College of Business Administration

ACTG 109A – APPLIED AUDITING

Audit of Property, Plant and Equipment

NAME:_____________________________________________COURSE & YEAR: __________SCORE:______

Problem 1
In connection with your audit of Cuyapo Company’s financial statement for the year 2010, you noted the
following transactions affecting the property and equipment items of the company:
Jan. 1 Purchase real property for ₱5,026,000, which included a charge of ₱146,000 presenting property
tax for 2010 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 ₱3,000,000 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 ₱236,800.
Feb. 15 Demolished garage in the rear of the building, ₱36,000 being recovered on the lumber salvage.
The company proceeded to construct a warehouse. The cost of such warehouse was ₱540,800,
which was ₱90,000 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 ₱76,800.
Mar. 1 The company exchanged its own shares with a fair value of ₱320,000 (par ₱24,000) for a patent
and a new equipment. The new equipment has a fair value of ₱200,000.
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
₱400,000 and by paying cash of ₱144,000. The value of the franchise is set at ₱160,000, while
the machine’s fair value is ₱360,000.
May 1 The company contracted for parking lots and waiting sheds at a cost ₱360,000 and ₱76,800,
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
relocating and repairs were completed at a cost of ₱60,000.

Based on the result of your audit, determine the cost of the following:
1. Land
a. ₱940,000 b. ₱1,005,200 c. ₱976,000 d. ₱1,052,800
2. Buildings
a. ₱4,645,600 b. ₱5,005,600 c. ₱4,762,400 d. ₱4,681,600
3. Machinery and Equipment
a. ₱360,000 b. ₱560,000 c. ₱576,615 d. ₱659,692
4. Land Improvements
a. ₱360,000 b. ₱76,800 c. ₱436,800 d. ₱0
5. Total property, plant and equipment
a. ₱6,764,400 b. ₱6,731,200 c. ₱6,718,092 d. ₱6,618,400

Problem 2
Anxious Company acquired two items of machinery as follows:
 On December 31, 2009, Anxious Company purchased a machine in exchange for a noninterest bearing
note requiring ten payments of P500,000. The first payment was made on December 31, 2010, and the
others are due annually on December 31. The prevailing rate of interest for this type of note at date of
issuance was 12%. The present value of an ordinary annuity of 1 at 12% id 5.33 for nine periods and
5.65 for ten periods.
 On December 31, 2009, Anxious Company acquired used machinery by issuing the seller a two-year,
noninterest bearing note for P3,000,000. In recent borrowing, Anxious has paid a 12% interest for this
type of note. The present value of 1 at 12% for 2 years is .80 and the present value of an ordinary
annuity of 1 at 12% for 2 years is 1.69.
What is the total cost of the machinery? 5,225,000

Problem 3
Faith, Inc. has a fiscal year ending April 30. On May 1, 2017, Faith borrowed P10,000,000 at 15% to finance
construction of its own building. Repayments of the loan are to commence on the month following completion
of the building. During the year ended, April 30, 2018 expenditures for the partially completed structure total
P6,000,000. These expenditures were incurred evenly after the year. Interest earned on the unexpected portion
of the loan amount to P400, 000 for the year. How much should be shown as capitalized interest on
Faith’s financial statement at April 30, 2018 under the alternative treatment? 450,000

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