Problem No.

In connection with your audit of Cuyapo Company’s financial statements for the year 2016, you noted
the following transactions affecting the property and equipment items of the company:

Jan. 1 Purchased real property for P5,026,000, which included a charge of P146,000 representing
property tax for 2016 that had been prepaid by the vendor; 20% of the purchase price is
deemed applicable to land and the balance to buildings. A mortgage of P3,000,000 was
assumed by Cuyapo on the purchase. Cash was paid for the balance.

Jan. 15 Previous owners had failed to take care of normal maintenance and repair requirements on
the buildings, necessitating current reconditioning at a cost of P236,800.

Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on the lumber
salvage. The company proceeded to construct a warehouse. The cost of such warehouse
was P540,800, which was P90,000 less than the average bids made on the construction by
independent contractors. Upon completion of construction, city inspectors ordered extensive
modifications to the building as a result of failure on the part of the company to comply with
building safety code. Such modifications, which could have been avoided, cost P76,800.

Mar. 1 The company exchanged its own stock with a fair value of P320,000 (par P24,000) for a
patent and a new equipment. The equipment has a fair value of P200,000.

Apr. 1 The new machinery for the new building arrived. In addition, a new franchise was acquired
from the manufacturer of the machinery. Payment was made by issuing bonds with a face
value of P400,000 and by paying cash of P144,000. The value of the franchise is set at
P160,000, while the machine’s fair value is P360,000.

May 1 The company contracted for parking lots and waiting sheds at a cost P360,000 and P76,800,
respectively. The work was completed and paid for on June 1.

Dec. 31 The business was closed to permit taking the year-end inventory. During this time, required
redecorating and repairs were completed at a cost of P60,000.

Based on the above and the result of your audit, determine the cost of the following:

1. Land
2. Buildings
3. Machinery and equipment
4. Land improvements
5. Total property, plant and equipment

Problem No. 2

Gabaldon Company’s property, plant and equipment and accumulated depreciation balances at
December 31, 2015 are:

Accumulated
Cost Depreciation
Machinery and equipment P1,380,000 P 367,500
Automobiles and trucks 210,000 114,326
Leasehold improvements 432,000 108,000

Additional information follows:

Depreciation methods and useful lives:
Machinery and equipment – straight line; 10 years.
Automobiles and trucks – 150% declining balance; 5 years, all acquired after 2011.
Leasehold improvements – straight line

Depreciation is computed to the nearest month.

Salvage values are immaterial except for automobiles and trucks which have estimated salvage values
equal to 15% of cost.

Other additional information:

a. Gabaldon entered into a 12-year operating lease starting January 1, 2013. The leasehold
improvements were completed on December 31, 2012 and the facility was occupied on January 1,
2013.

b. On July 1, 2016, machinery and equipment were purchased at a total invoice cost of P325,000.
Installation cost of P44,000 was incurred.

c. On August 30, 2016, Gabaldon purchased new automobile for P25,000.

d. On September 30, 2016, a truck with a cost of P48,000 and a carrying amount of P30,000 on
December 31, 2015 was sold for P23,500.

e. On December 20, 2016, a machine with a cost of P17,000, a carrying amount of P2,975 on date of
disposition, was sold for P4,000.

Based on the above and the result of your audit, answer the following:

6. The gain on sale of truck on September 30 is

7. The gain on sale of machinery on December 20, 2016 is
8. The adjusted balance of the property, plant and equipment as of December 31, 2016 is
9. The total depreciation expense for the year ended December 31, 2016 is
10. The carrying amount of the property, plant and equipment as of December 31, 2016 is

Problem No. 3

The following data relate on the Plant Assets account of Licab, Inc. at December 31, 2015:
Plant Assets
L A R E
Original cost P87,500 P127,500 P200,000 P200,000
Year Purchased 2000 2001 2002 2004
Useful life 10 years 37,500 hours 15 years 10 years
Salvage value P7,750 P7,500 P12,500 P12,500
Depreciation SYD Activity Straight-line Double-
method declining
balance
Note: In the year an asset is purchased, Licab, Inc. does not record any depreciation expense on the asset.
In the year an asset is retired or traded in, Licab, Inc. takes a full year depreciation on the asset.

The following transaction occurred during 2016:

(a) On May 5, Asset L was sold for P32,500 cash.

(b) On December 31, it was determined that asset A had been used 5,250 hours during 2016.
(c) On December 31, before computing depreciation expense on Asset R, the management of Licab, Inc.
decided the useful life remaining from 1/1/16 was 10 years.

(d) On December 31, it was discovered that a plant asset purchased in 2015 had been expensed completely
in that year. This asset costs P55,000 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 S.”

Based on the above and the result of your audit, answer the following: (Disregard tax implications)
11. How much is the gain or loss on sale of Asset L?
12. How much is the depreciation of Asset R for 2016?
13. The adjusting entry to correct the error of failure to capitalize Asset S would include a debit/credit to
Retained Earnings of
14. How much is the adjusted balance of Plant Assets as of December 31, 2016?
15. How much is the total depreciation expense for 2016?

Problem No. 4

In connection with your audit of the Liliw Corporation’s financial statements for the year 2016, you noted the
following items relative to the company’s Intangible assets.

A patent was purchased from Pansol Company for P4,000,000 on January 2, 2015. Liliw estimated that the
remaining useful life of the patent to be 10 years. The patent was carried in Pansol’s accounting records at a
carrying value of P4,000,000 when Pansol sold it to Liliw.

During 2016, a franchise was purchased from Makiling Company for P960,000. In addition, 5% of the
revenue from the franchise must be paid to Makiling. Revenue from the franchise for 2016 was P5,000,000.
Carter estimates the useful life of the franchise to be 10 years and takes full year’s amortization in the year
of purchase.

Liliw incurred research and development costs of P866,000 in 2016. Liliw estimates that these costs will be
recouped by December 31, 2019.

On January 1, 2016, Liliw, because of the recent events in the industry, estimates that the remaining life of
the patent purchased on January 2, 2015, is only 5 years from January 1, 2016.

Based on the above and the result of your audit, determine the following:

16. Amortization of patent for 2016

17. Carrying amount of patent as of December 31, 2016
18. Carrying amount of intangible assets as of December 31, 2016
19. Total amount that should be charged against income in 2016

Problem No. 5

On January 2, 2008, Nagcarlan Company spent P480,000 to apply for and obtain a patent on a newly
developed product. The patent had an estimated useful life of 10 years. At the beginning of 2012, the
company spent P144,000 in successfully prosecuting an attempted patent infringement. At the beginning of
2013, the company purchased for P280,000 a patent that was expected to prolong the life of its original
patent by 5 years. On July 1, 2016, a competitor obtained rights to a patent that made the company’s
patent obsolete.

Based on the above and the result of your audit, determine the following:

20. Carrying amount of patent as of December 31, 2012

21. Amortization of patent in 2013
22. Carrying amount of patents as of December 31, 2005
23. Loss on patent obsolescence