AP - PPE, INT. & INVEST PROP.

Problem

1. Jostine Company has an equipment costing P700.000 with an estimated residual value of P70, 000 and
an estimated useful life of six years. After using and depreciating the asset for the past two years, the
company upgraded the machine parts and the cost of upgrading amounted to P120.000.

(1) Assuming that the upgrading costs improved the quality of the asset's output, what is the revised
depreciation expense for the third year using the straight-line method and sum-of-the-years digits
method, respectively?
a. P135, 000; P168, 000
b. PI35, 000; P196, 000
c. PI52, 500; P196, 000
d. P152, 500; P168, 000

2) Assuming that the upgrading costs extended the asset's economic useful life by an additional two
years, what is the revised depreciation expense for the third year using the straight-line method and
sum-of-the-years digits method, respectively?
a. P90, 000; PI40, 000
b. P90, 000; P120, 000
P101, 667; P140, 000
d. P101, 667; P120.000

2. Jerome Company exchanges an automobile with a carrying amount of P135, 000 (original cost, P550,
000) for a molding machine owned by Water Company. The molding machine is carried in Water
Company's books at a cost of P240.000 with an accumulated depreciation of P83, 000 at time of
exchange.

(1) Assume that no cash is involved in the transaction and the fair value of the automobile is not readily
determinable. The fair market value of the molding machine is P172, 800. How much is the gain or loss
on the exchange of Jerome Company and Water Company, respectively?
a. P37, 800 gain and P15.800 loss
b. P37, 800 loss and P15, 800 gain
c. P37, 800 loss and P15, 800 gain
d. P37, 800 gain and P15, 800 gain

(2) Assume that the fair values of the automobile and the molding machine arc P145, 000 and P150,
000, respectively. In addition, Jerome Company paid P5, 000 to Water Company to complete the
transaction. How much is the gain or loss on the exchange of Jerome Company and Water Company,
respectively?
a. P10, 000 gain and P7, 000 loss
b. P10.000 loss and P7, 000 gain
c. P15, 000 loss and P12, 000 gain
d. P15, 000 gain and P12, 000 loss

3. The Kimberly Company self-constructed an asset for its own use. Construction started on January 1,
2016 and the asset was completed on December 31, 2016. Costs incurred during the year were as
follows:
January 1- P400, 000; April 1- P500,000; August 1 - P480,000; December 1- P180,000
 (1) What is the average accumulated expenditures for the self-constructed asset?
a. P1, 560,000
b. P 990,000
c. P 870,000
d. P 780,000

(2) If the company had a two-year, 18% loan of P500,000, specifically obtained finance the asset
construction, what is the capitalized interest added to the of the self-constructed asset?
a. P 90,000
b. P140, 000
c. P178.200
d. P280, 800

(3) Assuming that in addition to the specific borrowing, prior to the construction, the company had a
general borrowing amounting to P600,000 with interest of 20% and a two-year term that was used in
part In the self-construction, what is the total cost of the self-constructed asset?
a. P1, 770,000
b. P1, 748,000
c. P2, 650,000
d. P1.560, 000

(4) Assuming that the total construction costs of P1, 560000 were incurred evenly during the
construction period, and the company has the following outstanding obligations prior to the start of the
construction:
Specific borrowing P700.000, 16%. Due January 1, 2018 General borrowing P500.000. 18%, due
January}, 2017

What is the total capitalized interest?

a. P126, 400
b. P130, 000
c. P112, 000
d. P218, 000

4. On December 31, 2016, the Kimberly Company shows the following account for machinery it had
assembled during 2016 for its own use.

Account: Machinery (Job Order No. 1329)

Item Debit Credit Balance

Raw materials used in construction of new machine P 176, 000 P 176,000
Labor in Construction of new machine 50,000 226,000
Cost of installation 10,000 236,000

Cost of Dismantling old machine 15,000 251,000

Cash Proceeds from sale of old machine P12,000 239, 000

Materials spoiled in machine trial errors 5,000 244, 000

Profit on construction 24,000 268, 000

Purchase on Machine Tools 15,000 283, 000

 An analysis of the details in the account disclosed the following:

a. Cash discounts granted in the payments for materials used in construction totaled P4, 000, which
were credited to purchase Discounts account.

b. The Factory Overhead control account shows a balance of P300, 000 for the year ended
December 31, 2016. This balance exceeds normal overhead on regular plant activities by
approximately P25, 000. Kimberly attributes this excess to machine construction.

c. The old machine costing P120, 000, which was removed in the installation of the new one, had
been fully depreciated. The company did not anticipate the dismantling cost of the old machine;
hence, no provision was set up.

d. A profit was recognized on construction for the difference between actual costs incurred and the
price at which the machine could have been purchased.

e. The company has a constructive obligation to dismantle the machine at the end of its estimated
6-year life. The estimated dismantling cost is P40, 000 and the incremental borrowing rate of the
company is 10%.

f. The company recorded depreciation of P28, 300 on this machine.

How much is the correct cost of Machinery and Machinery Tools?

Machinery Machinery Tools
a. 284, 579 15, 000
b. 248, 759 15, 000
c. 248, 579 51, 000
d. 284, 759 51, 000

5. In relation to your examination of the FS of Kelly company, you found the following equipment and
related accumulated depreciation:

Equipment
01/01/2015 Balance 750000 10/01/2015 sold asset no 10 20000
06/01/2015 asset no. 16 200000 12/31/2015 balance 932000
10/01/2015 commission paid
On sale of machine 10 2000

Total 952000 Total 952000

Accumulated Depreciation-Equipment
12/31/2015 Balance 393,200 1/1/2015 Balance 300,000
12/31/2015-Depreciation 93,200
Total 393,200 Total 393,200

You obtained the following additional information:

Kelly Company has the policy of depreciating all equipment at 10% per annum providing full year
depreciation on assets acquired during the year and no depreciation on assets disposed of
during the year.
The oldest asset owned by Kelly is 6 years old as of December 31, 2014
 You verified the January 1, 2015 balances from the December 31, 2014 statement of financial
position, and you were satisfied to the correctness of the balances.
Asset no 10 which was acquired on April 1, 2010 for 150,000, was sold for 20,000 cash. Kelly
paid commission of 2,000 on such sale
The company paid installation of 4,000 and freight cost of 3,000 on asset no. 16. The company
charged repairs and maintenance for the installation cost and freight in for the freight cost.

1. What is the adjusted balance of equipment as of December 31, 2015?

a. 600,000 c. 600,300
b. 807,000 d. 600,700

2. What is the adjusted balance of accumulated depreciation as of December 31, 2015?

a. 200,000 c. 305,700
b. 300,850 d. 390,750

3. The audit adjusting entries at December 31, 2015 includes

a debit Repairs and maintenance 35,000
b debit accumulated depreciation 40,000
c credit repairs and maintenance 39,000
d. credit depreciation expense 12,500

6. Kelly Company purchased for cash on January 1, 2012, three machines which cost a total of
P1,200,000. Estimated selling prices of the machines were: Machine 1, P400,000; Machine 2,
P500,000; and Machine 3, P600,000. The machines were believed to have a useful life of ten years
without residual value. The company records depreciation annually on a monthly basis.

On January 1, 2015, Machine 1 was sold for P250,000 cash. The proceeds were credited to the
Machinery account.

On July 1, 2016, Machine 3, was traded in, for a new machine (NO. 4) which had a cash price of
P500,000, Kelly paying P200,000 for the difference with the trade-in value of the old machine and
Machine No. 4's cash price. Kelly charged the asset account for the cash payment
1. What should be the balance of the Accumulated Depreciation-Machinery on December 31, 2016
after adjustment of the books?
a. P537,000
b. P321,000
c. P225,000
d. None of these

2. What be the depreciation expense recorded by Kelly Company for the year ended December 31,
2016?
a. P65,000
b. P89,000
c. P99,000
d. P108,000

3. What amount of gain or loss should Kelly record on the exchange of Machine 3?
a. P25,000 gain
b. P36,000 gain
c. P64,000 loss
d. P75,000 loss
7. On August 1, 2012, the La Vida Company bought a machine for P300,000. The machine is expected to
have a useful life of 10 years with no scrap value. On August 1, 2016, P36,000 was paid for the major
overhaul of the machine which extends its life for another two years. This machine was sold for
P185,000 on June 30, 2017.

1. How much depreciation expense shall be taken up on this machine for the year 2016?

a. P27,000
b. P28,750
c. P30,000
d. None of these

2. How much gain or loss shall be reported on the sale of this machine in 2017?

a. P6,250
b. P33,250
c. P35,500
d. P39,250

8. Kris Companys 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

Depreciation policy:

a. Depreciation methods and useful lives:

Machinery and equipment straight line; 10 years.
Automobiles and trucks 150% declining balance; 5 years, all were acquired after 2007.
Leasehold improvements straight line

b. Depreciation is computed to the nearest month.

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

Additional information:

a. Kris 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, Kris 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:

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

a. P2,680 c. P250
b. P6,500 d. P 0

2. The gain on sale of machinery on December 20, 2016 is

a. P1,025 c. P13,000
b. P2,725 d. P 0

3. The adjusted balance of the property, plant and equipment as of December 31, 2016 is
a. P1,919,000 c. P2,307,000
b. P2,388,500 d. P2,351,000

4. The total depreciation expense for the year ended December 31, 2016 is
a. P185,402 c. P138,000
b. P245,065 d. P221,402

5. The carrying amount of the property, plant and equipment as of December 31, 2016 is
a. P1,567,497 c. P1,578,547
b. P1,290,547 d. P1,617,322

9. In connection with your audit of the Quebec Mining Corporation for the year ended December 31, 2016,
you noted that the company purchased for P10,400,000 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 P320,000 after its
physical life of 4 years.

Following is the summary of the companys 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.

Based on the above and the result of your audit, answer the following: (Disregard tax implications)
 1. How much is the depletion for 2016?
a. P768,000 c. P 960,000
b. P192,000 d. P1,040,000

2. Total inventoriable depreciation for 2016?

a. P400,000 c. P362,667
b. P384,000 d. P 0

3. How much is the Inventory as of December 31, 2016?

a. P438,400 c. P422,400
b. P425,600 d. P418,133
4. How much is the cost of sales for the year ended December 31, 2016?
a. P1,689,600 c. P1,753,600
b. P1,702,400 d. P1,672,533

5. How much is the maximum amount that may be declared as dividends at the end of the companys
first year of operations?
a. P1,494,400 c. P1,289,600
b. P1,302,400 d. P1,319,467

10. On January 1, 2014, John Company paid 10,000,000 for property containing natural resources of
3,000,000 tons. The present value of the estimated cost of restoring the land is 800,000 and the land will
have a value of 600,000 after it is restored for suitable use.

Building and bunk houses were build costing 8,000,000 , it is use as a storage of mining equipment and
houses for the miners. Its expected useful life is 10 years with no residual value.

Operations began on January 1, 2015 and resources removed totaled 500,000 tons. During 2016, it
is discovered that available resource will total 1,500,000 tons.

At the beginning of 2016, 800,000 development cost were incurred, and only 200,000 tons are
extracted.

i. What is the depreciation for the year ended December 31, 2015?
a. 1,333,333
b. 800,000
c. 888,888
d. 900,000

ii. What amount should be reported as depletion for 2015?

a. 1,800,000
b. 1,600,000
c. 1,700,000
d. 1,500,000

iii. What is the depletion for the year ended December 31, 2016?
a. 1,240,000
b. 1,300,000
c. 1,200,000
d. 1,340,000
11. On an audit engagement for 2016, you handled the audit of fixed assets of Benguet copper Mines. This
mining company bought the exploration rights of Lawrence Exploration June 30, 2016 for P7,290,000.
Of this purchase price, P4,860,000 was allocated to copper ore which had remaining reserves estimated
at 1,620,000 tons. Benguet copper mines expects to extract 15,000 tons of ore a month with an
estimated selling price of P50 per ton. Production started immediately after some new machines costing
P600,000 was bought on June 30, 2016. These new machineries had an estimated has been extracted
from the property, at which time machineries will already be useless.

Among the operating expenses of Benguet Copper Mines at Dec. 31, 2016 were.

Depletion expense P405,000

Depreciation of machineries 40,000

1. Recorded depletion expense was

a. Overstated by P90,000
b. Understated by P90,000
c. Overstated by P135,000
d. Understated by P135,000

2. Recorded depreciation expense was

a. Overstated by P10,000
b. Overstated by P20,000
c. Understated by P10,000
d. Understated by P20,000

12. You are in the process of examining th intangible asset accounts of Jo Company and you obtained the
following information:

A patent was purchased from Pizza Hot Company for P2,000,000 on January 1, 2013. Jo Company
estimated the remaining useful life of the patent to be 10 years at the date of purchase. The patent was
carried on Pizza Hot Companys accounting records at a net carrying amount of P1,600,000 when Pizza
Hot sold it to Jo Company

During 2014, a franchise was purchased from Yellow Cob for P516,000. The terms of the payment are
as follows: P180,000 down payment on the date of the purchase, April 1,2014 and P336,000 one year
non-interest bearing note due on April 1, 2015. Implicit interest in this transaction is 12%. In addition, 5%
of revenue from the franchise must be paid to Yellow Cob. Revenue from the franchise for 2014
wasP2,500,000. Jo estimated on the date of purchase that the useful life of the machine was 10 years.

JO incurred the following expenditures relating to research and development activities in 2014:

Materials P42,000

Equipment 100,000

Indirect Cost 102,000

Jo estimates that these costs will be recouped by December 31,2017. The materials and equipment
purchased have no alternative future uses.
During 2014, because of recent events in the field, Jo estimates that the remaining life of the patent
purchased on January 1, 2013 is only 5 years from January 1,2014. The company takes a full years
amortization or depreciation on assets acquired during the year.

1. The amortization of the patent for the year 2014 is

a. P200,000

b. P288,000

c. P333,000

d. P360,000

2. Total research and development expense to be shown in the 2014 statement of comprehensive
income is

a. P244,000

b. P164,000

c. P144,000

d. P48,800

3. The carrying Value of the Franchise at December 31, 2014 is

a. P360,000

b. P370,000

c. P432,000

d. P444,000

4. The total amount that will be charged against revenue for 2014 related to the franchise is

a. P192,000

b. P182,000

c. P161,000

d. P200,000

5. The amortized cost of the Notes Payable on December 31, 2014 is

 a. P300,000

b. P309,000

c. P327,000

d. P336,000

13. As the recently appointed auditor for Genuine Company, you have been asked by your senior in charge
to examine the entitys intangible assets. The trial balance submitted to you by Genuine listed the
following intangible assets account at December 31, 2015:

Patents P 920,000
Trademarks 220,000
Franchise 900,000
Organization costs 40,000
Goodwill 450,000
You obtained the following additional information:
1. The patents were purchased by the company on January 1, 2013 for P1,000,000. At the date of
purchase, the patents were assessed to have an estimates useful life of 10 years, although it will
expire on December 31, 2028. Amortization was made by the company for years 2013 and 2014,
based on its 10 year life. In 2015, the company successfully defended the patents in an
infringement suit; the decision was rendered by the court on December 28, 2015. Legal fees of
P120, 000 were incurred and capitalized by the company in 2015.
2. At December 31, 2015, the company assessed the economic benefits expected to be derived
from the patents. Because of new products and processes introduced in the market, it is believed
that these patents would provide annual cash inflow of P140, 000 for the next 5 years. The
companys appropriate discount rate is 10%. Since there is no homogeneous market for these
patents, their selling price is not reliably determinable.
3. The balance of the Trademarks account represents its purchase price of P150, 000 paid on
January 1, 2013 and P70, 000 of legal costs incurred during the current year 2015 for the cost of
infringement suit filed by the company against its competitor. The trademark was originally
believed to have an indefinite useful life, hence no amortization was taken up by the company for
years 2013 and 2014. Because of new products introduces in the market the trademark is now
believed to benefit the company up to the end of 2016.
4. The franchise account represents the total cash paid to acquire it on January 1, 2014, P200, 000
plus the P800, 000 face value of the promissory note issued on the same date, reduced by 2014
amortization of P100, 000. The P800, 000 promissory note was non-interest bearing, payable in
four annual installments of P200, 000 due every December 31 starting December 31, 2014. All
installment payments up to December 31, 2015 have been made on due date. Implicit interest
rate on the note is 10% based on the equivalent cash price of the franchise when purchased
5. The organization costs represents the unamortized portion of the costs of drafting and registering
the corporate charter and the costs incurred in the shareholders meetings during the process of
incorporation, reduced by amortization taken up in 2013 through 2014. The corporation opted to
amortize the organization costs over five years for tax purposes and applied the same treatment
for accounting purposes.

1. Carrying amount of patents at December 31, 2014 is

a. P704, 000 b. P800, 000
c. P896, 000 d. P 1, 000,000
2. Total expenses recognized in 2015 relating to trademark
 a. 120, 000 b. 70, 000
c. 20, 000 d. 50, 000
3. Interest expense on notes payable
a. P49, 738 b. P63, 398
c. P80, 000 d. P71, 429
4. Correct cost of franchise
a. P633, 980 b. P1,000,000
c. P 800, 000 d. P833, 980
5. An adjustment on organization cost includes a debit to
a. Retained earnings 40, 000
b. Organization cost 40, 000
c. Retained earnings 8, 000
d. Organization costs 8,000

14. In connection with your audit of the Ramil Corporation, you noted the following transactions during 2012:

Jan. 2 Paid legal fees of P450,000 and stock certificate costs of

P249,000 to complete organization of the corporation.

15 Hired a clown to stand in front of the corporate office for 2

weeks and hound out pamphlets and candy to create
goodwill for the new entity. Clown cost, P30,000;
pamphlets and candy, P15,000.

Apr. 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P1,287,000

Patent application and licensing fees 190,500
Total P1,477,500

It is estimated that in 6 years other companies will have

developed improved processes, making the Ramil
Corporation process obsolete.

May 1 Acquired both a license to use a special type of container

and a distinctive trademark to be printed on the container
in exchange for 18,000 shares of Ramils no-par ordinary
shares selling for P50 per share. The license is worth
twice as much as the trademark, both of which may be
used for 6 years.

July 1 Constructed a shed for P3,930,000 to house prototypes of

experimental models to be developed in future research
projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in

product development totaling P750,000 in 2012.

It is the companys policy to take full year amortization in the year of acquisition.
 Based on the above and the result of your audit, determine the following:

1. Cost of patent
a. P1,477,500 c. P1,287,000
b. P 190,500 d. P 0

2. Cost of licenses
a. P450,000 c. P600,000
b. P300,000 d. P 0

3. Cost of trademark
a. P450,000 c. P600,000
b. P300,000 d. P 0

4. Carrying amount of Intangible Assets as of December 31, 2012

a. P2,031,250 c. P1,981,250
b. P2,026,250 d. P 0

5. Total amount resulting from the foregoing transactions that should be expensed when incurred
a. P2,971,500 c. P5,424,000
b. P1,494,000 d. P 0

15. You noted the following items relative to the companys Intangible assets in connection with your audit of
the Maica Corporations financial statements for the year 2012.

On January 1, 2012, Maica signed an agreement to operate as franchisee of Clear Copy Service,
Inc. for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement
was signed and the balance was payable in four annual payments of P120,000 each, beginning
January 1, 2013. The agreement provides that the down payment is not refundable and no future
services are required of the franchisor. The implicit rate for loan of this type is 14%. The agreement
also provides the 5% of the revenue from the franchise must be paid to the franchisor annually.
Maicas revenue from the franchise for 2012 was P8,000,000. Maica estimates that the useful life of
the franchise to be ten years.

Maica incurred P624,000 of experimental and development costs in its laboratory to develop a
patent which was granted on January 2, 2012. Legal fees and another costs associated with the
registration of the patent totaled P131,200. Maica estimates that the useful life of the patent will be
eight years.

A trademark was purchased from Gloria Company for P320,000 on July 1, 2009. Expenditures for
successful litigation in defense of the trademark totaling P80,000 were paid on July 1, 2012. Maica
estimates that the trademarks useful life will be indefinite.

Based on the above and the result of your audit, determine the following: (Round off present value
factors to 4 decimal places)

1. Total expenses related to franchise in 2012

a. P503,914 c. P448,950
b. P535,200 d. P454,964
 2. Carrying amount of franchise as of December 31, 2012
a. P549,644 c. P538,733
b. P494,680 d. P612,000

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

a. P131,200 c. P124,640
b. P114,800 d. P123,482

4. Carrying amount of trademark as of December 31, 2012

a. P320,000 c. P304,000
b. P288,000 d. P400,000

5. Carrying amount of intangible assets as of December 31, 2012

a. P1,046,800 c. P1,009,480
b. P 984,444 d. P 929,480

16. On January 2, 2004, Arnold 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 2013, the
company spent P144,000 in successfully prosecuting an attempted patent infringement. At the
beginning of 2014, 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, 2017, a competitor obtained rights to a patent that made the
companys patent obsolete.

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

1. Carrying amount of patent as of December 31, 2013

a. P360,000 c. P369,600
b. P240,000 d. P355,200

2. Amortization of patent in 2014

a. P64,000 c. P52,000
b. P64,960 d. P63,520

3. Carrying amount of patents as of December 31, 2016

a. P448,000 c. P444,640
b. P454,720 d. P364,000

4. Loss on patent obsolescence in 2017

a. P338,000 c. P448,000
b. P416,000 d. P364,000

17. A license is acquired July 1, 2014, for P450,000; while it has a legal life of 15 years, due to rapidly
changing environment, management estimates a useful life of only 5 years. Straight-line amortization
will be used. At January 1, 2015, management estimated that the recoverable amount of the license is
only P135,000. Amortization will be taken over 3 years from that point.

On January 1, 2017, due to the change in general economic situations, the license now has a fair value
of P540,000. The entity adopted the revaluation model to measure the license starting January 1, 2017.
The estimated remaining useful life is now believed to be 5 years.
 Based on the above and the result of your audit, determine the following:

1. How much is the loss on impairment on January 1, 2015?

a. P270,000 c. P225,000
b. P300,000 d. P 0

2. How much can be recognized as gain on impairment recovery in 2017?

a. P270,000 c. P495,000
b. P180,000 d. P315,000

3. How much will be recognized as revaluation surplus on January 1, 2017?

a. P270,000 c. P495,000
b. P180,000 d. P315,000

18. Louie Company, a real estate entity, has a building with a carrying amount of P20,000,000 on
December 31, 2016. The building is used as offices of the entitys administrative staff. On December 31,
2016, the entity intended to rent out the building to independent third parties. The staff will be moved to a
new building purchased early in 2016. On December 31, 2016, the original building had a fair value of
P35,000,000. On December 31, 2016, the entity also had land that was held in the ordinary course of
business. The land had a carrying amount of P10,000,000 and fair value of P15,000,000 on December
31, 2016. On such date, the entity decided to hold the land for capital appreciation. The accounting
policy is to carry all investment property at fair value. On December 31, 2016, what amount should be
recognized in revaluation surplus and profit or loss, respectively?

a. 5,000,000 and 15,000,000

b. 15,000,000 and 0
c. 15,000,000 and 5,000,000
d. 5,000,000 and 0

19. On January 1, 2016, Casper Company acquired an investment property at a total cost of P1, 000,000. At
December 31, 2016, the carrying value of the property in the companys books is P2, 000,000. On
December 31, 2017. Casper Company decided to use the property and immediately reclassified as plant
asset.

Q1. What would be the initial cost of the plant assert if it has a fair value of P2,500,000 at conversion
date?
a. P1,000,000
b. P1,500,000
c. P2,000,000
d. P2,500,000

Q2. What amount of revaluation surplus Casper Company would recognize at the time of conversion?
a. None
b. P500,000
c. P1,000,000
d. P1,500,000

20. On January 1 2016, Wee company acquired property consisting of ten identical freehold detached
houses each with separate legal title including the land on which it is built for P200,000,000 , 20% of
which is attributable to the land. The units have a useful life of 50 years.
 The following costs are also incurred on such date:
Nonrefundable transfer taxes not included in the purchase price 20,000,000
Legal cost directly attributable to the acquisition 1,000,000
Reimbursement to the previous owner for
prepaying nonrefundable property taxes
for the sixth-month period ending June 30, 2016 10,000
Advertising campaign 500,000
Opening function to celebrate new rental business 200,000

On June 30 2016, the entity paid local property taxes of P20,000 for the year ending June 30 2017.

Throughout 2016 the entity incurred repairs and maintenance of 120,000.

The entity used one of the ten units to accommodate the administration and maintenance staff. The
other nine units are rented out to independent parties under an operating lease.

On December 31 2016, the fair value of each unit was reliably estimated at 25,000,000. The fair value of
the units can be measured reliably.

The accounting policy is to use the fair value model for investment property.

What is the gain from the increase in fair value of investment property for the current year?
a. 51,100,000
b. 27,000,000
c. 45,000,000
d. 26,100,000

21. Considerate Company has a single investment property which had an original cost of P5,800,000 on
January 1, 2014

On December 31, 2016 the fair value was P6,000,000 and on December 31, 2017 the fair value was
P5,900,000.

On acquisition, the property had a useful life of 40 years.

What is the expense recognized in profit or loss for 2017 under the fair value model and cost model?

Fair value model Cost model

a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500