Download ACT 20-AP 04 PPE PDF

TitleACT 20-AP 04 PPE
TagsDepreciation Expense Debits And Credits Book Value Interest
File Size347.3 KB
Total Pages7
Document Text Contents
Page 1

AUDIT OF PROPERTY PLANT AND
EQUIPMENT

J. VILLENA, CPA

PROBLEM 1

The property, plant and equipment section of Rolex Corporation’s balance sheet at December 31,
2014 included the following items:

Land P 2,500,000
Land improvements 560,000
Building 3,600,000

Machinery and equipment 6,600,000

During 2015 the following data were available to you upon your analysis of the accounts:

Cash paid on purchase of land P10,000,000
Mortgage assumed on the land bought, including interest at 16% 16,000,000
Realtor’s commission 1,200,000
Legal fees, realty taxes and documentation expenses 200,000
Amount paid to relocate persons squatting on the property 400,000
Cost of tearing down an old building on the land 300,000
Amount recovered from the salvage of the building demolished 600,000
Cost of fencing the property 440,000
Amount paid to a contractor for the building erected 8,000,000
Building permit fees 50,000
Excavation expenses 250,000
Architect’s fee 100,000
Interest that would have been earned had the money used during

the period of construction been invested in the money market 600,000
Invoice cost of machinery acquired 8,000,000
Freight, unloading, and delivery charges 240,000
Customs duties and other charges 560,000
Allowances, hotel accommodations, etc., paid to foreign

technicians during instillation and test run of machines 1,600,000
Royalty payment on machines purchased (based on units

produced and sold) 480,000

REQUIRED:

Based on the above and the result of your audit, compute for the following as of December 31,
2015:

1. Land
2. Land improvements
3. Building
4. Machinery and equipment
5. Total depreciable property, plant and equipment

PROBLEM 2

The CYRUS COMPANY completed the following transactions during 2016:

March 1 Purchased real property for P 8,297,000 including a charge for P297,000 representing
property tax for March 1- June 30 which was prepaid by the vendor. Of the purchase
price, 25% is deemed applicable to land and the remaining 75% to buildings. The
Cyrus Company assumed a mortgage of P4,600,000 on the purchase and paid cash
for the balance.

30 The building acquired necessitates current reconditioning at a cost of P342,000
Because the previous owns had failed to take care of normal maintenance and repair
requirements on it.

May 15 Garages in the rear of the building were demolished. The Cyrus Company recovered
P66,000 on the lumber salvage. It then proceeded to construct a warehouse at
P1,013,000, which was almost exactly the same as bids made by construction
companies. Upon completion of construction, city inspectors ordered extensive
modifications to the warehouse 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 P124,000.

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