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PROBLEM 1: The following independent situations relate to the acquisition/self construct of various property, plant, and equipment items. Answer the question/s at the end of each situation 1. BRAD... PIT, INC. has constructed a production equipment needed for the company’s expansion program. Bradpit received a P1,500,000 bid from a reputable manufacturer for the construction of the equipment. The costs of direct material and direct labor incurred to construct the equipment were P960,000 and P600,000, respectively. It is estimated that incremental overhead costs for construction amount to 140% of direct labor costs. Fixed costs (excluding interest) of P2,100,100 were incurred during the construction period. This amount was allocated to construction on the basis of total prime costs – the sum of direct labor and direct material. The prime costs incurred to construct the new equipment amounted to 35% of the total prime costs incurred for the period. The company’s policy is to capitalize all possible costs on self construction projects. To assists in financing the construction of the production equipment, Bradpit borrowed P1.5 million at the beginning of the 6-month construction period. The loan was for 2 years with interest at 10% What is the total cost of the self-constructed equipment? A. P3,210,000 C. P3,021,000 B. P2,610,000 D. P3,285,000 2. The following transactions relate to IMPO COMPANY  The national government grants the company a large tract of land to be used as a plant site. The land’s fair value is determined to be P1,620,000.  Impo Company issued 280,000 ordinary shares (par valu, P50) in exchange for land and building. The fair value of the property is determined to be P16,200,000 with the following allocation: Land P3,600,000 Building 12,600,000 P16,200,00 [Show More]

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