24.AUD.PROB.A.
05 AUDIT OF PROPERTY, PLANT AND EQUIPMENT
PROBLEM NO. 1
You were engaged in making your second annual examination of CITICORE Company. The Machinery and Accumulated Depreciation
accounts are shown below:
Machinery
01/01/24 Balance P 500,000 09/01/24 Sale of Machine No. 3 P 10,000
06/01/24 Machine No. 23 150,000 12/31/24 Balance 644,000
09/01/24 Dismantling of Machine No. 3 4,000
P 654,000 P 654,000
01/01/25 Balance P 644,000
Accumulated Depreciation
12/31/24 Balance P 352,400 01/01/24 Balance P 288,000
12/31/24 Depreciation 64,400
P 352,400 P 352,400
01/01/25 Balance P 352,400
Your examination disclosed the following information:
a. The following adjusted balances appeared on December 31, 2023 working papers: Machinery – P500,000; Accumulated Depreciation –
P288,000.
b. The company has depreciated all items of machinery at 10% per annum. The oldest item owned is seven years old as of December 31, 2024.
c. It is the company’s policy to take full year’s depreciation in the year of acquisition and none in the year of disposition.
d. Machine No. 3, which was purchased on March 1, 2019, at a cost of P80,000, was sold on September 1, 2024 for P10,000 cash.
e. Included in charges to Repairs and Maintenance account was
an invoice for installation of Machine No. 23, in the amount of P25,000.
QUESTIONS:
Based on the information presented above and the result of your audit, answer the following:
1. How much is the loss on the sale of Machine No. 3?
2. What should be the correct entry to record the sale of Machine No. 3?
3. The adjusting entry to correct the erroneous entry made by CITICORE Company in recording the sale of Machine No. 3 would be?
4. How much is the adjusted balance of the Machinery account as of December 31, 2024?
5. How much is the total depreciation expense on machinery for 2024?
6. How much is the balance of the Accumulated Depreciation
account as of December 31, 2024?
PROBLEM NO. 2
EMPERADOR Company’s property, plant, and equipment, accumulated depreciation, and amortization balances at December 31, 2023 are:
Cost Accumulated
Land P 275,000
Buildings 2,800,000 P 672,900
Machinery and equipment 1,380,000 367,500
Automobile and trucks 210,000 114,326
Leasehold improvements 432,000 108,000
Totals P 5,097,000 P 1,262,726
Additional information on depreciation, amortization methods, and
useful lives follows:
Asset Depreciation Method Useful Life
Buildings 150% - declining bal. 25 years
Machinery & Equipment Straight-Line 10 years
Automobile and trucks (all 150%-declining bal. 5 years
acquired after 2019)
Leasehold improvements Straight-line
Depreciation is computed to the nearest month.
Salvage values of depreciable assets are immaterial except for automobiles and trucks which have estimated salvage values equal to 15% of cost.
Other additional information:
EMPERADOR Company entered into a twelve-year operating lease starting January 1, 2021. The leasehold improvements were
completed on December 31, 2020 and the facility was occupied on January 1, 2021.
On January 6, 2024, EMPERADOR Company completed its self-construction of a building on its own land. Direct costs of construction
were P1,095,000. Construction of the building required 15,000 direct labor hours. EMPERADOR’s construction department has an
overhead allocation system for outside jobs based on an activity denominator of 100,000 direct labor hours, budgeted fixed costs of
P2,500,000, and budgeted variable costs of P27 per direct labor hour.
On July 1, 2024, machinery and equipment were purchased at a total invoice cost of P325,000. Additional costs of P23,000 to rectify
damage on delivery and P18,000 for concrete embedding of machinery were incurred. A wall had to be demolished to enable a large
machine to be moved into the plant. The wall demolition cost P7,000, and rebuilding of the wall cost P19,000.
On August 30, 2024, EMPERADOR Company purchased a new automobile costing P25,000.
On September 30, 2024, a truck with a cost of P48,000 and a carrying amount of P30,000 on December 31, 2023 was sold for P23,500.
On November 4, 2024, EMPERADOR Company purchased a tract of land for investment purposes for P700,000. EMPERADOR thinks it
might use the land as a potential future building site.
On December 20, 2024, a machine with a cost of P17,000, a carrying amount of P2,975 on date of disposition, and a market value of
P4,000 was sold to a corporate officer.
QUESTIONS:
Based on the above and the result of your audit, compute for the following as of and for the year ended December 31, 2024:
7. Total depreciation
8. Carrying amount of buildings
9. Carrying amount of machinery and equipment
10. Carrying amount of automobiles and trucks
11. Carrying amount of property, plant and equipment
PROBLEM NO. 3
The draft balance sheet of FIGARO Corporation as of December 31, 2024 reported the net property, plant and equipment at P6,270,000.
Details of the amount follow:
Land at cost P1,000,000
Building at cost P4,000,000
Less accumulated
depreciation at 12/31/23 ( 800,000) 3,200,000
Plant at cost 5,200,000
Less accumulated
depreciation at 12/31/23 ( 3,130,000) 2,070,000
P 6,270,000
The following matters are relevant
(a) The company policy for all depreciation is that a full year’s charge is made in the year of acquisition or completion and none in the year
of disposal.
(b) Included in the sales revenue is P300,000 being the sales proceeds of an item of plant that was sold on June 30, 2024. The plant had
originally cost P900,000 and had been depreciated by P630,000 as of December 31, 2023. Other than recording the proceeds in sales and
cash, no other accounting entries for the disposal of the plant have been made. All plant is depreciated at 25% per annum on the reducing
balance basis.
(c) On September 30, 2024, the company completed the construction of a new warehouse. The construction was achieved using the
company’s own resources as follows:
Purchased materials P 150,000
Direct labor 800,000
Supervision 65,000
Design and planning 20,000
Included in the above figures are P10,000 for materials and P25,000 for labor costs that were effectively lost due to the foundations being
too close to a neighboring property. All the above costs are included in cost of sales. The building was brought into immediate use upon
completion and has an estimated useful life of 20 years (straight-line depreciation).
(d) At the beginning of the current year, the company had an open market basis valuation of its properties (excluding the newly constructed
warehouse). Land was valued at P1.2 million and the property at P4.8 million. The directors wish these values to be incorporated into the
financial statements. The properties had an estimated remaining life of 20 years at the date of the valuation (straight-line depreciation is
used). The company makes a transfer to retained earnings in respect of the excess depreciation on revalued assets.
(e) Depreciation for the year 2024 has not yet been accounted for in the draft financial statements.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
12. The carrying amount of the new warehouse as of December 31, 2024 is
13. The carrying amount of plant as of December 31, 2024 is
14. The total depreciation for the year ended December 31, 2024 is
15. The net revaluation surplus as of December 31, 2024 is
