BA 118.1 (D. Chua Bun Pho/D. Dy/K.

Dela Cruz)
IFRS for SMEs (Set 3)

1. In 2013, Shirebound & Busking Co. incurred and paid the following expenditures in acquiring property
consisting of ten identical freehold detached houses each with separate legal title including the land on
which it is built:

Date Amount Additional Information

January 1 =200,000,000
P 20% of the price is attributable to the land
20,000,000 Non-refundable transfer taxes (not included in the P =200,000,000
purchase price)
1,000,000 Legal costs directly attributable to the acquisition
10,000 Reimbursing the previous owner for prepaying the non-refundable local
government property taxes for the six-month period ending June 30, 2013
500,000 Advertising campaign to attract tenants
January 2 200,000 Opening function to celebrate new rental business that attracted extensive
coverage by the local press
June 30 20,000 Non-refundable annual local government property taxes for the year
ending June 30, 2014
Throughout 120,000 Day-to-day repairs and maintenance, including the salary and other costs
2013 of the administration and maintenance staff. These costs are attributable
equally to each of the ten units.

Shirebound & Busking Co. uses one of the ten units to accommodate its administration and maintenance
staff. The other nine units are rented to independent third parties under non-cancellable operating leases.

Before occupying the premises tenants pay Shirebound & Busking Co. a refundable deposit equal to two
months’ rentals. Deposits held by Shirebound & Busking Co. at December 31, 2013 totaled P =270,000.
Rentals received in the year ended December 31, 2013 totaled P
=1,550,000, of which P
=50,000 relates to
January 2014.

At December 31, 2013 Shirebound & Busking Co. made the following assessments about the units:
 Useful life of the buildings: 50 years from the date of acquisition
 The entity will consume the buildings’ future economic benefits evenly over 50 years from the
date of acquisition.

Required: Prepare accounting entries to record the effects of the investment property or the year ended
December 31, 2013.
A. Assume that the fair value of the units can be determined reliably without undue cost or effort on
an on-going basis and that the residual value of the owner-occupied unit is zero. At
December 31, 2013, the fair value of each unit was reliably estimated as P
=25,000,000.
B. Assume that the fair value of the units cannot be determined reliably without undue cost or effort
on an on-going basis.

2. One of the most critical steps in recording the acquisition of assets is the determination of the cost
assigned to the asset. Data related to assets acquired by the Munimuni, Inc. are as follows:
A. Machine A was purchased at a list price of P =92,000; terms 1/10, net 30. The machine invoice was
paid after the discount period. Transportation charges were P=1,270; installation costs were P
=920;
and the cost of a trial run was P =960. Normal repairs and maintenance for the first year were
=410.
P
B. Machine B could be purchased for five annual payments of P =6,332 or P =29,400 in cash. Munimuni,
Inc. elected to purchase Machine B under the instalment plan. Other related acquisition costs
totaled P
=175.
C. On May 12, 2008, Any Name’s Okay Corp. offered to sell land to Munimuni, Inc. for = P62,000; the
offer was rejected. On June 29, 2,125 shares of Munimuni, Inc. common stock were issued in
exchange for the land. The par value of the stock was P=20 per share; the market value of the stock
was =P32 per share at the time of purchase. Munimuni, Inc.’s management was confident the land
would be worth at least P =64,000 to the company.
 D. The company purchased equipment under a deferred payment contract—P =40,000 down
payment and 30 semi-annual payments of P
=5,000. Assume a 12% interest rate.

Required: Determine the acquisition cost for each asset.

3. On January 1, 2013, Lola Amour Corp. acquired an oil delivery truck. Management estimated the useful
life of the truck at nine years with zero residual value. Lola Amour Corp. determined that straight-line
method of depreciation is appropriate. At December 31, 2013, the truck has a carrying amount of =
P24,000
(original cost of P
=27,000 less accumulated depreciation of =
P3,000).

In 2014, because of a sharp downturn in demand for fuel oil, Lola Amour Corp. dramatically decreased its
use of this truck. Consequently, at December 31, 2014, management re-estimates the truck’s remaining
useful life at 5 years, during which the truck is expected to provide the following net cash flows:
2015 P =6,000
2016 5,500
2017 5,000
2018 3,500
2019 1,500
The appropriate rate to discount these future cash flows to their risk-adjusted present value is 10% per
year. At December 31, 2014 the market price for the truck is = P15,400. If the truck were sold, license and
title fees of P
=400 would be paid.

Required: Assume that all cash flows occur on the last day of each year (December 31). Determine the
amount of impairment loss, if any, for Lola Amour Corp.’s truck at December 31, 2014.

4. On January 1, 2014, December Avenue Corp. acquired a trademark for a line of products in a separate
acquisition from a competitor for =
P300,000. December Avenue Corp. expected to continue marketing the
line of products using the trademark indefinitely. An analysis of (i) product life cycle studies, (ii) market,
competitive and environmental trends and (iii) brand extension opportunities provides evidence that the
line of trademarked products may generate net cash inflows for the acquiring entity for an indefinite
period.

In 2017, a competitor unexpectedly revealed a technological breakthrough that is expected to result in a

product, that when launched by the competitor, will extinguish demand for December Avenue Corp.’s
patented product-line. Demand for the company’s patented product-line is expected to remain strong
until December 2019, when the competitor is expected to launch its new product.

On December 31, 2017, December Avenue Corp. assessed the recoverable amount of the trademark at
=50,000. The company intends to continue manufacturing the patented products until
P
December 31, 2019. The company has a 31 December financial year-end.

Required: Determine the balances of the following:

1. Amortization of trademark in 2014
2. Amortization of trademark in 2017
3. Impairment loss to be recognized in 2017