Problem 10. As a newly hired assurance associate of Emst & Young - Philippines, you are asked to audit the depreciation of the newly acquired Property. Plant and Equipment of Fortune Tobacco Inc. The schedule below is provided by the Property, Plant and Equipment Accountant of Fortune Tobacco Inc. for the year ended January 1,2011: Cost P20,000,000 1,000,000 2,000,000 3,000,000 Useful Life 20 years 100,000 units 5 years 3 years Class of PPE Date of Acquisition January 1,2002 Residual Value P2,000,000 Dep.Method STL Building Machinery Delivery Truck January 1,2009 Equipment 100,000 500,000 Unit Method SYD January 1,2010 600,000 200%Declining The following data are also obtained from the different supporting documents: • On January 1,2011, Nestle determined that the useful life of the building is 25 years from the date of acquisition and revised the residual value to P1,000,000. • For the year ended December 31, 2011, Nestle produced 10,000 units of product using the machinery. As of December 31, 2010, Nestle has cumulative produced 30,000 units of product using the machinery. • On January 1,2011, Nestle changed the depreciation method of the delivery truck from SYD method to Straight Line method and determined that the remaining life of delivery truck as of this date is 4 years. The residual value is also revised to P50,000. • On December 31,2011, Nestle sold the building for P10,000,000. On December 31,2011, a fire razed the equipment. There is a fire insurance for the equipment and Nestle received P100,000. Required: Based in the result of your audit, determine the following: Depreciation expense of building for 2011 2. Depreciation expense of machinery for 2011 3. Depreciation expense of delivery truck for 2011
Problem 10. As a newly hired assurance associate of Emst & Young - Philippines, you are asked to audit the depreciation of the newly acquired Property. Plant and Equipment of Fortune Tobacco Inc. The schedule below is provided by the Property, Plant and Equipment Accountant of Fortune Tobacco Inc. for the year ended January 1,2011: Cost P20,000,000 1,000,000 2,000,000 3,000,000 Useful Life 20 years 100,000 units 5 years 3 years Class of PPE Date of Acquisition January 1,2002 Residual Value P2,000,000 Dep.Method STL Building Machinery Delivery Truck January 1,2009 Equipment 100,000 500,000 Unit Method SYD January 1,2010 600,000 200%Declining The following data are also obtained from the different supporting documents: • On January 1,2011, Nestle determined that the useful life of the building is 25 years from the date of acquisition and revised the residual value to P1,000,000. • For the year ended December 31, 2011, Nestle produced 10,000 units of product using the machinery. As of December 31, 2010, Nestle has cumulative produced 30,000 units of product using the machinery. • On January 1,2011, Nestle changed the depreciation method of the delivery truck from SYD method to Straight Line method and determined that the remaining life of delivery truck as of this date is 4 years. The residual value is also revised to P50,000. • On December 31,2011, Nestle sold the building for P10,000,000. On December 31,2011, a fire razed the equipment. There is a fire insurance for the equipment and Nestle received P100,000. Required: Based in the result of your audit, determine the following: Depreciation expense of building for 2011 2. Depreciation expense of machinery for 2011 3. Depreciation expense of delivery truck for 2011
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Problem 10. As a newly hired assurance associate of Ernst & Young - Philippines, you are asked to audit the depreciation of the newly
acquired Property, Plant and Equipment of Fortune Tobacco Inc. The schedule below is provided by the Property, Plant and Equipment
Accountant of Fortune Tobacco Inc. for the year ended January 1,2011:
Class of PPE
Building
Machinery
Delivery Truck January 1,2009
Equipment
Date of Acquisition
January 1,2002
January 1,2007
Cost
Useful Life
20 years
100,000 units
5 years
3 уears
Residual Value
Dep.Method
STL
P20,000,000
1,000,000
2,000,000
3,000,000
P2,000,000
100,000
500,000
600,000
Unit Method
SYD
200%Declining
January 1,2010
The following data are also obtained from the different supporting documents:
• On January 1,2011, Nestle determined that the useful life of the building is 25 years from the date of acquisition and revised
the residual value to P1,000,000.
• For the year ended December 31, 2011, Nestle produced 10,000 units of product using the machinery. As of December 31,
2010, Nestle has cumulative produced 30,000 units of product using the machinery.
• On January 1,2011, Nestle changed the depreciation method of the delivery truck from SYD method to Straight Line method
and determined that the remaining life of delivery truck as of this date is 4 years. The residual value is also revised to
P50,000.
• On December 31,2011, Nestle sold the building for P10,000,000.
On December 31,2011, a fire razed the equipment. There is a fire insurance for the equipment and Nestle received P100,000.
Required: Based in the result of your audit, determine the following:
_1. Depreciation expense of building for 2011
2. Depreciation expense of machinery for 2011
3. Depreciation expense of delivery truck for 2011
4. Depreciation expense of equipment for 2011
5. Gain or loss on sale of building
6. Gain or loss on derecognition of equipment as a result of fire
7. Carrying value of machinery on December 31,2011
8. Carrying value of delivery truck on December 31,2011
9. Net debit or (credit) to January 1,2011 Retained Earnings as a result of accounting changes
Problem 11. COMPO Inc., a newly formed entity on January 1, 2015, is using the composite method for the depreciation of all of its
items of property, plant and equipment:
PPE Account
Machine
Equipment
Building
Historical Cost Residual Value Useful Life
500,000
P3,500,000
4,300,000
8,200,000
300,000
200,000
5 years
8 years
10 years
The following transactions occurred for the years ended December 31, 2017 and 2018 regarding the PPE accounts:
On January 1, 2017, COMPO Inc. sold its equipment for P100,000.
On January 1, 2018, COMPO Inc. acquired a delivery truck with a cost of P6,300,000 and residual value of P300,000. The
useful life of the delivery truck is 20 years.
Required: Based on the result of your audit, determine the following:
a. Composite rate for the PPE
b. Composite life of the PPE
c. Gain or loss on disposal of equipment on January 1, 2017
d. Depreciation expense for the year ended December 31, 2017
e. Book value of PPE as of December 31, 2017
f. Depreciation expense for the year ended December 31, 2018
g. Book value of PPE as of December 31, 2018](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F138646ec-1060-4696-8110-40df843b362b%2F4a0093a7-ef46-40e8-804b-f608bee5764e%2Fuddcrbt_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 10. As a newly hired assurance associate of Ernst & Young - Philippines, you are asked to audit the depreciation of the newly
acquired Property, Plant and Equipment of Fortune Tobacco Inc. The schedule below is provided by the Property, Plant and Equipment
Accountant of Fortune Tobacco Inc. for the year ended January 1,2011:
Class of PPE
Building
Machinery
Delivery Truck January 1,2009
Equipment
Date of Acquisition
January 1,2002
January 1,2007
Cost
Useful Life
20 years
100,000 units
5 years
3 уears
Residual Value
Dep.Method
STL
P20,000,000
1,000,000
2,000,000
3,000,000
P2,000,000
100,000
500,000
600,000
Unit Method
SYD
200%Declining
January 1,2010
The following data are also obtained from the different supporting documents:
• On January 1,2011, Nestle determined that the useful life of the building is 25 years from the date of acquisition and revised
the residual value to P1,000,000.
• For the year ended December 31, 2011, Nestle produced 10,000 units of product using the machinery. As of December 31,
2010, Nestle has cumulative produced 30,000 units of product using the machinery.
• On January 1,2011, Nestle changed the depreciation method of the delivery truck from SYD method to Straight Line method
and determined that the remaining life of delivery truck as of this date is 4 years. The residual value is also revised to
P50,000.
• On December 31,2011, Nestle sold the building for P10,000,000.
On December 31,2011, a fire razed the equipment. There is a fire insurance for the equipment and Nestle received P100,000.
Required: Based in the result of your audit, determine the following:
_1. Depreciation expense of building for 2011
2. Depreciation expense of machinery for 2011
3. Depreciation expense of delivery truck for 2011
4. Depreciation expense of equipment for 2011
5. Gain or loss on sale of building
6. Gain or loss on derecognition of equipment as a result of fire
7. Carrying value of machinery on December 31,2011
8. Carrying value of delivery truck on December 31,2011
9. Net debit or (credit) to January 1,2011 Retained Earnings as a result of accounting changes
Problem 11. COMPO Inc., a newly formed entity on January 1, 2015, is using the composite method for the depreciation of all of its
items of property, plant and equipment:
PPE Account
Machine
Equipment
Building
Historical Cost Residual Value Useful Life
500,000
P3,500,000
4,300,000
8,200,000
300,000
200,000
5 years
8 years
10 years
The following transactions occurred for the years ended December 31, 2017 and 2018 regarding the PPE accounts:
On January 1, 2017, COMPO Inc. sold its equipment for P100,000.
On January 1, 2018, COMPO Inc. acquired a delivery truck with a cost of P6,300,000 and residual value of P300,000. The
useful life of the delivery truck is 20 years.
Required: Based on the result of your audit, determine the following:
a. Composite rate for the PPE
b. Composite life of the PPE
c. Gain or loss on disposal of equipment on January 1, 2017
d. Depreciation expense for the year ended December 31, 2017
e. Book value of PPE as of December 31, 2017
f. Depreciation expense for the year ended December 31, 2018
g. Book value of PPE as of December 31, 2018
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