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FINANCIAL ACCOUNTING AND REPORTING

PAS 16 - PROPERTY, PLANT AND EQUIPMENT

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

a. The property plant and equipment are tangible assets.
b. The property, plant and equipment are used in production or supply of goods and services, for rental,
administrative purposes.
c. The property, plant and equipment is expected to be used over a period of more than one year.
d. The property, plant and equipment are subject to depreciation.

2. An item of property, plant and equipment should be recognized as an asset when

I. It is probable that future economic benefits associated with the asset will flow to the enterprise.
II. The cost of the asset to the enterprise can be measured reliably.
a. Both I and II c. I only
b. Neither I nor II d. II only

3. The cost of an item of property, plant and equipment includes all of the following, except
a. Trade discount and rebates
b. Purchase price
c. Import duties and nonrefundable purchase taxes
d. Directly attributable costs of bringing the asset to working condition for its intended use.

4. Examples of costs that are expensed rather than recognized as an element of cost of property, plant and
equipment include all of the following, except
a. Cost of employee benefits arising directly from the construction or acquisition of an item of property, plant and
equipment.
b. Cost of opening a new facility
c. Cost of introducing a new product or service, including cost of advertising and promotion.
d. Cost of relocating or reorganizing part or all of an entity’s operations.

5. The carrying amount of property, plant and equipment subsequent to acquisition is the
a. Historical cost less accumulated depreciation
b. Revalued amount less accumulated depreciation and accumulated impairment losses thereon
c. Fair value less accumulated impairment losses thereon
d. Amount at which an asset is recognized in the balance sheet less accumulated depreciation and accumulated
impairment losses thereon

6. Entity-specific value is the

a. Amount at which an asset is recognized after deducting any accumulated depreciation and accumulated
impairment losses.
b. Cost of an asset or other amount substituted for cost, less its residual value.
c. Amount for which an asset could be exchanged between knowledgeable and willing parties in an arm’s length
transaction.
d. Present value of the cash flows that an entity expects to arise from the continuing use of an asset and from its
disposal at the end of its useful life or expects to incur when settling a liability.

7. If the exchange transaction lacks commercial substance, the acquired item of property, plant and equipment is
measured at
a. Fair value of the asset given up plus any cash payment
b. Fair value of the asset received plus any cash payment
c. Carrying amount of the asset given up plus any cash payment
d. Carrying amount of the asset received plus any cash payment

8. If an entity is able to determine reliably the fair value of either asset receive or the asset given up, which is used in
measuring the cost of the asset received?
a. Fair value of the asset given up
b. Fair value of the asset received
c. Carrying amount of asset given up
d. Either the fair value of asset given up or fair value of asset received.

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9. An entity imported machinery to install in its factory premises before year-end. However due to circumstances
beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end.
While this was happening, the entity learned from a bank that it was being charged interest on the loan it had taken
to fund the cost of the machinery. What is the proper treatment of freight and interest expense?
a. Both expenses should be capitalized.
b. Interest may be capitalized but freight should be expensed.
c. Freight should be capitalized but the interest should not be capitalized under these circumstances.
d. Both costs should be expensed.
10. As to land, capitalizable incidental costs include all, except
a. Attorney’s fees for establishing clean title
b. Special assessments for local improvement which benefits the property
c. Cost of relocation or reconstruction of property belonging to others in order to acquire possession
d. Expenditures for sidewalks, pavements, parking lot and driveways
11. The cost of the plant asset “building” should usually include all, except
a. Cost of renovation or remodeling required to prepare the building for its intended use
b. Expenditures for service equipment and fixtures made as permanent part of the building
c. Property taxes related to the period prior to acquisition that are assumed by the buyer
d. Costs incurred to have existing building removed to make room for the construction of new building

12. The cost of the land to be used in the operations of a business should include all of the following, except
a. Commission related to the land acquisition
b. Property taxes at the date of acquisition assumed by the purchaser
c. Excavation in preparation for the construction of a new building on the land.
d. The cost of a survey.
13. Improvements which result to increased future economic benefits include all, except
a. Modification of an item of property to extend its useful life or increase its capacity.
b. Upgrade of machine parts to improve quality of output
c. Adoption of a new production process leading to large reduction in operating cost
d. Expenditure on repair or maintenance of property, plant and equipment, such as cost of servicing or
overhauling plant and equipment.
14. Which type of expenditure occurs when an entity installs a higher capacity boiler to heat its plant?
a. Replacement c. Addition
b. Betterment d. Ordinary repair and maintenance
15. If the cost of ordinary repairs is capitalized as an addition to the building account during the current year
a. Net income for the current year will be understated
b. Shareholders’ equity at the end of the current year will be understated.
c. Total assets at the end of the current year will not be affected.
d. Total liabilities at the end of the current year will not be affected.
16. An improvement made to a machine increased its fair value and its production capacity by 25% without extending
the machine’s useful life. The cost of the improvement should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized on the machine account
d. Allocated between the accumulated depreciation and the machine account
17. The useful life of an item of property, plant and equipment is
I. The period of time over which an asset is expected to be used by the enterprise.
II. The number of production or similar units expected to be obtained from the asset by the enterprise.
a. Both I and II c. I only
b. Neither I nor II d. II only
18. Technical obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Expiry date of related lease of the asset
d. Change or improvements in production or change in the market demand for the product output of the asset.

19. Which is incorrect concerning the residual value of an item of property, plant and equipment?
a. The depreciable amount of an asset is determined after deducting the accumulated depreciation of the asset.
b. In practice, the residual value of an asset is often insignificant and therefore is immaterial in the calculation of
the depreciable amount.
c. The residual value of an asset may increase to an amount equal or greater than the asset’s carrying amount.
d. 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 as a change in accounting estimate.

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20. The composite depreciation method
a. Is applied to a group of homogeneous assets.
b. Is an accelerated method of depreciation.
c. Does not recognize gain or loss on the retirement of specific assets in the group.
d. Excludes salvage value from the base of the depreciation calculation.

21. A company using the group depreciation method for its delivery trucks retired one of the trucks after the average
service life of the group was reached. Cash proceeds were received from a salvage company. The net carrying
amount of these group asset accounts would be decreased by the
a. Original cost of the truck.
b. Original cost of the truck less the cash proceeds.
c. Cash proceeds received.
d. Cash proceeds received and original cost of the truck.

22. Which of the following depreciation methods applies a uniform depreciation rate each period to an asset's book
value?
a. Straight-line
b. Units-of-production
c. Declining-balance
d. Sum-of-the-years'-digits

23. How much is the “depletable cost” of a natural resource?

a. Acquisition cost
b. Acquisition cost plus all exploration costs and development cost
c. Acquisition cost plus all exploration cost and intangible development costs.
d. Acquisition cost plus all exploration cost and intangible development costs minus the estimated residual value

24. The most common method of recording depletion for accounting purposes is the
a. Percentage depletion method
b. Straight-line method
c. Decreasing charge method
d. Production or output method

25. An entity bought a private jet. The jet is expected to be used over a period of 7 years, its engine has a useful life
of 5 years and its tires are replaced every 2 years. The jet shall be depreciated using straight-line method over
a. 7 years composite useful life
b. 5 years for the engine, 2 years for the tires and 7 years for the balance of the cost of the private jet
c. 2 years based on conservatism as this is the lowest useful life of all parts of the jet.
d. 5 years based on a simple average of the useful lives of the major components of the jet.

26. In recording the trade of one asset for another, which of the following accounts is usually debited?
a. Accumulated Depreciation-Old Asset
b. Cash
c. Gain on Exchange of Asset
d. None of the above

27. Gain or loss from disposal of an item of property, plant and equipment is equal to the difference between
a. Fair value of the asset on balance sheet date and its carrying amount
b. Net realizable value on balance sheet date and its carrying amount
c. Net proceeds from disposal and the cost of the asset
d. Net proceeds from disposal and the carrying amount of the asset

28 When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the
revaluation is
I. Restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount
of the asset after revaluation would equal its revalued amount.
II. Eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount
of the asset.
a. Both I and II c. I only
b. Neither I nor II d. II only

29. As a benchmark treatment, the revaluation of property, plant and equipment should be based on
a. Fair value, which is usually the market value determined by appraisal undertaken by professionally
qualified appraisers.
b. Current replacement cost.
c. Current reproduction cost..
d. Depreciated replacement cost

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30. Which statement is incorrect concerning revaluation of property, plant and equipment?
a. When an item of property, plant and equipment is revalued, the entire class of property, plant and equipment
to which that asset belongs should be revalued.
b. The basis of revaluation is fair value which is usually the market value determined by appraisal undertaken by
professional qualified valuers, or depreciated replacement cost, in the absence of evidence of market value.
c. Items of property, plant and equipment that experience significant and volatile movements in fair value should
be revalued annually.
d. Frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant
movements in fair value and instead, revaluation every five to ten years may be sufficient.

31 PAS 16 require that revaluation surplus resulting from initial revaluation of property, plant and equipment should be
treated in which of the following way?
a. Credited to retained earnings as this is unrealized gain.
b. Released to the income statement at the amount equal to the difference between the depreciation calculated
on historical cost vis-à-vis revalued amount.
c. Deducted from current assets and added to the property, plant and equipment.
d. Debited to the class of property, plant and equipment that is being revalued and credited to “revaluation
surplus”, which is presented under “equity”.

32. When the revaluation surplus is realized because of the use of the asset by the enterprise or disposal of the asset,
it may be transferred directly to
a. Income c. Donated capital
b. Deferred income d. Retained earnings

33. Which is not valid with respect to revaluation of property?

a. The entire class of property, plant and equipment should be revalued.
b. The items within a class of property, plant and equipment are revalued selectively.
c. A class of property, plant and equipment is a grouping of assets of similar use and nature.
d. A class of assets may be revalued on a rolling basis provided the revaluation is completed within a short
period of time and kept up to date.

PAS 20 – GOVERNMENT GRANTS

34. This represents assistance by government in the form of transfers of resources to an entity in return for past or
future compliance with certain conditions relating to the operating activities of the entity.
a. Government grant
b. Government assistance
c. Government donation
d. Government aid

35. What is the acceptable approach in accounting for government grants?

a. Government grants should be recognized as income over the periods necessary to match them with the
related costs.
b. Government grants should be credited directly to donated capital.
c. Government grants should be credited directly to retained earnings.
d. Government grants should be deferred and amortized over a maximum period of 20 years.

36. These are government grants whose primary condition is that the enterprise qualifying for them should purchase,
construct or otherwise acquire long-term assets.
a. Grants related to assets
b. Grants related to income
c. Government gift
d. Government appropriation

37. This is defined as action by government designed to provide an economic benefit specific to an entity or range of
entities qualifying under certain criteria.
a. Government grant
b. Government assistance
c. Government subsidy
d. Government corruption

38. The essence of government assistance is that no quantifiable value can be reasonably place upon it. All of the
following include government assistance, except
a. Indirect benefits such as provision of infrastructure in a development area where the entity is located of the
imposition of trading constraints on competitors.
b. Free technical or marketing advice
c. Provision of guarantee
d. Loans at NIL or low interest rates

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39. Government grant shall be recognized when there is reasonable assurance that
a. The entity will comply with the conditions of the grant
b. The grant will be received.
c. The entity will comply with the conditions of the grant and the grant will be received.
d. The grant must have been received.

40. In the case of grant related to an asset, which accounting treatment is prescribed?
a. Record the grant at a nominal value in the first year and write it off in the subsequent year.
b. Either as deferred income or deduction from the carrying amount of the asset.
c. Record the grant at fair value in the first year ad take it to income in the subsequent year.
d. Take it to income immediately.

41. Grant in recognition of specific costs is recognized as income

a. Over the same period as the relevant expense on a systematic and rational basis.
b. Immediately
c. Over 5 years using straight line
d. Over 5 years using sum of digits

42. Grant related to depreciable asset is usually recognized as income

a. Immediately
b. Over the useful life of the asset using straight line
c. Over the useful life of the asset using sum of year’s digits
d. Over the useful life of the asset and in proportion to the depreciation of the asset.

43. A grant that becomes receivable as compensation for losses already incurred or for the purpose of giving
immediate financial support should be recognized as income
a. When received
b. Of the period in which it becomes receivable
c. Over 5 years using straight line
d. Over 10 years using straight line

44. In the case of grant related to income, which accounting treatment is prescribed?
a. Credit the grant to “general reserve” under shareholders’ equity.
b. Present the grant as other income, separate line item or deduction from the related expense.
c. Credit the grant to retained earnings.
d. Credit the grant to sales.

45. A government grant that becomes repayable shall be accounted for as a

a. Change in accounting estimate
b. Change in accounting policy
c. Both change in accounting estimate and change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy

46. Repayment of a grant related to income shall be

a. Recognized in profit or loss immediately
b. Recognized in other comprehensive income
c. Recognized in retained earnings
d. Applied first against any unamortized deferred income set up previously, and any excess is recognized
immediately in profit or loss.

47. Repayment of grant related to an asset shall be recorded by

a. Increasing the carrying of the asset if the deduction approach is used.
b. Recognizing as expense the cumulative additional depreciation that would have been recorded to date in the
absence of the grant if the deduction approach is used.
c. Reducing the deferred income balance if the deferred income approach is used.
d. All of these

PAS 23 – BORROWING COSTS

48. Which of the following may not be eligible for capitalization as borrowing costs?
a. Interest on bonds issued to finance construction of a qualifying asset.
b. Amortization of discount or premium or ancillary cost relating to borrowings that qualify for capitalization.
c. Imputed cost of equity
d. Exchange differences arising from foreign currency borrowings to the extent they are regarded as an
adjustment to interest cost pertaining to a qualifying asset.

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49. When funds are borrowed specifically for the purpose of obtaining a qualifying asset, the capitalizable borrowing
cost is equal to
a. Actual borrowing cost incurred during the period
b. Actual borrowing cost incurred during the period plus any investment income on the temporary investments of
the borrowings
c. Actual borrowing cost incurred during the period minus any investment income on the temporary investments
of the borrowings
d. Estimate borrowing cost during the period

50. If the qualifying asset is financed by general borrowings, the capitalizable borrowing cost is equal to
a. Actual borrowing cost incurred.
b. Total expenditures on the asset multiplied by a capitalization rate.
c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred,
whichever is lower.
d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred,
whichever is higher.

51. The capitalization of borrowing costs as part of the cost of a qualifying asset should commence when (choose the
incorrect one)
a. Expenditures for the asset are being incurred.
b. Borrowing cost are being incurred.
c. Activities that are necessary to prepare the asset for its intended use or sale are in progress.
d. Substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are
complete.

52. The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for its intended use.
b. No further interest cost is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset for its intended use have begun.

53. Capitalization of borrowing costs

a. Shall be suspended during temporary period of delay.
b. May be suspended only during extended period of delay in which active development is delayed.
c. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended period of delay in which active development is delayed.

54. Which of the following is not a disclosure requirement under PAS 23?
a. Accounting policy adopted for borrowing costs.
b. Amount of borrowing costs capitalized during the period.
c. Segregation of assets that are “qualifying assets” from other assets on the balance sheet or as a disclosure in
the footnotes to the financial statements.
d. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization.

PAS 36 – IMPAIRMENT OF ASSETS

55. The following statements pertain to recognition and measurement of an impairment loss. Which statement is
incorrect?
a. An impairment loss is the amount by which the carrying amount of an asset or cash generating unit exceeds
its recoverable amount.
b. After the recognition of an impairment loss, depreciation of the asset for the future periods should be equal to
the revised carrying amount less its residual value allocated on a systematic basis over its remaining life.
c. An impairment loss shall be recognized in OCI.
d. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall
be reduced to its recoverable amount.

56. The recoverable amount of an impaired asset is equal to its

a. Fair value
b. Fair value or value in use whichever is lower
c. Value in use
d. Fair value less cost of disposal or value in use whichever is higher

57. It is the smallest identifiable group of assets that generate cash inflows from continuing use that are largely
independent of the cash inflows from other assets or group of assets.
a. Foreign operation c. Foreign entity
b. Corporate asset d. Cash generating unit (CGU)

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58 External sources of information about impairment of asset include all of the following, except
a. Significant decline in the market value of the asset
b. Significant change in the technological, market, legal or economic environment of the business in which the
asset is employed.
c. Increase in the interest rate or market rate of return on investment, which will likely affect the discount rate in
computing value in use.
d. Obsolescence or physical damage of the asset
59. The best evidence if an asset’s fair value less cost to sell is
a. A price in a binding sale agreement in an arm’s length transaction, adjusted for incremental cost directly
attributable to the disposal of an asset.
b. The market price of the asset in an active market.
c Best estimate between knowledgeable, willing parties in an arm’s length transaction.
d. The higher between the price in a binding sale agreement and the market price of the asset in an active
market.
60. The estimates of future cash flows in calculating value in use include all of the following, except
a. Cash flows from continuing use of the asset.
b. Cash outflows necessarily incurred to generate the cash inflows from continuing use of the asset.
c Net cash flows from the disposal of the asset at the end of its useful life.
d. Income tax payments
61. When allocating an impairment loss, such a loss should reduce the carrying amount of which asset first?
a. Property, plant and equipment c. Goodwill
b. Intangible assets d. Current assets

62. Dommy Company acquired new machinery by trading used machinery used in the production facility with a dealer.
The pertinent data are as follows:

Old machine:
Original cost 6,000,000
Accumulated depreciation 2,600,000
Cash paid 1,000,000

New machine:
List price 7,000,000

Dommy Company was given a trade in allowance of P2,500,000 for the old machinery.

1. What is the gain on exchange to be recorded by Dommy?

a. 1,100,000
b. 2,600,000
c. 3,600,000
d. 4,600,000

2. What is the cost of the new machine to be recorded by Dommy?

a. 7,000,000
b. 9,000,000
c. 5,500,000
d. 8,000,000

63. In 2019, Kevin Company recorded depreciation of P144,320 for an asset on the final year of its useful life. The
asset with a P400,000 residual value originally had a 5-year useful life and was depreciated using the double
declining balance method of depreciation. Kevin Company acquired the asset on January 1, 2015.

1. What was the acquisition cost of the equipment?

a. 4,200,000
b. 3,800,000
c. 4,600,000
d. 1,113,580

2. What was the depreciation recorded in the 2017?

a. 160,356
b. 662,400
c. 604,800
d. 547,200

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64. The Oscar Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of
P18,000,000. At the time of acquisition, Oscar paid P1,200,000 to have the assets appraised. The appraisal
disclosed the following values:

Land 12,000,000
Buildings 8,000,000
Equipment 4,000,000

What cost should be assigned to the land, buildings, and equipment, respectively?
a. 6,400,000, 6,400,000, and 6,400,000
b. 9,000,000, 6,000,000, and 3,000,000
c. 9,600,000, 6,400,000, and 3,200,000
d. 12,000,000, 8,000,000, and 4,000,000

65. Doris Corporation purchased a new machine on August 1, 2017. A P1,000,000 down payment was made and
three-monthly installments of P500,000 each are to be made beginning on September 1, 2016. The cash price
would have been P2,250,000. Doris paid no installation charges under the monthly payment plan but a P30,000
installation charge would have been incurred with a cash purchase. What is the capitalized cost of the new
machine?
a. 2,500,000
b. 2,250,000
c. 2,280,000
d. 2,470,000

66. Jazz Company acquired land with a fair value of P10,500,000 and paid for it in full by issuing P5,000,000 of its 10
percent bonds payable and 40,000 shares of its ordinary shares, par P100. The ordinary shares were selling at
P115 per share in the open market and the bonds were trading at 108. What amount should Jazz record share
premium from the issuance of the ordinary shares in this transaction?
a. 1,100,000
b. 1,500,000
c. 600,000
d. 830,000

67. On February 1, 2017, Grimes Company purchased a parcel of land as a factory site for P5,000,000. An old
building on the property was demolished and construction begun on a new warehouse that was completed
December 31, 2017. Costs incurred on the construction project are listed below.

Demolition of old building 200,000

Architect's fees 500,000
Legal fees--title investigation 50,000
Construction costs 5,000,000
Imputed interest based on stock financing 45,000
Landfill for building site 160,000
Clearing of trees from building site 120,000
Temporary buildings used for construction activities 100,000
Land survey 80,000
Excavation for basement 60,000
Salvaged materials and timber from demolition retained by the contractor 40,000
Cost of landscaping and other permanent improvements on land 150,000

1. What was the cost of the land?

a. 5,610,000
b. 5,570,000
c. 5,440,000
d. 5,290,000

2. What was the total cost of the building?

a. 5,980,000
b. 5,660,000
c. 5,940,000
d. 5,560,000

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68. Machines were acquired by Oswald Incorporated on March 1, 2017, as follows:

Machine Cost Estimated Estimated

Residual Value Life in Years
001 P5,000,000 P600,000 5
002 2,500,000 400,000 6
003 1,800,000 400,000 8
004 800,000 50,000 6
005 600,000 None 10

What is the group depreciation rate for this group?

a. 15.75%
b. 14.86%
c. 17.19%
d. 13.33%

69. Deacon Company commenced operations on January 1, 2016. The company acquired a tract of land, demolished
the building on the land and built a new factory. The company incurs the following costs:

Option fee for land not acquired 10,000

Option fee for land acquired 10,000
Title search and other settlement fee 100,000
Taxes in arrears 50,000
Payment for land 1,000,000
Demolition of current building on land, net of salvage of P40,000 80,000
Architect fee 230,000
Payment to city hall for approval of building construction 120,000
Safety fence around construction site 35,000
Contract price for factory building 2,400,000
Driveways, parking bays and safety lighting 550,000
Safety inspection on building 30,000
Removal of safety fence after completion of factory building 20,000
New fence surrounding the factory 80,000

1. What was the cost of the land?

a. 1,160,000
b. 1,240,000
c. 1,790,000
d. 1,710,000
2. What was the total cost of the building?
a. 2,915,000
b. 2,780,000
c. 2,880,000
d. 2,835,000

70. McClaren Company uses the straight-line depreciation for its property plant and equipment. The related balances
were:
December 31, 2017 December 31, 2016
Property, plant and equipment 60,000,000 65,000,000
Accumulated depreciation 19,000,000 15,000,000
McClaren purchased land during 2017 for P5,000,000 and sold machinery for P7,000,000 at a gain of P500,000.
What is the depreciation expense for 2017?
a. 6,500,000
b. 7,500,000
c. 6,000,000
d. 7,000,000
71. Fremont Company acquired a mineral right for P5,280,000 in January 2017. The mine has removable ore
estimated at 1,200,000 tons. After it has extracted all the ore, Fremont will be required by law to restore the land
to its original condition at an estimated cost of P360,000. Fremont believes it will be able to sell the property
afterwards for P600,000. During 2017, Fremont incurred P720,000 of development cost preparing the mine for
production and removed and sold 60,000 tons of ore. In it 2017 income statement, what amount should Fremont
report as depletion?
a. 318,000
b. 270,000
c. 288,000
d. 300,000
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72. In 2015, Onyx Mining Company purchased property with natural resources for P50,000,000. The property was
relatively close to a large city and had an expected residual value of P5,000,000. Development cost, tonnage
mined and estimated remaining tons for the years 2015 to 2019 are as follows:

Year Development Cost Tons Extracted Estimated Tons Remaining

2015 4,000,000 0 5,000,000
2016 6,000,000 1,000,000 4,000,000
2017 5,000,000 2,500,000 1,000,000
2018 2,000,000 1,700,000 300,000
2019 0 300,000 0

How much is the depletion in 2017?

a. 27,500,000
b. 35,000,000
c. 30,000,000
d. 34,375,000

73. The third year of a construction project began with a P25,000,000 balance in Construction in Progress account.
Included in that figure is 3,000,000 of interest capitalized in the first two years. Construction expenditures during
the third year were P20,000,000, which were incurred evenly throughout the entire year. The company has had
over P90,000,000 in interest-bearing debt outstanding the third year, at a weighted average rate of 10 percent.
How much interest for the third year is capitalized?
a. 4,500,000
b. 3,500,000
c. 1,000,000
d. 2,000,000

74. Nida Company had the following loans outstanding during the years 2016 and 2017:

Specific construction loan 3,000,000 10%

General loan 12,000,000 12%

The company began self-construction of a building on January 1, 2016 and was completed on October 31, 2017.
The following expenditures were made during 2016 and 2017:

January 1, 2016 5,000,000

July 1, 2016 4,000,000
November 1, 2016 3,000,000
July 1, 2017 1,000,000
13,000,000
1. What was the borrowing cost capitalized in 2016?
a. 1,200,000
b. 840,000
c. 1,740,000
d. 540,000
2. What was the 2016 interest expense?
a. 600,000
b. 900,000
c. 1,200,000
d. 340,000

3. What was the total cost of the building on October 31, 2017?
a. 14,814,000
b. 13,840,000
c. 15,114,000
d. 14,090,000
4. What was the 2017 interest expense?
a. 466,000
b. 416,000
c. 199,200
d. 302,000

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75. Deloitte Company owns an equipment costing P10,000,000 which was purchased on January 1, 2013 and an
original residual value of P400,000. The life of the asset is 10 years and was depreciated using the straight-line
method. The equipment was revalued on January 1, 2017 and has a replacement cost of P12,000,000 with a
residual value of P600,000. The appraisal of the equipment showed a total revised useful life of 12 years and the
company decided to carry the equipment using the revaluation model. If the income tax rate is 30%, what amount
should Deloitte report as revaluation surplus on January 1, 2017?
a. 1,280,000
b. 2,040,000
c. 896,000
d. 1,428,000

76. Quail Company determined that due to obsolescence, equipment with an original cost of P18,000,000 and
accumulated depreciation on January 1, 2017 of P8,400,000 had suffered permanent impairment and as a result
should have a carrying value of only P6,000,000 as of the beginning of the year. In addition, the remaining useful
life of the equipment was reduced from 8 years to 3 years. In its December 31, 2017 statement of financial
position, what amount should Quail report as accumulated depreciation and accumulated impairment loss?
a. 12,000,000
b. 14,000,000
c. 10,400,000
d. 9,600,000

77. Armani Company is reviewing one of its business segments for impairment. The carrying value of the segment’s
net assets is P25,000,000. Management has produced two computations for the value in use of the business
segment. The first value is P19,000,000, which excludes the benefit to be derived from future restructuring of the
business segment. The second value is 22,000,000, which includes the benefit to be derived from future
restructuring. The fair value less cost to sell for the business segment is P18,000,000. How much is the
impairment loss that should be recognized by Armani Company?
a. 6,000,000
b. 3,000,000
c. 7,000,000
d. 2,000,000

78. On January 1, 2017 Union Company received a grant of P10,000,000 from the British government in order to
defray safety and environmental costs within the area where the enterprise is located. The safety and
environmental costs are expected to be incurred over four years, respectively, P1,000,000, P2,000,000,
P2,000,000 and P3,000,000. How much income from the government grant should be recognized in 2017?
a. 2,000,000
b. 1,000,000
c. 10,000,000
d. 1,250,000
79. On January 1, 2017, Carroll Company received a grant of P1,000,000 from the Philippine Government for the
construction of a laboratory and research facility with a total cost of P6 million and a useful life 5 years and no
residual value. The facility was completed in early of 2017. Carroll Company recorded the grant as deferred
revenue upon the receipt.

1. What should Carroll Company include in its 2017 income statement an income from the government grant?
a. 500,000
b. 100,000
c. 200,000
d. 240,000

2. If the grant becomes repayable in full in 2019 because Carroll is not able to comply with the conditions
required for the grant, what is the amount of loss to be recognized in the income statement?
a. 1,000,000
b. 600,000
c. 400,000
d. 500,000

3. Assuming that Carroll Company recorded the grant as a deduction towards the capital cost of the asset, what
is the depreciation expense to be recorded in 2017?
a. 1,200,000
b. 1,000,000
c. 900,000
d. 800,000

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80. Nida Company had the following loans outstanding during the years 2016 and 2017:

Specific construction loan 2,000,000 10%

General loan 15,000,000 12%

The company began self-construction of a building on January 1, 2016 and was completed on December 31,
2017. The following expenditures were made during 2016 and 2017:

January 1, 2016 2,000,000

July 1, 2016 4,000,000
November 1, 2016 3,000,000
July 1, 2017 1,000,000
10,000,000

What is the total cost of the building on December 31, 2017?

a. 10,000,000
b. 11,660,000
c. 11,700,000
d. 10,840,000

81. Ollen Company uses the composite method of depreciation and has a composite rate of 25%. During 2017, it sold
assets with an original cost of P500,000 and a residual value of P100,000 for P300,000 and eventually acquired
P900,000 of new assets with a residual value of P150,000. Information regarding the original group of assets as of
January 1, 2017 is presented below:

Total cost 5,000,000

Total residual value 800,000
Accumulated depreciation 1,000,000

What was the depreciation expense recorded by Ollen Company in 2017?

a. 1,000,000
b. 1,312,500
c. 1,350,000
d. 1,100,000

82. On April 1, 2016, Ofelia 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.
Ofelia uses SYD method of depreciation. In its 2017 income statement, what amount should Ofelia report as
depreciation for this machinery?
a. 2,400,000
b. 1,800,000
c. 1,950,000
d. 2,275,000

83. On July 1, 2017 Olga Company purchased rights to a mine. The total purchase price was P50,000,000 of which
P5,000,000 was allocated to the land. Estimated reserves were 6,000,000. Olga expects to extract and sell
100,000 tons per month. Olga Company purchased new equipment on July 1, 2017 for P21,000,000 with
estimated life of 8 years. However, after all the resource is removed, the equipment will be of no use and will be
sold for P3,000,000. What is the depreciation of the equipment for 2017?
a. 1,800,000
b. 2,100,000
c. 1,125,000
d. 3,600,000

84. Odessa Company constructed a building costing P15,000,000 on a mine property. The building has an estimated
useful life of six years with no residual value. After all the resources are removed expectedly over five years, the
building will be of no use. The estimated recoverable output from the mine is 1,000,000 tons. During the first year,
Odessa produced 200,000 tons but there was a shutdown and no output in the second year. In the third year,
Odessa resumed operations and produced 300,000 tons. What is the depreciation in the third year on the building
for Odessa Company?
a. 3,000,000
b. 2,500,000
c. 3,600,000
d. 4,500,000

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85. The following account balances are recorded in the books of Lavelle Company at the end of 2017:

Retained earnings 5,000,000

Capital liquidated 2,000,000
Accumulated depletion 8,000,000
Current year depletion on 200,000 units extracted at a rate of 20 per unit 4,000,000
Ending inventory of finished goods (30,000 units) 2,400,000

What is the maximum amount of dividends that Lavelle Company can declare for 2017?
a. 5,000,000
b. 13,000,000
c. 12,400,000
d. 10,400,000

86. Cotton Company acquired a building on January 1, 2013 at a cost of P20,000,000. The building has an estimated
life of 10 years and residual value of P4,000,000. The building was revalued on January 1, 2017 and the
revaluation revealed replacement cost of P30,000,000, residual value of P5,000,000 and revised life of 12 years.
The entity’s tax rate is 30%

1. What is the revaluation surplus on January 1, 2017?

a. 6,400,000
b. 3,900,000
c. 2,730,000
d. 4,480,000

2. What is the revaluation surplus on December 31, 2017?

a. 3,920,000
b. 5,600,000
c. 3,412,500
d. 2,388,750

3. What is the depreciation on the building for the year ended December 31, 2017?
a. 1,600,000
b. 1,875,000
c. 2,500,000
d. 2,000,000

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Q#8