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Unformatted text preview: Page 1 of 10 CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i l a AUDITING PROBLEMS AUDIT OF PROPERTY, PLANT & EQUIPMENT AND INTANGIBLE ASSETS PROBLEM NO. 1 The property, plant and equipment section of White Corporation’ s balance sheet at December 31, 2004 included the following items: Land P 2,500,000 Land improvements 560,000 Building 3,600,000 Machinery and equipment 6,600,000 During 2005 the following data were available to you upon your analysis of the accounts: Cash paid on purchase of land P10,000,000 Mortgage assumed on the land bought, including interest at 16% 16,000,000 Realtor’s commission 1,200,000 Legal fees, realty taxes and documentation expenses 200,000 Amount paid to relocate persons squatting on the property 400,000 Cost of tearing down an old building on the land 300,000 Amount recovered from the salvage of the building demolished 600,000 Cost of fencing the property 440,000 Amount paid to a contractor for the building erected 8,000,000 Building permit fees 50,000 Excavation expenses 250,000 Architect’s fee 100,000 Interest that would have been earned had the money used during the period of construction been invested in the money market 600,000 Invoice cost of machinery acquired 8,000,000 Freight, unloading, and delivery charges 240,000 Customs duties and other charges 560,000 Allowances, hotel accommodations, etc., paid to foreign technicians during instillation and test run of machines 1,600,000 Royalty payment on machines purchased (based on units produced and sold) 480,000 REQUIRED: Based on the above and the result of your audit, compute for the following as of December 31, 2005: 1. Land 2. Land improvements 3. Building 4. Machinery and equipment 5. Total depreciable property, plant and equipment PROBLEM NO. 2 The following were discovered during your audit of Black Company’s financial statements for the year ended December 31, 2005: a. On December 24, 2005, Black purchased an office equipment for P400,000, terms 2/5, n/15. No entry was made on the date of purchase. The same was paid on December 31, 2005 and the accountant debited Office Equipment and credited cash for P400,000. AP-5903 Page 2 of 10 b. Machine C, with a cash price of P128,000, was purchased on January 2, 2005. The company paid P20,000 down and P10,000 for 12 months. The last payment was made on December 30, 2005. Straight line depreciation, based on a five-year useful life and no salvage value, was recorded at P28,000 for the year. Freight of P4,000 on machine C was debited to the Freight in account. c. Machine P with a cash selling price of P360,000 was acquired on April 1, 2005, in exchange for P400,000 face amount of bonds payable selling at 94, and maturing on April 1, 2015. The accountant recorded the acquisition by a debit to Machinery and a credit to Bonds Payable for P400,000. Straight line depreciation was recorded based on a five-year economic life and amounted to P54,000 for nine months. In the computation of depreciation, residual value of P40,000 was used.computation of depreciation, residual value of P40,000 was used....
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- Spring '10
- Depreciation, useful life, PROBLEM NO.