1. PFRS 6 is applied to which of the following?

a. the search for mineral resources before the entity has obtained legal rights to explore in a
specific area.
b. the search and evaluation of mineral resources, agricultural produce, and biological assets prior
to commencement of actual production
c. the search for mineral resources after the entity has obtained legal rights to explore in a specific
area.
d. the development of mineral resources after the entity has in fact established the existence of
mineral deposits in an area.

2. Development costs represent

a. the price paid to obtain the property right to search and find an undiscovered natural resource
b. the costs incurred in extracting or exploiting the natural resource
c. the costs incurred in locating the natural resource that can be economically extracted
d. the costs incurred to bring back the wasting asset to its natural state after extraction has
occurred

3. Under PAS 20, these are government grants whose primary condition is that an entity qualifying for
them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also
be attached restricting the type or location of the assets or the periods during which they are to be
acquired or held.

a. Government assistance
b. Government grants
c. Grants related to assets
d. Grants related to income

4. Which of the following may qualify as a qualifying asset?

a. 100-storey building purchased from a contractor

b. Titanic ship that took 100 years to construct, purchased from a retail store
c. Movie that takes 10 years to shoot
d. Fish balls
5. On January 1, 20x1, HOMILY SERMON Co. borrowed ₱20 million to finance the construction of a new
building. Interest is payable on the loan at 8%. Stage payments were due throughout the construction
period and therefore excess funds were invested during that period. By the end of the project on
December 31, 20x1, investment income of ₱600,000 had been earned. How much is the capitalizable
borrowing cost? Borrowing Cost, Specific = Actual Borrowing Cost – Investment Income

= (1,000,000 x 8%) – 600,000

= 1,600, 000 – 600,000
= 1,000, 0000
a. P1,600,000
b. P1,000,000
c. P600,000
d. None

6. On January 1, 20x1, UNFLEDGED IMMATURE Co. received land (non-monetary) from the government
with the condition that a factory building should be constructed on it. The fair value of the land was
estimated at ₱20,000,000. The construction of the factory building was completed on January 1, 20x2
for a total cost of ₱80,000,000. The building will be depreciated using straight line method over a useful
life of 10 years. The estimated residual value is ₱8,000,000. CHIDE Co. uses the gross presentation of
government grants. How much is the carrying amount of the deferred income from the government
grant on December 31, 20x2?

Entries:

Jan 1, 20x1 Land (FV niya) 20,000,000

Deferred Income 20, 000,000

Jan 1, 20x2 Building (Cost) 80,000,000

Cash 80, 000,000

Dec 31, 20x2 Depn Expense – Bldg (80M-8M/10yrs) 7,200,000

Accum. Depn 7,200,000

Deferred Income (20M/10yrs) 2,000,000

Income form Govt. Grant 2,000,000
Deferred 20,000,000 – 2,000,0000
Income P 18,000,000

a. P20,000,000
b. P18,000,000
c. P16,000,000
d. None
7. In 20x1, RIBALD OFFENSIVE Co. purchased real estate containing copper for a total cost of
₱64,000,000. Exploration costs amounted to ₱4,000,000 and intangible development costs of drilling,
tunnels, shafts, and wells totaled ₱16,000,000. Movable tangible equipment costs for heavy equipment
totaled ₱32,000,000 and immovable tangible equipment costs for drilling rig foundation totaled
₱24,000,000. Estimated recoverable reserves from the mine are 2,100,000 units. It is estimated that
300,000 units will be extracted each year. The heavy equipment and the drilling rig foundation have
estimated useful lives of 10 years and 5 years, respectively. Actual units extracted during 20x1 are
320,000 units. How much is the 20x1 depreciation on the immovable tangible equipment?

24,000,000/5yrs = 4,800,000

a. P4,800,000
b. P3,428,571
c. P4,571,429
d. P3,200,000

8. In the case of grants related to income, which of these accounting treatments is prescribed by PAS
20?

a. Credit the grant to “general reserve” under shareholders’ equity.

b. Present the grant in the income statement as “other income”’ or as a separate line item, or
deduct it from the related expense.
c. Credit the grant to “retained earnings” on the balance sheet.
d. Credit the grant to sales or other revenue from operations in the income statement.

9. The borrowing costs from general borrowings that are eligible for capitalization may be computed as

a. Interest expense minus investment income

b. Investment income minus interest expense
c. Capitalization rate multiplied by average carrying amount of qualifying asset
d. Total borrowings minus average expenditures multiplied by capitalization rate

10. Interest cost that is capitalized should

a. be written off over the remaining term of the debt.

b. be accumulated in a separate deferred charge account and written off equally over a 40-year
period.
c. not be written off until the related asset is fully depreciated or disposed of.
d. none of these.