PLV- College of Accountancy

2nd Semester, A.Y. 2016-2017

FINANCIAL ACCOUNTING AND REPORTING I [ACCTG 3]

FINAL TERM ASSIGNMENT NO. 04
GENERAL DIRECTIONS: Use black permanent ink pen in writing your final answers in your answer sheet. Erasure
and/or superimposition of any kind is strictly not allowed. Doing such shall automatically render your answers
INCORRECT. Choices are CASE- SENSITIVE. DO NOT CHEAT. GOD IS WATCHING YOU.

PART III
81. On January 2, 2015, Bugs acquired a transferable nine- year taxi license by way of government grant when the fair
value of the license was P 180,000. The license is given free of charge to the entity on the basis of Bugs performance
and there are no future performance condition attached to the grant. How should Bugs account for the government
grant?
A. Debit Intangible asset for P 180,000 and credit Other Income for P 180,000
B. Debit Intangible asset for P 180,000 and credit Deferred Income for P 180,000 and amortize over 9 years
C. Debit Intangible asset for P 180,000 and credit Retained earnings for P 180,000
D. Debit Intangible asset for P 180,000 and credit Revaluation surplus for P 180,000

82. Based on question no. 1, assuming that Bugs is required to operate at least 10 taxis in the deprived neighborhood
of the capital city during that nine- year period and failure to do so will result in the license being revoked
immediately, how should Bugs account for the government grant?
A. Debit Intangible asset for P 180,000 and credit Other Income for P 180,000
B. Debit Intangible asset for P 180,000 and credit Deferred Income for P 180,000 and amortize over 9 years
C. Debit Intangible asset for P 180,000 and credit Retained earnings for P 180,000
D. Debit Intangible asset for P 180,000 and credit Revaluation surplus for P 180,000

83. Jam Company is an ultimate holding company of a diverse group of entities, with a reporting date of December 31.
On January 1, 2014, Jam Company decided to build a nursery school for its employees children. Government
approved a cash grant of P 1,000,000 provided the building is complete by March 31, 2015, and is used as nursery
school for at least 10 years. A pro- rata portion is refundable if the building is not used as a nursery school for ten
years. Jam Company received the cash grant on November 1, 2014. It completed the school o January 31, 2015 at
a total cost of P 2,000,000 and immediately started to use the building as a nursery, P 1,600,000 of the amount was
incurred on December 31, 2014. What amount of deferred income should Jam Company recognized in its December
31, 2015 statement of financial position?
A. None C. P 908,333
B. P 900,000 D. P 1,000,000

84. On January 2, 2014, MJ Company received a grant related to a factory building. The total amount of the grant was
P 18,000,000. Kelly Company acquired the building from an industrialist identified by the government. If MJ
Company did not purchase the factory building, which was located in the slums of the city; it would have been
repossessed by a government agency. MJ Company purchase the building for P 54,000,000. The useful life of the
building is not considered to be more than three years, mainly due to the fact that the previous owner did not properly
maintain it. Assuming the grant is treated as a reduction of the gross carrying amount of the asset, what is the
carrying value of building in the December 31, 2014 statement of financial position?
A. P 18,000,000 C. P 36,000,000
B. P 24,000,000 D. P 54,000,000

85. The Mimic Company imported a new machine at a peso equivalent of P 330,000. The company has to pay additional
cost of importing the asset such as P 10,000 import duties and P 15,000 a refundable purchase taxes. Cost of
transporting the asset was P 5,000 and cost of preparing the asset for its intended use include P 5,000 installation.
How much is the initial cost of the new machine?
A. P 330,000 C. P 360,000
B. P 350,000 D. P 365,000

86. Storm Corporation purchased a new machine on October 31, 2015. A P 12,000 down payment was made and three
monthly installments of P 36,000 each are to be made beginning on November 30, 2015. The cash price would have
been P 116,000. Storm paid no installation charges under the monthly payment plan but a P 2,000 installation charge
would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October
31, 2015 would be:
A. P 116,000 C. P 120,000
B. P 118,000 D. P 122,000

JFA/Page 1 of 4
 87. Texture Company purchased a new machinery on January 2, 2012 and incurred the following Invoice price of
machinery, P 1,500,000; Cash discount taken on the machinery, P 75,000; Freight on the new machine, P 25,000;
Actual cost of removing an old machinery, P 2,500 but existing provision is P 3,000; Installation cost of new
machine, P 25,000. Operating cost during first month of regular use, P 150,000. What is the cost of the new
machinery?
A. P 1,475,000 C. P 1,550,000
B. P 1,477,500 D. P 1,552,500

88. On October 1, 2014, Smart Corporation purchases an industrial building by an issue of 5,000,000 ordinary shares
of P1 par each to the vendor. Smart Corporations shares have bene actively traded on the stock exchange but its
quoted price has been erratic, ranging from a low of P 3.50 to a high of P 13.50 for the year. On the date of purchase
of the building, Smart Corporations shares are quoted at P 8.80. The company paid P 220,000 transfer and legal
cost in relation to the building. At the time of acquisition, the industrial building has a fair value of P 35,000,000,
on the existing use basis. At what amount should the building be initially recorded?
A. P 17,720,000 C. P 44,220,000
B. P 67,720,000 D. P 35,220,000

89. In June 2012, Globe Company acquired a machine in exchanged for another machine with a cost of P 1,200,000
and an accumulated depreciation of P 600,000 and paid a cash difference of P 160,000. The market value of the
Globes machine was P 650,000. If the exchange has commercial substance, what would be the cost of the new
asset acquired and the amount of gain to be recognized, respectively?\
A. P 440,000 & P 50,000 C. P 810,000 & P 50,000
B. P 440,000 & P 210,000 D. P 810,000 & P 210,000

90. On February 1, 2014, Weary Company borrowed P 1,000,000 which bears 12% specifically to finance the
construction of its qualifying asset. Construction of the building started on September 1, 2014 and continues without
interruption until the year end of December 31, 2014. During the period of construction, the entity incurs directly
attributable costs of P 100,000 in September and P 250,000 in each month from October to December (for
simplicity, it is assumed that these costs are incurred on the first day of the month). Each month, the borrowings,
less any amount that is to be expended for the building works in that month are re- invested and earn interest at a
rate of 5% per annum. During the year ended December 31, 2014, the entity incurs interest on the P 1,000,000 loan
totaling P 110,000 and earns interest on the re-invested portion of the loan of P 37,917. What amount of borrowing
costs should Weary capitalized?
A. P 31,250 C. P 72,083
B. P 40,000 D. P 82,083

The Voice Company had the following transaction related to its Property, Plant and Equipment during 2014:
Item 1:
On January 1, 2014, it purchased land and building at a single cost of P 20,000,000. On this date, it was determined
that the land and building had a fair value of P 18,000,000 and P 7,000,000 respectively. The entity also incurred
legal fees for purchase contract and recording ownership P 200,000, and title guarantee insurance, P 100,000. The
entity immediately demolished the building to make way for construction of a new building to be used as owner-
occupied. The total contract price and other directly attributable cost to the building amounted to P 15,000,000. The
entity incurred demolition cost of P 350,000.
Item 2:
On February 1, 2014, it purchased a P 400,000 tract of land for future plant site. The entity razed an old building
on the property and sold the materials it salvaged from the demolition. The entity incurred additional costs and
realized salvage proceeds as follows:
Demolition of old building 50,000
Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Proceeds from sale of salvaged materials (8,000)
Item 3:
It purchased for P 4,500,000 tract of land as a factory site on March 1, 2014. An existing building on the property
was razed and construction was begun on a new factory building. The entity incurred the following costs:
Cost of razing old building, net of proceeds from salvaged materials 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
Item 4:
On April 1, 2014, the Voice Company had the following transactions pertaining to a new office building:
Purchase price of land and an old unusable building 3,000,000
Legal fees for contract to purchase land 100,000
Architect fee 400,000
Demolition of old building to make room for new building 250,000
Sale of a scarp from old building 50,000

JFA/Page 2 of 4
 Construction cost of new building fully completed 15,000,000

Item 5:
It acquire land and an existing building on May 2, 2014 in exchange for 60,000 ordinary shares. The management
estimates that the fair values of the building and land are P 2,000,000 and P 3,000,000, respectively. The shares
have a par value of P 100 and a fair value of P 150 per share. The Voice also incurred the following costs:
Payment to tenants to vacate the building 100,000
Unpaid property taxes on land and building assumed by Voice 375,000
Special Assessment by city for sewerage project 10,000
Driveways and parking bays 550,000
Cost of grading and leveling 50,000
Cost of new wing attached to the building 750,000
Cost of the new split type air- conditioning units 300,000
Remodeling cost prior to occupancy 200,000

91. In relation to item #1, the initial cost of the land should be
A. 20,300,000 C. 15,050,000
B. 13,350,000 D. 14,700,000

92. In relation to item #2, the carrying amount of land on February 1 is

A. 442,000 C. 422,000
B. 464,000 D. 460,000

93. In relation to item #3, the cost of the building should be

A. 9,150,000 C. 9,450,000
B. 9,250,000 D. 8,950,000

94. What amount should be reported as initial cost of the new building in item #4?
A. 15,750,000 C. 15,600,000
B. 15,700,000 D. 15,500,000

95. In item #5, the total cost of the building is

A. 4,650,000 C. 5,025,000
B. 4,800,000 D. 5,100,000

96. Total cost of Property, Plant and Equipment as of December 31, 2014 in the statement of financial position of the
Voice Company:
A. P 74,499,000 C. 73,950,000
B. 75,050,000 D. 73,599,000

97. Assuming company uses straight line method of depreciation in all assets and the estimated useful life of
machineries, equipment, and land improvements is 8 years, and for the building is 15 years, the balance of PPE, net
as of December 31, 2014 should be
A. 73,448,326 C. 71,897,612
B. 74,637,111 D. 71,433,612

The following data relate on the Plant Asset accounts of Keen Nod Jot, Inc. at December 31, 2013:

Property, Plant and Equipment

J01 P01 B02 C03
Original Cost 87,500 127,500 200,000 200,000
Year Purchased 2008 2009 2010 2012
Useful Life 10 years 37,500 hours 15 years 10 years
Salvage value 7,750 7,500 12,500 12,500
Depreciation Method SYD Production Straight- line Double Declining

Note: In the year an asset is purchased, no depreciation expense is recorded, while in the year an asset is retired or traded
in, full year depreciation is recorded.

The following transactions occurred during 2014:

On May 5, Asset J01 was sold for P 32,500 cash.
On December 31, it was determined that asset P 01 had been used 5,250 hours during 2014.
On December 31, before computing depreciation expense on Asset B02, the management of Keen Nod Jot decided
the useful life remaining from January 1, 2014 was 10 years.

JFA/Page 3 of 4
 On December 31, it was discovered that a plant asset purchased in 2013 had been expensed outright in that year.
This asset costs P 55,000 and has useful life of 10 years and no salvage value. Management has decided to use the
double- declining balance for this asset, which can be referred to as Asset Q01

Given the said data, answer the following;

98. The adjusting entry to correct the error of failure to capitalize Asset Q01 would include debit/ credit to Retained
Earnings of:
A. 55,000 Dr C. 44,000 Cr
B. 55,000 Cr D. 0

99. How much is the adjusted balance of Plant Assets as of December 31, 2014?
A. 670,000 C. 615,000
B. 527,500 D. 582,500

100. How much is the total depreciation for 2014?

A. 83,300 C. 82,050
B. 88,479 D. 80,600

-END OF PART III -

JFA/Page 4 of 4