The adjusted book value of Building at December 31, 2005 is:
