Question
Wonderer Inc. incurred the following expenditures in 2020: Purchase of land with a dilapidated building at the beginning of the year (no significant value) P5,600,000
Wonderer Inc. incurred the following expenditures in 2020:
Purchase of land with a dilapidated building at the beginning of the
year (no significant value)
P5,600,000
Land survey 208,000
Fees for search of title for land 24,000
Special assessment of the government for road projects 80,000
Property taxes from 2018 to 2020 120,000
Cost to raze the old building, see audit note a. 940,000
Payments to tenants of the old building 184,000
Building construction permit fee 140,000
Cost of excavation of the land, including an excavation equipment
with a cost of P100,000, see audit note b
400,000
Temporary quarters for construction workers 430,000
Permanent fencing of property after construction 320,000
Dividends that should have been earned had the money used for
construction been invested in the equity instruments
200,000
Cost of construction 6,600,000
Cost of paving parking lot, driveway and sidewalks 900,000
Profit on construction, as the difference between the appraised
value of the asset after construction and actual costs incurred 1,900,000
Damages awarded for injuries sustained in construction where no
Insurance is carried 336,000
List price of Machinery and equipment purchased 4,567,000
Trade discount not taken on the machinery and equipment purchased 127,000
Cost of freight and handling 50,000
Cost of testing the equipment, see note c. 85,000
Additional Audit notes:
a. Salvage proceeds from materials recovered from demolition of dilapidated building,
P5,000.
b. Proceeds from sale of the excavation equipment, P20,000.
c. Proceeds from sale of produce from the testing done on the machinery and equipment
amounted to P25,000.
d. A portion of the building site had been temporarily used by Wonderer Inc. to operate a car
park while the building was being constructed. A total of P650,000 was earned by Bacolod
from his incidental activity.
Requirements:
1. What is the correct cost of the land?
a. 5,952,000 c. 5,992,000
b. 5,902,000 d. 5,912,000
2. What is the correct cost of land improvements, if there are any?
a. 900,000 c. 1,220,000
b. 980,000 d. 1,300,000
3. What is the cost of the building?
a. 8,669,000 c. 8,699,000
b. 7,729,000 d. 8,489,000
4. What is the cost of machinery and equipment?
a. 4,550,000 c. 4,667,000
b. 4,677,000 d. 4,500,000
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