Acquisition of Property, Plant and Equipment (PAS 16 and PIC Interpretation) As a newly hired assurance associate of SGV & Co., you are assigned by the engagement partner to audit the Property, Plant and Equipment acquisitions of ABS-CBN Inc for the year ended December 31,2011. The accounting department provided you with the following transactions during 2011: • On January 1,2011, ABS-CBN acquired a machinery at a cash price of P150,000. In addition to the cash payment, the entity pays freight of P10,000; installation cost of P20,000; cost of trial runs of P5,000; nonrefundable import duties of P25,000 and creditable value added tax of P18,000. • On February 1,2011, ABS-CBN acquired land and building at a single cost of P10,000,000. At the time of acquisition, the land has a fair value of P15,000,000 and the building, P5,000,000. • On March 1,2011, ABS-CBN acquired an equipment at an installment price of P500,000. The terms are P100,000 down and the balance payable in four equal annual installments. The cash price of the machinery is P450,000. A promissory note is issued for the installment balance of P400,000. • On April 1,2011, ABS-CBN acquired a laptop at an installment price of P100,000. The terms are P20,000 down and the balance in four equal annual installments. A promissory note is issued for the balance of P80,000. There is no available cash price for the machinery. The applicable discount rate for this note is 10%. • On May 1,2011, ABS-CBN acquired a delivery truck by issuing 100,000 shares with par value of P20. At the time of acquisition, the fair value of the delivery truck is P2,500,000 and the share is quoted at P23 per share. • On June 1,2011, ABS-CBN acquired a service car by issuing bonds payable with face value of P2,000,000. The term of the bonds is 3 years with nominal interest rate of 10%. The interest is payable annually starting June 1,2012. At the date of issuance, the yield rate of the bonds is 12%. • On July 1,2011, ABS-CBN exchange its satellite with the satellite of GMA7. as follows: ABS-CBN GMA7 Satellite Cost 20,000,000 30,000,000 Accumulated Depreciation 5,000,000 10,000,000 Carrying Value 15,000,000 20,000,000 Fair value 25,000,000 28,000,000 Cash paid by ABS-CBN to GMA 300,000 300,000 • On August 1,2011, ABS-CBN received a set of appliances from a stockholder as a donation. The fair value of the property at the date of donation is P500,000. ABS-CBN paid registration fees and legal fees in connection with the donation in the amount of P50,000. Moreover, ABS-CBN incurred installation and testing cost for the property in the amount of P20,000. • On September 1,2011, ABS-CBN constructed a new factory. The following costs are incurred in connection with the construction: o Direct cost of materials P5,000,000 o Direct cost of labors 3,000,000 o Incremental overhead identifiable to construction 2,000,000 o Cost of opening the new factory 1,000,000 o Cost of relocating the factory workers 4,000,000 o Saving on construction 1,500,000 o Income from rentals of property during construction 300,000 Required: A. Prepare the entry for the preceding transactions. B. Determine the initial measurement or historical cost of the following: ____________1. Machinery ____________2. Land ____________3. Building ____________4. Equipment ____________5. Laptop ____________6. Delivery Truck ____________7. Service Car ____________8. New Satellite assuming the exchange has commercial substance on the part of ABS-CBN (PAYOR) ____________9. New Satellite assuming the exchange lacks commercial substance on the part of ABS-CBN (PAYOR) ____________10. New Satellite assuming the exchange has commercial substance on the part of GMA (PAYEE) ____________11. New Satellite assuming the exchange lacks commercial substance on the part of GMA (PAYEE) ____________12. Set of Appliances if the donor is a stock-holder ____________13. Set of Appliances if the donor is a non-stockholder ____________14. New Factory
Acquisition of Property, Plant and Equipment (PAS 16 and PIC Interpretation)
As a newly hired assurance associate of SGV & Co., you are assigned by the engagement partner to audit the Property, Plant and Equipment acquisitions of ABS-CBN Inc for the year ended December 31,2011. The accounting department provided you with the following transactions during 2011:
• On January 1,2011, ABS-CBN acquired a machinery at a cash price of P150,000. In addition to the cash payment, the entity pays freight of P10,000; installation cost of P20,000; cost of trial runs of P5,000; nonrefundable import duties of P25,000 and creditable value added tax of P18,000.
• On February 1,2011, ABS-CBN acquired land and building at a single cost of P10,000,000. At the time of acquisition, the land has a fair value of P15,000,000 and the building, P5,000,000.
• On March 1,2011, ABS-CBN acquired an equipment at an installment price of P500,000. The terms are P100,000 down and the balance payable in four equal annual installments. The cash price of the machinery is P450,000. A promissory note is issued for the installment balance of P400,000.
• On April 1,2011, ABS-CBN acquired a laptop at an installment price of P100,000. The terms are P20,000 down and the balance in four equal annual installments. A promissory note is issued for the balance of P80,000. There is no available cash price for the machinery. The applicable discount rate for this note is 10%.
• On May 1,2011, ABS-CBN acquired a delivery truck by issuing 100,000 shares with par value of P20. At the time of acquisition, the fair value of the delivery truck is P2,500,000 and the share is quoted at P23 per share.
• On June 1,2011, ABS-CBN acquired a service car by issuing bonds payable with face value of P2,000,000. The term of the bonds is 3 years with nominal interest rate of 10%. The interest is payable annually starting June 1,2012. At the date of issuance, the yield rate of the bonds is 12%.
• On July 1,2011, ABS-CBN exchange its satellite with the satellite of GMA7. as follows:
| ABS-CBN | GMA7 | |
| Satellite Cost | 20,000,000 | 30,000,000 |
| 5,000,000 | 10,000,000 | |
| Carrying Value | 15,000,000 | 20,000,000 |
| Fair value | 25,000,000 | 28,000,000 |
| Cash paid by ABS-CBN to GMA | 300,000 | 300,000 |
• On August 1,2011, ABS-CBN received a set of appliances from a stockholder as a donation. The fair value of the property at the date of donation is P500,000. ABS-CBN paid registration fees and legal fees in connection with the donation in the amount of P50,000. Moreover, ABS-CBN incurred installation and testing cost for the property in the amount of P20,000.
• On September 1,2011, ABS-CBN constructed a new factory. The following costs are incurred in connection with the construction:
o Direct cost of materials P5,000,000
o Direct cost of labors 3,000,000
o Incremental
o Cost of opening the new factory 1,000,000
o Cost of relocating the factory workers 4,000,000
o Saving on construction 1,500,000
o Income from rentals of property during construction 300,000
Required: A. Prepare the entry for the preceding transactions.
B. Determine the initial measurement or historical cost of the following:
____________1. Machinery
____________2. Land
____________3. Building
____________4. Equipment
____________5. Laptop
____________6. Delivery Truck
____________7. Service Car
____________8. New Satellite assuming the exchange has commercial substance on the part of ABS-CBN (PAYOR)
____________9. New Satellite assuming the exchange lacks commercial substance on the part of ABS-CBN (PAYOR)
____________10. New Satellite assuming the exchange has commercial substance on the part of GMA (PAYEE)
____________11. New Satellite assuming the exchange lacks commercial substance on the part of GMA (PAYEE)
____________12. Set of Appliances if the donor is a stock-holder
____________13. Set of Appliances if the donor is a non-stockholder
____________14. New Factory
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