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Auditing Problem 2

PRTC Company owns various property, plant, and equipment assets as of December 31, 2011. During 2012, PRTC constructed a new building, purchased new machinery and equipment, vehicles, and land. Some assets were also sold. Depreciation is calculated using various methods depending on the asset's class. The document provides costs, accumulated depreciation, useful lives, and additional transactions for PRTC's fixed assets during 2012 to calculate balances and depreciation expense for the year.

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514 views1 page

Auditing Problem 2

PRTC Company owns various property, plant, and equipment assets as of December 31, 2011. During 2012, PRTC constructed a new building, purchased new machinery and equipment, vehicles, and land. Some assets were also sold. Depreciation is calculated using various methods depending on the asset's class. The document provides costs, accumulated depreciation, useful lives, and additional transactions for PRTC's fixed assets during 2012 to calculate balances and depreciation expense for the year.

Uploaded by

jhobs
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROBLEM NO.

2 PRTC Company's property, plant, and equipment, accumulated depreciation, and


amortization balances at December 31, 2011 are: Cost Accumulated depreciation Land P 275,000
Buildings 2,800,000 P 672,900 Machinery and equipment 1,380,000 367,500 Automobile and trucks
210,000 114,326 Leasehold improvements 432,000 108,000 Totals P5,097,000 P1,262,726 Additional
information on depreciation, amortization methods, and useful lives follows: Asset Depreciation method
Useful life Buildings 150%-decliningbalance 25 years. Machinery and equipment straight-line 10 years
Automobile and trucks (all acquired after 2009) 150%-decliningbalance 5 years Leasehold improvements
straight-line Depreciation is computed to the nearest month. Salvage values of depreciable assets are
immaterial except for automobiles and trucks which have estimated salvage values equal to 15% of cost.
Other additional information:
 PRTC entered into a twelve-year operating lease starting January 1, 2009. The leasehold improvements
were completed on December 31, 2008 and the facility was occupied on January 1, 2009.

 On January 6, 2012, PRTC completed its self-construction of a building on its own land. Direct costs of
construction were P1,095,000. Construction of the building required 15,000 direct labor hours. PRTC's
construction department has an overhead allocation system for outside jobs based on an activity
denominator of 100,000 direct labor hours, budgeted fixed costs of P2,500,000, and budgeted variable
costs of P27 per direct labor hour.

 On July 1, 2012, machinery and equipment were purchased at a total invoice cost of P325,000.
Additional costs of P23,000 to rectify damage on delivery and P18,000 for concrete embedding of
machinery were incurred. A wall had to be demolished to enable a large machine to be moved into the
plant. The wall demolition cost P7,000, and rebuilding of the wall cost P19,000.

 On August 30, 2012, PRTC purchased a new automobile costing P25,000.

 On September 30, 2012, a truck with a cost of P48,000 and a carrying amount of P30,000 on December
31, 2011 was sold for P23,500.

 On November 4, 2012, PRTC purchased a tract of land for investment purposes for P700,000. PRTC
thinks it might use the land as a potential future building site.

 On December 20, 2012, a machine with a cost of P17,000, a carrying amount of P2,975 on date of
disposition, and a market value of P4,000 was sold to a corporate officer.

QUESTIONS:

Based on the above and the result of your audit, compute for the following as of and for the year ended
December 31, 2012:

1. Total depreciation
a. P460,228 c. P470,528
b. P462,678 d. P461,528
2. Carrying amount of buildings
a. P3,409,474 c. P3,028,774
b. P3,761,974 d. P3,381,274
3. Carrying amount of machinery and equipment
a. P1,197,375 c. P1,243,925
b. P1,180,275 d. P1,222,075
4. Carrying amount of automobiles and trucks
a. P68,472 c. P61,722
b. P59,472 d. P52,722
5. Carrying amount of property, plant and equipment
a. P5,637,371 c. P5,615,521
b. P5,608,771 d. P5,590,821

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