Urban Corporation incurred costs of P12,150,000 for the purchase and preparation of land for construction of a new warehouse. These costs included the land purchase price, demolition of an old building, legal fees, and the net costs of equipment used for excavation.
Day Company purchased land for P4,000,000. Applying PIC interpretations, the cost of the land should include the purchase price, legal fees for the purchase contract, and delinquent property taxes, for a total of P4,200,000.
Yu Corporation's statement of financial position shows costs of P7,000,000 for land. Applying PIC interpretations to additional information provided, the proper cost of the land can
Urban Corporation incurred costs of P12,150,000 for the purchase and preparation of land for construction of a new warehouse. These costs included the land purchase price, demolition of an old building, legal fees, and the net costs of equipment used for excavation.
Day Company purchased land for P4,000,000. Applying PIC interpretations, the cost of the land should include the purchase price, legal fees for the purchase contract, and delinquent property taxes, for a total of P4,200,000.
Yu Corporation's statement of financial position shows costs of P7,000,000 for land. Applying PIC interpretations to additional information provided, the proper cost of the land can
Urban Corporation incurred costs of P12,150,000 for the purchase and preparation of land for construction of a new warehouse. These costs included the land purchase price, demolition of an old building, legal fees, and the net costs of equipment used for excavation.
Day Company purchased land for P4,000,000. Applying PIC interpretations, the cost of the land should include the purchase price, legal fees for the purchase contract, and delinquent property taxes, for a total of P4,200,000.
Yu Corporation's statement of financial position shows costs of P7,000,000 for land. Applying PIC interpretations to additional information provided, the proper cost of the land can
Urban Corporation incurred costs of P12,150,000 for the purchase and preparation of land for construction of a new warehouse. These costs included the land purchase price, demolition of an old building, legal fees, and the net costs of equipment used for excavation.
Day Company purchased land for P4,000,000. Applying PIC interpretations, the cost of the land should include the purchase price, legal fees for the purchase contract, and delinquent property taxes, for a total of P4,200,000.
Yu Corporation's statement of financial position shows costs of P7,000,000 for land. Applying PIC interpretations to additional information provided, the proper cost of the land can
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OPERTY, PLANT AND EQUIPMENT
8. Urban Corporation bought a piece of land and self constructed a
warehouse during 2021. The following related costs were charged to property, plant and equipment account:
Land purchase P12,000,000
Demolition of old building 300,000 Legal fees for land acquisition 150,000 Building permit 80,000 Interest on loan for construction 270,000 Building construction costs 15,000,000 Landscaping costs 3,500,000 Equipment purchased for use in excavation 800,000 Fixed overhead allocated to building construction 100,000 Compensation for injury to construction worker (No insurance was carried) 140,000 Profit recognized on construction 1,200,000 Modifications to new building per instruction by city building inspectors 240,000
The following were credited to the account:
Sale of salvage from the demolished old building 70,000
Sale of excavation equipment 640,000
The modifications to the new building per instruction by the building
inspectors resulted from poor planning by the company.
Required: Determine the separate costs of land, land improvements, and building. Apply the principles of Philippine Interpretations Committee. 9. On December 1, 2021, Day Company purchased a P4,000,000 tract of land to be used as a factory site. Day razed the old building on the property and sold the materials it salvaged from the demolition. Day incurred additional costs and realized proceeds from salvaged materials as follows:
Payments to tenants to vacate premises P200,000
Architectural design fees 250,000 Demolition cost of old building 100,000 Legal fees for purchase contract and recording ownership 150,000 Delinquent property taxes on land 50,000 Proceeds from sale of salvaged materials 20,000
Required: Applying the interpretations of PIC, what is the correct cost of the land?
10. Property, plant and equipment section of the statement of financial
position of Yu Corporation at December 31, 2020 included the following:
Land P7,000,000 Land improvements 500,000 Building 9,000,000 Machinery and equipment 980,000
During 2021, the following data were furnished to you for your analysis of the property, plant and equipment account: Cash paid on purchase of land P 4,500,000 Mortgage assumed on the land bought including interest at 10% 5,000,000 Legal fees, realty taxes and documentation expenses 50,000 Payment to squatters on the property to vacate the premises 100,000 An old building on the land was shortly torn down at a cost of 120,000 Proceeds from the sale of salvaged materials from the building demolished 150,000 Cost of fencing the property 500,000 Payment to contractor for a building erected 12,000,000 Building permit fees 20,000 Excavation expenses 50,000 Architect fees 150,000 It was estimated that if the money used during the period of construction were placed in the money market, interest that would have been earned is 150,000 Invoice cost of machines acquired 2,000,000 Freight, unloading and delivery charges 60,000 Customs duties and other charges 140,000 Allowances, hotel accomodations paid to foreign technicians during installation and test runs of machines 400,000 Royalty payment on machines purchased based on units produced and sold 180,000
Required: Show detailed computations of the costs of land, land improvements, buildings, and machinery and equipment at December 31, 2021. Apply the interpretations of the PIC. 11. On January 1, 2021, Metro Company started the construction of its new building. The company follows the policy f capitalizing alllowable interest costs. Construction costs were incurred as follows:
January 1 P1,400,000 March 31 1,000,000 July 1 1,200,000 September 30 1,000,000 December 31 400,000
The building was completed on December 31, 2021.
a. On January 1, 2021, the company obtained a loan for P4,000,00
at an interest rate of 10%, specifically for the construction of the building. Prior to their disbursement, the proceeds of the loan were temporarily invested and earned interest income amounting to P125,000.
How much is the capitalized interest?
b. The company obtained a loan for P5,000,000 at an interest rate
of 10%, specifically for the construction of the building. Availments from the loan were made at the beginning of each quarter in equal amounts. Prior to their disbursements, the proceeds of the loan were temporarily invested and earned interest income amounting to P40,000.
What is the total cost of the building construction?
c. On January 1, 2021, Metro Company borrowed P1,800,00 at an
interest rate of 10%, specifically for the construction of its new building. Interest earned from the temporary investment of the proceeds of the loan prior to their disbursement amounted to P10,000. Metro Company also had other loans in 2021 which were borrowed for general purposes. The proceeds of these loans were used in part for the construction of the building.
10%, 2-year note P1,600,000
12%, 5-year note 2,000,000
How much is the capitalized interest?
d. Metro Company had the following general borrowings during
2021 which were used to finance the construction of the company's new building.
How much should be recorded as interest expense for the year
2021?
12. On December 31, 2020, Lim Company borrowed P30,000,000 and
issued a 12%, 3-year note to finance the construction of a new building. During 2021, the company made the following expenditures related to this building:
January 1 P 3,600,000 June 1 6,000,000 July 1 15,000,000 December 1 15,000,000
The construction was completed on December 31, 2021.
Other debts outstanding and other information follow:
10-year, 13% bonds, dated December 31, 2019, interest payable annually P40,000,000 6-year, 10% note, dated December 31, 2020, interest payable annually 16,000,000 Interest revenue earned in 2021 from temporary investments of the specific borrowing 249,000
Required: a. Determine the amount of interest to be capitalized in 2021. b. If the specific borrowing amounted to P12,000,000 only, (instead of P30,000,000, how much is the capitalized interest in 2021? ANSWERS 8. Urban Corporation
Land
Land Purchase 12,000,000
Demolition of old building (70,000 salvaged) Legal fees for Land Acquisition 150,000 Building Permit Fees Interest on Loan for Construction Building Construction Costs Landscaping Costs Equipment Purchased of Use in Excavation (800,000-640,000) Fixed Overhead Allocated to Building Construction Total Costs 12,150,000
9. Day Company Purchase Price of Land 4,000,000 Legal fees for Purchase Contract and Recording Ownership 150,000 Delinquent Property Taxes on Land 50,000 Total 4,200,000
10. Yu Corporation
Land
Balances, December 31, 2020 7,000,000
Cash Paid on Purchase of Land 4,500,000
Mortgage assumed on the Land bought
including interest at 10% 5,000,000
Legal Fees, Realty taxes and Documentation Expenses 50,000
Payment to Squatters Razing Costs of Old Building Salvage Value from Building Demolition Cost of Fencing the Property Paid to a Contractor for Building Erected Building Permit Fee Excavation Expenses Architect Fees Invoice Cost of Machines Acquired Freight, Unloading and Delivery charges Custom Duties and Other Charges Allowances, hotel accomodations paid to technicians during installation and test runs of machines Balances, December 31, 2021 16,550,000
11. Metro Company
a. Loan (4,000,000 x 10%) 400,000 Less: Interest Income Earned on Temporary Investment of Loan -125,000 Capitalized Interest 275,000
b. Loan (1,250,000x10%) 125,000
Loan (1,250,000x10%x9/12) 93,750 Loan (1,250,000x10%x6/12) 62,500 Loan (1,250,000x10%x3/12) 31,250 Total Interest 312,500 Less: Interest Income Earned on Temporary Investment 40,000 Capitalized Interest 272,500 Total Construction Costs 5,000,000 Total Cost of Building 5,272,500
c. Computation of Average Accumulated Expenditures:
1,400,000 x 12/12 1,400,000 1,000,000 x 9/12 750,000 1,200,000 x 6/12 600,000 1,000,000 x 3/12 250,000 400,000 x 0/12 0 Avergae Accumulated Expenditures 3,000,000 Computation of Weighted Average Interest Rate: (10% x 1,600,000) + (12% x 2,000,000) 11.11% 11.11% 1,600,000 + 2,000,000
Interest of Specific Borrowing:
1,800,000 x 10% 180,000 Less: Interest Earned 10,000
Interest on General Borrowing:
3,000,000 - 1,800,000 = 1,200,000 1,200,000 x 11.11% Capitalized Interest
d. Loan (2,800,000 x 10%) 280,000
Loan (1,600,000 x 10%) 160,000 Loan (2,000,000 x 12%) 240,000 Total Interest on Loans 680,000 Less: Capitalized Interest (680/6,400 x 3,000,000) 318,750 Interest Expense for 2021 361,250
12. Lim Company
3,600,000 x 12/12 3,600,000 6,000,000 x 7/12 3,500,000 15,000,000 x 6/12 7,500,000 15,000,000 x 1/12 1,250,000 Average Accumulated Expenditures 15,850,000
a. Interest on Specific Borrowing (30,000,000 x 12%) 3,600,000
Less: Interest Revenue Earned from Temporary Investments of Specific Borrowing 249,000 Capitalized Interest 3,351,000
b. Interest on Specific Borrowing (12,000,000 x 12%) 1,440,000
Less: Interest Revenue Earned from Temporary Investments of Specific Borrowing 249,000 Capitalized Interest 1,191,000
Interest on General Borrowings 467,390
15,850,000-12,000,000=3,850,000 3,850,000 x 12.14% 6,800,000 / 56,000,000 = 12.14%
Capitalized Interest 1,658,390
Land Building Improvements
230,000
80,000 270,000 15,000,000 3,500,000
160,000 100,000 3,500,000 15,840,000
Land Machinery &
Building Improvements Equipment 500,000 9,000,000 980,000
