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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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods

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
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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