CABRIA CPA REVIEW CENTER

PROPERTY PLANT AND EQUIPMENT Tel. Nos. (043) 980-6659

ERNIE M. LAT II

LECTURE
Scope
IAS 16 applies in accounting for PPE except when another Recoverable amount - the higher of an asset’s net selling
Standard requires or permits a different accounting price and its value in use
treatment
Recognition
It does not apply to:
 property, plant and equipment classified as held for An asset is defined as:
sale (IFRS 5)  A resource controlled by a company
 biological assets related to agricultural activity (IAS  As a result of a past event
41)  From which future economic benefits are
 the recognition and measurement of exploration expected to flow to the entity
and evaluation assets (IFRS 6)
 mineral rights or reserves such as oil and natural The cost of an item of PPE is recognized as an asset if, and
gas only if:
…but does apply to PPE used to develop or maintain  it is probable that future economic benefits
the assets described above associated with the item will flow to the entity; and
 the cost of the item can be measured reliably
Definition of Terms
An entity does not recognize in the carrying amount of an
Cost - the amount of cash or cash equivalents paid or the item of PPE the costs of the day-to-day servicing of the item
fair value of the other consideration given to acquire an  rather, these costs are recognized in profit or loss
asset at the time of its acquisition or construction as incurred (as ‘repairs and maintenance’)

Fair value - Fair value is the price that would be received Measurement at recognition
to sell an asset or paid to transfer a liability in an orderly Elements of cost
transaction between market participants at the
measurement date (IFRS13)  An item that qualifies for recognition as an asset
shall initially be recorded at its cost
Carrying amount - the amount at which an asset is  The cost of an item of property, plant and
recognized after deducting any accumulated depreciation equipment comprises:
and accumulated impairment losses - its purchase price, including import duties/non-
refundable purchase taxes, after deducting
Depreciation - the systematic allocation of the depreciable discounts and rebates
amount of an asset over its useful life - any costs directly attributable to bringing the
asset to the location and condition necessary
Impairment loss - the amount by which the carrying for it to be capable of operating
amount of an asset exceeds its recoverable amount - the initial estimate of the costs of dismantling
and removing the item and restoring the site on
Depreciable amount - the cost of an asset, or other which it is located
amount substituted for cost, less its residual value
Quick Exercise
Residual value - the estimated amount that an entity
would currently obtain from disposal of the asset after ‘Entity A’ purchased new plant and machinery and incurred
deducting the estimated costs of disposal the following costs:

Useful life - the period over which an asset is expected to Nature of expense
be available for use by an entity; or the number of Reinforcement of factory floor –
production or similar units expected to be obtained from the capitalize
asset by an entity

Page 1 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
Freight – of wasted material, labour, or other resources
capitalize incurred in self-constructing an asset is not included
Asset’s list price – in the cost of the asset
capitalize
Trade discount obtained (i.e. a negative amt) – Barter agreements
capitalize  The cost of an item of PPE is the cash price
Installation costs – equivalent at the recognition date
capitalize  One or more items of PPE may be acquired in
Staff training (to operate the asset) – exchange for a non-monetary asset or assets, or a
expense combination of monetary and non-monetary assets.
The cost of such an item of PPE is measured at fair
Elements of Cost value unless:
Examples of directly attributable costs - the exchange transaction lacks commercial
 costs of employee benefits arising directly from the substance, or
construction or acquisition of the item of PPE - the fair value of neither the asset received
 costs of site preparation nor the asset given up is reliably
 initial delivery and handling costs measurable
 installation and assembly costs  If the acquired item is not measured at fair value,
 costs of testing whether the asset is functioning its cost is measured at the carrying amount of the
properly, after deducting the net proceeds from asset given up
selling any items produced while bringing the asset Commercial substance
to that location and condition (such as samples  The decision as to whether or not a transaction has
produced during testing) commercial substance depends on the extent to
 professional fees which the entity’s future cash flows are expected to
change as a result of the transaction
Costs which may not be capitalized  A transaction has commercial substance if the
Examples of costs that are not costs of an item of PPE are: difference in either of the two points below is
 costs of introducing a new product or service (e.g. significant relative to the fair value of the assets
costs of advertising and promotional activities) exchanged:
 costs of conducting business in a new location or - the risk, timing and amount of the cash
with a new class of customer (e.g. costs of staff flows of the asset received differs from
training) those of the asset given up
 administration and other general overhead costs - the present value of the cash flows an
Costs incurred in using or redeploying an item are not entity expects to arise from the continuing
included in the carrying amount of that item use of an asset and from its disposal at the
end of its useful life of the part of the
Ancillary activities entity’s operations affected by the
 Some operations occur in connection with the transaction changes as a result of the
construction or development of an item of PPE, but exchange
are not necessary to bring the item to the location
and condition necessary for it to be capable of Transactions that lack commercial substance
operating in the manner intended by management  Where a transaction lacks commercial substance,
- for example, income may be earned no gain or loss is recognized on the barter
through using a building site as a car park transaction
until construction starts - the initial carrying amount of the assets
 Because incidental operations are not necessary, acquired must equal the carrying amount of
the income and related expenses of incidental the assets that are transferred
operations are recognized in profit or loss and  For example, Entity A exchanges the following
included in their respective classifications of income assets:
and expense. - transfer out: asset carried at P10,000 and
valued at P12,000
Self-constructed assets - transfer in: cash of P4,000 and another
 The cost of a self-constructed asset is determined asset valued at P7,500
using the same principles as for an acquired asset  Accounting entries:
 If an entity makes similar assets for sale in the DR: Cash 4,000
normal course of business, the cost of the asset is DR: Non-current asset 6,000
usually the same as the cost of constructing an CR: Non-current asset
asset for sale (IAS 2) 10,000
 Any internal profits are eliminated in arriving at
such costs. Similarly, the cost of abnormal amounts Measurement after recognition

Page 2 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
Measurement models - the change is reflected prospectively, i.e.
 IAS 16 permits two accounting models: past accounting entries are not amended
- Cost model
- Revaluation model When depreciation should be charged
 An entity must choose the cost model or the  Depreciation of an asset begins when it is available
revaluation model as its accounting policy for use
- accounting policy applies to an entire class - i.e. when it is in the location and condition
of PPE necessary for it to be capable of operating
 A class of property, plant and equipment is a in the manner intended by management
grouping of assets of a similar nature and use in an  Depreciation is a matching of the consumption of
entity’s operations an asset to the charge in the income statement
 Examples may include: land and buildings; - depreciation is recognized even if the fair
machinery; aircraft; motor vehicles; furniture and value of the asset exceeds its carrying
fixtures; and office equipment amount
- repairs and maintenance of an asset do not
Cost model negate the need to depreciate an asset
 Under the cost model, an item of PPE is carried at  Depreciation does not cease when the asset
its cost less any accumulated: becomes idle or is retired from active use (unless
- depreciation, and the asset is fully depreciated)
- impairment losses
Separate components
Depreciation  Each part of an item of PPE with a cost that is
 Depreciation is the systematic allocation of an significant in relation to the total cost of the item
asset’s cost (less residual value, if any) over its must be depreciated separately
useful life - e.g. in the case of an aeroplane, the
 The deprecation charge for each period is following components will be depreciated
recognized in profit or loss unless it is included in at different rates, based on their useful life:
the carrying amount of another asset o fuselage
- e.g. depreciation included in factory o engines
overheads absorbed in the carrying amount o seating/fittings
of inventories
 A variety of depreciation methods can be used to Separate components: land and buildings
allocate the depreciable amount of an asset on a  Land and buildings are separable assets and are
systematic basis over its useful life. These methods accounted for separately, even when they are
include the: acquired together
- straight-line method, - with some exceptions, such as quarries,
- diminishing balance method, and mines and sites used for landfill, land has
- the units of production method an unlimited useful life and therefore is not
depreciated
Choice of a method - buildings have a limited useful life and
 The depreciation method used must reflect the therefore are depreciable assets
pattern in which the asset’s future economic  An increase in the value of the land on which a
benefits are expected to be consumed by the entity building stands does not generally affect the
 The depreciation method applied to an asset must determination of the depreciable amount of the
be reviewed at least at each financial year-end building
- if there has been a significant change in the
expected pattern of consumption of the Impairment
future economic benefits embodied in the  An entity applies IAS 36, Impairment of Assets to
asset, the method must be changed to determine whether an item of PPE is impaired,
reflect the changed pattern  That standard explains how an entity reviews the
carrying amount of its assets, how it determines the
Changes in estimates recoverable amount of an asset, and when it
 The residual value and the useful life of an asset are recognises, or reverses, the recognition of, an
estimated when the asset is acquired impairment loss
- requirement to be reviewed at least at each  Compensation from third parties for items of PPE
financial year-end that were impaired, lost or given up is included in
 If subsequent expectations differ from previous profit or loss when the compensation becomes
estimates, the change(s) are accounted for as a receivable
change in an accounting estimate in accordance
with IAS 8 Revaluation model

Page 3 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
 Acquisition date – PPE recorded at cost (less  Deferred tax is recognized directly in other
subsequent depreciation / impairment losses) comprehensive income
 First revaluation date - PPE carried at revalued
amount Revalued amount = fair value at Switching between models
revaluation date less subsequent accumulated  The choice of a model is an accounting policy choice
depreciation / impairment losses  Voluntary changes in accounting policies must be
 Subsequent dates - PPE carried at revalued amount carried out in accordance with IAS 8
- a change in accounting policy is therefore
Sources of fair value only permitted if it results in the financial
 Land and buildings - Usually determined from statements providing reliable and more
market-based evidence by appraisal that is normally relevant information about the effects of
undertaken by professionally qualified valuers transactions, other events or conditions on
 Plant and equipment - Usually determined by the entity’s:
appraisal o financial position,
o financial performance, or
Frequency of revaluations o cash flows
 Revaluations must be carried out regularly so that - a change from the cost model to the
the carrying amount of an asset does not differ revaluation model must however be applied
materially from its fair value at the end of the prospectively
reporting period
 The frequency of revaluations depends upon the Derecognition
changes in fair values of the items of PPE being  The carrying amount of an item of PPE is
revalued derecognized:
- when the fair value of a revalued asset - on disposal; or
differs materially from its carrying amount, - when no future economic benefits are
a further revaluation is required expected from its use or disposal
 The gain or loss arising from derecognition is
Assets subject to revaluation included in profit or loss when the item is
 If an item of PPE is revalued, the entire class of PPE derecognized
to which that asset belongs must be revalued - gains may not be classified as revenue
- decrease of carrying amount  Expense o an exception exists if, in the course
- increase of carrying amount  Equity of its ordinary activities, an entity
(Revaluation surplus) routinely sells items of PPE that it
 However, on subsequent revaluations: has previously held for rental to
- the increase is recognized in profit or loss others
to the extent that it reverses a revaluation  Gains or losses = net disposal proceeds -carrying
decrease of the same asset previously amount
recognized in profit or loss
- the decrease is debited directly to equity Disclosure
under the heading of revaluation surplus to An overview
the extent of any credit balance existing in  The financial statements must disclose, for each
the revaluation surplus in respect of that class of PPE:
asset - accounting policy (including measurement
bases, depreciation methods, and useful
lives or depreciation rates)
Deferred tax  The financial statements must disclose, for each
class of PPE:
 Where the revaluation model is applied, deferred - the gross carrying amount and the
tax considerations must be made accumulated depreciation (aggregated with
 Deferred tax is calculated at a rate which reflects accumulated impairment losses) at the
the expected manner of recovery of the asset beginning and end of the period, together
- the expected manner of recovery of PPE is with a reconciliation of the opening to the
generally through consumption/continued closing balances
use (i.e. depreciation) –deferred tax is - depreciation and impairment charges for
provided for at 30% the year
- the land element of property is generally - nature and effect of changes in accounting
not expected to be recovered through estimates
consumption/continued use –deferred tax
therefore reflects an expected mode of Other Disclosures
recovery through sale

Page 4 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
 The financial statements must also disclose - whether an independent valuer was
information relating to: involved
- existence (and amounts) of restrictions on - methods and significant assumptions
title, and PPE pledged as security for applied
liabilities - extent to which the items’ fair values were
- expenditures recognized in the carrying determined directly by reference to
amount of an item of PPE in the course of observable prices in an active market or
its construction contractual commitments recent market transactions on arm’s length
for the acquisition of PPE terms (or other valuation techniques)
- if applicable, compensation from third - the carrying amount (by class) that would
parties for items of PPE that were impaired, have been recognized had the assets been
lost or given up that is included in profit or carried under the cost model
loss - revaluation surplus, indicating the change
 If items of PPE are stated at revalued amounts, the for the period and any restrictions on the
following must also be disclosed: distribution of the balance to shareholders
- effective date of the revaluation

REVIEW QUESTIONS
from the building site so that construction could
1. Which of the following are essential characteristics begin. The proceeds from the sale of the timber
of property, plant and equipment? should be
I. Estimated useful life is beyond 12 months a. classified as other income
II. Held for use in the production or supply of b. netted against the costs to clear the land and
goods and services, for rentals to others, or expensed as incurred
for administrative purposes c. deducted from the cost of the building
III. Physical existence d. deduction from the cost of the land
IV. Intended for sale in the ordinary course of
business 5. The excess of the gross price over the cash price
equivalent of an asset acquired on a deferred
a. I, II, III and IV payment plan is treated as
b. I, II and III a. part of the cost of the asset.
c. I, II and IV b. finance cost over the life of the asset.
d. I, III and IV c. finance cost over the credit term.
d. finance cost in the period of acquisition.
2. Which of the following shall be classified as
inventory rather than as property, plant and 6. Diway, Inc. purchased certain plan assets under a
equipment? deferred payment contract. The agreement was to
a. Building under construction pay P600,000 per year for three years. The plan
b. Land acquired by a real estate firm and put on assets should be initially recognized at
the market for resale a. P600,000
c. Equipment that is temporarily idle b. P600,000 plus imputed interest, based on
d. Delivery truck acquired on installment, company’s incremental borrowing rate
certificate of ownership being held by the c. present value of P600,000 annuity for three
finance company years at an imputed interest rate
d. simple present value of P600,000 for three
3. Under the Philippine Interpretations Committee Q years at an imputed interest rate
and A 2012-02, an entity that purchased land and
subsequently demolished a building on it shall treat 7. If the present value of a note in exchange for a
the demolition costs as plant asset is less than its face amount, the
a. a capitalized cost that shall be amortized over difference should be
the estimated time period between the tearing a. included in the cost of the asset.
down of the building and the completion of the b. amortized as interest expense over the life of
plant. the note.
b. expense when incurred. c. amortized as interest expense over the life of
c. an addition to the cost of the plant. the asset.
d. an addition to the cost of the land. d. included in interest expense in the year of
issuance.
4. A company purchased land to be used as the site
for the construction of a building. Timber was cut

Page 5 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
8. In an exchange transaction that has commercial b. No No
substance, the gain or loss on exchange is c. No Yes
a. not recognized. d. Yes Yes
b. the difference between the fair value and the
carrying value of the asset given up. 14. A method that ignores salvage value in calculating
c. the difference between the carrying value of periodic depreciation expense is the
the asset given up and the carrying value of the a. productive-output method
asset received. b. group composite method
d. the difference between the fair value of the c. sum-of-the-years’ digits method
asset given up and the amount of cash received d. double declining balance method
or paid.
15. Which of the following statements is incorrect?
9. What is the best basis for determining the purchase a. Donations of property, plant and equipment
price of an item of property, plant and equipment should be recorded at the fair value of the
acquired by issuing the entity’s ordinary share? donated asset.
a. Equivalent cash price of the asset. b. When a group of assets is acquired for a lump
b. Carrying value of the asset in the books of the sum price, the lump sum price should be
previous owner. allocated to the individual assets based on their
c. Fair value of the share issued. carrying value.
d. Par value of the ordinary share issued. c. Property acquired in exchange for shares or
other securities of the enterprise should be
10. Under the cost mode, how are property, plant and recorded at its fair value or the fair value of the
equipment measured on the SFP? securities, whichever is more clearly evident.
a. At replacement cost less accumulated d. When property is acquired in exchange for
depreciation and accumulated impairment another asset, its cost is usually determined by
losses reference to the fair value of the asset
b. At historical cost less salvage value surrendered.
c. At original cost adjusted for general price level
changes 16. The sum-of-years digit method of depreciation
d. At acquisition cost less depreciated portion results in a/an
thereof and less accumulated impairment loss a. a constant charge over the life of the asset.
b. decreasing charge over the life of the asset.
11. The SYD method of depreciation is being used for a c. increasing charge over the life of the asset.
machine with a five year estimated useful life. What d. charge based on the expected use or output of
would be the fraction applied to the depreciable the asset.
cost to be depreciated in the fourth year?
a. 4/5 17. Depreciation, as generally used in accounting is
b. 2/5 a. a process of asset valuation for purposes of the
c. 4/15 statement of financial position.
d. 2/15 b. applicable only to long lived-intangible assets.
c. used to indicate a decline in market value of a
12. Which of the following statements is the long-lived asset.
assumption on which straight-line method of d. the systematic allocation of the depreciable
depreciation is based? amount of an asset over its useful life.
a. The operating efficiency of the asset decreases
in later years. 18. Which of the following statements is incorrect?
b. Service value declines as a function of time a. The depreciable amount of item of property,
rather than use. plant and equipment shall be allocated on a
c. Service value declines as a function of systematic basis over its useful life.
obsolescence rather than time. b. The depreciation method used shall not reflect
d. Physical wear and tear are more important than the pattern in which the asset’s economic
economic obsolescence. benefits are consumed by the entity.
c. The depreciation charge for each period shall
13. A depreciable asset has an estimated 15% salvage be recognized as an expense unless it is
value. At the end of its estimated useful life, the included in the carrying amount of another
accumulated depreciation would equal the original asset.
cost of the asset under which of the following d. The estimation of the useful life of an item of
depreciation methods? property, plant and equipment is a matter of
Productive output Sum-of-the-years’ digit Double-decliningjudgment
balance based on the experience of the entity
a. Yes No No with similar assets.

Page 6 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
d. Recoverable amount is the lower of an asset’s
19. An asset carrying amount is the net selling price and its value in use.
a. cost of an asset or the amount substituted for
cost in the financial statements, less its residual 23. If an asset’s carrying amount is decreased as a
value. result of a revaluation, the decrease shall be
b. amount of cash or cash equivalent paid or the recognized in profit or loss. However, if there is a
fair value of the other consideration given to revaluation surplus account balance as a result of
acquired an asset at the time of its acquisition prior revaluation, the decrease shall be
or construction. a. debited directly to equity for the entire amount
c. net amount at which the enterprise expects to of the decrease.
obtain an asset at the end of its useful life after b. debited directly to revaluation surplus to the
deducting expected costs of disposal. extent of its balance and any remainder of the
d. amount at which an asset is recognized in the decrease is debited to retained earnings.
statement of financial position after deducting c. debited directly to equity to the extent of the
any accumulated depreciation and accumulated balance of revaluation surplus and any
impairment losses. remainder of the decrease is recognized in
profit or loss.
20. The estimated life of a building that has been d. ignored.
depreciated five (5) years of an originally estimated
life of 25 years has been revised to a remaining life 24. If the asset’s carrying amount is increase as a result
of 15 years. Based on this information, the of a revaluation, the increase shall be
accountant should a. credited directly to equity under the heading of
a. continue to depreciate the building over the revaluation surplus.
original 25-year life. b. recognized in profit or loss.
b. depreciate the remaining book value over the c. credited directly to retained earnings.
remaining life of 15 years. d. ignored.
c. adjust the accumulated depreciation to its
appropriate balance through net income based 25. The recoverable amount of a cash generating unit
on a 20-year life and then depreciate the is the
adjusted book value as though the estimated a. selling price less cost to sell.
life always been 20 years. b. discounted cash flow from the use and disposal
d. adjust the accumulated depreciation to its of the unit.
appropriate balance through retained earnings c. higher between the selling price less cost to sell
based on a 20-year life and then depreciate the and the discounted cash flow from use and
adjusted book value as though the estimated disposal of the unit.
life had always been 20 years. d. lower between the selling price less cost to sell
and the discounted cash flow from the use and
21. A machine with a five-year estimated useful life and disposal of the unit.
an estimated 15% salvage value was acquired on
January 1, 2015. The increase in accumulated 26. When testing for impairment and fair value of the
depreciation for 2016 using the double declining asset is not reliably determinable, the recoverable
balance method would be: amount is
a. Original cost x 85% x 40% a. the undiscounted cash flow from the use and
b. Original cost x 40% sale of the asset.
c. Original cost x 85% x 60% x 40% b. the discounted cash flow from the use and sale
d. Original cost x 60% x 40% of the asset.
c. the discounted cash flow after tax from the use
22. Which of the following statements is incorrect? and sale of the asset.
a. If an item of property, plant and equipment is d. not computed and the asset is not considered
revalued, the entire class of property, plant and impaired.
equipment to which that asset belongs shall be
revalued. 27. Sha sha Supermarket is selling an old delivery truck.
b. The depreciation method shall reflect the The truck is full depreciated with no salvage value.
pattern in which the asset’s future economic Which of these statements will apply?
benefits are expected to be consumed by the a. Sha sha will record a gain on the sale of the
entity. truck.
c. The carrying amount of an item of property, b. A gain will be reported on the statement of
plant and equipment shall be derecognized on comprehensive income.
disposal or when no future economic benefits
are expected from its use or disposal.

Page 7 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
c. Sha sha must write off both the original cost of
the truck and the accumulated depreciation  A plant facility consisting of land and building was
when the truck is sold acquired in exchange for 200,000 shares of the
d. All of the above statements will apply. entity. On the acquisition date, each share had a
quoted price of P45 on a stock exchange. The plant
PROBLEMS facility was carried on the seller’s books at
P1,600,000 for land and P5,400,000 for the building
The following expenditures were incurred by Gina at the exchange date. Current appraised values for
Company in 2020: the land and the building, respectively, are
P2,000,000 and P8,000,000. The building has an
Purchase of land 10,000,000 expected life of forty years with a P200,000 residual
Land survey 500,000 value.
Fees for title search of title 200,000
for land  Items of machinery and equipment were purchased
Building permit 250,000 at a total cost of P4,000,000. Additional costs
Temporary quarters for 100,000 incurred were freight and unloading P100,000 and
construction crew installation P300,000. The equipment has a useful
Payments of tenants of old 600,000 life of ten years with no residual value.
building for vacating the
premises  Expenditures totaling P1,200,000 were made for
Payment to demolition 400,000 new parking lot, street and sidewalk at the entity’s
company to raze the old various plant locations. These expenditures had an
building and clean up estimated useful life of fifteen years.
Excavating basement 350,000
Special assessment tax for 60,000  Research and development costs were P1,100,000
street project for the year.
Salvage value of materials
from old building retained 150,000  A machine costing P200,000 on January 1, 2010
by the demolition was scrapped on June 30, 2017. Straight-line
company depreciation had been recorded on the basis of a
Damages awarded for 90,000 10-year life with no residual value.
injuries sustained in
construction  A machine was sold for P500,000 on July 1, 2017.
Costs of construction 20,000,000 Original cost of the machine sold was P700,000 on
Cost of paving parking lot 180,000 January 1, 2014, and it was depreciated on the
adjoining the building straight-line basis over an estimated useful life of
Cost of shrubs, trees and 40,000 eight years and a residual value of P50,000.
other landscaping
28. What is the total cost of land on December 31,
The total costs to be capitalized as land is 2017?
a. P11,610,000 a. P7,800,000
b. P11,730,000 b. P7,600,000
c. P11,800,000 c. P8,000,000
d. P11,650,000 d. P6,800,000
29. What is the total cost of land improvements on
Use the following for the next four (4) items: December 31, 2017?
January 1, 2017, an entity disclosed the following a. P1,200,000
balances: b. P3,600,000
c. P1,300,000
Land 4,000,000 d. P2,500,000
Land improvements 1,300,000
Buildings 20,000,000 30. What is the total cost of buildings on December 31,
Machinery and 8,000,000 2017?
equipment a. P28,000,000
b. P25,400,000
During the current year, the following transactions c. P27,200,000
occurred: d. P27,000,000

 A tract of land was acquired for P2,000,000 cash as 31. What is total cost of machinery and equipment on
a building site. December 31, 2017?

Page 8 of 9 [email protected] FAR.110

CABRIA CPA REVIEW CENTER
a. P12,400,000 salvage value estimated at P30,000. Among the
b. P11,500,000 various methods of depreciation, Chua selected the
c. P11,000,000 SYD method. On December 31, 2016, the related
d. P11,700,000 accumulated depreciation should have a balance of:
a. P37,5000 less than under the SL method
b. P37,500 less than under the double declining
32. On September 1, 2015, an entity purchased a new balance
machine on a deferred payment basis. A down c. P45,000 greater than SL method
payment of P200,000 was made and 4 annual d. P45,000 greater than the double declining
installments of P600,000 each are to be made balance
beginning on September 1, 2016. The cash
equivalent price of the machine was P2,300,000.
Due to an employee strike, the entity could not
install the machine immediately and thus incurred
P30,000 of storage cost. Cost of installation
excluding the storage cost amounted to P80,000.
What is the total cost of the machine?
a. P2,300,000
b. P2,380,000
c. P2,410,000
d. P2,600,000

Cash equivalent price 2,300,000

Installation cost 80,000
Total cost of machine 2,380,000

The storage cost is an outright expense.

33. On July 1, 2012, Ling Co. purchased a building for

P49,200,000. The building has an estimated life of
40 years. Six months depreciation was taken in the
year of purchase and the book value of the building
on December 31, 2016 after depreciation adjusting
entry was P43,755,000. What is the salvage value
of the building?
a. P5,640,000
b. P5,445,000
c. P800,000
d. P0

34. The December 31, 2012 Lin Co. purchased an

equipment with an estimated useful life of 10 years.
The equipment was expected to have a residual
value of P5,000 at the end of its service life. The
SYD method was used in computing depreciation.
For the year ended December 31, 2016, the
depreciation to this equipment was P42,000. What
was the acquisition cost of the equipment?
a. P283,750
b. P325,000
c. P330,000
d. P335,000

35. Chua engaged in manufacturing business,

purchased equipment for P300,000 on January 1,
2015 to be used in its operations. The equipment
was estimated to have a useful life of 8 years, with

Page 9 of 9 [email protected] FAR.110