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1.      An entity had the following property acquisitions during the current year:
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a. ) Received land as donation from a major shareholder as an inducement to locate a plant in the city. No payment was required but the entity paid P40,000 for legal expenses for a land transfer. The land fairly valued at P800,000
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b. ) Acquired land and building in exchange for P30,000 ordinary shares with P80 par value and quoted price of P120. The land had a fair value of P1,600,000 but the fair value of the building cannot be reliable measured.
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c. ) Purchased warehouse building and the land on which it is located for P4,320,000 including appraiser fee of P40,000. The land had an appraised value P1,600,000 and the building P2,400,000
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LAND BUILDING TOTAL PPERemarks
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Land Donation
800,000.00 800,000.00 A
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Share Issuance
1,600,000.00 2,000,000.00 3,600,000.00 B
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Purchase
1,728,000.00 2,592,000.00 4,320,000.00 C
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TOTAL 4,128,000.00 4,592,000.00 8,720,000.00
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Note:
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A
Note that the land donated was from a shareholder which is considered as a related party.
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The legal expense amounting to P40,000 was not added to the cost of land because it is considered as non-value adding expense.
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Incurrence of payment of direct expenses like payment for transfer of title, real estate taxes and transfer taxes shall be deducted from donated capital.
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Journal Entries:
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Land 800,000.00
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Donated Capital
760,000.00
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Cash 40,000.00
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B
No. of Shares
30,000.00
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Quoted Price 120.00
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 3,600,000.00
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Par Value
Share Premium
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 2,400,000.00 1,200,000.00
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The cost of PPE when issuing shares is recorded in the following order: (order of priority)
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LAND BUILDING
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1. Fair market value of the property received
1,600,000x
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2. Fair market value of the capital share issued
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 3,600,000.00
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3. Par value of the shares Issued
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not applicable
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Using the order of priority, we identify how much should be allocated on land and building.
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Total consideration received
3,600,000.00
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First order of Priority:
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Land 1,600,000.00
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Building -
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Remaining consideration
 2,000,000.00
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The remaining consideration should be used as the value of the building.
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Journal Entries:
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Land 1,600,000.00
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Building 2,000,000.00
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Ordinary Shares
2,400,000.00
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Share premium
1,200,000.00
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C
Lump sum purchase of land with building is subject to determination on how to allocate the acquisition cost to building and land.
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If the problem is silent on whether the building is usable or not, we look on whether the building has significant value.
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The determination of significant value of building is based on your judgment. Since the building's appraised value is greater than the
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appraised value of land, so we expect that the building has significant value.
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The building is expected to be used, thus, the acquisition cost and allocable incidental costs are allocated pro-rated based on their
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relative fair market values, but since the fair market values are not given, we will use the appraised value, as follows:
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Appraised Value
Pro-RateInitial Cost
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Land 1,600,000.00 1.6M / 4M 1,728,000.00
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Building 2,400,000.00 2.4M / 4M 2,592,000.00
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Total 4,000,000.00 4,320,000.00
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Journal Entries:
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Land 1,728,000.00
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Building 2,592,000.00
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Cash 4,320,000.00
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