An entity imported machinery to install in its new 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. The entity learned from
the bank that it was being charged interest on the loan it had taken to fund the cost of
the plant. What is the proper treatment of freight and interest expense? *
a. Both expenses are expensed.
b. Both expenses are capitalized.
c. Interest may be capitalized but freight is expensed.
d. Freight can be capitalized but interest cannot be capitalized under these circumstances.

Which of the following statements in relation to the cost of an asset is true? *

a. The cost includes cash equivalents paid.
b. The cost includes nonrefundable purchase taxes.
c. The cost includes the fair value of any nonmonetary consideration given to acquire an asset.
d. All of the statements are true.

The cost of demolishing an old building to make room for the construction of a new
building should be *
a. Charged to the land
b. Expensed immediately
c. Charged to the new building
d. Allocated between land and building based on relative fair value

Corner Company buys a van with a list price of P3,000,000. The dealer grants a 15%
reduction in list price and an additional 2% cash discount on the net price if payment is
made in 30 days. Irrecoverable taxes amount to P40,000 and the entity paid an extra
P30,000 to have a special horn installed. What amount should be recorded as initial
cost of the van? *
a. 2,499,000
b. 2,539,000
c. 2,564,500
d. 2,569,000

At the beginning of current year, Allison Company purchased a new machine on a

deferred payment basis. A down payment of P200,000 was made and four annual
installments of P600.000 each are to be made every year-end. The cash equivalent
price of the machine was P2,300,000. Due to an employee strike, the entity could not
install the machine immediately and thus incurred P30.000 of storage cost. Cost of
installation excluding the storage cost amounted to P80,000. What is the initial amount
to be capitalized as the cost of the machine? *
a. 2,300,000
b. 2,380,000
c. 2,410,000
d. 2,600,000