NON-CURRENT OPERATING ASSETS Items 1 and 2
The La Vida Company closes its book every December 31. On August 1, 2006, they bought a machine for P300, 000. The machine is expected to have a useful life of 10 ye ars with no scrap value. On August 01, 2010, P36, 000 was paid for the major overhaul of the machine which extended the life of the machine for another two years. The machine was sold for P185, 000 on June 30, 2011. 1. The depreciation expense of the machine for 2010 was: a. P28, 750
b. P30, 000
c. P27, 000
d. P 11,250
2. The sale of the machine resulted in a gain/loss of a. P33, 250
b. P35, 500
c. P39, 250
d. P6, 250
Items 3 and 4
On an audit engagement for 2010, you handled the audit of fixed assets of Benguet Copper Mines. This mining company bought the exploration rights of Lawrence Exploration on June 30, 2010 for P7, 290, 0000. Of this purchase price, P4, 860, 000was allocated to copper ore which had remaining reserves estimated at P1, 620, 000 tons. Benguet Copper Mines expects to extract 15, 00 tons of ore a month with an estimated selling price of P50 per ton. Production started immediately after some new machines costing P600, 000 was bought on June 30, 2010. These new machineries had an estimated useful life of 15 years with scrap value of 10% of cost after the ore estimated has been extracted from the property, at which time the machineries will already be useless. Among the operating expenses of Benguet Copper Mines at Dec. 31, 2010 were: Depletion expense
P405, 000
Depreciation of machineries
40, 000
3. Recorded depletion expense was a. Overstated by P90, 000
c.
Understated Understated by P90, 000
b. Overstated by P20, 000
d.
Understated Understated by P20, 000
a. Overstated by P10, 000
c.
Understated by P10, 000
b. Overstated by P20, 000
d.
Understated by P20,000
4. Recorded depreciation expense was
5.
Trinidad Company purchased for cash on January 01, 2006, three machines which cost a total of P1, 200, 000. Estimated selling prices of the machines were: Machine 1, P400, 000; Machine 2, P500, 000; Machine 3, P600, 000. The machines were believed to have a useful life of ten years without residual value. The company records annually on a monthly basis. On January 1, 2009, Machine 1 was sold for P250, 000 cash. The proceeds w ere credited to the Machinery account. On July 1, 2010, Machine 3, was traded in, for a new machine (No. 4) which had a cash price of P500, 000, Trinidad paying P200, 000 for the difference with the trade-in value of the old machine. What should be the balance of the Accumulated Depreciation-Machinery on December 31, 2010 after adjustment of the books? a. P537, 000
b. P321, 000
c. P255, 000
d. none of these