Page|1

Chapter 15
Property, Plant and Equipment (Part 1)
PROBLEM 1: TRUE OR FALSE
1. FALSE
2. FALSE–c ost
3. TRUE
4. FALSE–e xpense d
5. FALSE–di re
c tcost
sar ecapi
tal
ize
dinfullandnotapor t
ionof
thec
os ti
srecognizedinpr ofitorloss
6. TRUE–Thec ostofa bnormalamountsofwa s
tedma t
eri
al,
l
abor,orotherresourcesduetoineffic i
enciesi
srec
ognizedas
expe
ns e.
7. FALSE–notadj usted
8. FALSE–notnec es s
aril
y
9. FALSE
10.FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. D
3. D
4. B–s
ee“notassumed”
5. D
6. C
7. A
8. D
9. D
10.C

PROBLEM 3: EXERCISES
1. Sol
uti
ons
:
Requir
ement(a)
:
Pur
chasepr
ice(
cas
hpric
eequi
val
ent
) 10
0,000
 Page|2

Broker’scommi ssion 5,
000
Impor tduties 25,
000
Non- ref
undablepur chaset
axes 10,
000
Transpor t
ati
onc ost 1,
000
As se
mbl ingandi nst
all
ati
oncost
s 2,
000
Testi
ngc osts 1,
500
Ne tproceedsfrom samplesgene
rat
ed (
500)
Initi
alc ostofequipment 14
4,000
Requi
reme nt(
b):
Da
te F a
ctoryequi
pme
nt 1
44,
500
Cash 1
44,
500
t
ore
cor
dca
pit
ali
zab
lec
ost
sofe
qui
pme
nt
Da
te Cas
h 5
00
Fa
ctor
yequi
pme
nt 5
00
t
ore
cor
dsa
leo
fsa
mpl
esg
ene
rat
edf
romt
est
ing
Da
te Gener
alandadmini
str
ati
vec
ost
s 4
,20
0
Adver
tis
ingexpe
nse 3
,80
0
Cash 8
,00
0
t
ore
cor
dno
n-c
api
tal
iz
abl
eco
sts

2. So
lut
ion:
Land Buil
ding
Lump-s
um price(
6M x2.
5/7
.5)
;(6
M x5/7.
5) 2
,000,
000 4,
000,
000
Landr
egis
tra
tioncosts 4,
000
Payme
nttotenant
stovac a
tepr emi
se s 1,
500 3,
000
(
4.5
Kx2.
5/7
.5)
;(4.
5Kx5/7
.5)
Opt
ionpa
idont
hel
andandbui
ldi
ng 1
,00
0 2,
000
(
3Kx2.
5/7
.5)
;(3
Kx5/7
.5)
Br
oke
r'sf
eeont
hel
andandbui
ldi
ng 2
,50
0 5,
000
(
7.5
Kx2
.5/7
.5)
;(7.
5Kx5/7
.5)
Unpaidreales
tatet
axespri
ortoacquis
iti
on 1
5,0
00
ass
ume d byBukoCo. –asse
sse
donl and
Repair
sandr e
novati
onc os
tsbef
orethe 2
0,0
00
buil
dingi
soc c
upied
2,
024,
00 4
,03
0,00
Tot
als
0 0

3. Sol
uti
ons
:
Case1:Oldbuil
dinghasf
airval
ue
Requi
rement(a)
:
Old New
Land bui
ldi
n bui
ldi
n
g g
 Page|3

Lump-
sum pr
ice 2
,00
0,00
0 4,
000
,00
0 -
(
6M x2.
5M/7.
5M)
;(6M x5M/7.
5M)
Costofrazingtheol dbui l
ding - - 3
0,0
00
(demoliti
oncos t
)
Procee
dsf rom saleofsalvaged - - (
7,50
0)
materi
als
Legalfeesinconve yi
ngt i
tleto 1
0,0
00 - -
la
nd
Optionpa i
dfort helandandol d 1
,00
0 2,
000
bldg.acquire
d( 3Kx2.5/7
.5)
;(3Kx
2
.5/7
.5)
Paymentstotenantstovac a
te 2
,00
0 4,
000
premises(6
Kx2.5/7.
5);
(6Kx5/7.
5)
Ma t
eri
als
,laborandove r
head - - 4,
250,
000
Total
s 2
,01
3,00
04,
006,
000 4,
272,
500

Requi
rement(b)
:
Lumpsumpurchas
epr
ice
Dat Land 2
,00
0,00
0
e
Buil
ding-ol
d 4
,00
0,00
0
Cash 6
,00
0,00
0
t
ore
cor
dthep
urc
has
eonal
umps
um
p
ric
e

De
moli
ti
oncos
ts
Da
te Buil
ding–ne
w 3
0,0
00
Cash 3
0,0
00
torec
ordt
hed
emo
lit
ionc
ost
sasc
osto
fthe
ne
wbui
ldi
ng

Sa
lvag
edmat
eri
als
Dat
e Cash 7
,50
0
Buil
ding-ne
w 7
,50
0
t
orec
ordthepro
ceedsf
romsaleo
fsal
vag
ed
mat
eri
al
sres
ult
ingfro
mt hedemol
it
ionasre
duct
ioni
n
t
hecos
toft
henewb ui
ldi
ng

Addit
iona
lc o
s t
s:Ti
tl
e,opt
ionandpa
yme
ntst
ote
nant
s.
Dat
e La nd( 10K+1K+2K) 13,
000
Building–old(2K+4K) 6,
000
Cash 1
9,0
00
tor
eco
rdthea ddi
tio
nal
cost
sofl
egalf
eesi
n
c
onve
yingti
tl
etoland ,
opti
on,a
ndpaymentst
o
t
ena
ntstovac
atepr
e mises
 Page|4

Cons
truct
ioncost
s
Da
te B ui
lding–new 4
,25
0,00
Cash 0 4
,25
0,00
t
ore
cor
dthec
ons
truc
ti
onc
ost
soft
hene
w 0
b
uil
ding

All
oca
tedcostofoldbuil
dingdemol
is
hed
Da
te L os
sonde r
ecogni
tionofas
set 4
,00
6,00
Buil
ding-old 0 4
,00
6,00
t
orec
ordt
hea
llo
cat
edc
osto
fthed
emo
lis
hed 0
b
uil
dinga
slo
ss

Case2:Ol
dbuildi
nghasnof
airval
ue
Requi
rement(
a):
Old New
Land bui
ldi
n bui
ldi
n
g g
Lump- sum pr i
ce 6
,00
0,00
0 - -
Costofr azingt heol dbui l
ding - - 30,
000
(demolitionc os t
)
Proceedsf rom s aleofsa l
vaged - - (
7,50
0)
ma t
erials
Legalfeesi nc onve yi
ngt it
leto 1
0,0
00 - -
la
nd
Optionpa i
df ort helandandol d 3
,00
0 -
bldg.acqui red
Payme ntst otenant stovac at
e 6
,00
0 -
premi ses( 6
Kx2. 5/7.
5);
(6Kx5/7.
5)
Ma t
erial
s ,laborandove r
head - - 4,
250,
000
Totals 6
,01
9,00
0 - 4
,272,
500

Requi
rement(b)
:
Lumpsumpurcha
sepr
ice
Dat Land 6
,00
0,00
0
e
Cas
h 6
,00
0,00
0
t
ore
cor
dthep
urc
has
eonal
umps
um
p
ric
e

De
moli
ti
oncos
ts
Da
te Buil
ding–ne
w 3
0,0
00
Cash 3
0,0
00
torec
ordt
hed
emo
lit
ionc
ost
sasc
osto
fthe
ne
wbui
ldi
ng
 Page|5

Sa
lvag
edmat
eri
als
Dat
e Cash 7
,50
0
Buil
ding-ne
w 7
,50
0
t
orec
ordthepro
ceedsf
romsaleo
fsal
vag
ed
mat
eri
al
sres
ult
ingfro
mt hedemol
it
ionasre
duct
ioni
n
t
hecos
toft
henewb ui
ldi
ng

Addit
iona
lcost
s:Ti
tl
e,o
pti
ona
ndpa
yme
ntst
ote
nant
s.
Dat
e La nd 19,
000
Ca
sh 1
9,0
00
tor
eco
rdthea ddi
tio
nal
cost
sofl
egalf
eesi
n
c
onve
yingti
tl
etoland ,
opti
on,a
ndpaymentst
o
t
ena
ntstovac
atepr
e mises

Cons
truct
ioncost
s
Da
te B ui
lding–new 4
,25
0,00
Cash 0 4
,25
0,00
t
ore
cor
dthec
ons
truc
ti
onc
ost
soft
hene
w 0
b
uil
ding

4. So
lut
ion:
Land
Ne w
Land i
mprovemen
building
t
Purchas epr iceoflot 4
,00
0,000 - -
Landt i
tli
ngc ost 2
0,000 - -
Speciala ssessme nt 1
0,000 - -
Surveyc os ts 3
0,000 - -
Ma teri
als,la bor& overhe
ad - - 1
1,000,000
Cashdi s count s - - (
60 ,
000)
Clericalandot hercost
s - - 28,000
Excava t
ionc osts - - 200,000
Architectural& pe rmit - - 120,000
Supe rvisi
onbymgmt . - - 24,000
Insuranc epr emiums - - 260,000
Paving( notincl
udedin - 2
0,0
00 -
bl
uepr
int
)
Tot
als 4
,06
0,00
0 2
0,0
00 1
1,57
2,0
00

5. Sol
uti
ons
:
Case1:
Sol
uti
on:
 Page|6

Maj
orCo. Mi
nor
,Inc
.
Equipment(new) 2,
180,000(a) Equipment(new) 1, 000(a)
920,
Accumulat
edDep. 400, 000 Cash 280,
000
Cash 280,
000 Accumulat
edDep.1,600,
000
Equipment(ol
d) 2,000,
000 Lossonexchange 200,000
Gainone xc
hange(squee
ze)3 00,
000 Equipment(ol
d) 4,000,
000

(
a)
Maj or Minor
Fairval
ueofass
etgive
nup 1
,900,00
0 2
,200,000
PluscashPai
d(Minusc ashre
cei
ved) 280,00
0 (
280,000)
Initi
alcos
tofnon-monetaryass
et
r
eceived 2
,18
0,00
0 1,
920
,00
0

Cas
e2:
Maj
orCo. Mi
nor
,Inc
.
Equipment(new) 2,
200,000(b)
Accumulat
edDep. 400, 000
Cash 280,
000
Equipment(ol
d) 2,000,
000
Gainone xc
hange(squee
ze)3 20,
000

(
b)
Maj
or Mi
nor
Fa
irval
ueofas
setr
ece
ive
d
(
i.
e.
,theFVofMi
nor
’se
qui
pme
nt) 2,
200,
000
Cashpaid/r
ecei
ved N/A
Ini
tialc
ostofnon-
mone
tar
yas
setr
ece
ive
d 2
,200,
000

Cas
e3:
Maj
orCo. Mi
nor
,Inc
.
Equipment(ne
w) 1, 000(c)
880, Equipment(ne
w) 2, 000(c)
120,
Accumulat
edDep. 400,000 Cash 280,
000
Cash 000 Ac
280, cumulat
edDep.1,600,
000
Equipment(ol
d) 2,000,
000 Equipment(ol
d) 4,000,
000

(
c)
Maj or Minor
Carryingamountofass
etgivenup 1
,600,00
0 2
,400,000
PluscashPaid(Minuscashre
ceive
d) 280,00
0 (
280,000)
Init
ialcos
tofnon-monetaryasset
r
eceive
d 1
,88
0,00
0 2,
120
,00
0

6. So
lut
ions
:

Cas
e1:
 Page|7

Da
te Land 2
,00
0,00
0
Shar
eca
pital(
20,
000x₱10
) 200,
000
Shar
epremium 1
,800,
000

Case2:
Da
te Land(20
,00
0x₱90 ) 1
,80
0,00
0
Shar
ecapi
tal(
20,
000x₱10
) 200,
000
Shar
epremium 1
,600,
000

7. Solut
ions
:
Case1:
J
an.1, Land 2
,000,
000
20x1
Disc
ountonnote
spa
yabl
e 200,
000
Cash 400,
000
Notespa
yabl
e 1
,800,
000

Case2:
J
an.1, Land(a) 1
,918,
777
20x1 Di sc
ountonN/P(
1.8M – 281,
223
1
,51
8,77
7) 400,
000
Cas
h 1
,800,
000
Not
espa
yabl
e
(
a)
{
400
,00
0+[
(1.
8M ÷3)xPVofor
dinar
yannui
tyof1@9
%,n=3]
}=1,
918,
777

Cas
h I
nte
rest Amor
tizat
io Prese nt
Dat
e
payment
s e
xpens
e n value
Ja
n.1,20x1 1
,518,777
Dec.
31,
20x1 6
00,
000 136,
690 4
63,
310 1,
055,467
De
c.31
,20x
2 6
00,
000 94,
992 5
05,
008 550,45 9
De
c.31
,20x
3 6
00,
000 49,
541 5
50,
459 0

Dec.
31, Not
espayabl
e 6
00,
000
2
0x1 I
nte
res
texpense 1
36,
690
Di
scountonnot
espa
yabl
e 1
36,
690
Cash 6
00,
000
Dec.
31, Not
espayabl
e 6
00,000
2
0x2 I
nte
res
texpense 9
4,992
Di
scountonnot
espa
yabl
e 9
4,992
Cash 6
00,000
Dec.
31, Not
espayabl
e 6
00,
000
2
0x3 I
nte
res
texpense 49,
541
Di
scountonnot
espa
yabl
e 49
,54
1
 Page|8

Ca
sh 6
00,
000

8. Sol
uti
on:
Donori
sas
har
ehol
der Donori
sanunr
elat
edpar
ty
Equipt
.(FVofass
etr
ece
i d)2
ve M Equipt
.(FVofas
setr
ece
ived) 2
M
Donate
dc api
tal 2
M I
ncomefrom donati
on 2M

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
Solution:
La ndus e
daspl antsi
te 5
,000,
000
Bui l
dingunderc onst
ruct
iontobeusedasne
w offic
e 1
2,000
,00
0
Equi pmentheldforrent
alundervari
ousoper
ati
ng
1
,200,
000
le
a ses
Fixturesuse
di nr e
nderi
ngs e
rvi
ces 500,
000
Be ar
e rpl
ants 100,
000

Tot
alPPE 1
8,8
00,
000

2. D
Solution:
Purc hasepri
ceincl
usi
veofVAT 22
4,000
Divideby: 112%
Purc hasepri
ceexcl
usi
veofVAT 20
0,000
Cash/pr omptdis
count (
4,480)
Cos tofequipment 195,
520

Thet
rai
ningandr
eloc
ati
onc
ost
sar
eexpe
nse
d.

3. A
Sol
utio
n:
Purchasepr
ice 12
,00
0,000
Fre
ight 25
0,000
20,00
Tr
ans
iti
nsur
anc
e
0
50,00
Spec
ialf
ounda
tionf
ort
hemac
hine
0
As
sembl
ingandi
nst
all
ati
on 28
0,000
3
0,00
Tes
ting
0
 Page|9

(
3,00
0
Sal
vage
dma
ter
ial
sfr
om t
rialr
uns
)
Cos
tofne
w mac
hine 12
,62
7,000

Thec ostofdismantl
ingandremovi ngoldequipme ntpri
ortothe
i
nstalla
tionofnew equipmentisrecognizedasexpenseexc
ept
whe nthec ostwasprevi
ousl
yr ec
ogni ze
dasl i
abil
it
y( i
nwhich
cas
e,thec ostist
reat
edassett
leme ntoftheli
abil
it
y;theentry
wouldbede bitl
iabi
li
tyandcreditcash)
.

4. C
So
lut
ion:
Othe
r
Land Ol
dbldg. Ne
w bl
dg. s
Lump-
sum pr
ice 4
,87
5,00
[
5.85M x(
5/6
);(
1/6)
] 0 975
,00
0
Appr aisalf ee e
xpe
nse
d*
Renova tionc ost
s 5
00,
000
Plansands pecs
. 2
,90
0,00
0
Constr uction
mats. 1
1,000,
000
Labor 6
,500,
000
Excava ti
on 1
,000,
000
Structuralwor ks 1
,200,
000
Super vision 100,
000
e
xpe
nse
Inj
uryclaims d
Subcont
r act
ed 5
,00
0,00
0
Savi
ngs i
gno
red
Imputedi nt
ere
st i
gno
red
4
,87
5,00
Al
loc
ate
dcos
ts 0 1
,47
5,00
0 2
7,7
00,
000

*Appr ais
alfeesdonotnormal lyme e
tt heas setr
ecognit
ion
cri
teri
aundert hePFRS.Itshouldbenot edthought hatt
he
Inte
rnalRe venueSer
vice(I
RS)i ntheU. S.requiresthe
capit
aliza
tionofapprai
salfeesasc ostoft heappr ai
sedproper
ty
fortaxationpurpos
es.(
sour
ce:ht
tps
://ke
ite
rcpa.
com/wp-
c
ont
ent
/upl
oads
/201
2/02
/Capi
tal
iza
tion-
Rul
es-
Acqui
si
ti
on-
of-
Rea
l-Pr
ope
rty
.pdf
)
This
,howeve
r,doesnotmeant
hatapprai
salf
eesshoul
dalsobe
capi
tal
ize
dascostofPPEf
orfinancialr
eporti
ngpurpos
es.(source:
ht
tps
://www.
tbr
.edu/bus
ine
ss/pr
oce
dur
es-
capi
tal
izi
ng-
fix
ed-
ass
ets
)
 Page|10

5. A
So
lut
ion:
Old New Ot
her
Land bldg
. bl
dg. s
Lump-
sum pr
ice 3
,600,
00
(
3.6M)
;(4
M -3
.6M) 0 4
00,
000
Lega lfees 180
,000
De mol i
tion 5
0,0
00
Surve y 25
,000
Arc hit
ectural 260
,00
0
Bldg.pe rmit 120
,00
0
Priceofne w bldg. 9
,000
,00
0
Elec.& wa t
e r 80
,00
0
Realpr opertytax e
xpe
nse
d
Utilit
ies e
xpe
nse
d
Wi -Ficonnecti
on e
xpe
nse
d
Internetfees e
xpe
nse
d
Salvaged
mate r
ials (
10,
000)
3
,80
5,00
Al
loc
ate
dcos
ts 0 4
00,
000 9,
500,
000

Theal
loc
ate
dcos
toft
heol
dbui
ldi
ngi
schar
gedasl
oss
.

6. B(2.
5M x97%)+50K+(
200KxPVof1@12%,n=10)=
2,
539,
395

7. C
So
luti
on:
Li
empo:
1) Equipmentrec
eived:(1,
875,
000–700,
000)=1,175,
000
2) Gain(l
oss)onexchange:(1,
875,
000–3,
500,
000)=(1,625,
000)

Monggo:
1) Equipmentrec
eived:(1,
000,
000+700,000)=1,700,
000
2) Gain(l
oss)onexchange:(1,
000,
000–1,200,
000)=(200,
000)

8. A
So
luti
on:
Li
empo:
1) Equi
pme
ntr
ecei
ved:
(3,
500,
000–700,
000)=2,
800,
000
 Page|11

2) Gai
n(l
oss
)one
xchange:
0

Monggo:
1) Equipmentrec
eived:(1,
200,
000+700,
000)=1,
900,
000
2) Gain(l
oss)onexchange:0

9. A
So
luti
on:
1) Equipme ntr ecei
ved:40, 000,thefairval
ueoft
heassetr
e c
eive
d
2) Gain( l
oss)one x
change:
Dat
e Eq uipme nt–ne w( FVofass
etre
cei
ved) 40,
000
Ac cumul ate
dde pr
e ci
ation 70,
000
Equipme nt-old 100,
000
Cash 8,
000
Gainonex change( squeeze) 2,
000

10.A
Sol
uti
on:

(
a)Land=3,
000,
000
Landi
mprove
ment=600,
000

(
b)Tr
ans
por
tat
ione
qui
pment(
SUV)
:

Cashpurchasepri
ce,i
ncl
udi
ngt
hec
arac
ces
sor
ies 2,
910,
000
Vehicl
eregi
str
ati
on 12,
000
Totalcos
t-SUV 2
,922,
000

 Inpractice,thec ostofc arac ces

s ori
esinstal
le dwhe nthe
vehicl
ewaspur chas ed,andf orwhi chas i
ngl eCDVwas
preparedf ort heve hicl
eandt hec araccessor i
es, i
sincludedin
costoftheve hicl
e.Ac count antsdot hismai nlyf orconve ni
enc
e
inrecording.Subs equente xpendi turesonc arac cessori
esare
chargedase xpense s.Thus ,thec ostin(d)isc hargedas
expense.
 Thec os
tofavehi cl
e ’
sini t
ialr egis
trati
onisc apitali
zed
becausethi sisne c
e ssaryf orthee ntit
yt oobt ainthef uture
economi cbe nefit soft heve hicle
. I
tisill
eg altous ean
unregis
teredvehi cle.Howe ver,thecostsofs ubs equentannual
regis
tra
tionsar eexpe nsed.
 Page|12

 Theins
urancei
srecognizedasexpense(ori
nit
ial
lyre
cor
ded
undert
he“Prepai
di nsuranc
e”accountandsubseque
ntl
y
char
gedasexpens
e).

(
c)Tr
ans
por
tat
ione
qui
pme
nt(
Pic
kupt
ruc
k):

Cashpri
ceequivale
nt 1,
800,
000
Modific a
tionforoff-roa
ddr
ivi
ng 28
0,0
00
Tot
alcost-Pickupt r
uck 2
,080,
000

 Themodi
ficat
ionisc
apit
ali
zedbe
causei
tisne
ces
sar
yin
bri
ngi
ngt
heve
hicl
etoit
sinte
ndeduse
.

Tot
alc
ost-SUV 2,
922,
000
Tot
alc
ost-Pic
kupt r
uck 2,
080,
000
Tot
alTrans
portat
ionequi
pme
nt 5,
002,
000

(
d)Se
e(b)above

(
e)Mac
hine
:160,
000–c
ashpr
icee
qui
val
ent

PROBLEM 5: CLASSROOM ACTIVITIES

ACTIVI
TY1
La
nd 1,
000
,00
0
Cas
h 1,
000
,00
0
t
ore
cor
dthea
cqui
si
ti
ono
fla
nd

ACTIVITY2
Requi
reme
nt(
a):
1,
418,650.0
Pur
chas
epr i
ce,
netofVAT 0
Cos
tofini
ti
alregi
str
ati
on 8,137.18
1,
426,787.1
I
nit
ialc
ostoft
rans
por
tat
ione
qui
pme
nt 8

F Thecostofiniti
alregis
trat
ionisnormall
ycapit
ali
zed( i
n
prac
tic
e),basedont hec onceptt
hatthi
scosti
snecessaryfor
theent
itytoobt ai
nt heeconomicbenefitsfrom t
heas set
,i.
e.
,it
i
sill
egaltous eanunr egis
ter
edvehicle
.Thesubse
quentannual
 Page|13

cost
sofr e
gis
tra
tionaree xpe
nse
d, bas
edont heconc
eptthat
subsequente
xpendi t
ur e
sonasse
tsgeneral
lyonlymaint
ainthe
usabi
lit
yoftheas se
tra t
hert
hanincre
aseit.
F Theinsuranc
ec osti
se xpens
edoverthecovera
geperi
od.

Re
qui
reme
nt(
b):
Apr
il25
,20x1
Transport
ati
one
qui
pme
nt 1
,41
8,65
0
InputVAT 17
0,23
8
Cash 1,
588
,88
8
t
ore
cor
dthep
urc
has
eofv
ehi
cl
e

Apr
il25
,20x1
Pr
epai
di nsurance(100,0
00x1/3) 33,
333.
33
Def
err
edi nsurance(100,
000x2/3) 66,
667.
67
Cash 10
0,0
00.
00
t
ore
cor
dthei
nsur
anc
e

F Thei
nsurancec oversa3-yearpe riod,i
.e
.,f
rom April25,
20x1
t
oApr i
l25,20x3. Thepor t
iont hatcover
sYears2and3ar e
re
cor
dedundert he“De fer
re dinsurance”acc
ountand
re
port
edasnonc urrentassetintheDec ember31,20x1
financials
tateme nts.

Apr
il25
,20x1
Tr
ans
port
ati
one
xpe
nse 2
,623
.52
Cash 2,
623
.52
t
ore
cor
dthep
urc
has
eofd
ies
el

Apr
il29
,20x1
Tr
ans
port
ati
one
qui
pme
nt 8
,13
7.18
Cash 8,
137
.18
t
orec
ordt
hei
nit
ial
regi
st
rat
iono
ftheve
hic
lewi
tht
heLa
nd
Tr
ans
por
tat
ionOffic e

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. So
lut
ion:
Manufa
ctur
inge
qui
pme
ntpur
chas
edoni
nst
all
ment
3,
000,
000
ba
sis
Landus edinbusiness 5,
000,
000
Buildingowne d,us e
da swarehous
e 1,
500,
000
Servicingequipme nt–usedinbuil
dingmai
nte
nanc
e 3,
000,
000
Saf
e tya ndenvir
onme nt
ale
quipment 450,
000
 Page|14

Tot
alPPE 1
2,9
50,
000

2. Solut
ion:
Purchaseprice 1,
000,
000
Broker’
scommi ssi
on 50,
000
Frei
ghtcost 35,
000
Frei
ghtinsurance 5,
000
Inst
all
ati
onc ost
s 250,
000
Cali
brati
onandt esti
ngcost
s,ne
t(20,
000–2,
000) 18,
000
Ini
tialcostofequipment 1
,358,
000

3. So
luti
on:
Pur
chasepri
cei
nclus
iveofr
efundabl
epur
chas
etax 89 6,
0 00
Ref
undablepur
chasetax (96 ,
000)
(24,000
Cashdiscountnottake n )
Fre
ightandins t
alla
tioncos
ts(
mai
noffic
e) 4
0,0
00
Totalc
ostofe quipme nt 816 ,
00 0

Thecapi
tali
zat
ionofcostsceaseswhe
nt hePPEisint
helocat
ion
andcondit
ionori
ginal
lyintendedbymana ge
me nt
.Ther
efor
e,the
₱50,
000rel
ocat
ionandr eins
tall
ati
oncos
tsareexpe
nsed.

4. So
lut
ion:
Land
i
mpr
ovemen Buil
din
Land t g
Lump-
sum pr
ice 2
,500,00 7,
500,
00
(
10M x1
/4& 3/4
) 0 0
Landtit
li
ngcost 100,000
Speci
alass
ess
me nt 40,000
Paymentstot
enant
s
(
80Kx1/4&3/4
) 2
0,0
00 6
0,00
0
Opti
ononpr
ope
rty
ac
quire
d 3
0,0
00 9
0,00
0
(
120Kx1/4&3/4)
Buil
dingre model
ingpr
ior
to 8
00,
000
occupanc y
Landscapingonthe
24
0,00
0
premises
Additi
onofdr i
vewayand 8
0,0
00
 Page|15

pa
rki
ngl
ot
2
,69
0,0
0 8
,45
0,00
Tot
alc
ost
s
0 3
20,
000 0

5. Sol
uti
ons
:
Case1:
Thecost
sareal
loc
atedasf
oll
ows
:
Old
Land buil
din New
g bui
ldi
ng
Lump-
sum pr
ice
[
6M x(
5.42
5/6
.2)&(
.77
5/6
.2)
] 5,
250
,00
0 75
0,00
0
Fi
nde
r'sf
ee
7
0,0
00 1
0,000
[
80Kx(
5.42
5/6
.2)& (
.775
/6.
2)]
Landr egis
trati
onc ost 8
,00
0
Unpa i
dt axespriortoacqn.
20
0,00
0
date
Demol it
ionc os
tofold
1
30,
000
buil
ding
Proceedsfrom saleofsal.
ma t
s. (
10,0
00)
Ma t
eri
als,laborandove rhea
d 1
0,000,
000
10,120,
00
Tot
alc
ost
s
5
,52
8,00
0 76
0,0
00 0

J
our
nale
ntr
ies
:

Lumpsumpurchas
epr
ice
Dat Land 5
,250,
000
e
Buil
ding-ol
d 750,
000
Cash 6
,00
0,00
0

Fi
nder
’sf
ee
Dat
e La nd 7
0,0
00
Buil
ding-ol
d 1
0,0
00
Cash 8
0,0
00

La
ndr
egi
st
rat
ionc
ost& Unpa
idt
axe
sonl
andpr
iort
oac
qui
si
ti
onda
te
 Page|16

Da
te Land(
200,
000+8,
000
) 2
08,
000
Cash 2
08,
000

Pr
oper
tytaxaft
eracq
uis
iti
ond
ate
Dat
e T axexpens
e 6
0,0
00
Cash 6
0,0
00

De
moli
ti
oncos
ts
Da
te Buil
ding–ne
w 1
30,
000
Cash 1
30,
000

Sa
lvag
edmat
eri
als
Dat
e Cash 1
0,0
00
Buil
ding-ne
w 1
0,0
00

Const
ruc
ti
onc os
ts
Dat Buil
ding–new 1
0,0
00,
00
e Ca s
h 0 1
0,0
00,
00
0

Al
loc
ate
dcosto
foldb ui
ldi
ngdemol
ishe
d
Da
te Lo s
sonde r
ecognit
ionofas
set 7
60,
000
Bui
ldi
ng-old 7
60,
000
t
orec
ordt
hea
llo
cat
edc
osto
fthed
emo
lis
hed
b
uil
dinga
slo
ss

Case2:
Thecos
tsar
eal
loc
atedasf
oll
ows
:
Old
Land buil
din New
g bui
ldi
ng
Lump- sum price 6
,00
0,000 -
Fi
nde r
'sfee 8
0,000 -
Landr egis
trat
ionc ost 8
,000
Unpa i
dt axespriortoacqn.
20
0,00
0
date
Demol it
ioncostofold
1
30,
000
buil
ding
Proceedsfrom saleofsal. (
10,
000
)
 Page|17

ma
ts.
Mat
eri
als
,la
borandove
rhe
ad 1
0,0
00,
000
10,
120
,00
Tot
alc
ost
s
6
,28
8,00
0 - 0

J
our
nale
ntr
ies
:

Lumpsumpurcha
sepr
icea
ndo
the
rdi
rec
tco
sts
:
Dat Land 6,28
8,00
0
e Cas
h 6
,28
8,00
0

Pr
oper
tytaxaft
eracq
uis
iti
ond
ate
Dat
e T axexpens
e 6
0,0
00
Cash 6
0,0
00

De
moli
ti
oncos
ts
Da
te Buil
ding–ne
w 1
30,
000
Cash 1
30,
000

Sa
lvag
edmat
eri
als
Dat
e Cash 1
0,0
00
Buil
ding–ne
w 1
0,0
00

Const
ruc
ti
onc os
ts
Dat Buil
ding–new 1
0,0
00,
00
e
Ca s
h 0 1
0,0
00,
00
0

6. So l
ution:
Purchasepr i
ce 2
0,0
00,
000
Dir
ec tcost
s 1
0,0
00,
000
PVofde c
ommi ss
ioni
ngandr
est
ora
tionc
ost
s
(
4M xPVof1@1
0%,n=8) 1,
866,
030
Cos
tofe
qui
pme
nt 3
1,866,
030

Da
te Equipment 3
1,8
66,
030
Cash 3
0,000,
000
As s
etre
tir
eme
nt 1,866,
030
obl
igati
on
 Page|18

7. So
lut
ion:
Land Building Oth
er
8
,000,
00
Purchasepriceofla
nd 0
Survey 60,
000
Architect
uralandengi
neeri
ng 1,80
0,000
Buil
dingpe rmit 4
0, 0
00
Tempor arystr
uctur
es 1
0, 0
00
Si
tec l
earing 10
0, 0
00
Excavati
onandbac kfill
ing 400,
000
12,0
00 ,
00
Construct
ionma t
eri
alsandl
abor 0
Insur
ancec os
ts 2
0, 0
00
Abnorma llos
sonwas te
d Expe
nse
r
esources d
Expe
nse
Uninsur edacci
dents d
Safet
yi nspect
ion& supervi
si
on 3
0,00
0
Incomef rom i
nc i
dental
opera
tions P/
L
Elect
ricalli
ghti
ng&wi ri
ng
works 280,
000
Plumbi ngands anit
aryworks 190,
000
Elevat
or 2
,000,
000
1
5,000
,00
Fini
shing 0
Paveme nt& parking(includedi
nde
sign) 220,
000
Cler
icalandot hermi sc.c osts 20,
000
Costsofnecessaryde sign
c
hanges 1
20,
000
Rental
sofc onstruct
ion
e
quipme nt 2
90,
000
Savi
ngsons el
f-c
onstruc ti
on I
gno
red
8
,06
0,00 3
2,5
20,
00
Tot
alc
ost
s 0 0

8. Sol
utio
ns:
Requir
eme nt(
a):
Wi thcomme r
cialsubstanc
e
Ima’sbooks:
Winebarrel
s–new(1. 0K) 1
2M +30 ,
500,00
0
Winebarr
els–old 1,
000,
000
Cash` 300,
000
 Page|19

Gai
none
xchange 20
0,000

Saka’sbooks
Winebarrels–ne
w( 1. 00K) 1
5M -3 ,20
0,000
Cash 30
0,000
Wi nebar
rels–old 1,
400,
000
Gainone xc
hange 100,
000

Requir
eme nt(
b):
Wi thoutcommerc
ialsubs
tance
Ima’sbooks:
Winebarre
ls–new( 0K) 1
1M +30 ,
300,
000
Winebarr
els–old 1,
000,
000
Cash` 300,
000

Saka’sbooks
Winebarrels–ne
w(1. 00K) 1
4M -3 ,10
0,000
Cash 30
0,000
Wi nebar
rel
s–ol d 1,
400,
000

9. Sol
uti
ons:
Case1:
Dat
e Ma c hi
ne(cas
hpric
ee quiva
lent
) 1
,40
0,00
0
Sharecapit
al(10,00
0x₱1 0pa
r) 100
,000
Sharepremium 1
,300,
00
0

Case2:
Dat
e Ma chi
ne(10,
000x₱130FVofsh.
iss
ued) 1
,30
0,00
0
Sharecapital(
10,
000x₱1
0pa r
) 100
,000
Sharepremi um 1
,200,
00
0

10.Sol
uti
ons:
Case1:
Dat
e Ma chine(ca
shpr
icee
qui
vale
nt) 1
,400,
000
Discountonnotespayable 200,
000
Notepayabl
e 1
,60
0,00
0

Cas
e2:
 Page|20

Da
te Machi
ne(PVofnot
e*) 1
,202,
104
Di
scountonnotespa ya
ble 397,
896
Notepayable 1
,60
0,00
0
*1.
6M xPVof1@10%,n=3=1
,202,
104

11.So
lut
ion:

Donori
sas
har
ehol
der Donori
sanunr
elat
edpar
ty
Equipment 320K Equipment 320K
Dona
tedca
pit
al 3
20K I
ncomefordona
tion 320K