Solve the following problems, showing solutions in good form. If entries are required, complete entries should be
Question:
Solve the following problems, showing solutions in good form. If entries are required, complete entries
should be written - explanations and computations.
1. On January 1, 2020, Conan Company provided the following information related to the land,
building and machinery:
Land 4,000,000
Building 50,000,000
Accumulated depreciation-building 12,500,000
Machinery 2,800,000
Accumulated depreciation- machinery 840,000
There were no additions or disposals during the current year. Depreciation is computed using
straight line over 20 years for building and 10 years for the machinery without any salvage
value.
On January 1, 2021 the land, building and machinery were revalued.
Replacement cost Sound value
Land 5,000,000 5,000,000
Building 60,000,000 42,000,000
Machinery 3,080,000 1,848,000
On June 30, 2021 the machinery with a replacement cost of P770,000 was sold for P750,000.
Required:
a) Determine the age of the Building and machinery on January 1, 2020.
b) Prepare entries for the year 2020 and 2021 related to the above transactions.
2. Covid Co. purchased four convenience store buildings on January 1, 2013 for a total of P22,000,000.
The buildings have been depreciated using the straight-line method with a 20-year useful life and 5%
residual value. As of January 1, 2020, Covid Co. has converted the buildings into Internet Learning
Centers. Because of the change in the use of the buildings, Covid Co is evaluating the buildings for
possible impairment. Covid estimates that the buildings have a remaining useful life of 10 years and that
their residual value will be zero and net cash inflow from each building will be P500,000 per year and
appropriate discount rate that reflects current market assessments of time value of money is 12%.
Present value of annuity or the discount rate for 10 periods is 5.65. The fair value less cost to sell of the
four buildings is not clearly determinable.
Required: What amount of impairment loss, if any, should be recognized?