Safari 7:48 AM Thu Apr 8 29% 19 BSA-3201-Q6 Q . .. Home Insert Draw Layout Review View Arial B I U A. E E A X To edit and save, sign in with a subscription. Sign in You are the new audit staff assigned to audit the fixed assets of Garfailed University (the University), which was organized in the Philippines on June 3, 1907 to establish, maintain, and operate an educational institution or institutions for the instruction and training of the youth in all branches of the arts and sciences, offering classes in tertiary level. The University's fiscal year ends every March 31. The following are the additional information relevant to your year-end review: 1) The general ledger balances of property and equipment accounts, and the related accounts, before adjustments, as at and for the year ended March 31, 2021 are as follows: Debit Credit Land 2,038.551,342 Land Improvements 31,828,832 Accumulated Depreciation - Land Improvements 29,286,332 Buildings and Leasehold Improvements 1,744.631,895 Accumulated Depreciation - Buildings and Leasehold Improvements 610,481,741 Furniture, Transportation, and Auxiliary Equipment 522,085,615 Accumulated Depreciation - Furniture, Transportation, and Auxiliary Equipment 411,018,718 Laboratory Equipment 352,507,181 Accumulated Depreciation - Laboratory Equipment 242,700,666 Accumulated Impairment - Laboratory Equipment 5,294,724 Library Books 116,709,067 Accumulated Depreciation - Library Books 77,287,705 Construction in Progress 61,984.500 Right of Use Asset - Building 229,430,400 Accumulated Depreciation - Right of Use Asset - Building 16,387,886 Asset Retirement Obligation 3,508,708 Lease Liability 218,163,787 Revaluation Surplus .350,002,971 Gain on Sale of Fixed Asset 2,752,500 Depreciation Expense - Land Improvements 270,000 Depreciation Expense - Buildings and Leasehold Improvements 38,747.472 Depreciation Expense - Furniture, Transportation, and Auxiliary Equipment 1,314,668 Depreciation Expense - Laboratory Equipment 25,498,528 Depreciation Expense - Library Books 7.371,380 Depreciation Expense - Right of Use Asset - Building 16,387,886 Loss on Fixed Asset Disposal 351,622 Impairment Loss - Laboratory Equipment Interest Expense - Loans 14,030,000 Accretion Expense - ARO Accretion Expense - Lease Liability Capitalized Interest Gain on Revaluation Increment 2) The schedule of additions and disposal showed the following: Additions Disposals Land 1 14.267,930 Land Improvements Accumulated Depreciation - Land Improvements 270,000 Buildings and Leasehold Improvements 3.144,358 Accumulated Depreciation - Buildings and Leasehold Improvements 38,747,472 Furniture, Transportation, and Auxiliary Equipment 34,173,981 13,031,309 Accumulated Depreciation - Furniture, Transportation, and Auxiliary Equipment 21,314,668 1,313,701 Laboratory Equipment 9,947,205 2,920,000 Accumulated Depreciation - Laboratory Equipment 25,498,528 Accumulated Impairment - Laboratory Equipment Library Books 8,692,884 Accumulated Depreciation - Library Books 7,371,380 Construction in Progress 2.174,845 Right of Use Asset - Building Accumulated Depreciation - Right of Use Asset - Building 16,387,886 Building - For Lease Accumulated Depreciation - Building - For Lease Note that the additions to the accumulated depreciation and accumulated impairment accounts is equal to its income statement counterpart. 3) Under the Philippine laws, the taxable income from operations related to school activities and passive investment income of private and proprietary (stock) educational institutions is subject to a tax of 10%. However, if 50% or more of the institution's total gross income is from unrelated business activities, the regular corporate income tax of 30% will apply to the entire taxable income instead of the 10% preferential rate. The University qualifies to avail of the 10% preferential rate given its revenue profile. In addition, the University is also not covered by the minimum corporate income tax provision of the new tax code. Page 1 of 4Safari 7:49 AM Thu Apr 8 29% BSA-3201-Q6 0 Q . .. Home Insert Draw Layout Review View Arial B I U A. E A X To edit and save, sign in with a subscription. Sign in Any correction of prior period error/s should be net of its tax effect. 4) Depreciation of property and equipment is computed on a straight-line basis over the following estimated useful lives of the assets: Number of Years Land Improvements 10 Building Furniture and Equipment Library Books Leasehold Improvements 10 or lease term whichever is shorter Depreciation of right of use asset is computed on a straight-line basis over the following estimated useful lives of the assets Number of Years Building 50 or lease term whichever is shorter 5) Depreciation expense as recorded is the initial computation by the University. Depreciation is computed to the nearest whole month. Other adjustments, as necessary, were not yet reflected. 6) At the beginning of the current fiscal year, the entity purchased furniture and fixtures for P2,000,000 in exchange for a noninterest bearing note requiring four payments of P500,000. The machine was included in the additions to Furniture, Transportation and Auxiliary Equipment, with a corresponding increase to Notes Payable for P2,000,000. The first payment was made at the end of the current fiscal year. The rate of interest for this note at date of issuance was 10%. Depreciation was recorded for this machine, based on a 5-year estimated useful life. 7) On April 1, 2020, the University purchased a new van for P500,000 cash and trade-in of a two-year old car with a cost of P450,000 and a book value of P135,000. The new car has a cash price of P700,000; market value of trade-in is not known. This was recorded as debit to Furniture, Transportation, and Auxiliary Equipment and credit Cash for P500,000. Depreciation expense of P100,000 was recorded in 2021. 8) The University acquired a parcel of land through a donation from the Provincial Government of La Union appraised at P20,521,289 on April 2, 2020. The purpose of the land is to open a new campus to cater the residents of the province, including the neighboring provinces. Unaware of the accounting procedures for donations, the University did not reflect the grant on its books. 9) Additional major development accounted under construction in progress is the construction of 8-storey building in San Fernando City, La Union for Health Science Courses. The University contracted Bob Vance Construction, Inc. on May 31, 2020 to construct a building for P109,031,699. The contract provides that the University is to make five payments, with the last payment to be made upon completion. The University made the following payments during 2021, which is included in the additions to Construction in Progress: Amount May 31, 2020 10,903, 170 August 1, 2020 18,399,099 November 2, 2020 23,628,317 January 31, 2021 28,843, 188 The University made the following arrangements with financing companies during 2021: 12%, 2-year, P49 million loan dated May 31, 2020, with simple interest. Interest is payable annually on May 31. This loan is related specifically to the building project. Interest of P245,000 was earned from the temporary investment of the borrowing proceeds. 10%, 10-year, P36 million note dated April 1, 2020, with simple interest; interest payable annually on April 1. The loan was for general financing purposes including the partial financing of the construction. 12%, 5-year, P42 million note dated April 1, 2020, with simple interest; interest payable annually on April 1. The loan was for general financing purposes including the partial financing of the constru The construction of this building is still on-going as at the end of the fiscal year. 10) Included in the additions of Library Books account are different book titles acquired locally and overseas for a cost of P5,998,090 on June 2, 2020. These items were purchased on account with terms 5/30, n/45. The University were not able to pay within the discount period but paid before the date. Depreciation based on the invoice price/cost has been provided for these items. 11) The opening balance of the Construction in Progress account pertains to its new Technology Hub in its Cebu Campus. Additional expenditures incurred for the Technology Hub, which was financed solely by the issuance of common stock, amounted to P10,401,0/1. 401,071. The amount, which is included in the additions to Construction in Progress, presents the final payment made on June 30, 2020. The construction was also completed on the same date. 12) The University acquired a parcel of land in Davao on September 30, 2020 amounting to P114,267,930. This is included in the additions to Land. The University has yet to decide on the use of this land. As at March 31, 2021, the land is still held for currently undetermined use. Page 2 of 44 Safari 7149 AM Thu Apr 8 '5\" 29% I