AUDIT OF PPE
CASE 1
Forever Company’s property, plant and equipment and related accumulated depreciation accounts had the following
balances at December 31, 2020:
CLASS OF PPE COST ACCUMULATED
DEPRECIATION
Land 3,900,000
Buildings 36,000,000 7,962,000
Machinery and equipment 23,250,000 5,886,000
Transportation equipment 3,960,000 2,586,000
Lease improvement 6,630,000 3,315,000
CLASS OF PPE DEPRECIATION USEFUL
METHOD LIFE
Land improvements Straight Line 12 years
Buildings 150% declining balance 25 years
Machinery and Equipment Straight Line 10 years
Transportation Equipment 150% declining balance 5 years
Lease improvements Straight line 8 years
Forever computes depreciation to the nearest month. The salvage values of the depreciable assets are considered
immaterial.
Transactions during 2021 and other information are described below:
a. On January 5, 2021, a plant facility consisting of land and building was purchased from Torotot Company
for P18,000,000. Of this amount, 20% was allocated to Land.
b. On April 3, 2021 new parking lots, streets and sidewalks at the purchased plant facility were completed at a
total cost of P5,760,000. These expenditures had an estimated useful life of 12 years.
c. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of 8
years. The related lease which would have terminated on December 31, 2023, was renewed in 2021 for
additional 4 year term.
d. ON July 1, 2021 machinery and equipment were purchased a total invoice cost of P7,500,000. Additional
costs of P300,000 for delivery and P900,000 for installation were incurred.
e. On August 31, 2021, Forever purchased a new automobile for P450,000.
f. On September 29, 2021, a truck with a cost of P720,000 and carrying amount of P243,000 on the date of
sale was sold for P345,000. Depreciation for the 9 months ended September 30, 2021, was P70,560.
g. On December 28, 2021, a machine with a cost of P510,000 and carrying amount of P89,250 at date of
disposition was scrapped without cash recovery.
Based on the preceding information, calculate the 2021 depreciation expense on each of the following classes of
PPE.
1. Land improvements
2. Buildings
3. Machinery and Equipment
4. Transportation equipment
5. Leasehold improvement
CASE 2
The audited statement of financial position of Juane Co. as of December 31, 2019 shows the following property,
plant and equipment items:
Land P 1,750,000
Buildings 15,000,000
Machinery and equipment 11,250,000
Automobiles 1,720,000
Leasehold improvements 2,160,000
Juane Co. completed the following transactions during 2010:
Jan 5 Acquired a plant facility consisting of land and a building in exchange for 750,000 shares of
Juane’s ordinary share capital. On this date, Juane’s ordinary shares had a market price of P25
per share. The fair values of the land and building are P5,625,000 and P16,875,000,
respectively.
Mar 20 New parking lots, streets, and sidewalks at the acquired plant facility were completed at a total
cost of P5,760,000.
July 1 Machinery and equipment were purchased at a total invoice cost of P1,250,000. Additional costs
of P45,000 for delivery and P98,000 for installation were incurred.
Sept 1 Juane purchased a new automobile for P675,000.
Nov 3 Juane purchased for P10,500,000, a tract of land for an undetermined future use.
Dec. 20 A machine with a cost of P425,000 and a carrying value of P89,250 at date of disposition was
scrapped without cash recovery.
Based on the preceding information, calculate the December 31, 2020, balances of the following accounts:
1. Land
2. Land improvements
3. Buildings
4. Machinery and equipment
