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Situation 1 On January 1, 2020, Entity CC purchased land containing a mineral mine for P24,000,000. Additional costs of P9,000,000 were incurred to develop the
Situation 1 On January 1, 2020, Entity CC purchased land containing a mineral mine for P24,000,000. Additional costs of P9,000,000 were incurred to develop the mine. Geologists estimated that 5,000,000 tons of ore would be extracted and after the ore is removed, the land will have a resale value of P1,500,000. The entity estimated that all the ore can be removed in 8 years. The entity also built small storage building on the site at cost of P2,250,000. The building will have a useful life of 10 years and cannot be moved after the ore has been extracted. Therefore, the building will be left on site. Also, the entity purchased equipment costing P1,200,000. The entity does not plan to move the equipment to another site after the mining project is completed. In 2020,400,000 tons were extracted and sold. In 2021, the total estimated tons in the mine were revise from 5,000,000 to 5,230,000. During 2021, 800,000 tons were extracted of which 75% were sold. Goodwill is measured by capitalizing average excess earnings at 25% with normal return on average net assets at 20%. Situation 2 Entity A acquires a building for P1,000,000. The building is to be leased out under various operating leases. The building has an estimated useful life of 10 years and zero residual value. Entity A uses the cost model for its property, plant and equipment and the fair value model for its investment property. At the end of Year 1, the building is assessed to have a fair value of P1,080,000
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