Reference no: EM132642404

You are the new accounting assistant assigned to the fixed assets of Garfailed University (the "University"), which was organized in the Philippines on June 3, 1907 to establish, maintain, and operate an educational institution or institutions for the instruction and training of the youth in all branches of the arts and sciences, offering classes in tertiary level. The University's fiscal year ends every March 31.

The following are the additional information relevant to your year-end review:

1) Depreciation of property and equipment is computed on a straight-line basis over the following estimated useful lives of the assets:

Number of Years
Land Improvements 10
Building 50
Furniture and Equipment 5
Library Books 5
Leasehold Improvements 10 or lease term whichever is shorter

2) The University acquired a parcel of land through a donation from the Provincial Government of La Union appraised at P20, 521,289 on April 2, 2019. The purpose of the land is to open a new campus to cater the residents of the province, including the neighboring provinces.

3) Additional major development accounted under construction in progress is the construction of 8-storey building in San Fernando City, La Union for Health Science Courses.

The University contracted Bob Vance Construction, Inc. on May 2, 2019 to construct a building for P109, 031,699. The contract provides that the University is to make five payments, with the last payment to be made upon completion.

The University made the following payments during 2020:

                                                   Amount
May 2, 2019                    10,903,170
August 1, 2019              18,399,099
November 31, 2019           23,628,317
February 1, 2019          28,843,188

The University made the following arrangements with financing companies during 2020:

1. 12%, 2-year, P49 million loan dated May 2, 2019, with simple interest. Interest is payable annually on April 30. This loan is related specifically to the building project. Interest of P245, 000 was earned from the temporary investment of the borrowing proceeds.
2. 10%, 10-year, P36 million note dated April 30, 2019, with simple interest; interest payable annually on April 30. The loan was for general financing purposes including the partial financing of the construction. 
3. 12%, 5-year, P42 million note dated April 30, 2019, with simple interest; interest payable annually on April 30. The loan was for general financing purposes including the partial financing of the construction.

The construction of this building is still on-going as at the end of the fiscal year.

4) The University is renting the entire 5th floor (2,810 square meters) of RCBC Tower 1 to house its Makati Executive Campus. The campus caters the Graduate School of Business. Such improvements introduced to the space is recorded in under Leasehold Improvements. Under the agreement, the University is required to restore the area before such space will revert to the lessor. The following are the relevant information related to asset retirement obligation:

                                                         2020                                                            2019
 
Estimated future cash flows       P2,500 per square meter                   P50,000 plus P1,800 per square meter

Discount rate used                          3.12%                                            2.77%

Remaining lease term                     2 years                                               3 years

5) On April 1, 2019, the University purchased a new van for P500, 000 cash and trade-in of a two-year old car with a cost of P450, 000 and a book value of P135, 000. The new car has a cash price of P700, 000; market value of trade-in is not known. This was recorded as debit to Transportation Equipment and credit Cash for P500, 000. Depreciation expense of P100, 000 was recorded in 2020.

6) Various office- general-purpose computers and peripherals were sold to employees at a minimal price of 10% of the original cost. Such computers costed P1, 525,000 and were fully depreciated. The accountant recorded the transaction as debit to Cash and credit to Gain on PPE disposal for the amount of proceeds.

7) The amount shown in the Laboratory Equipment asset retirement column represents cash received on December 3 upon disposal of a machine purchased in April 1, 2013 for P2,148,699. The chief accountant recorded depreciation expense of P429, 740 on this machine in 2020.

8) The University exchanged two machines from the Mechanical Engineering Department. The University has received the following offers from other companies in the industry and has accepted the same.

Monday Company offered to exchange a similar machine plus P23, 000. (The exchange has commercial substance for both parties.)
Lasagna Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)

Other relevant information in relation to the exchanges are as follows:

                                           Garfailed                    Monday                       Lasagna

Machine cost                         P160,000                   P120,000                   P152,000

Accumulated depreciation            60,000                       45,000                    71,000

Fair value                                    92,000                     69,000                     92,000

The depreciation for the exchanged assets is properly recorded and updated. The accountant of the University recorded the transaction as a debit to Laboratory Equipment for the fair value of the asset received, a credit to Laboratory Equipment for the cost of the old asset, with any difference recorded as Gain or Loss on Exchange. The exchange occurred on October 31, 2019.

9) To start the next school year stronger, the University purchased a new laboratory equipment for its Biology Department on the last day of School Year 2019 - 2020. The following costs are included as additions to Laboratory Equipment:

Cash paid for equipment, including value added tax of P12,000 P112,000

Freight and insurance cost while in transit 2,000

Cost of moving equipment into place at the Biology Lab 3,100

Wage cost for technicians to test equipment 6,000

Insurance premium paid during first year of operation on this equipment 1,500

Special plumbing fixtures required for new equipment 8,000

Repair cost incurred in first year of operations related to this equipment 1,300
P133,900

10) Included in the additions of Library Books account are different book titles acquired locally and overseas for a cost of P5, 998,090 on June 2, 2019. These items were purchased on account with terms 5/30, n/45. The University were not able to pay within the discount period but paid before the date. Depreciation based on the invoice price/cost has been provided for these items.

11) At the beginning of the current fiscal year, the entity purchased furniture and fixtures for P2, 000,000 in exchange for a noninterest bearing note requiring four payments of P500, 000. The machine was included in the additions to Furniture, Transportation and Auxiliary Equipment, with a corresponding increase to Notes Payable for P2, 000,000. The first payment was made at the end of the current fiscal year. The rate of interest for this note at date of issuance was 10%. Depreciation was recorded for this machine, based on a 5-year estimated useful life.

12) Michael Scott, PhD, is a philanthropist and an alumnus of Garfailed University. He donated new books to the University costing P4, 138,682 on November 3, 2019. Unaware of the accounting procedures for donations, the University did not reflect the grant on its books.

13) On April 28, 2019, the Group's construction pertaining to Nueva Ecija campus was completed. This pertains to the opening balance of the Construction in Progress account.

14) As at March 31, 2020, the cost of the Group's fully depreciated property and equipment still in use amounted to P776, 721,453.

15) The carrying amount of the Group's idle laboratory equipment amounted to P1,908,948 as at March 31, 2020

16) An analysis of repairs and maintenance expenditures for the current fiscal year revealed the following:

1. The entire Manila Campus was repainted at a cost of P323, 000. Work was completed on January 31, 2020.
2. The electrical system on its School of Accountancy, Business and Management (SABM) was upgraded at a cost of P1, 200,000. The cost of the old electrical system was not known. It is estimated that the useful life of the building will not change as a result of this updating. Work was completed on March 31, 2020. 
3. The University has an existing service contract with an IT provider for the scheduled and frequent repairs and maintenance work for its computer laboratories. Quarterly payments to the IT provider amounted to P122, 000.

Required:

Question 1) Prepare the updated PPE Roll forward for Garfailed University as at and for the year ended March 31, 2020. Show supporting schedules for each movement in cost and/or accumulated depreciation.

Question 2) Make any necessary adjusting journal entries as of March 31, 2020.