Audit Problem – PPE
Problem 1
The Maven Company bought land and built a warehouse during 2010. It debited the following related costs to an
account titled Land and Buildings:
Land purchase P 220,000
Demolition of old building 30,000
Legal fees for land acquisition 15,000
Interest on loan for construction (based on average costs incurred) 29,000
Building construction 530,000
Assessment by city for sewer connection 12,000
Landscaping 35,000
Equipment purchased for excavation 188,000
Fixed overhead charged to building 150,000
Insurance on building during construction 10,000
Profit on Construction 120,000
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Compensation for injury to construction worker 30,000
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Modifications to building ordered by building inspectors 75,000
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Property taxes on land paid in 2010 25,000
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The following credits were made to the account:
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Salvage from demolished old building P 7,000
Sale on excavation equipment 140,000
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In addition, you discover that compensation for the worker’s injury was necessary because it was covered by the
particular insurance policy purchased by the company. Accident insurance that would have covered the injury would
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have cost an additional P3,500. The modifications ordered by the building inspectors resulted from poor planning by
the company.
Prepare adjusting entries.
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Problem 2
Information for Mama Corporation’s property, plant, and equipment for 2010 is:
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Account Balances at January 1, 2010
Debit _______Credit .
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Land P 150,000
Building 1,200,000
Accumulated depreciation P263,100
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Machinery and Equipment 900,000
Accumulated depreciation 250,000
Automotive equipment 115,000
Accumulated depreciation 84,600
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Depreciation method and Useful Life __ .
Building: 150% declining balance; 25 years.
Machinery and Equipment: Straight Line; 10years.
Automotive equipment: SYD; 4 years
Leasehold improvements: Straight Line
The residual value of the depreciable assets is immaterial.
Depreciation is computed to the nearest month.
Transactions during 2010 and other information were as follows:
1. On January 2, 1010, Mama purchased a new car for P10,000 cash and a trade-in of a 2-year old car with a cost of
P9,000 and a book value of P2,700. The new car has a cash price of P12,000; the market value of the trade-in is not
known.
2. On April 1, 2010, a machine purchased for P23,000 on April 1, 2005 was destroyed by fire. Mama recovered P15,500
from its insurance company.
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3. On May 1, 2010, costs of 168,000 were incurred to improve leased office premises. The leasehold improvements
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have a useful life of 8 years. The related lease, which terminates on December 1, 2016, is renewable for an additional
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6-year term. The decision to renew will be made in 2016 based on office needs at that time.
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4. On July 1, 2010, machinery and equipment were purchased at a total invoice cost of P280,000; additional costs of
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P5,000 for freight and P25,000 for installation were incurred.
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5. Mama determined that the automotive equipment comprising the P115,000 balance at January 1, 2010 would have
been depreciated at a total amount of P18,000 for the year ended December 31, 2010.
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a. depreciation and amortization expense: ______________________________
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b. accumulated depreciation and amortization: _____________________________
c. gain or loss on disposal of assets: ____________________________
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d. Land: ___________________
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e. Building: ____________________
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f. Machinery and Equipment: ______________________
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g. Automotive equipment: ________________________
h. Leasehold improvements: _______________________
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