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Technological Institute of the Philippines – Q.C.

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. Cole Co. an SME began constructing a building for its own use in January 2016. During
2016, Cole incurred interest of 50,000 on specific construction debt, and 20,000 on other
borrowings. Interest computed on the weighted-average amount of accumulated
expenditures for the building during 2016 was 40,000.

What amount of interest cost should Cole capitalize?
a) 0
b) 40,000
c) 50,000
d) 70,000
2. The following account balances relating to property, plant and equipment of Cycle Company an
SME Company appear on the books on December 31, 2015.
Land 2,000,000
Building 15,000,000
Accumulated depreciation 3,750,000
Machinery 3,000,000
Accumulated depreciation 1,500,000

Asset have been carried at cost since their acquisition. All assets were acquired on January 1,
2003. The straight line method is used. On January 1, 2016, the company wishes to show property,
plant and equipment at revalued amount. On such date, competent appraisers submitted the
Replacement cost
Land 5,000,000
Building 25,000,000
Machinery 5,000,000

What is the revaluation surplus on January 1, 2016?
a. 15,000,000
b. 11,500,000
c. 0
d. 8,500,000
3. Jerome Company, an SME company, purchased an investment property on January 1, 2013, for
2,200,000. The property has a useful life of 40 years and on December 31, 2015 had a fair value of
3,000,000. On January 1, 2016, the property was sold for 2,900,000.

What is the gain or loss to be recognized for the year ended December 31, 2016 from the disposal
of the property?
a. 865,000 gain c. 100,000 loss
b. 810,000 gain d. 700,000 gain
4. On January 1, 2016, an SME acquired a building to be held as investment property in a remote
location for P1,000,000. After initial recognition, the entity measures the investment property using
the cost-depreciation-impairment model, because its fair value cannot be measure realibly without
undue cost or effort on an ongoing basis.

On December 31, 2016, management assessed the building’s useful life at 50 years from the date
of acquisition and presumed the residual value to be nil because the fair value cannot be
determined reliably. At year end, the entity declined an unsolicited offer that is unlikely to be
repeated in P1,300,000. This is a one-time offer that is unlikely to be repeated in the foreseeable

What is the carrying amount of the building on December 31,2016?
a. 1,000,000
b. 1,300,000
c. 1,274,000
d. 980,000
5. On January 1, 2016 SME Sagada Company received a grant of P25 million from the American
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 million, P4 million, P6 million and P8 million.

How much income from the government grant should be recognized in 2016?
a. 25,000,000
b. 2,000,000
c. 2,500,000
d. 0
6. On January 1, 2015, an SME received a P1,000,000 grant from national government as an
incentive to establish and operate a manufacturing plant in a particular development zone. Funds
are remitted from the government to SME when SME incurs the expenditure.

Grant of P600,000 is conditional on erecting the plant costing at least P2,000,000 in the
development zone and the plant commencing operations are attached to the type of expenditure
making up the P2,000,000. If these conditions are not met, SME will be obliged to refund the
P600,000 to the national government.

Grant of P400,000 is conditional upon maintaining commercial production at the plant for a period of
four years from the date when commercial production begins. SME will become unconditionally
entitled to P100,000 at the end of each of the first four years of the commercial operation of the

During 2015, SME constructed the plant at a cost of P2,100,000, all of which met the type of
expenditure specified under the conditions of the grant. During the first quarter of 2015, SME tested
the plant’s manufacturing process. On April 1, 2016, SME began commercial production at the

1. What is the income from government grant to be recognized in 2015?
a. 1,000,000
b. 600,000
c. 700,000
d. 0

2. What is the income from government grant to be recognized in 2016?
a. 1,000,000
b. 600,000
c. 700,000
d. 0
7. Kaila Corporation an SME company is engaged in developing computer software for the small
business at home computer market. Kaila has produced several products that have been very
successful in the market place. The following costs were incurred during 2016:

Salaries and wages of programmers doing research P940,000
Expenses related to projects prior to establishment of
technological feasibility 313,600
Expenses related to projects after technological
feasibility has been established but before software
is available for production 198,000
Amortization of capitalized software development cost
from current and prior years 107,000
Costs of produce and prepare software for sale 225,200

Total amount related to the development of computer software that should be expensed when
a. P1,253,600 c. P1,451,600
b. P 940,000 d. P 0
8. On January 1, 2013, SME acquired a trademark for a line of products from a competitor for
300,000. The SME expected to continue marketing the line of products using the trademark
indefinitely. An analysis of market, competitive and environmental trend, provides evidence that the
line of trademarked products may generate net cash inflow for the acquiring entity for indefinite
period. Management is unable to estimate the useful life of the trademark.

In 2016, a competitor unexpectedly revealed technological breakthrough that is expected to a result
in a product, that when launched by the competitor, will extinguish demand of SME’s patented
product line. Demand for SME’s patented product line is expected to remain strong until December
2018, when the competitor is expected launch its new product.

On December 31, 2016, SME assessed the recoverable amount of the trademark at P50,000. SME
intends to continue manufacturing the patented products until December 31, 2018. The financial
year end is December 31.

What is the impairment loss to recognized in Dec. 31, 2016 with respect to the trademark?

a. 300,000
b. 250,000
c. 90,000
d. 0
9. On January 1, 2016, an SME acquired 30% of the ordinary share of an investee for P1,000,000
plus transaction cost of P10,000. The SME uses the cost model to account for its investments in
associate. The investee recognized a net loss of P500,000 for 2016 and paid dividends of P200,000
on December 31, 2016. The fair value of the investment is P1,020,000 on December 31, 2016 and
the cost to sell is estimated at P40,000. There is no published quotation for the investment in

1. What is the carrying amount of investment in associate on December 31, 2016?
a. 1,020,000
b. 1,010,000
c. 950,000
d. 980,000

2. What is the carrying amount of the investment in associate on Decmber 31, 2016 assuming there
is a published price quotation?
a. 1,020,000
b. 1,010,000
c. 1,000,000
d. 980,000
10. On January 1, 2015, Sharp Corp., an SME, granted an employee an option to purchase 6,000
shares of Sharp's $5 par value ordinary shares at $20 per share. The director’s best estimate of the
fair value of the equity settled share based payment is $140,000. The option became exercisable on
December 31, 2016, after the employee completed two years of service. The market prices of
Sharp's shares were as follows:
January 1, 2015 $30
December 31, 2016 50
For 2016, should recognize compensation expense
a. $90,000.
b. $30,000.
c. $70,000.
d. $0.
11. On January 1, 2016, Wynn Company an SME purchased as trading investment a P2,000,000 face
value Kean Company 8% bond for P1,850,000 plus accrued interest to yield 10%. The bonds
mature on January 1, 2017, and pay interest annually on December 31. On December 31, 2016,
the bonds had a market value of P1,890,000. On February 15, 2017, Wynn sold the bonds for
P1,900,000. In its December 31, 2016 balance sheet,

What amount should Wynn report for investments in trading securities?
a. 1,850,000
b. 1,875,000
c. 1,890,000
d. 1,900,000
12. On January 1, 2016, an SME acquired, free of charge, a herd of 100 cattle by way of government
grant when the fair value of the jerd was P1,000,000. On average the remaining life of the cattle is
expected to be 10 years. The grant does not impose future performance conditions on the entity.

What amount of income from the government grant should be recognized in 2016?
a. 1,000,000
b. 500,000
c. 100,000
d. 0
Answer Section


1. ANS:
A is correct, under IFRS for SME, All borrowing costs are recognized as expense when incurred

PTS: 1
2. ANS:
Under IFRS for SME l Revaluation is not permitted for PPE and Intangible assets, unlike in full IFRS
the entity has the choice between cost-depreciation-impairment model and revaluation method

PTS: 1
3. ANS:
SP 2.9
FV 12/31/08 3.0

Under IFRS for SME Investment property shall be measured at FV through P&L if the fair value can be
measured reliably, Otherwise, the investment property shall be accounted for as PPE using the cost-
depreciation-impairment model. So if the fair value of the property can be measured reliably then it is
mandatory to account for the investment at FV through P&L unlike in FULL IFRS where the choice belongs
to the company

The correct asnwer is letter C.

PTS: 1
4. ANS:

Cost of the investment property 1,000,000
Accumulated depreciation (1,000,000/50) ( 20,000)
Carrying amount - December 31, 2011 980,000

Under PFRS for SMEs, investment property is measured at fair value if the fair value can be measured
reliably without undue cost or effort on an ongoing basis. Otherwise, the cost model is used and the
investment property is accounted for as property, plant and equipment and presented as a separate class of

PTS: 1
5. ANS:

Section 24 of IFRS for SME, states that government grants without future performance conditions are
recognized in profit or loss when proceeds are receivable. If there are performance conditions, the grant is
recognized in profit or loss only when the conditions are met.

IFRS for SME removes the distinction between the grants related to assets and those relating to income.
Under PAS 20, Government grants related to assets are recognized as income over the periods necessary to
match them with the related costs which they are intended to compensate while Government grants related to
income are recognized in profit or loss when the conditions for their recognition have been met.

If the question relates to Full IFRS, the answer will be

Year Costs Fraction Income
2016 2,000,000 2/20 2,500,000
2017 4,000,000 4/20 5,000,000
2018 6,000,000 6/20 7,500,000
2019 8,000,000 8/20 10,000,000
20,000,000 25,000,000

PTS: 1
6. ANS:
1. D
No income is recognized in 2011 because the performance conditions for the grant are not yet fully met in

2. B
Income from government grant 600,000

PTS: 1
7. ANS:
under PFRS for SME All costs incurred to internally develop intangible assets such as research and
development costs are charged to expense, unlike in full IFRS development cost after establishment of
technological feasibility has been achieved is already capitalized.

Salaries and wages of programmers doing P 940,000
Expenses related to projects prior to
establishment of technological feasibility 313,600
Expenses related to projects after technological 198,000
feasibility has been established but before
software is available for production
Total P1,451,600

PTS: 1
8. ANS:
Trademark- January 1, 2008 300,000
Amortization for 2008, 2009 and 2010
(300,000 / 10 years x 3) (90,000)
Carrying amount- Jan. 1, 2011 210,000
Amortization for 2011 (210,000/ 3 years remaining) (70,000)
Carrying amount- December 31, 2011 140,000
Recoverable amount (50,000)
Impairment loss 90,000

On January 1, 2011, the remaining life of the trademark is 3 years from January 1, 2011 to December 31,

Under PFRS for SMEs, the useful life of an intangible asset is considered to be finite. If the useful life of an
intagible asset cannot be estimated reliably, it is assumed to be 10 years. Under the Full IFRS, intangibles
with indefine useful lives are not amortized but subject for impairment.

PTS: 1
9. ANS:
1. D
Purchase price 1,000,0000
Transaction cost 10,000
Total acquisition cost 1,010,000
Fair value less costs to sell (1,020,000 -40,000) 980,000
Impairment loss` 30,000

2. D
Since the investment in associate has a published price quotation, the SME is not permitted to use the fair
value model.
Fair value 1,020,000
Carrying amount 980,000
Increase in fair value 30,000 limited to impairment loss

PTS: 1
10. ANS:
c $140,000 ÷ 2 = $70,000.
Under PFRS for SME, Share based payments whose fair value cannot be determined, the director’s
best estimate of the fair value of the equity settled share based payment should be used, unlike in Full
PFRS Intrinsic value of the equity instrument is used.

PTS: 1
11. ANS:
Under IFRS for SME, Debt instruments are measured at amortised cost only.

Pas 39, paragraph 43, provides that when a financial asset is recognized initially, an entity shall
measure it at cost which is the fair value of the consideration given.

Paragraph 46 of the same standard provides that after initial recognition an entity shall measure
financial assets at their fair value.

Financial assets to be measured at fair value include investments in trading and available for
sale securities.

PTS: 1
12. ANS:
Income from goverment grant 1,000,000

Under PFRS for SMEs, a grant that does not impose specified future performance conditions is recognized in
income when the grant is receivable.

PTS: 1