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AP-5903Q_PPE & intangibles

AP-5903Q_PPE & intangibles - Page 1 of 5 CPA REVIEW...

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Page 1 of 5 CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i l a AUDITING PROBLEMS AUDIT OF PROPERTY, PLANT AND EQUIPMENT – QUIZZERS PROBLEM NO. 1 You were engaged in making your second annual examination of Indigo Company . The Machinery and Accumulated Depreciation accounts are shown below: Machinery 01/01/05 Balance P 500,000 09/01/05 Sale of machine No. 3 P 10,000 06/01/05 Machine No. 23 150,000 12/31/05 Balance 644,000 09/01/05 Dismantling of Machine No. 3 4,000 . P 654,000 P 654,000 01/01/06 Balance P 644,000 Accumulated Depreciation 12/31/05 Balance P 344,400 01/01/05 Balance P 280,000 . 12/31/05 Depreciation 64,400 P 344,400 P 344,400 01/01/06 Balance P 344,400 Your examination disclosed the following information: a. The company has depreciated all items of equipment at 10% per annum. The oldest item owned is seven years old as of December 31, 2005. b. The following adjusted balances appeared on December 31, 2004 working papers: Equipment – P500,000; Accumulated Depreciation – P 280,000. c. Machine No. 3, which was purchased on March 1, 2001, at a cost of P80,000, was sold on September 1, 2005 for P10,000 cash. d. Included in charges to Repairs and Maintenance account was an invoice for installation of Machine No. 23, in the amount of P35,000. e. It is the company’s policy to take full year’s depreciation in the year of acquisition and none in the year of disposition. 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. How much is the adjusted balance of the Machinery account as of December 31, 2005? 3. How much is the total depreciation expense on machinery for 2005? 4. How much is the balance of the Accumulated Depreciation account as of December 31, 2005? a. P308,500 b. P344,000 c. P301,458 d. P340,500 AP-5903Q
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Page 2 of 5 5. The adjusting entry to correct the entry made in recording sale of Machine no. 3 will include a debit to SUGGESTED ANSWERS: C, C, B, A, C PROBLEM NO. 2 On January 1, 2004, Olive Corporation purchased a tract of land (site number 101) with a building for P1,800,000. Additionally, Olive paid a real state broker’s commission of P108,000, legal fees of P18,000 and title guarantee insurance of P54,000. The closing statement indicated that the land value was P1,500,000 and the building value was P300,000. Shortly after acquisition, the building was razed at a cost of P225,000.
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