(CAPITAL VS. REVENUE EXPENDITURE)

Tender Corporation started its operations at the beginning of 2020. It had the following property

acquisition and other expenditures during the year:

1. Cash paid to purchase Real Property A in Manila City comprised a land with a

dilapidated building without significant value acquired at the beginning of the

year.

P4,800,000

2. Cash paid to purchase Real Property B in Quezon City comprised of a land

with a building to be demolished acquired on March 31. The land had a fair

market value of P3.5M while the building had a fair market value of

P500,000.

4,400,000

3. Cash paid to purchase Real Property C in Baguio City comprised of a land with

a warehouse to be remodeled for future use (9-year useful life after

remodeling). The land was determined to have a fair market value of P2.8M.

The property was acquired in June 30.

3,500,000

4. Option money: Real Property A - P200,000; B - P180,000; C - 120,000;

Other properties not acquired - P100,000

600,000

5. Brokers' fees, commission and lawyers fees on real estate properties

acquired: Real Property A - P240,000; B - 450,000; C - 360,000)

1,050,000

6. Real property taxes: Manila City for 2019 and 2020 - P120,000; Quezon City

for 2020 - P160,000; Baguio City for 2020 - P80,000 360,000

7. Mortgage payable assumed on Real Property A 1,200,000

8. Grading, leveling and landscaping cost on Real Property A (Permanent

Improvement)

660,000

9. Special assessment by Quezon City government on Real Property B for road

projects where the property is located

220,000

10. Special assessment by Baguio City government on Real Property C for

sewerage system in the area where the property is located

160,000

11. Cost of demolition of unwanted structures: Real Property A - P450,000; B -

P380,000)

830,000

12. Cost of remodeling the warehouse in Real Property C 560,000

13. Payment to current tenants of the real properties to vacate the premises:

Real Property B - P190,000; C - P220,000

410,000

14. Excavation cost on Real Property A, including cost of an excavation

equipment with no further use for the company P250,000.

550,000

15. Building construction costs: Real Property A - P1,860,000; B - P2,200,000 4,060,000

16. Cost of temporary structures while construction is in progress including the

cost of their eventual removal (temporary fencing, temporary quarters for

laborers, temporary sheds for tools and materials): Real Property A -

P120,000; B - P200,000

320,000

17. Cost of permanent fencing, cost of paving driveways and parking lots, cost of

constructing flower boxes and side-walks, cost of installing lamp posts on

Real Property C.

1,500,000

18. Interest on borrowings to finance the construction of Building B (incurred

during the construction period)

125,000

19. Insurance on the Building A (80% incurred during construction period, 20%

after construction period)

250,000

20. Profits on construction, as the difference between the appraised value of the

assets after construction and actual costs incurred (40% Building A; 60%

Building B)

900,000

21. Payments made to construction workers injured during the construction of

Building B not covered by insurance

500,000

22. Cost of modification to Building A ordered by City of Manila which would have

been avoided had proper construction planning been made by the

management

300,000

23. Interest that would have been earned had the money used during the period

of construction been invested in the money market

1,400,000

24. List price of machineries purchased during the year (Trade and cash

discounts taken on the machineries purchased, P220,000)

2,600,000

25. Freight, handling, insurance while in-transit, installation costs on machineries 650,000

26. Test-run costs on machineries 210,000

27. Employee training costs (for them to be able to operate the machineries) 220,000

28. Periodic royalty fees on technologies used by the machineries 120,000

29. Routinary repairs and maintenance costs on machineries 80,000

Audit notes:

a. The company generated P140,000 from sales of salvaged materials from the demolition of

unwanted structures in Properties A and B. (60% Real Property A; 40% Real Property B).

b. The company sold the excavation equipment after is use for total proceeds of P80,000.

c. Proceeds from sale of products produced during the test-run of the machineries, P30,000.

d. While the Building in Property A is being constructed, the parking lot was operated

temporarily as a pay parking facility. During the construction period, P150,000 in parking

fees were collected.

Requirements: Determine the correct initial cost of:

1. Land A

2. Land B

3. Land C

4. Building A

5. Building B

6. Building C

7. Land Improvements

8. Machineries