1.

Exploration and evaluation assets are initially measured at

a. cost.
b. revalued amount.
c. fair value.
d. a or b

2. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
d. any of these

3. Information needed to compute a depletion charge per unit includes the

a. Estimated total amount of resources available for removal.
b. Amount of resources remove during the period.
c. Cumulative amount of resources remove.
d. Amount of resources sold during the period.

4. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral resource
d. Expenditures for activities in relation to evaluating the technical feasibility and commercial viability of extracting
a mineral resource.

5. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an asset?

a. No, but only to the extent such expenditure is recoverable in future periods.
b. Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated mineral
resource have been demonstrated.
c. Yes, but only to the extent required by the entity’s accounting policy for recognizing exploration and evaluation
asset.
d. No, such expenditure is always expensed in profit or loss as incurred

6. Exploration and evaluation expenditures are incurred

a. When searching for an area that may warrant detailed exploration, even though the entity has not yet obtained the
legal rights to explore a specific area.
b. When the legal rights to explore a specific area have been obtained, but the technical feasibility and commercial
viability to extracting a mineral resource are not yet demonstrable.
c. When a specific area is being developed and preparations for commercial extraction are being made.
d. In extracting mineral resource and processing the resource to make it marketable or transportable.

7. Which measurement model applies to exploration and evaluation asset subsequent to initial recognition?
a. The cost model.
b. The revaluation model.
c. Either the cost model or the revaluation model.
d. The recoverable amount model.

8. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral resource
d. Expenditures for activities in relation to evaluating the technical feasibility and commercial viability
of extracting a mineral resource.
9. Non-monetary grants are measured at
a. the fair value of the non-monetary asset.
b. nominal amount.
c. the amount of cash received or receivable.
d. a or b

10. According to PAS 20, government grants are presented in the financial statements using
a. a gross presentation. c. a or b
b. a net presentation. d. a functional presentation.
11. What is the acceptable approach in accounting for government grants?
a. Government grants shall be recognized as income on a systematic basis over the periods in which the entity
recognizes as expense the related cost for which the grants are intended to compensate.
b. Government grants shall be credited directly to donated capital.
c. Government grants shall be credited directly to retained earnings.
d. Government grants shall be added in other comprehensive income.

12. In the case of grant related to asset, which of the following accounting treatment is prescribed by PAS 20?
a. Record the grant at a nominal value in the first year and write it off in the subsequent year.
b. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset.
c. Record the grant at fair value in the first year and take it to income in the subsequent year.
d. Take it to the income statement and disclose it as an extraordinary gain.

13. In the case of the grant related to an income, which of the following accounting treatment 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”.
d. Credit the grant to sales or other revenue from operations in the income statement.

14. Which is incorrect concerning recognition of government grants as income?

a. Grants in recognition of specific expense shall be recognized as income over the period of the related expense.
b. Grants related to depreciable assets shall be recognized as income over the periods and in proportion to the
depreciation of the related assets.
c. Grants related to nondepreciable assets requiring fulfillment of certain conditions shall be recognized as income
over the periods which bear the cost of meeting the conditions.
d. Government grants that became receivable as compensation for expenses or losses already incurred shall be
recognized as an adjustment of retained earnings.

15. According to PAS 23, borrowing costs are capitalized when

a. they relate directly to the acquisition, construction or production of a qualifying asset.
b. the entity chooses to capitalize them.
c. they are material and are expected to be incurred over more than one reporting period.
d. all of these

16. Which of the following is a qualifying asset?

a. Investment property measured at fair value
b. Building that is ready for its intended use upon purchase
c. Inventories that are routinely produced in large quantities on a continuous basis
d. An application software (intangible asset) that takes 3 years to develop

17. An entity starts the capitalization of borrowing costs to the cost of a qualifying asset when
a. expenditures for the asset are being incurred.
b. borrowing costs are being incurred.
c. activities necessary to prepare the asset for its intended use or sale are being undertaken.
d. all of the above conditions are met.

18. In which of the following instances is the capitalization of borrowing costs under PAS 23 would most likely be
suspended?
a. Construction is temporarily stopped for the curing of concrete.
b. Active development is stopped to give time for the engineers to reevaluate a design flaw.
c. The construction of a bridge is disrupted by troubled waters.
d. The construction of a building is discontinued because it is condemned by the government. The resumption of
development is uncertain.

19. PAS 23 does not require which of the following disclosures?

a. The amount of borrowing costs capitalized during the period.
b. The capitalization rate used to determine the capitalizable borrowing costs.
c. Separate presentation of qualifying assets from other assets either on the face of the statement of financial
position or in the notes.
d. PAS 23 requires the disclosure of all of these information.

20. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are
a. capitalized; other borrowing costs are also capitalized.
b. expensed; other borrowing costs are capitalized.
c. capitalized; other borrowing costs are expensed.
d. expensed; other borrowing costs are also expensed.
21. Which statement is true concerning capitalization of borrowing cost?
I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to be
capitalized as cost of the asset.
II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be expensed as
incurred.
a. I only
b. II only
c. Both I and II
d. Neither I or II

22. An asset is being constructed for an entity’s own use. The asset has been financed with a specific new borrowing. The
interest cost incurred during the construction period as a result of expenditures for the asset is
a. Interest expense in the construction period
b. A prepaid asset to be written off over the estimated useful life of the asset
c. A part of the historical cost of acquiring the asset to be allocated over the estimated useful life of the asset
d. A part of the historical cost of acquiring the asset to be allocated over the term of the borrowing used to finance
the construction of the asset

23. Borrowing costs are interest and other costs that an entity incurs in connection with borrowing of funds. Borrowing
costs include (choose the incorrect one)
a. Interest expense on borrowings calculated using the effective interest method.
b. Interest expense on borrowings calculated using the straight line method.
c. Finance charge with respect to a finance lease.
d. Exchange difference arising from foreign currency borrowing that is regarded as an adjustment to the interest
cost.

24. Capitalization of borrowing cost

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. Shall never be suspended once capitalization commences.
d. Shall be suspended only during extended period of delay in which active development is delayed.

25. Repayment to grant related to income shall

be Answer D

Use the following information for the next two questions:

In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000 acres of land to mine for gold. The lease
cost is ₱200,000,000, and the related exploration costs on the property amounted to ₱40,000,000. It is the policy of
OBSTREPEROUS Mining Corp. to capitalize all costs of exploration and evaluation of mineral resources. Intangible
development costs for drilling, tunnels, shafts, and wells incurred before opening the mine amounted to ₱340,00,000. At
the end of the mine’s economic useful life, OBSTREPEROUS Mining Corp. is required by legislation to restore the site.
Estimated restoration costs have a fair value of ₱20,000,000. OBSTREPEROUS Mining Corp. estimates that the mine
will provide approximately 100,000,000 ounces of gold. Actual ounce of gold mined in 20x2 totaled 300,000 ounces.

26. How much is the depletion charge in 20x2?

a. 1,740,000 b. 1,800,000 c. 165,000 d. 150,000

27. Assuming that of the 300,000 ounces of gold extracted in 20x2, 280,000 ounces were sold and 20,000 ounces remain
in inventory. How much depletion is recognized in the (a) statement of financial position and (b) statement of profit or
loss and other comprehensive income?
Statement of financial position Statement of profit or loss
a. 1,680,000 120,000
b. 116,000 1,624,000
c. 11,000 154,000
d. 120,000 1,680,000

28. On July 1, 2019, Lam Company, a calendar year entity, purchased the rights to a mine. The total purchase
price was P14,000,000, of which P2,000,000 was allocable to the land. Estimated reserves were 1,500,000
tons. Lam expects to extract and sell 25,000 tons per month.
Lam purchased new equipment on July 1, 2019. The equipment was purchased for P8,000,000 and has a
useful life of 8 years. However, after all the resource is removed, the equipment will be of no use and will
be sold for P500, 000. The depreciation of the equipment for 2019 is
a. 937,500
b. 468,700
c. 750,000
 d. 500,000

In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of ₱40,000,000 to be used to quarry marble, limestone, and
construction aggregates. Costs incurred to obtain legal right to explore the property amounted to ₱8,000,000. Expenditures
incurred in the exploration for and evaluation of mineral resources before technical feasibility and commercial viability of
extracting a mineral resource are demonstrable totaled ₱12,000,000. Intangible development costs of drilling, tunnels,
shafts, and wells before the actual production totaled ₱20,000,000. BUCOLIC Co. estimates that total recoverable
reserves are 100,000,000 units. Furthermore, BUCOLIC Co. expects to sell the land for ₱4,800,000 after resource is
depleted. However, no buyer will pay this price unless the mine is drained, filled and leveled, a process that will cost
₱800,000. It is BUCOLIC’s policy to capitalize all exploration costs.

Actual units quarried in 20x1 through 20x4 totaled 30,000,000 units. On January 1, 20x5, BUCOLIC Co. estimated that
remaining recoverable reserves is only 25,000,000 units and after the reserves are exhausted, the land will be sold for
₱3,200,000. Costs of disposal are estimated at ₱1,200,000. Actual units quarried in 20x5 totaled 6,000,000 units.

29. How much is the depletion charge in 20x5?

a. 13,284,000 b. 13,480,000 c. 13,280,000 d. 13,248,000

30. What is the carrying amount of the wasting asset on December 31, 20x5?
a. 43,852,000 b. 44,272,000 c. 42,720,00 d. 43,952,000

On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government conditioned on the construction of
a building on the lot. Entity A started immediately the construction and it was completed on December 31, 20x1 for a total
cost of ₱1,000,000. The building has an estimated useful life of 10 years and zero residual value.

31. How much is the income from government grant in 20x1 and 20x2, respectively?
20x1 20x2
a. 0 200,000
b. 200,000 0
c. 0 20,000
d. 20,000 20,000

32. How much is the carrying amount of the building on December 31, 20x2 under the following presentations?
Gross presentation Net presentation
a. 1,000,000 800,000
b. 900,000 720,000
c. 800,000 640,000
d. 800,000 533,333

33. How much is the depreciation expense recognized in 20x3 under the following presentations?
Gross presentation Net presentation
a. 100,000 80,000
b. 100,000 100,000
c. 80,000 100,000
d. 80,000 80,000

34. Betty Company purchased a jewel polishing machine for P3, 600, 000 on January 1, 2019 and received a government
grant of P500, 000 toward the capital cost. The accounting policy is to treat the grant as a reduction in the cost of the
asset. The machine is to be depreciated on a straight line basis over 8 years and estimated to have a residual value of
P50,000 at the end of this period.
What is the depreciation expense in respect of the machine for the year ended December 31,
2019? a. 387,500
b. 762,500
c. 443,750
d. 381,250

35. Kate Company purchased a varnishing Machine for P3, 000, 000 on January 1, 2011. The entity received a
government grant of P500, 000 in respect of this asset. The accounting policy is to depreciate the asset over 4 years on
a straight line basis and to treat the grant as deferred income.
What amount of government grant is recognized for 2011?
a. 500,000
b. 125,000
c. 250,000
d. 0
 On January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was used to finance the
construction of a qualifying asset:
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000

Expenditures made on the qualifying asset were as follows:

Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
December 1 2,000,000

Construction was completed on December 31, 20x1.

36. How much is the cost of the qualifying asset on initial recognition?
a. 13,010,000 c. 14,920,000
b. 15,045,000 d. 14,971,111

37. On January 1, 20x1, Entity A obtained a 12%, ₱6,000,000 loan, specifically to finance the construction of a
building. The proceeds of the loan were temporarily invested and earned interest income of ₱180,000. The
construction was completed on December 31, 20x1. How much borrowing costs are capitalized to the cost of the
constructed building?
a. 540,000 c. 720,000
b. 480,000 d. 0

38. Clay Company started construction of a new office building on January 1, 20x3, and moved into the finished
building on July 1, 20x4. Of the building’s ₱2,500,000 total cost, ₱2,000,000 was incurred in 20x3 evenly
throughout the year. Clay’s incremental borrowing rate was 12% throughout 20x3, and the total amount of
interest incurred by Clay during 20x3 was ₱102,000. What amount should Clay report as capitalized interest at
December 31, 20x3?
a. 102,000 b. 120,000 c. 150,000 d. 240,000

39. On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying asset is financed
through general borrowings. The average expenditures during the year amounted to ₱9,500,000. The
capitalization rate is 11%. The actual borrowing costs incurred during the period were ₱1,990,000. How much
are the borrowing costs eligible for capitalization?
a. 1,990,000
b. 1,045,000
c. 1,090,000
d. 990,000

40. CONVALESCE Co. started construction of a qualifying asset for RECOVER, Inc. on January 1, 2017. The following
were expenditures incurred on construction.

Date Expenditures
Year 2017
January 1, 2017 4,000,000
May 1, 2017 1,800,000
December 1, 2017 2,880,000

Year 2018
January 1, 2018 3,600,000
August 30, 2018 1,200,000

Year 2019
July 1, 2019 2,400,000

COVALESCE Co. determined the capitalization rate to be 10%. The construction of the qualifying asset was substantially
completed on September 30, 2019.

How much is the total cost of the constructed qualifying asset on September 30, 2019?
a. 18,957,830 b. 19,776,830 c. 13,765,380 d. 18,957,380
41. In 2017, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000 acres of land to mine for gold. The
lease cost is ₱200,000,000, and the related exploration costs on the property amounted to ₱40,000,000. It is the policy
of OBSTREPEROUS Mining Corp. to capitalize all costs of exploration and evaluation of mineral resources.
Intangible development costs for drilling, tunnels, shafts, and wells incurred before opening the mine amounted to
₱340,00,000. At the end of the mine’s economic useful life, OBSTREPEROUS Mining Corp. is required by
legislation to restore the site. Estimated restoration costs have a fair value of ₱20,000,000. OBSTREPEROUS Mining
Corp. estimates that the mine will provide approximately 100,000,000 ounces of gold. Actual ounce of gold mined in
2018 totaled 300,000 ounces.
How much is the depletion charge in 2018? 1,800,000

42. Reliable Company purchase a tract of resource land in 2017 for P3,960, 000. The content of the tract was estimated
at 120,000 units. When the resource had been exhausted, it is estimated that the land will be worth P120,000.
Building was set up at cost of P960,000 and heavy equipment was purchase in early January 2017 for P1,240,000.
The life of the plant assets is as follows: Building 8 years ; Equipment 4 years
In 2017, 12,000 units have been extracted. This was one half of the annual extraction which can be expected
following the first year of operations. In 2018, additional intangible development cost of 324,000 was incurred and
25,000 units were extracted. How much is the depletion & depreciation charges in 2018? 875,000 & 510,000

43. In 2014, THRALL SLAVE Co. purchased real estate containing copper for a total cost of ₱40,000,000. Immovable
tangible equipment costs for drilling rig foundation totaled ₱20,000,000. Estimated recoverable reserves from the
mine are 1,020,000 units. It is estimated that 120,000 units will be extracted each year. The drilling rig foundation has
an estimated useful life of 13 years. Actual units extracted from 2014 through 2016 totaled 340,000 units. No units
were extracted during 2017 due to an employee strike. Extraction resumed in 2018 and total units extracted during
that year was 80,000 units. How much is depreciation charge in 2018? 1,412,000

44. On January 1, 2014, Valiant Company received a Government grant of P60,000,000 to compensate for cost to be
incurred in planting trees over a period of 5 years. Valiant Company will incur such cost at P2,000,000 for 2014,
P4,000,000 for 2015, P6,000,000 for 2016, P8,000,000 for 2017, and P10,000,000 for 2018.
What amount of income from the government grant is recognized for 2015? 8,000,000

45. On January 1, 2017, Exuberant Company received a consolidated grant of P12,000,000. Three-fourths of the grant
will be utilized to purchase a college building for students for underdeveloped or developing countries. The balance of
the grant is for subsidizing the tuition costs of those students for four years from the date of grant.
The building was purchased in January 2017 and is to be depreciated using the straight line method over 10 years. The
tuition costs paid in 2017 amounted to P600, 000.
How much is the deferred income from government grant on December 31, 2017 financial position? 10,350,000

46. Tarhata Company received government grant of P2,000,000 related to a factory building that is purchased in January
2016. Tarhata Company acquired the building from an industrialist identified by the government. If Tarhata Company
did not purchase the building, which was located in the slums of the city, it would have been repossessed by the
government agency. Tarhata Company purchased the building for P12,000,000. The useful life of the building is 5
years with no residual value.
On January 1, 2018, the entire amount of the government grant became repayable by reason of noncompliance with
conditions attached to the grant.
How much loss should be recognized for the year 2018? 800,000

47. On January 1, 2014, KulaFu Company had the following borrowings made for general purposes and a part of the
proceeds was used to finance the construction of a qualifying asset.
12% short-term loan P40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000
The construction started on January 1 and was completed on December 2014. The total cost of construction was
P72,000,000 which was incurred evenly during the year. How much is the capitalizable borrowing cost? 5,212,800

48. Hothead Company had the following loans outstanding for the entire year 2018:
Specific construction loan 1,000,000 10%
General loan 20,000,000 12%
The entity began the self-construction of a building on January 1, 2018 and the building was completed on November 30,
2018. The following expenditures were made during the current year:
January 1 1,000,000
July 1 2,000,000
November 1 3,000,000
Total 6,000,000
How much is the cost of the new building? 6,221,667

49. On January 1, 2014, ENERVATE TO WEAKEN Company had the following borrowings made for general purposes
and a part of the proceeds was used to finance the construction of a qualifying asset.
12% short-term note P 40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000
The construction of the qualifying asset was started on immediately and completed on June 30, 2015 and expenditures
incurred on the qualifying asset were as follows:
Jan. 1 P19,200,000
Mar. 31 8,800,000
July 30 14,000,000
March 31 21,600,000
June 30 1,200,000
How much is the cost of the new constructed building? 73,534,853

50. BGSM Co. started construction of a new office building on January 1, 2019. Funds borrowed specifically for the
construction of the building is P4,000,000 accruing interest at 10% annually. However, a part of the borrowing is used
for other business requirements during the year. Investment income earned on temporary investments of proceeds
from the borrowing amounted to P24,000 which was received in cash on September 1, 2019. Expenditures on the
building amounted P2,600,000 which was incurred evenly during the year. How much is the borrowing costs to be
capitalized in 2019? 130,000

NOTE: items 24 & 25, mali sagot n nsa edmodo..