Reference no: EM133164130

Questions -

Q1. On January 2, 2018, BRANDON Corporation acquired a track of land that is to be sold in the ordinary conduct of business. The purchase price of the property of P50 million was paid in cash and a total transaction cost of P500,000 related to the acquisition of the property was also paid at a later date. The land was subdivided into 2,000 lots (200 square meter for every lot) for an additional cost of P5,500,000. On December 31, 2018, the market value of the lot was P1,500 per square meter.

As of December 31, 2018, only 20,000 square meters are still unsold and market value of the lot had increased to P1,600 square meter. On this date, BRANDON Corporation decided to transfer the remaining lots into investment property that is to be carried under the fair value model. There was no additional cost incurred on the change of intention on the property.

What amount of gain should BRABDON Corporation recognize as a result of the transfer?

Q2. LISA Company acquired a welding machine with an invoice price of P5,000,000 subject to a cash discount of 10% which was not taken. LISA Company incurred freight and insurance during shipment of P50,000 and testing and installation cost of P150,000. LISA Company also incurred cost of P20,000 in removing the old welding machine prior to the installation of the new one. Welding supplies were acquired at a cost of P80,000. What is the cost of the new welding machine?

Q3. BERONICA Company acquired two items of machinery as follows:

On January 1, 2020, BERONICA Company purchased a machine for P2,000,000 in exchange for a noninterest bearing note requiring four payments of P500,000. The first payment was made on December 31, 2020, and the others are due annually on December 31. The prevailing rate of interest for this type of note at date of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 3.04 for four periods. The new machine was damaged during its installation and the repair cost amounted to P30,000.

On January 1, 2020, BERONICA Company acquired a used machine by issuing the seller a four-year, noninterest-bearing note for P2,000,000. The note is due on January 1, 2024. In recent borrowing, BERONICA Company has paid a 12% interest for this type of note. The present value of 1 at 12% for 4 years is 0.64.

What is the total cost of the two machines?

Q4. BONNIE Company has decided to expand its operations and has purchased land in the city for construction of a new manufacturing plant. The following costs were incurred:

Land purchase price 2,500,000

Payment of delinquent property taxes 100,000

Title search and insurance 50,000

Option paid for an alternative land which was not acquired 30,000

Cost of relocating informal settlers 5,000

Special assessment for city improvements on-water and sewer system 150,000

Contract cost of new building 7,000,000

Architect fee 200,000

Building permit 30,000

Cost to destroy existing building on land (P10,000 worth of salvaged-

Material used in new building) 60,000

Excavation before new construction 110,000

Fire insurance on building - 1 year 40,000

-The cost of the land and building should, respectively be

Q5. JANNA Company commenced operations at the beginning of the current year. The following costs are incurred by the entity:

Payment for land 1,000,000

Taxes in arrears on building on land 40,000

Demolition of current building on land, net of salvage of P10,000 100,000

Survey before construction of new building 60,000

Contract price for factory building 5,000,000

Architect fee 230,000

Payment to city hall for approval of building construction 120,000

Safety fence around construction site 35,000

Safety inspection on building 30,000

Removal of safety fence after completion of factory building 20,000

New fence surrounding the factory 80,000

Driveways, parking bays and safety lighting 550,000

Cost of trees, shrubs and other landscaping 250,000

-The land and factory building should respectively be measured at

Q6. TRISJA Company uses many kinds of machines in its operations. The following information relates to a machine that was acquired at the beginning of the current year:

Cash paid for machine, including VAT of P96,000 896,000

Cost of transporting the machine 30,000

Labor cost of installation by expert fitter 50,000

Labor cost of testing machine 40,000

Cost of safety rails and platform surrounding machine 60,000

Cost of water device to keep machine cool 80,000

Cost of adjustment to machine to make it operate more efficiently 75,000

Estimated dismantling cost to be incurred as required by contract 65,000

Insurance cost for the current year 15,000

Cost of training personnel who will use the machine 25,000

-How much should be capitalized as cost of the machine?

Q7. During the current year, JESS Company purchased a second hand machine at a price of P5,000,000. A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has a second hand market value of P4,500,000. A new machine would cost of P6,500,000. The following costs were incurred during the year.

Cost of removing old machine that is replaced 350,000

Cash proceeds from the sale of the old machine replaced 100,000

General overhaul and repairs to recondition machine prior to use 220,000

Cost of spare parts to cover breakdown 80,000

Cost of installation 180,000

Cost of testing machine prior to use 150,000

Cost of hauling the machine from vendor to entity premises 40,000

Cost of repairing damage to machine caused when the machine was dropped during installation 50,000

Repairs incurred during the first year of operation 160,000

Safety device added to the machine 300,000

Cost of training workers to operate the machine 25,000

What amount should be capitalized as cost of the second hand machine?