1
PPE ACQUISITION PRACTICE OVERVIEW ESSENTIAL
EXERCISES AND SOLUTIONS
1. LOQUACIOUS TALKATIVE Co. acquired a factory equipment overseas on cash basis
for Additional costs incurred include the following: commissions paid to
brokers for the purchase of the equipment, ₱20,000; import duties of ₱100,000; non-
refundable purchase taxes of ₱40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, ₱4,000; costs of assembling and installing the equipment,
₱8,000; costs of testing the equipment, ₱6,000; administration and other general
overhead costs, ₱16,800; and advertisement and promotion costs of the new
product to be produced by the equipment, ₱15,200. The samples generated from
testing the equipment were sold at ₱2,000. How much is the initial cost of the
equipment?
b. 594,800 c. 576,000 d. 592,800
2. PRECLUDE PREVENT Co. acquired an equipment for ₱448,000 on account with a
credit term of 2/15, n/30. Any discount is computed based on the purchase price.
The purchase price is inclusive of 12% value added tax (VAT). PRECLUDE Co. is VAT-
registered and any N, input VAT paid is refundable through deduction from monthly
output VAT remitted to the Bureau of Internal Revenue (BIR). Additional costs
incurred include ₱40,000 cost of training staff who will be operating the equipment
and ₱60,000 cost of relocating the equipment to a new location after it was installed
in a location originally intended by management. How much is the initial cost of the
equipment?
a. 400,000 c. 491,040 d. 392,000
3. On January 1, 20x1, SQUAMOUS SCALY Co. purchased furniture with an installment
price of ₱520,000 and by paying ₱40,000 down
payment and issuing a one-year noninterest-bearing note of ₱120,000 payable in
equal semi-annual installments on July 1 and December 31, 20x1. How much is the
initial cost of the furniture?
a. 520,000 b. 480,000 d. 360,000
4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures with an installment
price of ₱520,000 by paying ₱40,000 down payment and issuing a three-year
noninterest bearing note of ₱480,000 payable in three equal annual installments
starting December 31, 20x1. The prevailing rate for the note as of January 1, 20x1 is
12%. How much is the initial cost of the fixtures?
a. 520,000 b. 480,000 d. 360,000
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5. On January 1, 20x1 ABC Co. acquired a building for ₱380,000, including ₱20,000 non
-refundable purchase taxes. The purchase agreement provided for payment to be
made in full on December 31, 20x1. Legal fees of ₱8,000 were incurred in acquiring
the building and paid on January 1, 20x1. An appropriate discount rate is 10%. How
much is the initial cost of the building?
a. 368,000 b. 388,000 c. 424,634
6. ABC Co. had the following assets on December 31, 20x1.
Land used as plant site 50,000
Land and building classified as held for sale 780,000
Building used as office 500,000
Building rented out under operating lease 420,000
Equipment being sold in the ordinary course of business 330,000
Office furniture 24,000
Fixtures and signage 10,000
Machinery 12,000
Automobiles (used by company officers) 350,000
Delivery trucks (used by the shipping department) 420,000
Computers 70,000
Aircraft rented out to various clients 690,000
Dairy cattle (held to produce milk that is sold to customers) 10,000
Harvested milk 3,000
Apple trees (held to bear fruits to that are sold to customers) 6,000
Harvested apples 2,000
How much is the total of assets classified as property, plant and equipment?
b. 2,126,000 c. 2,142,000 d. 2,148,000
PPE ACQUISITION PRACTICE OVERVIEW ESSENTIAL
EXERCISES AND SOLUTIONS
1. LOQUACIOUS TALKATIVE Co. acquired a factory equipment overseas on cash basis
for Additional costs incurred include the following: commissions paid to
brokers for the purchase of the equipment, ₱20,000; import duties of ₱100,000; non-
refundable purchase taxes of ₱40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, ₱4,000; costs of assembling and installing the equipment,
₱8,000; costs of testing the equipment, ₱6,000; administration and other general
overhead costs, ₱16,800; and advertisement and promotion costs of the new
product to be produced by the equipment, ₱15,200. The samples generated from
testing the equipment were sold at ₱2,000. How much is the initial cost of the
equipment?
b. 594,800 c. 576,000 d. 592,800
2. PRECLUDE PREVENT Co. acquired an equipment for ₱448,000 on account with a
credit term of 2/15, n/30. Any discount is computed based on the purchase price.
The purchase price is inclusive of 12% value added tax (VAT). PRECLUDE Co. is VAT-
registered and any N, input VAT paid is refundable through deduction from monthly
output VAT remitted to the Bureau of Internal Revenue (BIR). Additional costs
incurred include ₱40,000 cost of training staff who will be operating the equipment
and ₱60,000 cost of relocating the equipment to a new location after it was installed
in a location originally intended by management. How much is the initial cost of the
equipment?
a. 400,000 c. 491,040 d. 392,000
3. On January 1, 20x1, SQUAMOUS SCALY Co. purchased furniture with an installment
price of ₱520,000 and by paying ₱40,000 down
payment and issuing a one-year noninterest-bearing note of ₱120,000 payable in
equal semi-annual installments on July 1 and December 31, 20x1. How much is the
initial cost of the furniture?
a. 520,000 b. 480,000 d. 360,000
4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures with an installment
price of ₱520,000 by paying ₱40,000 down payment and issuing a three-year
noninterest bearing note of ₱480,000 payable in three equal annual installments
starting December 31, 20x1. The prevailing rate for the note as of January 1, 20x1 is
12%. How much is the initial cost of the fixtures?
a. 520,000 b. 480,000 d. 360,000
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5. On January 1, 20x1 ABC Co. acquired a building for ₱380,000, including ₱20,000 non
-refundable purchase taxes. The purchase agreement provided for payment to be
made in full on December 31, 20x1. Legal fees of ₱8,000 were incurred in acquiring
the building and paid on January 1, 20x1. An appropriate discount rate is 10%. How
much is the initial cost of the building?
a. 368,000 b. 388,000 c. 424,634
6. ABC Co. had the following assets on December 31, 20x1.
Land used as plant site 50,000
Land and building classified as held for sale 780,000
Building used as office 500,000
Building rented out under operating lease 420,000
Equipment being sold in the ordinary course of business 330,000
Office furniture 24,000
Fixtures and signage 10,000
Machinery 12,000
Automobiles (used by company officers) 350,000
Delivery trucks (used by the shipping department) 420,000
Computers 70,000
Aircraft rented out to various clients 690,000
Dairy cattle (held to produce milk that is sold to customers) 10,000
Harvested milk 3,000
Apple trees (held to bear fruits to that are sold to customers) 6,000
Harvested apples 2,000
How much is the total of assets classified as property, plant and equipment?
b. 2,126,000 c. 2,142,000 d. 2,148,000
