September 24, 2019 – Intermediate Accounting Semi-finals Major Exam

Name:______________________________ ID No.:______________________

Part I: True or False

Instruction: Write T/F on the space provided.
______1.) The classification of land in the statement of financial position depends on the nature and purpose of the
land.
______2.) Land held for current sale by real estate developer as in case of subdivided lots is treated as current asset.
______3.) Option money paid to acquire land is capitalized regardless of whether land was purchased or not.
______4.) As a rule, real property taxes are treated as outright expense.
______5.) The recognition of subsequent cost for PPE and Machinery is subject to the same recognition criteria for the
initial cost of property, plant & equipment.
______6.) Depreciation of an asset begins as soon as the asset is received.
______7.) Depreciation is an expense and therefore cannot be part of the cost of goods sold.
______8.) The residual value of an asset shall be reviewed at least at each financial year-end and if expectation differs
from previous estimate, the change shall be accounted for retrospectively.
______9.) If the life of the asset is 5 years, the annual straight line rate is 20% computed by dividing 100% by 5 years.
______10.) Under the group method of depreciation, all assets that are dissimilar in nature and in estimated useful life
are grouped and treated as a single unit.

Part II. Problem Solving and/or Journal Entries. Please show solutions, if applicable.

Scenario 1: Separate identification is practicable:

A building having a useful life of 20 years is constructed at a total cost of P10,000,000. After 10 years, the
wooden roof is replaced with a concrete roofing costing P1,000,000.
A study of the original construction records reveals that P800,000 is an accurate estimate of the original cost of
the wooden roof.

Prepare journal entries to eliminate the portion associated with the old roof, the replacement and subsequent annual
depreciation.

Scenario 2. Separate identification is not practicable. Assume the same data in the preceding illustration and it is not
practicable to identify the cost of the separate part replaced. Discount rate is 6%. PV of 1 at 6% for 10 periods is .558; for
20 periods .312

Prepare journal entries to eliminate the portion associated with the old roof, the replacement and subsequent annual
depreciation.
Scenario 3. An asset is purchased on 1st July 2013 for P90,000. The asset has 3 years useful life at the end of which it is
not expected to have any salvage value.

How much depreciation expense should be charged in the accounting year ended 31st December 2014 if sum of the
years' digits method is used?

Scenario 4. If the useful life of asset is 20 years, the straight line depreciation rate would be ______________.

Scenario 5. An asset is purchased on January 1, 2018. The cost of the asset is P150,000 and the useful life is 15 years with
P10,000 salvage value. The estimated productive life of the asset is 20,000 hours. If the asset is used for 2,000 hours
during the year 2018, the depreciation charge under activity method for the year 2018 would be _____________.

Scenario 6. Douglas Co. leased machinery with an economic useful life of six year. For tax purposes, the depreciable life
if seven years. The lease is for five years, and Douglas can purchase the machinery at fair value at the end of the lease.
What is the depreciable life of the leased machinery for financial reporting? Five Years, Seven Years, Zero, Six Year
(Underline your answer).

Scenario 7. On April 1, 2004, Batangas Company bought machinery under a contract that required a down payment of
P500,000 plus 24 monthly payments of P300,000 for total payments of P7,700,000. The cash price of the machinery was
P6,500,000. The machinery has an estimated useful life of four years and estimated residual value of P500,000.
Batangas uses SYD method of depreciation. In its 2005 income statement, what amount should Batangas report as
depreciation for this machinery?

Scenario 8. Alitagtag Company purchased factory equipment which was installed and put into service July 1, 2004 at a
total cost of P9,000,000. Residual value was estimated at P1,000,000. The equipment is being depreciated over 10
years by the double declining balance method. For the year 2005 how much depreciation expense should Alitagtag
record on this equipment?

Scenario 9. On January 1, 2004, Taal Company acquired equipment to be used in its manufacturing operations. The
equipment has an estimated useful life of 5 years and residual value of P3,000,000. The depreciation applicable to this
equipment was P3,200,000 for 2005 computed under the sum of year’s digits method. What was the acquisition cost of
the equipment?

Scenario 10. Which is not an essential characteristic of property, plant and equipment?

a. The property, plant and equipment are subject to depreciation.

b. The property plant and equipment are tangible assets.

c. The property, plant and equipment are used in production or supply of goods and services, for rental and
administrative purposes.

d. The property, plant and equipment are expected to be used over a period of more than one year.