Question
IAS 16 - Property, Plant, and Equipment Initial measurement, Depreciation and Impairment loss, Subsequent expenditure, Disposition Show solution Items 21 and 22 are based on
IAS 16 - Property, Plant, and Equipment
Initial measurement, Depreciation and Impairment loss, Subsequent expenditure, Disposition
Show solution
Items 21 and 22 are based on the following information
On April 1, 2021, Nelson Corporation purchased a parcel of land as a factory site for P200,000. An old unusable
building on the property was demolished, and construction began on a new building which was completed on
November 1, 2021. Costs incurred during this period are listed below:
Demolition of old building P20,000
Architect's fees 35,000
Legal fees for title investigation 5,000
Construction costs 1,090,000
(Salvaged materials resulting from demolition were sold for P10,000.)
21. How much is the initial cost of the land?
a. P200,000 c. P225,000
b. P205,000 d. P260,000
22. How much is the initial cost of the new building?
a. P1,200,000 c. P1,145,000
b. P1,150,000 d. P1,135,000
Items 23 and 24 are based on the following information
A land and building were acquired on January 31, 2021 at a total lump sum price of P5,000,000 and issuance of
10,000 ordinary shares (par P100) with fair value of P115. The building on this date is assessed to have fair value
of P1,250,000 while the land is valued at P3,750,000. Additional costs were incurred to acquire the properties are
as follows:
Property taxes assumed by Hairy Pooter P120,000
Commissions paid to real estate broker 50,000
Land transfer title fee 30,000
23. How much is the initial cost of the land?
a. P1,537,500 c. P1,567,500
b. P1,550,000 d. P1,580,000
24. How much is the initial cost of the new building?
a. P4,770,000 c. P4,692,500
b. P4,740,000 d. P4,590,500
25. On February 2, 2021 Yuri Company purchased a machine from Lucer Corporation in exchange for a noninterest-bearing note requiring ten payments of P80,000. The first payment is to be made on February 2,
2022, and the others are due annually on February 2. At date of issuance, the prevailing rate of interest for
this type of note was 10%. Other cost incurred were: Transport cost P10,000; Installation cost P50,000.
Proceeds from sale of inventories produced during installation of the machinery, P5,000. What is the initial
carrying amount of the machine to be reported by Yuri Company on February 2, 2021?
a. P491,565 c. P546,565
b. P541,565 d. P551,565
26. A new machine was acquired on March 31, 2021 with the following consideration:
Carrying value of old machine given up with current fair value of P230,000 P200,000
Notes payable (non-interest bearing; 3 years; effective rate on this date 9%) 600,000
Estimated cost to be incurred after 5 year life of the machine to dismantle the
asset (at 9% effective rate) 40,000
How much is the cost of the machine?
a. P689,307 c. P819,507
b. P719,307 d. P821,507
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