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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

PROPERTY, PLANT AND EQUIPMENT
1. During 2005, Cavite Company made the following property, plant and equipment
expenditures:
Land and building acquired from Bacoor Company
Repairs made to the building
Special tax assessment
Remodeling of office space including new partitions and walls

9,000,000
300,000
50,000
400,000

In exchange for the land and building acquired from Bacoor, Cavite issued 60,000
shares of its P100 par value common stock. On the date of purchase, the stock had a
market value of P150 per share and the land and building had fair value of P2,000,000
and P6,000,000 respectively.
During the year, Cavite also received land from a shareholder to facilitate the
construction of a plant in the city. Cavite paid P100,000 for the land transfer and
charged this amount to legal expenses. The land is fairly valued at P1,500,000.
The cost of the land and building acquired should respectively be
a. 3,800,000, and 7,450,000
b. 3,550,000, and 6,700,000
c. 3,500,000, and 6,400,000
d. 3,500,000, and 6,750,000
2. Silang Company acquired a welding machine with an invoice price of P3,000,000
subject to a cash discount of 5% which was not taken. Silang incurred freight and
insurance during shipment of P50,000 and testing and installation cost of P200,000.
Silang also incurred cost of P20,000 in removing the old welding machine prior to the
installation of the new one. Welding supplies were acquired at a cost of P100,000.
The VAT on the acquisition is P300,000. The cost of the new welding machine should
be
a. 3,100,000
b. 3,250,000
c. 3,220,000
d. 3,400,000
3. Imus Company acquired two items of machinery as follows:
On December 30, 2005, Imus Company purchased a machine in exchange for a
noninterest bearing note requiring three payments of P1,000,000. The first payment
was made on December 30, 2005, and the others are due annually on December
30. 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% is 1.69 for two periods and
2.40 for three periods. The new machine was damaged during its installation and
the repair cost amounted to P50,000.
On January 1, 2005, Imus Company acquired used machinery by issuing to the
seller a three-year, noninterest-bearing note for P3,000,000. In recent borrowing,
Imus has paid a 12% interest for this type of note. The present value of 1 at 12%
for 3 years is 0.71.
What is the total cost of the machinery?
a. 4,820,000
b. 4,530,000
c. 4,580,000
d. 4,870,000

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4. In December 2005, Kawit Company exchanged an old machine, with a cost P6,000,000
and 50% depreciated, for a dissimilar used machine and paid a cash difference of
P1,500,000. The fair value of the old machine was determined to be P2,000,000.
Kawit should record the machine at
a.
b.
c.
d.

6,000,000
2,000,000
3,500,000
3,000,000

5. Romblon Company and Looc Company are fuel oil distributors. To facilitate the
delivery of oil to customers. Romblon and Looc exchanged ownership of 5,000 barrels
of oil without physically moving the oil. Romblon paid Looc P9,000,000 to compensate
for a difference in the grade of oil. On the date of exchange, cost and fair value of oil
were:
Romblon Company
Looc Company
Cost
45,000,000
40,000,000
Fair value
51,000,000
60,000,000
1. Romblon should record the oil inventory received in exchange at
a. 45,000,000
b. 54,000,000
c. 51,000,000
d. 60,000,000
2. Looc Company should record the oil inventory received in exchange at
a. 40,000,000
b. 34,000,000
c. 60,000,000
d. 51,000,000
3. In Loocs income statement, what amount of gain should be reported from the
exchange of oil?
a. 20,000,000
b. 6,000,000
c. 3,000,000
d.
0
6. Naic Company acquired an equipment by exchanging a similar used equipment with
the following data:
Equipment
Accumulated depreciation
Fair value
Cash received on exchange

10,000,000
3,500,000
8,000,000
2,000,000

Naic Company should record gain on exchange at

a. 1,500,000
b. 2,000,000
c.
375,000
d.
0
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