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Modes of Acquiring PPE

The document discusses different methods of acquiring assets including cash purchase, installment purchase, share issuance, bond issuance, exchange, trade-in, donation, and self-construction. Specific examples are given for each method involving the cost, fair value, and other key details of the transaction.

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70 views2 pages

Modes of Acquiring PPE

The document discusses different methods of acquiring assets including cash purchase, installment purchase, share issuance, bond issuance, exchange, trade-in, donation, and self-construction. Specific examples are given for each method involving the cost, fair value, and other key details of the transaction.

Uploaded by

nyledenverbalansag
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Cash Basis

For example, land and building are acquired at a single cost of P5,500,000. At the time of
acquisition, the land has a fair value of P1,000,000 and the building, P4,000,000.

On Account subject to Cash Discount


An equipment is purchased for P100,000, 2/10, n/ 30. The purchase may be recorded using either
the gross method or net method.

On Installment / Deferred Payment Basis


A machinery is purchased at an installment price of P350,000.
The terms are P50,000 down and the balance payable in three equal annual installments.
The cash price of the machinery is P290,000. A promissory note is issued for the installment
balance of P300,000.

No available cash:
A machinery is acquired at an installment price of P700,000. The terms are P100,000 down and
the balance payable in three equal annual installments.
A note is issued for the balance of P600,000. There is no available cash price for the machinery.
However, the implied interest rate for this type of note is 10%.
Using the implied interest rate of 10%, the present value of an ordinary annuity of 1 is 2.487 for
three periods.

Issuance of Share Capital


A piece of land is acquired by issuing 20,000 shares with par value of P50. At the time of
acquisition, the fair value of the land is P1,600,000 and the share is quoted at P90 per share.

Issuance of Bonds Payable


A building is acquired by issuing bonds payable with face amount of P5,000,000.
At the time of acquisition, the fair value of the building is P6,000,000 and the quoted price of the
bonds is P5,800,000.

Exchange
With Commercial Substance:
Rex and Steph exchanged equipment
Rex Steph
Equipment 1,600,000 2,000,000
Accumulated Depreciation 900,000 1,350,000
Carrying Amount 700,000 650,000
Fair Value 600,000 800,000
Cash paid by Rex to Steph 200,000 200,000
The cash payment of P200,000 made by Rex to Steph is the difference in fair value, P800,000
minus P600,000.

No commercial substance:
Ayanna Bleaze
Equipment 800,000 1,000,000
Accumulated Depreciation 380,000 400,000
Carrying Amount 420,000 600,000
Fair Value 450,000 500,000
Cash paid by Ayanna to Bleaze 50,000 50,000

The cash flows of the asset received do not differ from cash flows of asset transferred.

Trade In
An entity traded an old equipment with a dealer for newer model.
Old Equipment:
Cost 1,400,000
Accumulated Depreciation 1,000,000
Carrying Amount 400,000
Fair Value 350,000
Trade in value 500,000
New Equipment:
List Price 2,000,000
Trade in value of old equipment (500,000)
Cash Payment 1,500,000

Donation
Precious company received land from a major shareholder as an inducement to locate a plant in
the city. No payment was required but the entity paid P50,000 for legal expenses for land transfer.
The land is fairly valued at P1,200,000

Construction
An asset is constructed and the following costs are incurred:
Materials (normal, P1,000,000) 1,600,000
Labor (normal, P1,500,000) 2,000,000
Manufacturing Overhead 1,200,000

Normal production of finished goods is 50,000 units. Due to fabrication of the office equipment,
finished goods produced totaled 35,000 units only in the current year. The office equipment is to
be charged with the overhead which would have been apportioned to the units which were not
produced.

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