POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance

SET A

PPE and Intangibles

Multiple Choice
Identify the choice that best completes the statement or answers the question. Strictly, no erasures. Use permanent black ink on final
answers and write your answers in capslock.

At December 31, 2018, KAINAN Company's plant asset and accumulated depreciation and amortization
accounts had balances as follows:
Category Plant Asset Accumulated Depreciation
Land P 1,750,000 P 0
Buildings 15,000,000 3,289,000
Machinery and equipment 11,250,000 3,175,000
Automobiles and trucks 1,720,000 1,003,250
Leasehold improvements 2,160,000 1,080,000
Land improvements 0 0

Depreciation methods and useful lives:

Buildings - 150% declining balance; 25 years
Machinery and equipment - Straight line; 10 years
Automobiles and trucks - 150% declining balance; 5 years, all acquired after 2010
Leasehold improvements - Straight line
Land improvements - Straight line
Depreciation is computed to the nearest month and residual values are immaterial.

Transaction during 2019 and other information:

a) On July 6, 2019, a plant facility consisting of land and building was acquired from Kong Corp. in
exchange for 250,000 shares of Concord's common stock. On this date, Concord's stock had market
price of P50 a share. Current assessed values of land and building for property tax purposes are
P1,875,000 and P5,625,000, respectively.
b) On March 25, 2019, new parking lots, streets, and sidewalks at the acquired plant facility were
completed at a total cost of P1,920,000. These expenditures had an estimated useful life of 12 years.
c) The leasehold improvements were completed on December 31, 2015, and had an estimated useful life
of eight years. The related lease, which would terminate on December 31, 2021, was renewable for
an additional four-year term. On April 29, 2014, Concord exercised the renewal option.
d) On July 1, 2019, machinery and equipment were purchased at a total invoice cost of P3,250,000.
Additional costs of P100,000 for delivery and P500,000 for installation were incurred.
e) On August 30, 2019, Concord purchased a new automobile for P125,000
f) On September 30, 2019, a truck with a cost of P240,000 and a carrying amount of P91,000 on date of
sale was sold for P115,000. Depreciation for the nine months ended September 30, 2019, was
P26,500.
g) On December 20, 2019 a machine with a cost of P170,000 and a carrying amount of P29,750 at date
of disposition was scrapped without cash recovery.

Based on the processing information, calculate the 2019 depreciation expense on each of the following;

1. Buildings

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a. P 983,910 b. P 1,265,160 c. P 702,660 d. P 890,160

2. Automobiles and trucks
a. P 218,775 b. P 182,025 c. P 192,275 d. P 226,725
3. Leasehold improvements
a. P 270,000 b. P 216,000 c. P 360,000 d. P 154,285
4. Machinery and equipment
a. P 1,316,080 b. P 1,510,000 c. P 1,317,500 d. P 1,125,000
5. Land improvements
a. P 149,170 b. P 120,000 c. P 106,670 d. P 160,000

You requested a depreciation schedule for Semitrucks of KAIN PA MORE Manufacturing Company
showing the additions, retirements, depreciation and other data affecting the income of the Company in the
4-year period 2016 to 2019, inclusive. The Semitrucks account consists of the following as of January 1,
2016:

Truck No. 1 purchased Jan. 1, 2013, cost P180,000

Truck No. 2 purchased July 1, 2013, cost 220,000
Truck No. 3 purchased Jan. 1, 2015, cost 300,000
Truck No. 4 purchased July 1, 2015, cost 240,000
Total P 940,000

The Semitrucks – Accumulated Depreciation account previously adjusted to January 1, 2016, and
duly entered to the ledger, had a balance on that date of P302,000(depreciation on the 4 trucks from
respective date of purchase, based on five-year life, no salvage value). No charges have been made against
the account before January 1, 2016.

Transactions between January 1, 2016 and December 31, 2019, and their record in the ledger were as
follows:
July 1, 2016 Truck No. 3 was traded for larger one (No. 5), the agreed purchase price of which was
P340,000. Blue Mfg. Co. paid the automobile dealer P150,000 cash on the transaction. The entry
was debit to Semitrucks and a credit to cash, P150,000.
Jan. 1, 2017 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Semitrucks, P35,000.
July 1, 2018 A new truck (No. 6) was acquired for P360,000 cash and was charged at that amount to
Semitrucks account. (Assume truck No. 2 was not retired.)
July 1, 2018 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for P7,000 cash.
Blue Mfg. Co. received P25,000 from the insurance company. The entry made by the bookkeeper
was a debit to cash, P32,000, and credits to Miscellaneous Income, P7,000 and Semitrucks P 25,000.

Entries for depreciation had been made for the close of each year as follows: 2016, P203,000; 2017,
P211,000; 2018, P244,500; 2019, P278,000.

6. The 2018 profit is understated by

a. P94,500 b. 0 c. P64,500 d. P23,500
7. The 2017 profit is understated by
a. P51,000 b. 0 c. P16,000 d. P50,000
8. The 2016 profit is overstated by
a. P20,000 b. P31,000 c. 0 d. P9,000

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9. The 2019 depreciation expense is

a. P104,000 b. P140,000 c. P138,000 d. P184,000
10. The carrying amount of Semitrucks as of December 31, 2019 is
a. P504,000 b. P354,000 c. P885,400 d. P284,000

On January 1, 2019, KAIN KA NA CO. acquired two assets within the same class of plant and equipment.
Information on these assets is as follows:

Cost Useful Life

Machine A P 300,000 5 years
Machine B 180,000 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and
equipment is measured using the revaluation model.

At December 31, 2019, information about the assets is as follows:

Fair Value Useful Life

Machine A P 252,000 4 years
Machine B 114,000 2 years

On July 1, 2020, machine B was sold for P87,000 cash. On the same day, KAIN acquired machine C for
P240,000 cash. Machine C has an expected useful life of four years.

At December 31, 2020, information on the machine is as follows:

Fair Value Useful Life
Machine A P 168,000 3 years
Machine C 205,500 1.5 years

11. The depreciation expense for 2019 is

a. P 120,000 b. P 123,000 c. P 88,400 d. P 165,000
12. The amount of revaluation loss to be reported on Khaen's income statement for the year ended December 31,
2020 is
a. P 16,500 b. P 9,000 c. a. 25,500 d. P 4,500
13. The depreciation expense for 2020 is
a. P 160,000 b. P 114,500 c. P 123,000 d. P 121,500
14. The gain (loss) that should be recognized on the sale of machine B on July 1, 2020, is
a. P 1,500 b. 0 c. P 30,000 d. P (27,000)
15. Ignoring income tax, the December 31, 2019 statement of financial position of Khaen should show
revaluation surplus at
a. P 6,000 b. P 12,000 c. 0 d. P 18,000

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MANGAN TANA Company incurred the following costs on January 1, 2019:

Quality control during commercial production, including routine testing of products P58,000
Laboratory research aimed at discovery of new knowledge 68,000
Testing for evaluation of new products 24,000
Goodwill on purchase of GUTOM AKO Corporation 375,000
Modification of the formulation of a plastic product 26,000
Engineering follow-through in an early phase of commercial production 15,000
Adaptation of an existing capability to a particular requirement or customer's need
as a part of continuing commercial activity 13,000
Trouble-shooting in connection with breakdowns during commercial production 29,000
Searching for applications of new research findings 19,000
Patent (with useful life of 10 years) 150,000
Trademark (indefinite period) 45,000

Compute for the following:

16. Research and development expense for 2019

a. P198,000 b. P137,000 c. P169,000 d. P213,000
17. Amortization expense for 2019
a. P15,000 b. 152,000 c. P390,000 d. P19,500
18. Intangibles assets, net
a. P115,000 b. P670,000 c. P555,000 d. P570,000
19. If on December 31, 2020, the estimated economic benefits of the trademark and patent had been 8 years, how
much is the amortization for 2020?
a. P16,875 b. P21,375 c. P22,500 d. P0
20. If on December 31, 2020, the estimated economic benefits of the trademark and patent had been 8 years,
how much should be the reported intagible assets for 2020 in the balance sheet?
a. P157,500 b. P532,500 c. P548,625 d. P547,500

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