Problem I- You are required to prepare entries under the following

independent situations:

1) An entity received a grant of P30,000 from the British government

in order to defray safety and environmental costs within the area
where the entity is located.

The safety and environmental costs are expected to be incurred

over four years, respectively, P2,000,000, P4,000,000 ,P6,000,000 and
P8,000,000.

Cash 30,000
Deferred Grant Income 30,000

Safety and Environmental Expenses 2,000,000

Cash 2,000,000

Deferred Grant Income 3,000

Grant Income ( 3,000

2) An entity received a grant of P40,000,000 from the American government

for the construction of laboratory and research facility with an estimated
cost of P50,000,000 and useful life of 20 years.

Cash 40,000,000
Deferred Grant Income 40,000,000

Building 50,000,000
Cash 50,000,000

Depreciation 2,500,000
Accumulated Depreciation 2,500,000

Deferred Grant Income 2,000,000

Grant Income ( 2,000,000

3) An entity is granted a large tract of land in Cordillera by the Philippine government.

The fair value of the land is P50,000,000.

The grant requires that the entity shall construct a factory and employ only personnel
residing in the Cordillera region.

The cost of the factory is P80,000,000 with useful life of 25 years.

Land 50,000,000
 Deferred Grant Income 50,000,000

Building 80,000,000
Cash 80,000,000

Depreciation 3,200,000
Accumulated Depreciation 3,200,000

Deferred Grant Income 2,000,000

Grant Income 2,000,000

4) An entity received a grant of P10,000,000 from the Australian government to compensate

for massive losses incurred because of a recent earthquake.

Cash 10,000,000
Grant Income 10,000,000

Problem II- At the beginning of the current year, Apple Company purchased
a plating machine for P5,400,000.

The entity received a government grant of P400,000 toward this capital cost.

The machine is to be depreciated on a 20% reducing balance basis over 10

years. The estimated residual value is P200,000.

Required: Prepare journal entries for the current year, assuming the grant is
accounted for as:

a) Deferred income
b) Deduction from asset

a) Deferred Income b) Deduction from asset

Machine 5,400,000 Machine
Cash 5,400,000 Cash

Cash 400,000 Cash

Deferred Grant Income 400,000 Machine

Depreciation 520,000 Depreciation

Accumulated Depreciation 520,000 Accumulated Depreciatio

Deferred Grant Income 40,000

Grant Income 40,000
uction from asset
5,400,000
5,400,000

400,000
400,000

480,000
Accumulated Depreciation 480,000
Problem I Problem I- ABC comp
for general purposes
Mos. Average
Date Expenditures Outstanding Peso Months Expenditures
12% bank loan
Jan. 1 2,000,000 12 24,000,000 14% long term loan
Jun. 30 2,000,000 6 12,000,000
Dec. 31 1,000,000 0 - The construction bega
5,000,000 18 36,000,000 3,000,000
Expenditures on the b
P1,000,000 on Decem
Average expenditures 3,000,000
x Capitalization rate ( 1,060/8,000) 13.25% Required: Compute th
Borrowing cost to be capitalized 397,500
Total expenditures 5,000,000
Cost of the building 5,397,500

Problem II

Mos. Average
Date Expenditures Outstanding Peso Months Expenditures
Jan. 1 2,000,000 12 24,000,000 Problem II- On Janua
Mar. 31 1,000,000 9 9,000,000 specifically for the co
Sept. 30 3,000,000 3 9,000,000
The actual interest c
42,000,000 3,500,000
earned from the tem

Specific Borrowings: DEF Company had t

Interest Expense 240,000 but the proceeds we
Less: Interest Income 10,000 230,000
General Borrowings:
Average Expenditures 3,500,000 10% bank loan
Less: Specific borrowings 2,000,000 12% long term loan
General Borrowings 1,500,000
x Capitalization rate (900/8000) 11.25% 168,750 The construction beg
Capitalizable borrowing costs 398,750 expenditures on the
Expenditures on the construction 6,000,000 P3,000,000 on Septe
Total cost of the new building 6,398,750
Required: Compute t
Problem I- ABC company had the following borrowings during 2020. The borrowings were made
or general purposes but the proceeds were used to finance the construction of a new building.

Principal Interest
12% bank loan 3,000,000 360,000
14% long term loan 5,000,000 700,000

The construction began on January 1, 2020 and was completed on December 31, 2020.

Expenditures on the building were P2,000,000 on January 1, P2,000,000 on June 30 and

P1,000,000 on December 31.

Required: Compute the cost of the building.

Problem II- On January 1, 2020, DEF Company borrowed P2,000,000 at an interest rate of 12%
specifically for the construction of a new building.

The actual interest cost on this specific borrowing was P240,000 but interest of P10,000 was
earned from the temporary investment of the borrowing proceeds.

DEF Company had the following other loans in 2020 which were borrowed for general purposes
but the proceeds were used in part for the construction of the building.

Principal Interest
10% bank loan 3,000,000 300,000
12% long term loan 5,000,000 600,000

The construction began on January 1, 2020 and was completed on December 31, 2020. The
expenditures on the construction were P2,000,000 on January 1, P1,000,000 on March 31 and
P3,000,000 on September 30.

Required: Compute the cost of the new building.

Problem 1- At year end, an entity has a machinery with the following cost
and accumulated depreciation :

Machinery 5,000,000
Accumulated Depreciation ( 5- year life: 2 years expired) 2,000,000
Carrying amount 3,000,000

Due to obsolescence and physical damage, the machinery is found to be impaired.

The entity has determined the following information with respect to the machinery
at year-end:
Impairment Loss
Fair value less cost of disposal 2,400,000
Value in use 2,200,000
Depreciation
Required: Journal entry to record impairment loss, if any

Cost
Less: AD (2,000,000+1,400
CV, Dec. 31, 2022

Problem II On December 31, 2020, an entity has a machinery with the following
cost and accumulated depreciation:

Machinery 60,000,000
Accumulated Depreciation 20,000,000
Carrying amount 40,000,000

The entity believes that here has been an impairment of the machinery and accordingly
determines the fair value less cost of disposal and value in use.

The fair value cost of disposal is determined to be P33,000,000.

CA
The machinery has a reamining life of 5 years and is expected to generate an annual Recoverable amount
undiscounted net cash inflow of P9,000,000. Impairment Loss

The appropriate discount rate is 8%. The PV of an ordinary annuity of 1 at 5% for5 periods is Impairment Loss
3.99.

Required: Journal entries to record the: Depreciation

1) Impairment loss
2) Depreciation subsequent to impairment
Problem III- A cash generating unit reported the following assets at carrying
amount at year end:
CA
Property, plant and equipment 3,000,000 Recoverable value
Patent 2,000,000 Impairment Loss
Goodwill 1,000,000
Carrying amount of CGU 6,000,000 Impairment Loss
Applicable to goodwill
An annual impairment review is required as the cash generating unit contains Excess impairment loss
goodwill.
Property, Plant and Equipment (3
The most recent review assesses the value in use of the cash generating unit to be Patent
P4,500,000.
Impairment Loss
Required: Accumulated Depreciation
1) Determine the Impairment loss, if any. Patent
2) Journal entry to recognize impairment loss. Goodwill
Impairment Loss 600,000
Accumulated Depreciation 600,000

Depreciation 800,000
Accumulated Depreciation 800,000
(2,400,000/3)

4,500,000
Less: AD (2,000,000+1,400,000) 3,400,000
CV, Dec. 31, 2022 1,100,000

40,000,000
Recoverable amount 35,910,000
Impairment Loss (4,090,000)

Impairment Loss 4,090,000

Accumulated Depreciation 4,090,000

Depreciation 7,182,000
Accumulated Depreciation 7,182,000
 6,000,000
Recoverable value 4,500,000
Impairment Loss (1,500,000)

Impairment Loss 1,500,000

Applicable to goodwill 1,000,000
Excess impairment loss 500,000

Property, Plant and Equipment (3/5) 300,000

200,000

Impairment Loss 1,500,000

Accumulated Depreciation 300,000
Patent 200,000
Goodwill 1,000,000
 Principal Interest
10% bank loan 3,000,000 300,000
12% long term loan 5,000,000 600,000