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 In partial fu In partial fulfillment lfillment of the reqof the requirements uirements in Auditing in Auditing and Assuraand Assurance Servnce Services (ACices (ACCM 451)CM 451)ANTONIO, JENNILINE N, JENNILINE N.|| APOSTOL, KYRT RHOLYN S. APOSTOL, KYRT RHOLYN S.|| ARINES, PH...

Description

Solution Guide Property, Plant, and Equipment NFCPAR-Au NFCPAR-Auditing diting Problems In In partial fu lfillment of the requirements requirements in Auditing and Assurance Assurance Services Services (ACCM (ACCM

ANTONIO, JENNILINE N. | APOSTOL, KYRT RHOLYN S. |ARINES, PHI ASPE, TOM ALDWIN R.| BEA, PAULENE MAE T. AC42

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NFCPARNFCPAR- Auditing Auditing Problems Problems Solution Guide

Property, Plant, an

PROBLEM NO. 1 Capitalizable CapitalizableCost CostofofMachinery Machinery

Just Around the Corner Co.acquired acquired aa new new machine. machine. Details Details of of the the acquisition acquisition are are as as fo fo

1. Purchase price including VAT 2. Cost of water device to keep machine cool 3. Cost of safety rail and platform surrou nding machine 4. Installati on cost, including site preparation and assembling 5. Fees paid to consultants for advice on acquisition of the machinery 6. Dismantling cost of the machine 7. Repair cost of the machine damaged while in the process of installation 8. Loss on premature retirement-old retirement-old machine 9. Other non-refu ndable Sales tax 10. Cost of training for personnel personnel who will use the machine 11. Cost of removing old machine

Determine the cost of Machinery. a. ₱ 1,476,000

c. ₱ 1,422,000

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NFCPARNFCPAR- Auditing Auditing Problems Problems Solution Guide

DESCRIPTION

Property, Plant, an

MACHINERY

Purchase price including VAT Cost of water device to keep machine cool Cost of safety rail and platform surroun ding machine Installation Installation cost, including site preparation preparation and assembling Fees Fees paid paid to to consultants consultants for for advice adviceon on acquisition acquisition of of the the machinery Dismantling cost of the machine Repair Repair cost cost of of the the machine machine damaged damaged while while in in the the process process of installation Loss on premature retirement-ol d machine Other non-refundable Sales tax Cost of training for personnel who will use the machine machine

1,400,000 8,000 12,000 20,000

TOTAL

1,476,000

OTHER

13,000 10,000 5,0 18,00 13,000 25,0 48,0

NOTES

1. PAS 16, paragraph 16-a:The The cost cost of of an an item item of of PPE PPE includes includes its its purchase purchase price, price, in i import duties and non-refun dable purchase taxes, after deducting deducting trade trade discounts discounts aa Since VAT is arefundable refundablepurchase purchase tax, tax,ititis is not notincluded includedto to the thecost cost of the machin 2. PAS 16, paragraph 16-b:The The cost cost of of an an item item of of PPE PPE includes includes any any cost cost directly directly att at otobringing bringingthe theasset assettotothe thelocation locationand andcondition conditionnecessary necessaryfor foritittotobe becapable capableof ofop o the the manner manner intended intended by by management. management. 3. PAS 16, paragraph 16-c:The The cost cost of of an an item item of of PPE PPE includes includes the the initial initial estimate estimate oo of ofdismantling dismantlingand andremoving removingthe theitem item and andrestoring restoringthe thesite siteon onwhich whichititisislocated. located. 4. The These se ite items ms are are not not des descri cribe bed d by PAS 16, paragraph 16“components of the the cost o

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Property, Plant, an

PROBLEM NO. 2 Old Oldbuilding buildingwill willnot notbe bedemolished demolished

On March 1, 2018, Levy Co.,, acquired acquired land land and and building building by by paying paying ₱6,000,000 6,000,000 and assum assu mortgage of ₱1,500,000. 1,500,000. The The building building will will be be used used by by Levy Levy Co. Co. as as its its head head office. office. 1. 2. 3. 4. 5.

Cost of survey Cost of paving parking lot adjoining building Cost of option of the land not acquired Broker’s Broker’s fee fee on on the the properties properties acquired acquired  Cost Costof ofrelocating relocatingand andreconstructing reconstructingthe theproperty propertybelonging belongingto toothers others in order to acquire the property 6. Payment to real estate agent 7. Registration Registration fees andtransfer of title 8. Title insurance 9. Real Property taxes on the land accrued after acquisition 10. Cost of shrubs, trees, and other landscaping 11. Unpaid real property taxes up to the date of acquisit ion 12. Driveway, parking bay, and safety lighting 13. Payment for claim for injuries not covered by insurance 14. Cost of removing trees from the land 15. Salvage value of the timber recovered from the land 16. Renovation cost of the building 17. Payment Payment of of medical medical bills bills of of employees employees accidentally accidentally injured injured during during building building ren ovation

REQUIRED:

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Property, Plant, an

CASE NO.2–Assume that on the date of acquisition, the old building has a minimal fair valu

1. Land a. ₱ 7,790,600 b. ₱ 7,560,000

c. ₱7,730,000 d. ₱5,690,000

2. Old building a. ₱ 400,000 b. ₱ 2,296,750

c. ₱2,357,350 d. ₱2,418,750

3. Land improvements a. ₱ 60,600 b. ₱ 61,400

c. ₱122,000 d. ₱182, 600

CASE 1

1. Cost of survey 2. Cost of paving parking lost adjoining building 3. Cost of option of the land not acquired 4. Broker’s fee on the properties acquired 5. Cost of relocating and reconstructing the property belonging to others in order to acquire the property 6. Payment to real estate agent 7. Registration feesand transfer of title 8. Title insurance 9. Real Property taxes on the land accrued after acquisition 10. Cost of shrubs, trees, and other landscaping 11. Unpaid real property taxes up to the date of acquisition 12. Driveway, parking bay, and safety lighting

LI

LAND

BLDG

*5,625,000 50,000

*1,875,000

7,500

2,500

17,250

5,750

30,000 13,000

10,000

50,0

15,000 -

53,00

10,500

3,500 19,0

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NFCPAR- Auditing Problems Solution Guide

Property, Plant, an

NOTES

1. PFRS 3, paragraph 2-b:The acquisition cost of an asset or a group of assets that d constitute a business shall be allocated to the individual identifiable assets and liabil on their relative fair values. The PIC interpretation applies this principle in the alloc the cost of property to land and building. 2. PAS 16, paragraph 16-b:The cost of an item of PPE includes any cost directly at to bringing the asset to the location and condition necessary for it to be capable of o the manner intended by management should be capitalized as part of the cost of the example of directly attributable costs presented in PAS 16, paragraph 17 includes site preparation. 3. Depreciable land improvements not part of the blueprint of the building shall not fo the cost of the building and shall rather be classified as land improvements. 4. Only the cost of the option of the land acquired shall be capitalized. On the other h unpaid real property taxes up to the date of acquisition assumed by the shall form pa cost of the land. 5. Since the property was acquired at a single price, the following costs shall be alloc on their relative fair values. 6. PAS 16, paragraph 16-b: The cost of an item of PPE includes any cost directly at to bringing the asset to its intended location and condition. The cost of insurance is the building because it is a necessary and reasonable cost of bringing the building in existence. However, in this instance where claims for damages are not covered by in these should be expensed outright. 7. The salvage value shall be deducted from the cost of the land because this shall be only when sold.

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NFCPAR- Auditing Problems Solution Guide

1. Cost of survey 2. Cost of paving parking lost adjoining building 3. Cost of option of the land not acquired 4. Broker’s fee on the properties acquired 5. Cost of relocating and reconstructing the property belonging to others in order to acquire the property 6. Payment to real estate agent 7. Registration feesand transfer of title 8. Title insurance 9. Real Property taxes on the land accrued after acquisition 10. Cost of shrubs, trees, and other landscaping 11. Unpaid real property taxes up to the date of acquisition 12. Driveway, parking bay, and safety lighting 13. Payment for claim for injuries not covered by insurance 14. Cost of removing trees from the land 15. Salvage value of the timber recovered from the land 16. Renovation cost of the building 17. Payment of medical bills of employees accidentally injured during building renovation

Property, Plant, an

7,500,000 50,000 50,0 10,000

-

23,000 40,000 13,000 15,000 -

53,0

14,000 19,0 -

-

70,000 (5,000) 400,000 -

-

NOTES

1. Contrary toPFRS 3, paragraph 2-b, in this case, the old building has a minimal fa

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NFCPAR- Auditing Problems Solution Guide

Property, Plant, an

10,000,000 1. Unpaid real property taxes up to the date of acquisition 2. Cost of option of the acquired property 3. Excavation cost 4. Escrow fees on the properties acquired 5. Cost of relocating and reconstructing the property belonging to others in order to acquire the property 6. Payment to real estate agent 7. Payments to tenants of the building to induce them to vacate the premises 8. Legal fees for contract to purchase land 9. Cost of removing trees from the land 10. Building permit and licenses 11. Architect fee 12. Materials used in all construction 13. Driveway and walk to building (part of the building plan) 14. Payment for claim for injuries not covered by insurance 15. Broker’s fee on the properties acquired 16. Rental fees generated on the portion of the building being used as a parking site 17. Cost of paving parking lot adjoining building 18. Other overhead cost incurred as a

14,000 20,000 12,000 11,000 23,000

40,000 3,000 11,000 70,000 60,000 50,000 600,000 30,000

10,000

-

-

-

-

-

-

50,0

220,000

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NFCPAR- Auditing Problems Solution Guide

Property, Plant, an

NOTES

1. Contrary toPFRS 3, paragraph 2-b, in this case, the old building has a minimal fa which is undeterminable as well therefore, the cost shall solely be charged to the lan

2. PAS 16, paragraph 16-b:The cost of an item of PPE includes any costs di attributable to bringing the asset to the location and condition necessary for intended use by management should be capitalized as part of the cost of the example of directly attributable costs presented in PAS 16, paragraph 17in “costs of site preparation. 3. PAS 16, paragraph 16-b: The cost of an item of PPE includes any costs d attributable to bringing the asset to the location and condition. The cost of i charged to the building because it is a necessary and reasonable cost of brin building into existence. However, in this instance where claims for damage covered by insurance, these should be expensed outright. 4. PAS 16, paragraph 16-b:The cost of an item of PPE includes any costs di attributable to bringing the asset to the location and condition. However, in instance, rental fees generated on the portion of the building being used as site shall not form of the cost of the building and it shall shoulder form part incomeinstead. 5. Depreciable land improvements not part of the blueprint of the building sha part of the cost of the building and shall rather be classified as land improv

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NFCPAR- Auditing Problems Solution Guide

Property, Plant, an

PROBLEM NO. 4 Land, Building and Machinery

The property, plant and equipment section of Yes the Blessings Corporation’sbalance s December 31, 2007 include the following items: Land Land improvements Building Machinery and equipment

₱2,500,000 560,000 3,600,000 6,600,000

During 2008 the following data were available to you upon your analysis of the accounts: Cash paid on purchase of land Mortgage assumed on the land bought, including interest at 16% Realtor’s commission Legal fees, realty taxes and documentation expenses Amount paid to relocate persons squatting on the property Cost of tearing down an old building on the land

₱

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NFCPAR- Auditing Problems Solution Guide

4. Cost of the factory Accumulated Depreciation (20,000,000/10)

Property, Plant, an 20,000,000 (2,000,000) (3)

5. Total Depreciation expense in 20X2 (20,000,000-5,000,000)/10

15,000,000 (1,500,000) (4)

NOTES

1. PAS 20 provides that “grant related to nondepreciable asset requiring fulfillmen conditions shall be recognized as income over the periods which bear the cost of m conditions.” 2. PAS 16, “Each part of an item of property, plant and equipment with a cost that i in relation to the total cost of the item shall be depreciated separately. An item o

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NFCPAR- Auditing Problems Solution Guide

Property, Plant, an

PROBLEM NO. 7 Borrowing Costs

You are engaged to audit the accounts of ABC Company. The following disbursements relation to the construction of its building which started January 1, 2015 and was complete 31, 2015. January 1 March 31 July 1 August 1 December 31

P 10,000,000 5,000,000 6,000,000 3,000,000 1,000,000

1. The client is not sure as to how it should treat the interest rel...