AUDITING PROBLEMS Property, Plant and Equipment (PPE) Bautista, Larraine Kaye B.

Montemayor, Joan Monteron, Janien Mae S. Seradoy, Jean Edliz ---------------------------------------------------------------------------------------------------------------------------------------------PROBLEM 1 The property, plant and equipment section of Monteron Corporation's balance sheet at December 31, 2012 included the following items: Land P 2,500,000 Land improvements 560,000 Building 3,600,000 Machinery and equipment 6,600,000 During 2013, the following data were available to you upon your analysis of the accounts: Cash paid on purchase of land P 10,000,000 Mortgage assumed on the land bought, including interest at 16% 16,000,000 Realtor's commission 1,200,000 Legal fees, realty taxes and documentation expenses 200,000 Amount paid to relocate persons squatting on the property 400,000 Cost of tearing down an old building on the land 300,000 Amount recovered from the salvage of the building demolished 600,000 Cost of fencing the property 440,000 Amount paid to a contractor for the building erected 8,000,000 Building permit fees 50,000 Excavation expenses 250,000 Architect's fee 100,000 Interest that would have been earned had the money used during the the period of construction been invested in the money market 600,000 Invoice cost of machinery acquired 8,000,000 Freight, unloading, and delivery charges 240,000 Customs duties and other charges 560,000 Allowances, hotel accomodations, etc., paid to foreign technicians during installation and test run of machines 1,600,000 Royalty payment on machines purchased (based on units produced and sold) 480,000 REQUIRED: Based on the above and the result of your audit, compute for the following as of December 31, 2013: 1. Land 2. Land improvements 3. Building 4. Machinery and equipment

5. Total depreciable property, plant and equipment PROBLEM 2 The Seradoy Corporation was incorporated on January 2, 2013, but was unable to begin manufacturing activities until July 1, 2013 because the new factory facilities were not completed until that date. The "Land and Building" account at December 31, 2013 follows: Date Particulars Jan. 31 Land and building Feb. 28 Cost of removal of old building May 02 Partial payment on new construction 02 Legal fees paid June 01 Second payment on new consrtuction July 01 Fire insurance premium - 1 year 01 Final payment on new construction Dec. 31 Asset write-up Dec. 31 Depreciation - 2013, at 1% of account balance

Amount P1,098,000 60,000 700,000 15,000 600,000 26,000 200,000 500,000 P3,199,000 31,990 P3167,010

You were able to gather the following during your audit: a. To acquire land and building, the company paid P98,000 cash and 10,000 shares of its 9% cumulative preferred shares, P100 par value per share. The shares were then selling at P120. b. Legal fees covered the following: Cost of incorporation Examination of title covering purchase of the land Legal work in connection with construction contract

P9,500 4,000 1,500 P15,000

c. Because of a general increae in construction costs after entering into the building contract, the board of directors increased the value of the building by P500,000, believing such increase is justified to reflect current market value at the time the building was completed. Retained earnings was credited for this amount. d. Estimated useful life of the building is 25 years. REQUIRED: 1. Prepare the necessary adjusting journal entries as of December 31, 2013. 2. Determine the adjusted balances of the following as of December 31, 2013: a. Land and building b. Land c. Carrying value of building d. Organization cost, net (presented under Noncurrent Assets)

PROBLEM 3 You obtain the following information pertaining to Bautista Co.'s property plant and equipment for 2013 in connection with your audit of the company's financial statements. Audited balances at December 31, 2012: Land Buildings Accumulated depreciation - Buildings Machinery and equipment Accumulated depreciation - Machinery and Equipment Delivery Equipment Accumulated depreciation - Delivery Equipment Depreciation Data Buildings Machinery and Equipment Delivery Equipment Leasehold Improvements Depreciation Method 150% declining balance Straight-line Sum of the years' digits Straight-line Useful Life 25 years 10 years 4 years Debit P3,750,000 30,000,000 22,500,000 6,250,000 2,875,000 2,115,000 Credit

P6,577,500

Transaction during 2013 and other information are as follows: a. On January 2, 2013, Bautista purchased a new truck for P500,000 cash and traded-in a 2-year-old truck with a cost of P450,000 and a book value of P135,000. The new truck has a cash price of P600,000; the market value of the old truck is not known. b. On April 1, 2013, a machine purchased for P575,000 on April 1, 2008 was destroyed by fire. Bautista recovered P387,500 from its insurance company. c. On May 1, 2013, cost of P4,200,000 were incurred to improve leased office premises. The leasehold improvements have a useful life of 8 years. The related lease terminates on December 31, 2019. d. On July 1, 2013, machinery and equipment were purchased at a total invoice cost of P7,000,000; additional cost of P125,000 for freight and P625,000 for installation were incurred. e. Bautista determined that the delivery equipment comprising the P2,875,000 balance at January 1, 2013, would have been depreciated at a total amount of P450,000 for the year ended December 31, 2013. The salvage values of the depreciable assets are immaterial. The policy of the Bautista Co. is to compute depreciation to the nearest month. REQUIRED:

Compute for the following as of December 31, 2013: 1. Accumulated depreciation - Building 2. Accumulated depreciation - Machinery and Equipment 3. Accumulated depreciation - Delivery and Equipment 4. Accumulated depreciation - Leasehold Improvements 5. Net gain (loss) from disposal of assets PROBLEM 4 In connection with your audit of the Montemayor Mining Corporation for the year ended December 31, 2013, you noted that the company purchased for P10,400,000 a mining property estimated to contain 8,000,000 tons of ore. The residual value of the property is P800,000. Building used in mine operations costs P800,000 and have estimated life of fifteen years with no residual value. Mine machinery costs P1,600,000 with an estimated residual value of P320,000 after its physical life of 4 years. Following is the summary of the company's operations for first year of operations. Tons mined 800,000 tons Tons sold 640,000 tons Unit selling price per ton P4.40 Direct labor 640,000 Miscellaneous mining overhead 128,000 Operating expenses (excluding depreciation) 576,000 Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be allocated as follows: 20% to operating expenses, 80% to production. Depreciation on machinery is chargeable to production. REQUIRED: Compute for the following as of December 31, 2013: 1. Depletion 2. Total inventoriable depreciation 3. Inventory 4. Cost of sales 5. Maximum amount that may be declared as dividends