MODULE 5 PROPERTY, PLANT & EQUIPMENT

LEARNING OBJECTIVES:
1. Describe property, plant, and equipment.
2. Identify the costs to include in initial valuation of property, plant, and equipment.
3. Describe the accounting problems associated with self-constructed assets.
4. Describe the accounting problems associated with interest capitalization.
5. Understand accounting issues related to acquiring and valuing plant assets.
6. Describe the accounting treatment for costs subsequent to acquisition.
7. Describe the accounting treatment for the disposal of property, plant, and equipment.

OVERVIEW
PAS 16 Property, Plant and Equipment outlines the accounting treatment for most types of
property, plant and equipment. Property, plant and equipment is initially measured at its cost,
subsequently measured either by using a cost or revaluation model, and depreciated so that its
depreciable amount is allocated on a systematic basis over its useful life.

Acquiring new knowledge

Asynchronous - links to more information: [Link]
A synchronous discussion for this lesson will be scheduled on September 1, 2020 (Tuesday
7:30 – 8:30 AM)

Property, plant, and equipment is defined as tangible assets that are held for use in
production or supply of goods and services, for rentals to others, or for administrative purposes;
they are expected to be used during more than one period.
 “Used in operations” and not for resale.
 Long-term in nature and usually depreciated.
 Possess physical substance.

Includes:
 Land,
 Building structures (offices, factories, warehouses), and
 Equipment (machinery, furniture, tools).

INITIAL VALUATION

Historical cost measures the cash or cash equivalent price of obtaining the asset and bringing
it to the location and condition necessary for its intended use.

SUBSEQUENT VALUATION
Companies value property, plant, and equipment in subsequent periods using either the
 cost method or
 fair value (revaluation) method.

Cost of Land
Includes all costs to acquire land and ready it for use. Costs typically include:
(1) purchase price;
(2) closing costs, such as title to the land, attorney’s fees, and recording fees;
 (3) costs of grading, filling, draining, and clearing;
(4) assumption of any liens, mortgages, or encumbrances on the property;

Improvements with limited lives, such as private driveways, walks, fences, and parking lots,
are recorded as Land Improvements and depreciated.
 Land acquired and held for speculation is classified as an investment.
 Land held by a real estate concern for resale should be classified as inventory.

Cost of Buildings
Includes all costs related directly to acquisition or construction. Cost typically include:
(1) materials, labor, and overhead costs incurred during construction and
(2) professional fees and building permits.

Cost of Equipment
Include all costs incurred in acquiring the equipment and preparing it for use. Costs typically
include:
(1) purchase price,
(2) freight and handling charges
(3) insurance on the equipment while in transit,
(4) cost of special foundations if required,
(5) assembling and installation costs, and
(6) costs of conducting trial runs.

Illustration 1: The expenditures and receipts below are related to land, land improvements, and
buildings acquired for use in a business enterprise. Determine how the following should be
classified:
Classification
(a) Money borrowed to pay building contractor Notes payable
(b) Payment for construction from note proceeds Building
(c) Cost of land fill and clearing Land
(d) Delinquent real estate taxes on property assumed Land
(e) Premium on 6-month insurance policy during construction Building
(f) Refund of 1-month insurance premium because construction
completed early (Building)
(g) Architect’s fee on building Building
(h) Cost of real estate purchased as a plant site
(land 200,000 and building 50,000) Land/Building
(i) Commission fee paid to real estate agency Land
(j) Installation of fences around property Land Improvements
(k) Cost of razing and removing building Building
(l) Proceeds from salvage of demolished building (Building)
(m) Cost of parking lots and driveways Land
Improvements

Self-Constructed Assets
Costs typically include:
(1) Materials and direct labor
(2) Overhead can be handled in two ways:
1. Assign no fixed overhead
2. Assign a portion of all overhead to the construction process.
 Companies use the second method extensively.

Interest Costs During Construction

 PFRS requires — capitalizing actual interest (with modification).
 Consistent with historical cost.
 Capitalization considers three items:
1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.

Qualifying Assets
Require a substantial period of time to get them ready for their intended use.
 Assets under construction for a company’s own use.

Capitalization Period
Begins when:
1. Expenditures for the asset have been made.
2. Activities for readying the asset are in progress .
3. Interest costs are being incurred.

Ends when:
The asset is substantially complete and ready for use.

Amount to Capitalize
Capitalize the lesser of:
1. Actual interest costs
2. Avoidable interest - the amount of interest that could have been avoided if expenditures for
the asset had not been made.

Valuation Issues

Cash Discounts — Whether taken or not — generally considered a reduction in the cost of
the asset.

Deferred-Payment Contracts — Assets, purchased through long term credit, are recorded
at the present value of the consideration exchanged.

Lump-Sum Purchases — Allocate the total cost among the various assets on the basis of
their fair market values.

Issuance of Shares — The market value asset received or the shares issued if asset fair
value is not clearly determinable.

Acquisition by exchange

Exchanges of Nonmonetary Assets

Ordinarily accounted for on the basis of:
 the fair value of the asset given up or
  the fair value of the asset received,
whichever is clearly more evident.

Companies should recognize immediately any gains or losses on the exchange when the
transaction has commercial substance.

Meaning of Commercial Substance

Exchange has commercial substance if the future cash flows change as a result of the
transaction.

That is, if the two parties’ economic positions change, the transaction has commercial
substance.

Exchange Lacks Commercial Substance.

Assume that exchange lacks commercial substance. That is, the economic position of Interstate
did not change significantly as a result of this exchange, the asset is recognized based on the
carrying amount of asset given up, no recognition for gain or loss.

Summary of Gain and Loss Recognition on Exchanges of Non-Monetary Assets

The gain or loss is the difference between the

fair value of asset given and its carrying amount.

Disclosure include:
 nature of the transaction(s),
 method of accounting for the assets exchanged, and
 gains or losses recognized on the exchanges.

Government Grants
Grants are assistance received from a government in the form of transfers of resources to a
company in return for past or future compliance with certain conditions relating to the operating
activities of the company.

PFRS requires grants to be recognized in income (income approach) on a systematic basis

that matches them with the related costs that they are intended to compensate.

Cost Subsequent to Acquisition

Recognize costs subsequent to acquisition as an asset when the costs can be
 measured reliably and
 it is probable that the company will obtain future economic benefits.

Future economic benefit would include increases in

1. useful life,
2. quantity of product produced, and
3. quality of product produced.
Derecognition of PPE

A company may retire plant assets voluntarily or dispose of them by

 sale,
 exchange,
 involuntary conversion, or
 abandonment.
Depreciation must be taken up to the date of disposition.
MODULE 5 Post-test
PRACTICAL ACCOUNTING 1 – REVIEW
PPE
PROF. U.C. VALLADOLID

Multiple Choice
Identify the choice that best completes the statement or answers the question.
All answers shall be submitted on or before September 4, 2020 (Friday)

1. Adbans Corp. uses different kinds of machines in its manufacturing process. It constructs some of these machines
itself and acquires others from the manufacturers. The following information relates to two machines that it has
recorded in 2021.

Machine A (purchased)

Cash paid for equipment P250,000

Cost of transporting machine - insurance and transport 9,000
Labor cost of installation by expert fitter 15,000
Labor cost of testing equipment 12,000
Insurance cost for 2021 4,500
Cost of training for personnel who will use the machine 7,500
Cost of safety rails and platforms surrounding machine 18,000
Cost of water devices to keep machine cool 24,000
Cost of adjustments to machine during 2021 to make it operate more
efficiently 22,500

Machine B (self-constructed)

Cost of materials to construct machine P210, 000

Labor cost to construct machine 129,000
Allocated overhead cost-electricity, factory space, etc. 66,000
Allocated interest cost of financing machine 30,000
Cost of installation 36,000
Profit saved by self-construction 45,000
Safety inspection cost prior to use 12,000

1. What is the cost of machine A?

a. 380,500 b. 358,000 c. 328,000 d. 350,500

2. What is the cost of machine B?

a. 471,000 b. 417,000 c. 483,000 d. 438,000
2. Begonia Company installed a new equipment at the production facility and incurred the following costs:
Initial delivery and handling cost 400,000
Cost of site preparation 700,000
Cost of equipment per supplier’s invoice 3,000,000
Consultants used for advice on the acquisition of equipment 800,000
Interest charges paid to supplier for deferred credit 300,000
Estimated dismantling cost to be incurred as required by contract 350,000
Operating losses before commercial production 450,000

What total amount should be capitalized as cost of the equipment?

a. 5,250,000 b. 5,550,000 c. 4,900,000 d. 5,100,000

3. Truepa Company incurred the following costs at the beginning of the current year:
 Cost of land 10,000,000
 Cost of building 11,500,000
 Remodeling and repairs prior to occupancy 600,000
 Escrow fee 300,000
 Property tax for period prior to acquisition 150,000
 Real estate commission 70,000
What is the cost of the building?
a. 12,370,000 b. 12,260,000 c. 12,620,000 d. 12,378,140

4. Choco Company incurred the following expenditures related to the construction of a new home office:
Cost of Land, which included usable old apartment
building with fair value of P200,000 3,000,000
Legal fees, including fee for title search 20,000
Payment of land mortgage and related interest due
at time of sale 60,000
Payment of delinquent property taxes 15,000
Cost of razing the apartment building 45,000
Grading and drainage on land site 20,000
Architect fee on new building 250,000
Payment to building contractor 7,000,000
Interest cost on specific borrowing during construction 200,000
Payment of medical bills of employees accidentally
injured while inspecting building construction 30,000
Cost of paving driveway and parking lot 70,000
Cost of trees, shrubs, and other landscaping 65,000
Cost of installing light in parking lot 8,000
Premium for insurance on building during construction 22,000
Cost of open house party to celebrate opening of building 80,000

1. What is the cost of land?

a. 2,720,000 b. 2,915,000 c. 3,205,000 d. 2,950,000

2. What is the cost of building?

a. 7,517,000 b. 7,537,000 c. 7,495,000 d. 7,525,000

3. What is the cost of land improvement?

a. 200,000 b. 203,000 c. 143,000 d. 0
5. At year-end, Hecker Company provided the following information about property, plant, & equipment:

Plant assets acquired from Krom Company 8,000,000

Repairs made on building prior to occupancy 250,000
Special tax assessment 40,000
Construction of platform for machinery 70,000
Remodeling of office space in building including
new partitions and walls 500,000
Purchase of new machinery 900,000
Total property, plant and equipment 9,760,000

In exchange for the plant assets of Krom Company, Hecker Company issued 50,000 shares with P100 par value. On
the date of purchase, the share had a quoted price of P150 and the plant assets had the following fair value:

Land 600,000
Building 4,500,000
Machinery 2,000,000

1. What is the cost of Building?

a. 5,250,000 b. 5,500,000 c. 5,000,000 d. 4,500,000

2. What is the cost of Land?

a. 600,000 b. 640,000 c. 670,000 d. 690,000

3. What is the cost of machinery?

a. 2,900,000 b. 2,000,000 c. 2,970,000 d. 2,830,000

6. JK Company had the following property acquisitions during the current year:

Acquired a tract of land in exchange for 100,000 shares of Peniel Company with 100 par value that had a market
price of P500 per share on the date of acquisition. The last property tax bill indicated assessed value of 2,400,000 for
the land.

Received land from a major shareholder as an inducement to locate a plant in the city. No payment was acquired but
the entity paid 50,000 for legal expenses for land transfer. The land is fairly valued at 2,000,000.

What is the total increase in land as a result of acquisitions?

a. 2,400,000 b. 52,000,000 c. 2,000,000 d. 10,000,000.

7. Euphoria Company acquired a land by issuing 400,000 10 percent bonds payable and 40,000 ordinary shares with
par value of P5. The share was selling at P15 and the bonds were trading at 105.

What amount should be recorded as cost of the land?

a. 42,760,000 b. 79,800,000 c. 42,761,000 d. 1,020,000
 8. Wook Company entered into a contract to acquire a new machine which had a cash price of 2,000,000.

Down payment 400,000

Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of P25
and fair value of P40 per share 800,000
2,400,000

Prior to use, installation cost of 50,000 was incurred. The machine has an estimated residual value of 100,000.

What is the initial cost of the machine?

a. 2,000,000 b. 2,400,000 c. 2,050,000 d. 2,450,000.

9. On January 2, 2021, Bell Corporation traded is a used delivery truck with a carrying amount of 540,000 for a new
delivery truck having a list price of 1,600,000 and paid a cash difference of 750,000 to the dealer. The used truck had
a fair value of 600,000 on the date of the exchange.
At what amount should the new truck be recorded on Bell’s book?
a. 1,060,000 b. 1,290,000 c. 1,350,000 d. 1,600,000

10. National Motor Sales exchanged a car from its inventory for a computer to be used as a long term asset. The
following information relates to this exchange that took place on July 31, 2021:
Carrying amount of the car 300,000
Listed selling price of the car 450,000
Fair value of the computer 430,000
Cash difference paid by National 50,000
On July 31, 2021, what amount of profit should National recognize on this exchange?
a. 0 b. 80,000 c. 100,000 d. 130,000

11. Matalino Company received a government grant for 45,000,000 to install and run a windmill in an economically
backward area. The entity had estimated that such a windmill will cost 65,000,000 to construct. The secondary
attached to the grant is that the entity shall hire a labor in the area where the windmill is located. The construction
was completed on January 1, 2021. The windmill is to be depreciated using the straight line method over a period of
10 years. What amount of income from the government grant should be recognized in 2021?
a. 1,500,000 b. 2,500,000 c. 3,500,000 d. 4,500,000

12. Clause Co. purchased a varnishing machine for 4,000,000 on January 1, 2021. The entity received a government
grant of 840,000 in respect of this asset. The accounting policy is to depreciate the asset over 4 years on a straight
line method basis and to treat the grant as deferred income.

1. What amount should be reported as deferred grant income on December 31, 2022?
a. 420,000 b. 720,000 c. 840,000 d. 120,000

2. What is the carrying amount of the machine on December 31, 2022?

 a. 2,000,000 b. 3,000,000 c. 2,420,009 d. 3,160,000

13. The Calvin Company self-constructed an asset for its own use. Construction started on January 1, 2020 and the
asset was completed on December 31, 2020. 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. 1, 560,000 b. 990,000 c. 870,000 d. 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. 90,000 b. 140, 000 c. 178.200 d. 280, 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. 1, 770,000 b. 1, 748,000 c. 2, 650,000 d. 1.560, 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, 2023 General borrowing P500.000. 18%, due January}, 2022

What is the total capitalized interest?

a. 126, 400 b. 130, 000 c. 112, 000 d. 218, 000

14. The following data relate to a piece of equipment owned by Burberry Company.
Acquisition date - July 1, 2020; Cost - P125,000; Estimated residual value - P5,000; Estimated service life - 5 years;
Estimated service hours - 10,000; Estimated productive output in units - 24,000

1. Under the straight line method, what is the assets depreciation expense for the year ended December 31.2020?
a. 25, 000 b. 24, 000 c. 12, 500 d. 12, 000

2. Under the sum-of the year’s digits method, what Is the depreciation expense for the year ended December 31,
2021?
a. 36, 000 b. 56, 000 c. 60, 000 d. 72, 000

3. Under the double-declining balance method. What is the asset's carrying amount for December 31, 2022?
a. 36,000 b. 34, 560 c. 27,000 d. 24, 000

4. Under the service hours method what is the asset's depreciation rate per hour?
a. 12.00 b. 12.50 c. 5.21 d. 5.00

5. Under the productive output method and assuming that the equipment produced 3,000 units and 7,500 units in
2020 and 2021. Respectively, what is the accumulated depreciation balance far the asset at December 31, 2021?
a. 72, 500 b. 67, 500 c. 52, 500 d. 37, 500
15. La’Place Printing Company incurred the following costs:

Purchase of collating and stapling attachment 900,000

Installation of attachment 350,000
Replacement parts for overhaul of press 250,000
Labor and overhead in connection with overhaul 100,000

The overhaul resulted in significant increase in production. Neither the attachment nor the overhaul increased the
estimated useful life of the press.

What total amount of the costs should be capitalized?

a. 1,600,000 b. 900,000 c. 1,500,000 d. 0

16. Sapphire Sky Company provided the following information with respect to a building:
· The building was acquired January 1, 2016 at cost of 3,000,000. It has an estimated useful life of 12 years
and salvage value of 150,000. The method of depreciation used was double declining method.
· The building was renovated on January 1, 2019 at a cost of 800,000. The residual value became 200,000.
· On January 1, 2020, the management decided to change the method being used to straight line method.

What is the depreciation of the building for December 2019?

a. 439,351.85 b. 304,513.89 c. 493,351.58 d. 340,513.98 e. 563,580

17. Kohlman Corporation owns machinery with a book value of 190,000. The machinery has a fair value less costs to sell
is 175,000, and its value-in-use is 170,000. Kohlman should recognize a loss on impairment of
a. -0- b. 5,000 c. 15,000 d. 20,000

18. On January 1, 2021, Fredrichs Inc. purchased equipment with a cost of 3,060,000, a useful life of 12 years and no
salvage value. The company uses straight-line depreciation. At December 31, 2021, the company determines that
impairment indicators are present. The fair value less cost to sell the asset is estimated to be 2,600,000. The asset’s
value-in-use is estimated to be 2,365,000. There is no change in the asset’s useful life or salvage value

1. The 2021 income statement will report Loss on Impairment of

a. 0 b. 205,000 c. 440,000 d. 460,000

2. The 2022 (second year) income statement will report depreciation expense for the equipment of
a. 216,667 b. 236,364 c. 255,000 d. 260,000
19. On January 1, 2021, ShareMoLang Company reported the following account balances:
Cost Accumulated depreciation
Land 50,000,000
Building 300,000,000 90,000,000

The land and building were revalued on January 1, 2021 and the evaluation revealed the following sound value:
Land 70,000,000
Building 315,000,000

There were no additions or disposals during 2021. Depreciation is computed on the straight line. The estimated life of
the building is 20 years.

1. Before income tax, what amount should be recognized as revaluation surplus on January 1, 2021?
a. 125,000,000 b. 105,000,000 c. 385,000,000 d. 315,000,000

2. What is the depreciation for 2021?

a. 22,500,000 b. 15,000,000 c. 15,750,000 d. 27,500,000

3. What amount should be reported as revaluation surplus on December 31, 2021?

a. 117,500,000 b. 125,000,000 c. 105,000,000 d. 119,750,000

20. On January 1, 2018, Spiderman 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, 2019 and resources removed totaled 500,000 tons. During 2020, it is discovered
that available resource will total 1,500,000 tons.

At the beginning of 2020, 800,000 development cost were incurred, and only 200,000 tons are extracted.

1. What is the depreciation for the year ended December 31, 2019 assuming that it uses a straight line method of
depreciation.
a. 800,000 b. 1,700,000 c. 888,888 d. 900,000

2. What amount should be reported as depletion for 2019?

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

3. What is the depletion for the year ended December 31, 2020?
a. 1,240,000 b. 1,300,000 c. 1,200,000 d. 1,340,000
21. You noted during your audit of the Gearset Company that the company carried out a number of transactions involving
the acquisition of several assets. All expenditures were recorded in the following single asset account, identified as
Property and equipment:
Property and equipment
Acquisition price of land and building P 960,000
Options taken out on several pieces of property 16,000
List price of machinery purchased 318,400
Freight on machinery purchased 5,000
Repair to machinery resulting from damage
during shipment 1,480
Cost of removing old machinery 4,800
Driveways and sidewalks 102,000
Building remodeling 400,000
Utilities paid since acquisition of building 20,800
P1,828,480

Based on property tax assessments, which are believed to fairly represent the relative values involved, the building is
worth twice as much as the land. The machinery was subject to a 2% cash discount, which was taken and credited to
Purchases Discounts. Of the two options, P6,000 is related to the building and land purchased and P10,000 related
to those not purchased. The old machinery was sold at book value.

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

1. Land
a. 644,000 b. 322,000 c. 326,000 d. 424,000

2. Building
a. 644,000 b. 1,040,000 c. 1,044,000 d. 722,000

3. Machinery
a. 317,032 b. 318,512 c. 323,400 d. 321,832

22. On January 1, 2020, SAMSON MFG. CO. began construction of a building to be used as its office headquarters. The
building was completed on June 30, 2021.

Expenditures on the project were as follows:

January 3, 2020 2,500,000

March 31, 2020 3,000,000
June 30, 2020 4,000,000
October 31, 2020 3,000,000
January 31, 2021 1,500,000
March 31, 2021 2,500,000
May 31, 2021 3,000,000
SB
On January 3, 2020, the company obtained a P5 million construction loan with a 10% interest rate. The
loan was outstanding all of 2020 and 2021. The company’s other interest-bearing debts included a long-
term note of P25 million with an 8% interest rate, and a mortgage of P15 million on another building
 with an interest rate of 6%. Both debts were outstanding during all of 2020 and 2021. The company’s
fiscal year-end is December 31.

1. What is the amount of capitalizable interest in 2020?

a. 3,400,000 b. 1,043,750 c. 663,125 d. 500,000

2. What is the amount of capitalizable interest in 2021?

a. 630,625 b. 654,663 c. 361,707 d. 799,663

3. What amount of interest should be expensed in 2020?

a. 2,736,875 b. 2,356,250 c. 2,900,000 d. 0

4. What amount of interest should be expensed in 2021?

a. 2,769,375 b. 3,038,293 c. 2,600,337 d. 2,745,337

5. What is the total cost of the building (including the interest capitalized in 2020 and 2021)?
a. 24,600,000 b. 20,817,788 c. 20,905,457 d. 20,630,625

23. Martin Company acquires a new manufacturing equipment on January 1, 2021 on installment basis. The deferred
payment contract provides for a down payment of 300,000 and an 8-year note for 3,104,160. The note is to be paid in
8 equal annual installment payments of 388,020, including 10% interest. The payments are to be made on December
31 of each year, beginning December 31, 2021. The equipment has a cash price equivalent of 2,370,000. Martin’s
financial year-end is December 31.

1. What is the acquisition cost of the equipment?

a. 2,804,160 b. 3,404,160 c. 2,370,000 d. 3,104,160

2. The amount to be recognized on January 1, 2021 as discount on note payable is

a. 1,034,160 b. 310,416 c. 0 d. 827,160

3. The amount of interest expense to be recognized in 2021 is

a. 310,416 b. 188,898 c. 0 d. 207,000

24. On January 2, 2021, Marvex Company replaced its old high pressure steam boiler with a more efficient oil-burning
boiler. The following information was available on that date:

Carrying amount of old boiler 40,000

Fair value of old boiler 10,000
Purchase and installation price of the new boiler 500,000

The old boiler was sold to a heating contractor for 10,000. How much should Marvex capitalize as the cost of the new
boiler?
a. 500,000 b. 490,000 c. 470,000 d. 460,000
25. Brainless Company received a government grant of 15,000,000 to install and run a windmill in an economically
backward area. The entity had estimated that such a windmill would cost 25,000,000 to construct. The secondary
condition attached to the grant is that the entity shall hire labor in the area where the windmill is to locate. The
construction was completed on January 1, 2021 .The windmill is to be depreciated using the straight line method over
a period of 10 years.

What amount of grant income should be recognized for 2021?

a. 1,500,000 b. 3,000,000 c. 2,500,000 d. 5,000,000

26. Collaboration Incorporated purchased a new building at a cost of 7,500,000 on January 1, 2015. Depreciation was
computed on the straight line basis at 4% per year. On January 1, 2020, the building was revalued at fair value of
9,300,000.

1. What is the depreciation for 2020?

a. 456,000 b. 465,000 c. 435,000 d. 445,000

2. What is the revaluation surplus on December 31, 2020?

a. 3,135,000 b. 3,145,000 c. 3,200,000 d. 3,315,000

27. On January 1, 2020, Alaska Company borrowed 6,450,000 at an annual interest rate of 7.5% to finance specifically
the cost of building a plant. Construction commenced on January 1, 2020 with a cost 8,000,000. The entity earned
300,000 interest income from its fund. The plant was completed on December 31, 2020. What amount of interest
should be capitalized?
a. 483,750 b. 300,000 c. 220,000 d. 183,750

28. On January 2, 2019, Marlborough Company received a grant of 60,000,000 to compensate for costs to be incurred in
planting trees over a period of 5 years. The entity will incur such cost at 2,000,000 for 2019, 4,000,000 for 2020,
6,000,000 for 2021, 8,000,000 for 2022, and 10,000,000 for 2023.

What amount of grant income should be recognized for 2020?

a. 6,000,000 b. 4,000,000 c. 12,000,000 d. 8,000,000

29. Queen Company purchased land as factory site for 5,000,000. The entity paid 700,000 to tear down an old building
on the land for construction of new building. Legal fee of 20,000 incurred for title investigation and purchased
contract. Architect fee was 200,000, title insurance amounted to 70,000 and insurance during construction is
100,000, excavation cost was 40,000. The contractor was paid 5,890,000. Assessment for the pavement is 25,000.
Interest cost during construction was 55,000.

What is the cost of the building?

a. 5,890,000 b. 5,915,000 c. 5,850,000 d. 5,250,000 e. 6,985,000

30. On January 2, 2021, Q. Tong Inc. purchased equipment with a cost of 10,440,000, a useful life of 10 years and no
salvage value. The company uses straight-line depreciation. At December 31, 2021 and December 31, 2022, the
company determines that impairment indicators are present. The following information is available for impairment
testing at each year end:
 12/31/2021 12/31/2022
Fair value less costs to sell 9,315,000 8,850,000
Value-in-use 9,350,000 8,915,000

There is no change in the asset’s useful life or salvage value. The 2022 income statement will report
a. no Impairment Loss or Recovery of Impairment Loss.
b. Impairment Loss of 435,000.
c. Recovery of Impairment Loss of 40,889.
d. Recovery of Impairment Loss of 603,889.