Math Company was organized in early July of 2020. In your audit of the company's books, you find

the following land, building and equipment account:

Account title: Land, building and equipment

July 1 Organization fees P120,000

1 Land site and old building (note a) 1,950,000

3 Option payments (note b) 250,000

20 Broker's fees on property acquired 110,000

July 30 Cost of remodeling the building 60,000

Quiz4: INVESTING CYCLE - AUDIT OF PPE, INTANGIBLES AND OTHER ASSETS

Aug. 29 Salaries of Executives (note c) 360,000

Sept. 1 Stock bonus to corporate promoters

12,000 shares, P25 market value per share 300,000

Dec. 15 Real property taxes (note d) 240,000

Audit notes:

a. The building acquired on July 1, 2020, had a fair value of P500,000 while the land was

currently appraised at P1,500,000.

b. P50,000 of the option money paid were for properties not acquired.

c. The executives had no participation on the remodeling of the building.

d. The property taxes were for the years 2019 and 2020.

Requirements:

5. How much is the correct cost of the Land?

6. How much is the correct cost of the Building?

You are the senior auditor in charge for the annual audit of Samal Corp. for the year ended December

31, 2020. You checked mostly the information in the financial records for this small/medium entity

and was highly satisfied.

You noticed however, that the property account consisted of land which was acquired on January 1,

2018 together with eight identical buildings equally built on it. The initial purchase price was

P48,000,000, thirty percent of which is attributable to the land. The eight buildings were estimated to

have a 50 years as economic lives of which two of them were used for general and administrative

offices while the rest were leased out to independent parties under operating lease arrangements.

The following costs were also incurred during acquisition:

Non-refundable transfer taxes paid to government 3,000,000

Title insurance and legal fees attributable to the acquisition 1,000,000

Actual borrowing costs 220,000

Marketing and advertisements 100,000

Office parties to celebrate new rental business 80,000

Reimbursements to previous owner of non-refundable real property taxes for

six-month period ending June 30, 2018

40,000

During 2018, Samal Corp. incurred repairs and maintenance costs of P46,000. Additionally, it paid

non-refundable real property taxes of P60,000 for the year ending June 30, 2019.

On December 31, 2018, the fair value of each building was P4.9M measured reliably on a going

concern basis without undue cost or effort.

Based on your audit of the property account:

7. What is the initial measurement amount of investment property?

8. What is the initial measurement amount of the land to be categorized as PPE?

9. What is the initial measurement amount of buildings to be categorized as PPE?

10. What is the depreciation expense on the building for the year 2018?