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illnnLEll no.1 The draft balance sheet bf HenestllI Edi-peraticn as crf December 51, 2mg repbrted the net prcpertm piint and ethiipment at Damped....

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PROBLEM NO.1

The draft balance sheet of Honesty Corporation as of December 31, 2019 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 12/31/18 ( 800,000) 3,200,000

Plant at cost 5,200,000

Less accumulated depreciation at 12/31/18 (3,130,000) 2,070,000

P6,270,000

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, 

2019. The plant had originally cost P900,000 and had been depreciated by P630,000 as of December 31, 2018. 

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, 2019, the company completed the construction of a new warehouse. The construction was 

achieved using the company's own resources as follows:

Purchased materials P150,000

Direct labor 800,000

Supervision 65,000

Design and planning costs 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 2019 has not yet been accounted for the in the draft financial statements.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

1. The carrying amount of the new warehouse as of December 31, 2019 is.

2. The carrying amount of plant as of December 31, 2019 is.

3. The total depreciation for the year ended December 31, 2019 is

4. The revaluation surplus as of December 31, 2019 is.

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illnnLEll no.1
The draft balance sheet bf HenestllI Edi-peraticn as crf December 51, 2mg repbrted the net prcpertm piint and
ethiipment at Damped. Details cf the aihbuht fellew: Land at ccst P‘l made building at ccst mend]: Less accumulated decrecndcn at mama i am IIIJ] 5:311,de met at test saluted Less accumulated decrectadcn at meme :5 151.1 ppm 2 fl ebb
W The ffiflflfll‘lflg matters are relevant lal lb} ldl' lei The cbmpanir pdllc'ir fur all depreciation B that a full ‘gl'EdI‘S charge is made in the 1.lear bf acqueitlbn cr ccinpletlbn
and nbne In the I"rear bf dlspesal. Included In the sales revenue ls paddmb being the sales proceeds of an item of plant that was said on June an,
able. The punt had cnginaihl ccst paced]: and had been depreciated Dill resume as cf becember as, able
ddier d-lan reccrdind the prcceeds in sales and dads] nc ed-ler aeemntihg endies fer the disposal cf the pnnt
have been made. Ail plant is depreciated at asst per mnum ch the reducing balance basis. an September aid, same, the ebmpanil mmpieted the cdnstruetidn bf a new WEI'ID‘IJSE. The construction was
athieued ushg the ebinpanil's darn resburees as fbilbliis: Purchased materials P‘lfifllmfl
Direct labbr Eileen
super-idsicn BEING
Design and planning ccsts mmu Included in the abeue figures are F1fl,tIII fer irateiais and needed fbr labcr ccsts lhat were effecduehr lest due
tc the fcuhdadcns being tcc cicse tc a neighbenng W. Ail the abcue ccsls are included in cast cf sales.
The building was draught lhtc immediate use upeh ccmpletitn and has an estimated usefiii ll-Fe cf ab lrears
lstraldht-iihe depreciaticm. At the beginning bf the current year, the ccrnpmw had an cpen market basis valinfidn bf lls prepeitles
leitehidlhg the newilr emstriicted Mflflfllfll. lmd was valued at P11 milllbn and the prbpertlr at Pile million.
The dlreettws wish these values td he lmmpbrated mm the financial statemenls. The prdpertits had an
estimated remaining iife of 20 Ilieiirs at the inte bf the valuation istralght-line depreeladdn is used]. The cbmpanil
mate: a transfer td retained earnings m respect cf the elicess depreciation ch revalued assels. Depreciatibh fer the year 2915 has “at 1ll'et been BEDDUhtetl FD“ the in the draft financial statements. fill-5.5mm:
Based m the ell-due and the result OF your audit, drawer the deHJMI'lhg: '1 .
2.
3. The carnilng ameunt cf the new warehcuse as cf becember 51, 21119 is
The Taming amount at cent as cf becember 51,2015 is. The tetai depretiatltln fer the year ended December 51, 3119 B
The revaluafidn surplus as [If December 51, 3.119 ls.

Top Answer

1) Carrying amount of warehouse, 12/31/19 = 950,000  2)... View the full answer

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