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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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