CHAPTER 19

Problem 5
Zambia Company purchased four convenience store buildings on January 1, 2014 for a
total of P25,000,000. The buildings have been depreciated using the straight-line method
with 20-year useful life and 10% retained value.

On January 1, 2020 the entity converted the buildings into a hotel and restaurant.
Because of the change in the use of the buildings, the entity is evaluating the buildings
for possible impairment.

The entity estimated that the buildings have a remaining useful life of 10 years with no
residual value.

The undiscounted net cash inflows from the buildings will total P1,500,000 per year and
the current fair value of the four buildings totals P10,000,000.

The appropriate discount rate is 12%. The present value of an ordinary annuity of 1 at
12% for 10 periods is 5.65.

What amount of impairment loss should be recognized for 2020?

a. 8,250,000 c. 7,500,000
b. 9,775,000 d. 0

Fair value 10,000,000

Present value of net cash inflows (1,500,000 x 5.65) 8,475,000

Buildings - January 1, 2014 25,000,000

Accumulated depreciation (22,500,000 / 20 x 6) 6,750,000
Carrying amount - January 1, 2020 18,250,000
Fairvalue - higher than value in use 10,000,000
Impairment loss 8,250,000

Problem 6
On January 1, 2020 Zimbabwe Company has a machinery with cost of P5,000,000 and
accumulated depreciation of P1,500,000.

The Machinery was acquired January 1, 2017 and had been depreciated using the
straight line method with useful life of 10 years and no residual value.

On January 1, 2020 the entity has properly tested the machinery to be impaired.
The machinery has a remaining life of 5 years and is expected to generate undiscounted
net cash inflows of P800,000 per year. The fair value of the machinery on January 1, 2020
is P3,000,000.

The appropriate discount rate is 8%. The present value of an ordinary annuity of 1 at 8%
for 5 periods is 3.99.

What amount should be recognized as an impairment loss for 2020?

a. 308,000 c. 808,000
b. 500,000 d. 0

Fair value 3,000,000

Present calue of net cash inflows (800,000 x 3.99) 3,192,000

Machinery 5,000,000
Accumulated depreciation 1,500,000
Carrying amount - January 1, 2020 3,500,000
Present value of net cash inflows or value in use - higher 3,192,000
Impairment loss 308,000

Problem 7
At the beginning of current year, Jolo Company acquired all the assets and liabilities of
another entity. The acquire has a number of operating divisions, including one whose
major industry is the manufacturer of toy train. The toy train division is regarded as a cash
generating unit.

The assets and liabilities acquired are measured at fair value at acquisition date. At year-
end, the carrying amounts of the assets of the toy train division were:
Building 2,000,000
Inventory 1,000,000
Trademark 1,000,000
Goodwill 500,000

There is a declining interest in toy train because of the aggressive marketing of computer-
based toys.

The entity measured the value in use of the toy train division at year-end at P3,600,000.
1. What is the impairment loss on goodwill?
a. 140,000 c. 500,000
b. 250,000 d. 0

2. What is the impairment loss on building?

a. 400,000 c. 900,000
b. 500,000 d. 300,000
3. What is the impairment loss on inventory?
 a. 420,000 c. 270,000
b. 500,000 d. 0
4. What is the impairment loss on trademark?
a. 280,000 c. 200,000
b. 180,000 d. 0

Question 1 Answer C

Carrying amount of cash generating unit 5,000,000

Value in use 3,600,000
Impairment loss 1,400,000
Impairment loss allocated to goodwill 500,000
Remaining Impairment loss 900,000

The carrying amount of goodwill is fully recognized as impairment loss

Question 2 Answer A
Question 3 Answer B
Question 4 Answer C

Carrying Amount Fraction Loss

Building 2,000,000 20/45 400,000
Inventory 1,500,000 15/45 300,000
Trademark 1,000,000 10/45 200,000
4,500,000 900,000

CHAPTER 20

Problem 2
Mariz Company acquired a trademark relating to the introduction of a new manufacturing
process. The entity incurred the following costs:

Cost of trademark 3,500,000

Expenditure on promoting new product 50,000
Employee benefit relating to testing of new process 200,000

What total cost should be capitalized as intangible non current asset in respect of the new
process?
a. 3,750,000 c. 3,500,000
b. 3,700,000 d. 3,550,000

Total Cost (3,500,000 + 200,000) 3,700,000

Problem 5
Cody Company incurred the following costs during the current year:

Design of tools, jigs, molds and dies involving

new technology 125,000
Modification of the formulation of a process 160,000
Trouble shooting in connection with breakdown
during commercial production 100,000
Adaptation of an existing capability to a particular customer’s
need as a part of a continuing commercial activity 110,000

What total amount should be reported as research and development expense for the
current year?
a. 125,000 c. 235,000
b. 160,000 d. 285,000

Design of tools, jigs, molds and dies 125,000

Modification to the formulation of a process 160,000
Total R and D expense 285,000

Problem 7
1. Which condition must be met for an item to be recognized as an intangible asset
other than goodwill?
a. The fair value can be measured reliably
b. The item is part of an activity aimed at gaining new scientific or technological
knowledge
c. The item is expected to be used in the production or supply of goods or
services
d. The item is nonmonetary, identifiable and lacks physical substance

2. AN intangible asset is identifiable when

a. It is separable
b. It arises from contractual and other legal right
c. It is either separable or it arises from contractual and other legal right
d. It is neither separable nor it arises from contractual and legal right

3. Which statement is true in relation to control by the entity of the intangible asset?
a. The capacity of the entity to control the economic benefits from an intangible
asset would normally stem from legal rights that are enforceable in a court
of law.
b. The skill of employees arising out of the benefit of training costs cannot be
recognized as intangible asset.
c. Market share and customer loyalty cannot normally be recognized as
intangible asset because and entity cannot control the actions of customers.
d. All of these statements are true
4. An intangible asset shall be recognized if
a. It is probable that future economic benefits attributable to the asset will flow
to the entity.
b. The cost of the intangible asset can be measured reliably.
c. It is possible that future economic benefits attributable to the asset will flow
to the entity and the cost of the intangible asset can be measured reliably.
d. It is probable that future economic benefits attributable to the asset will flow
to the entity and the cost of the intangible asset can be measured reliably.

5. Which statement is true concerning separable acquisition of an intangible asset?

a. If an intangible asset is acquired separately, the cost of the intangible asset
can usually be measured reliably.
b. If payment for an intangible asset is deferred beyond normal credit terms,
the cost is equal to the cash price.
c. The cost of a separately acquired intangible asset comprises the purchase
price and any directly attributable cost of preparing the asset for the
intended use.
d. All of these statements are true.

6. The cost of a separately acquired intangible asset comprises the purchase price
and
a. Cost of introducing a new product or service
b. Cost of conducting a business in a new location
c. Administration and other general overhead cost
d. Directly attributable cost of preparing the asset for the intended use

7. Directly attributable costs of preparing the intangible asset for the intended use
include all of the following, except
a. Cost of employee benefit arising directly from bringing the asset to the
working condition
b. Professional fee arising directly from bringing the asset to the working
condition
c. Cost of testing whether the asset is functioning properly
d. Initial operating loss

8. All of the following expenditures shall be expensed ,except

a. Start up cost
b. Advertising and Promotion Cost
c. Business relocation or reorganization
d. Payment in advance of delivery of goods

9. Which statement is true in relation to internally generated intangible asset?

a. Internally generated brand, masthead, publishing title, and customer list
shall not be recognized as an intangible asset
 b. The cost of internally generated intangible asset comprises all directly
attributable costs necessary to produce and prepare the asset for the
intended use
c. Intenrally generated goodwill shall not be recognized as an intangible asset
d. All of these statements are true

10. The cost of an internally generated intangible asset includes all of the following
except
a. Cost of materials and services used in generating the intangible asset.
b. Compensation costs of personnel directly engaged to generating asset.
c. Fee to register a legal right
d. Expenditure on training staff to operate the asset.

Problem 8
1. After initial recognition, an intangible asset shall be measured using
a. Cost model
b. Revaluation model
c. Cost model or revaluation model
d. Cost model or hair value model

2. An entity that acquired an intangible asset may use the revaluation model for
subsequent measurement only when
a. The useful life of the intangible asset can be reliably determined
b. An active market exists for the intangible asset
c. The cost of the intangible asset can be measured reliably
d. The intangible asset is a monetary asset.

3. Which statement is true concerning amortization and impairment of intangible

asset?
a. Intangible assets wit finite useful life are amortized over the useful life
b. Intangible assets with finite useful are tested for impairment and at the
end of reporting period when there is an indication of impairment.
c. Intangible assets with indefinite useful life are not amortized but are
tested for impairment at least annually.
d. All of these statements are true

4. An intangible asset is regarded as having and indefinite useful life when

a. There is no foreseeable future limit to the period over which the asset is
expected to generate net cash inflows to the entity
b. There is a foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity.
c. The useful life of an intangible asset arises from contractual right
d. The useful life of the intangible asset arises from legal right

5. What is the method of amortizing intangible asset?

 a. The straight line method, unless the pattern of the economic benefit can
be determined reliably
b. The double declining balance in all circumstances
c. A subjective amount o periodic amortization
d. The straight line method in all circumstances

6. The residual value of an intangible asset with a finite useful life shall be
assumed zero except
a. When there is a commitment by a third party to purchase the asset at
the end of the useful life
b. When there is an active market for the asset
c. When there is a commitment by a third party to purchase the asset at
the end of useful life or a there is an active market for the asset and it is
probable that such market will exist at the end of the month.
d. There are no exceptions.

7. One factor that is not considered in determining the useful life of an intangible
asset is
a. Residual value
b. Provision for renewal or extension
c. Legal Life
d. Expected action of competitors

8. Factors in determining the useful life of an intangible asset include all of the
following except
a. The expected use of the asset
b. Any legal or contractual provision
c. Any provision for renewal or extension of the legal life
d. The amortization method

9. Once recognized, intangible assets can be carried at

a. Cost less accumulated amortization
b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value since the intangible asset is
acquired

10. Which disclosure is not required with respect to intangible assets?

a. Useful life of the intangible asset
b. Reconciliation of carrying amount at the beginning and end of the year
c. Contractual commitment for the acquisition of intangible asset
d. Fair value of similar intangible asset used by the competitor
CHAPTER 21

Problem 1
Galore Company ventured into construction of a condominium in Makati which is rated as
the largest state-of-the-art structure.

The board of directors decided that instead of selling the condominium, the entity would
hold this property for purposes of earning rentals by letting out space to business
executives in the area.

The construction of the condominium was completed and the property was placed in
service on January 1, 2020.

The cost of the construction was P50,000,000. The useful life of the condominium is 25
years and the residual value is P5,000,000.

AN independent valuation expert provided the following fair value at each subsequent
year-end:

December 31, 2020 55,000,000

December 31, 2021 53,000,000
December 31, 2022 60,000,000

1. Under the cost model, what amount should be reported as annual depreciation of
investment property?
a. 1,800,000 c. 2,200,000
b. 2,000,000 d. 0
2. Under the fair value model, what amount should be recognized as gain from
change in fair value in 2022?
a. 5,000,000 c. 7,000,000
b. 3,000,000 d. 0

Question 1 Answer A

Cost of investment property 50,000,000

Residual Value 5,000,000
Depreciable amount 45,000,000

Annual depreciation
(45,000,000 / 25) 1,800,000
Question 2 Answer C

Fair value - December 31, 2022 60,000,000

Carrying amount - December 31, 2021 53,000,000
Gain from change in fair value in 2022 7,000,000

Problem 2
Eragon Company and its subsidiaries own the following properties at year-end:

Land held by Eragon for undetermined use 5,000,000

A vacant building owned by eragon and to be leased out
under an operating lease 3,000,000
Property help by a subsidiary of Eragon, a real estate firm,
in the ordinary course of business 2,000,000
Property held by Eragon for use in production 4,000,000
Building owned by a subsidiary of Eragon and for which
the subsidiary provides security and maintenance
services to the lessees 1,500,000
Land leased by Eragon to a subsidiary under an operating lease 2,500,000
Property under construction for use as investment property 6,000,000
Land held for future factory site 3,500,000
Machinery leased out by Eragon to an unrelated party under
an operating lease 1,000,000

1. What is the total investment property that should be reported in the consolidated
statement of financial position of the parent and its subsidiaries?
a. 12,000,000 c. 10,500,000
b. 15,500,000 d. 9,500,000
2. What total amount should be included in property, plant, and equipment in the
consolidated statement of financial position?
a. 11,000,000 c. 10,500,000
b. 13,000,000 d. 8,500,000

Question 1 Answer B
Land for undetermined use 5,000,000
Vacant building to be leased out under an operating lease 3,000,000
Building owned and for which the subsidiary provides security and
maintenance services to the lessees 1,500,000
Property under construction for use as investment property 6,000,000
Total investment property 15,500,000
Question 2 Answer A

Property held for use in production 4,000,000

Land leased by parent to a subsidiary under an operating lease 2,500,000
Land held for future use as factory site 3,500,000
Machinery leased out to an unrelated party under an operating lease 1,000,000
Total Property, Plant and Equipment 11,000,000

The property held by a subsidiary in the ordinary course of business is included in

inventory

Problem 9
1. When the entity uses the cost model, transfers between investment property,
owner-occupied property and inventory shall be made at
a. Fair value c. Cost
b. Carrying amount d. Assessed Value

2. Transfer from investment property carried to owner-occupied property shall be

accounted for at
a. Fair value, which becomes the deemed cost
b. Carrying amount
c. Historical Cost
d. Fair value less cost of disposal

3. If owner-occupied property is transferred to investment property that is to be

carried at fair value, the difference between the carrying amount and fair value
shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property

4. If an inventory is transferred to investment property to be carried at fair value, the

remeasurement to fair value is
a. Included in profit or loss
b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus

5. When an investment property under construction is completed and carried at fair

value, the difference between the carrying amount and fair value shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property
CHAPTER 22

Problem 1
Forester company provided the following assets in a forest plantation and farm:

Freestanding trees 5,000,000

Land under trees 600,000
Roads in forest 300,000
Animals related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000
Agricultural produce growing on bearer plants 800,000
Agricultural produce harvested 1,200,000
Plants with dual use 1,400,000

1. What total amount should be reported as biological assets?

a. 7,800,000 c. 8,400,000
b. 7,200,000 d. 9,200,000

2. What total amount should be included in property, plant, and equipment?

a. 4,600,000 c. 1,800,000
b. 3,400,000 d. 4,200,000

Question 1 Answer D

Freestanding trees 5,000,000

Bearer animals 2,000,000
Agricultural produce growing on bearer plants 800,000
Plants with dual use 1,400,000
Total biological assets 9,200,000

Question 2 Answer B

Land under trees 600,000

Roads in forest 300,000
Animal relateed to recreational activities 1,000,000
Bearer plants 1,500,000
Total Property, Plant and Equipment 3,400,000

The agricultural produce harvested should be included in inventory

Problem 7
At the beginning of the current year, Honey Company had a herd of 10 2-year old animals.

One animal aged 2.5 years was purchased on July 1 for P108, and one animal was born
on July 1

No animals were sold or disposed of during the year.

Fair Value less Cost of disposal per unit

2-year old animal on January 1 100

2.5-year old animal on July 1 108
New born animal on July 1 70
2-year old animal on December 31 105
2.5-year old animal on December 31 111
Newborn animal on December 31 72
3-year old animal on December 31 120
0.5-year old animal on December 31 80

1. What is the fair value of the biological assets on December 31?

a. 1,400 c. 1,440
b. 1,320 d. 1,360
2. What amount of gain from change in fair value of biological assets should be
recognized in the current year?
a. 222 c. 300
b. 292 d. 332
3. What amount of gain from change in fair value is attributable to price change?
a. 292 c. 237
b. 222 d. 55

Question 1 Answer A

Fair value of 3-year old animals on December 31 (11 x P120) 1,320

Fair value of 0.5-year old animals on December 31 the newborn (11 x P80) 80
Total fairvalue - December 31 1,400

Question 2 Answer B

Fair value of 10 animals on January 1 (10 x P100) 1,000

Acquisition cost of one animal on July 1 108
Carrying amount of biological assets excluding the newborn - December 31 1,108

Fair value on December 31 1,400

Carrying amount 1,108
 Gain from change in fair value 292

Question 3 Answer D

Gain from change in fair value due to price change:

10 2-year old animals (105-100=5x10) 50

1 2.5-year old animal (111-108=3x1) 3
1 newborn on July 1 (72-70=2x1) 2
Total 55

Gain from change in fair value due to physical change:

10 3-year old animals acquired January 1 (120-105=15x10) 150

1 3-year old animals acquired July 1 (120-111=9x1) 9
1 0.5-year old born on July 1 (80-72=8x1) 8
1 newborn (70x1) 70
Total 237

Price change 55
Physical change 237
Total gain from change in fair value 292

Problem 9
Farmland Company has different kinds of farm animals at the beginning of current year

During the current year, several acquisitions occurred related to these farm animals.

Detailed summary of transactions:

Carrying amount on January 1:
15 Horses (1 year old) 1,000,000
10 Dairy Cattle (2 years old) 400,000
8 Carabaos (2.5 years old) 200,000
20 Hogs (3 years old) 500,000
Purchases on June 30:
4 Dairy Cattle (1 year old) 150,000
6 Carabaos (6months old) 100,000

Fair value less cost of disposal on December 31:

15 Horses (1 year old) 1,200,000
10 Dairy Cattle (2 years old) 520,000
8 Carabaos (2.5 years old) 250,000
 20 Hogs (3 years old) 550,000
4 Dairy Cattle (1 year old) 170,000
6 Carabaos (6 months old) 110,000

Fair value lest cost of disposal on December 31:

15 Horses (2 years old) 1,350,000
10 Dairy Cattle (3 years old) 580,000
8 Carabaos (3.5 years old) 290,000
20 Hogs (4 years old) 600,000
4 Dairy Cattle (1.5 year old) 200,000
6 Carabaos (1 year old) 140,000

There were no famr animals sold during the year and neither were there any newborns
nor deaths.

1. What is the carrying amount of the biological assets on December 31?

a. 3,160,000 c. 2,800,000
b. 2,350,000 d. 2,380,000
2. What amount should be reported as gain from change in fair value attributable to
price change?
a. 810,000 c. 360,000
b. 450,000 d. 0
3. What amount should be reported as gain from change in fair value attributable to
physical change?
a. 810,000 c. 360,000
b. 450,000 d. 700,000

Question 1 Answer A 3,160,000

Question 2 Answer B

Fair value-December 31 (same age) 2,800,000

Carrying amount (2,100,000+250,000) 2,350,000
Price change 450,000

Question 3 Answer C

Fair value -December 31 (different age) 3,160,000

Fair value -December 31 (same age) 2,800,000
Physical change 360,000