INTERMEDIATE ACCOUNTING I

PROPERTY PLANT AND EQUIPMENT

1. Wilson Co. purchased land as a factory site for P800,000. Wilson paid P80,000 to tear down two buildings on the land.
Salvage was sold for P5,400. Legal fees of P3,480 were paid for title investigation and making the purchase. Architect's
fees were P31,200. Title insurance cost P2,400, and liability insurance during construction cost P2,600. Excavation cost
P10,440. The contractor was paid P2,500,000. An assessment made by the city for pavement was P6,400. Interest
costs during construction were P170,000.
a. The cost of the land that should be recorded by Wilson Co. is P800,000 + P80,000 – P5,400 + P3,480 +
P2,400 + P6,400 = P886,880.
b. The cost of the building that should be recorded by Wilson Co. is P31,200 + P2,600 + P10,440 + P2,500,000 +
P170,000 = P2,714,240.

2. On February 1, 2012, Nelson Corporation purchased a parcel of land as a factory site for P250,000. An old building on
the property was demolished, and construction began on a new building which was completed on November 1, 2012.
Costs incurred during this period are listed below:
Demolition of old building P 20,000
Architect's fees 35,000
Legal fees for title investigation and purchase contract 5,000
Construction costs 1,290,000
(Salvaged materials resulting from demolition were sold for P10,000.)
Nelson should record the cost of the land and new building, respectively, as
Land: P250,000 + P20,000 + P5,000 – P10,000 = P265,000.
Building: P35,000 + P1,290,000 = P1,325,000.
3. Worthington Chandler Company purchased equipment for P12,000. Sales tax on the purchase was P800. Other costs
incurred were freight charges of P200, repairs of P350 for damage during installation, and installation costs of P225.
What is the cost of the equipment? P12,000 + P800 + P200 + P225 = P13,225

4. Fogelberg Company purchased equipment for P15,000. Sales tax on the purchase was P900. Other costs incurred
were freight charges of P240, repairs of P420 for damage during installation, and installation costs of P270. What is the
cost of the equipment? P15,000 + P900 + P240 + P270 = P16,410.

5. During self-construction of an asset by Samuelson Company, the following were among the costs incurred:
Fixed overhead for the year P1,000,000
Portion of P1,000,000 fixed overhead that would
be allocated to asset if it were normal production 50,000
Variable overhead attributable to self-construction 35,000
What amount of overhead should be included in the cost of the self-constructed asset? P50,000 + P35,000 = P85,000.

6. Mendenhall Corporation constructed a building at a cost of P10,000,000. Average accumulated expenditures were
P4,000,000, actual interest was P600,000, and avoidable interest was P400,000. If the salvage value is P800,000, and
the useful life is 40 years, depreciation expense for the first full year using the straight-line method is (P10,000,000 +
P400,000) – P800,000] ÷ 40 = P240,000.

7. Messersmith Company is constructing a building. Construction began in 2012 and the building was completed 12/31/12.
Messersmith made payments to the construction company of P1,500,000 on 7/1, P3,150,000 on 9/1, and P3,000,000
on 12/31. Average accumulated expenditures were (P1,500,000 × 6/12) + (P3,150,000 × 4/12) = P1,800,000.

8. Huffman Corporation constructed a building at a cost of P20,000,000. Average accumulated expenditures were
P8,000,000, actual interest was P1,200,000, and avoidable interest was P800,000. If the salvage value is P1,600,000,
and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is [(P20,000,000
+ P800,000) – P1,600,000] ÷ 40 = P480,000.

9. Gutierrez Company is constructing a building. Construction began in 2012 and the building was completed 12/31/12.
Gutierrez made payments to the construction company of P2,000,000 on 7/1, P4,400,000 on 9/1, and P4,000,000 on
12/31. Average accumulated expenditures were (P2,000,000 × 6/12) + (P4,400,000 × 4/12) = P2,466,667.
 10. On May 1, 2012, Goodman Company began construction of a building. Expenditures of P240,000 were incurred
monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1, 2012.
For the purpose of determining the amount of interest cost to be capitalized, the average accumulated expenditures on
the building during 2012 were (P240,000 × 4/12) + (P240,000 × 3/12) + (P240,000 × 2/12) + (P240,000 × 1/12) =
P200,000.

Aliaga Corporation was incorporated on January 2, 2006. The following items relate to the Aliaga’s property
and equipment transactions:

Cost of land, which included an old apartment building

appraised at P300,000 P3,000,000
Apartment building mortgage assumed, including related
interest due at the time of purchase 80,000
Deliquent property taxes assumed by the Aliaga 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Cost of changes during construction to make new building
more energy efficient 90,000
Interest cost on specific borrowing incurred during
construction 360,000
Payment of medical bills of employees accidentally injured
while inspecting building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building during construction 30,000
Cost of open house party to celebrate opening of new
building 50,000
Cost of windows broken by vandals distracted by the
celebration 12,000

determine the following:

11. Cost of Land

12. Cost of Building
13. Cost of Land Improvements
14. Amount that should be expensed when incurred
15. Total depreciable property and equipment
Question No. 11
16.

Cost of land P3,000,000

Apartment building mortgage assumed, including
related interest due at the time of purchase 80,000
Deliquent property taxes assumed by the Aliaga 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials (10,000)
Fee for title search 25,000
Survey before construction of new building 20,000
Assessment by city for drainage project 15,000
 Cost of grading and leveling 50,000
Total cost of Land P3,270,000

Question No. 12

Architects fee for new building P60,000

Building permit for new construction 40,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Cost of changes during construction to make new
building more energy efficient 90,000
Interest cost on specific borrowing incurred during
construction 360,000
Premium for insurance on building during construction 30,000
Total cost of Building P10,810,000

Question No. 13

Cost of paving driveway and parking lot P60,000

Cost of installing lights in parking lot 12,000
Total cost of Land Improvements P72,000

Question No. 14

Payment of medical bills of employees P18,000

Cost of open house party 50,000
Cost of windows broken by vandals 12,000
Total cost amount that should be expensed P80,000

Question No. 15

Building (see no. 2) P10,810,000

Land improvements (see no. 3) 72,000
Total depreciable PPE P10,882,000