Reference no: EM132796582
Question - DARWIN CORP., a manufacturer of computer parts, has been experiencing growth in the demand of its products over the last several years. This prompted the company to obtain additional manufacturing facility. A real estate firm located an available factory and used machinery from Quezon Company in October 1, 2011. Renovations were necessary to convert the factory for Darwin's manufacturing use.
The terms of the agreement required Darwin to pay Quezon P4,500,000 when renovations started on January 1, 2012, with the balance to be paid as renovations completed. The overall purchase price for the factory and machinery was P36,000,000. The building renovations were contracted to Mallbornes Construction Company at P9,000,000. The payments made, as renovation progressed during 2012, are shown below. The factory was placed in service on January 1, 2013.
Quezon Mallbornes
January 1 P 4,500,000 P 2,700,000
April 1 8,100,000 2, 700,000
October 1 9,900,000 2,700,000
December 31 13,500,000 3,600,000
P36,000,000 P9,000,000
On January 1, 2012, Darwin obtained a 2-year, P9 million loan with a 12% interest rate to finance the renovation of the acquired factory. This is Darwin's only outstanding loan during 2012.
Darwin's policy regarding purchases of this nature is to use the appraisal value of the land for book purposes and prorate the balance of the purchase price over the remaining items. The building had originally cost Quezon P27,000,000 and had a net book value of P4,500,000, while the machinery originally cost P11,250,000 and had a net book value of P3,600,000 on the date of sale. The land was recorded on Quezon's books at P3, 600,000.
The following values were determined based on appraisal conducted by independent appraisers at the time of acquisition.
Land P26,100,000
Building 9,450,000
Machinery 4,050,000
Gino G. Nario, Darwin's chief engineer estimated that the renovated plant would be used for 15 years, with an estimated residual values of P2,700,000. Nario estimated that the productive machinery would have a remaining useful life of 5 years and residual value of P270,000. Darwin's depreciation policy is to apply 200% declining balance method for machinery and the 150% declining balance method for the plant. One-half year's depreciation is taken in the year the plant is placed in service and one-half year is allowed when the property is disposed or retired.
Determine the amounts to be recorded on the books of Darwin Corp. as of December 31, 2012 for: Land.