CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

PAS 16 - PROPERTY, PLANT AND EQUIPMENT

1. Which is not a characteristic of property, plant and equipment?
a. Tangible asset
b. Used in production, for rental or for administrative purposes
c. Expected to be used over a period of more than one year
d. Subject to depreciation
2. The cost of an item of property, plant and equipment comprises all of the following, except
a. Purchase price
b. Nonrefundable purchase taxes
c. Cost directly attributable in bringing the asset to the location and condition for the intended use
d. Initial estimate of the cost of dismantling and restoration for which the entity has no present
obligation.
3. Directly attributable costs in bringing asset to the location and condition for the intended use include
all of the following, except
a. Cost of relocating or reorganizing part or all of an entity’s operations.
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation, assembly and testing cost, including professional fee
4. Which of the following costs should be expensed immediately?
a. Cost of opening a new facility
b. Cost of introducing a new product, including advertising and promotion
c. Cost of conducting business in a new location, including cost of staff training
d. All of these are expensed immediately.
5. The cost of property, plant and equipment acquired in an exchange with commercial substance is
measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Carrying amount of asset given plus cash payment
d. Carrying amount of asset received plus cash payment
6. Which of the following nonmonetary exchange transactions has commercial substance?
a. Exchange of assets with no difference in future cash flows.
b. Exchange of assets by entities in the same line of business.
c. Exchange of assets with difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets that causes the entities involved to
remain in essentially the same economic position.
7. The configuration of cash flows of the assets exchanged includes which of the following?
a. The implicit interest rate, maturity of loan and amount of loan
b. The risk, timing and amount of cash flows of the assets
c. The entity-specific value of the asset which is equal to fair value
d. The estimated present value of the assets exchanged
8. When a plant asset is acquired by deferred payment, which condition generally does not indicate the
need for imputation of interest?
a. The stated interest rate is significantly different from market interest rate.
b. The cash price of the asset is significantly different from the deferred obligation.
c. The note payable is noninterest bearing.
d. The face amount of the deferred obligation is equal to the fair value of the asset acquired.
9. If the present value of the note issued in exchange for an asset is less than the face amount, the
difference is
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the life of the note
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10. Which statement best describes depreciation?

a. The systematic allocation of the cost of an asset less residual value over the useful life
b. The removal of the asset from the statement of financial position
c. The amount by which the recoverable amount exceeds carrying amount of an asset
d. The reduction in the value of an asset
11. Which statement is incorrect with respect to depreciation?
a. The depreciation method shall reflect the pattern in which the asset’s economic benefits are
consumed.
b. Depreciation of an asset begins when it is available for use or when it is in location and condition
necessary for the intended use.
c. Depreciation ceases at the earlier between the date the asset is classified as held for sale and the
date the asset is derecognized.
d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount.
12. Which statement is true with respect to residual value?
a. Residual value is the estimated net amount currently obtainable if the asset is at the end of the
useful life.
b. The residual value of an asset may increase to an amount equal to or greater than carrying amount
in which case the depreciation charge is zero.
c. The residual value of an asset shall be reviewed at least at each financial year-end and any change
is accounted for as a change in accounting estimate.
d. All of these statements are true.
13. All of the following factors are considered in determining the useful life of an asset, except
a. Expected usage of asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
14. What is the theoretical basis of straight line depreciation?
a. The operating efficiency of the asset decreases in later years
b. Service value declines as a function of time rather than use
c. Service value declines as a function of obsolescence rather than time
d. Physical wear and tear are more important than economic obsolescence
15. The straight line depreciation is not appropriate for
a. An entity that is neither expanding nor contracting an investment in equipment because it is
replacing equipment as the equipment depreciates.
b. Equipment on which maintenance and repairs increase substantially with age.
c. Equipment with useful life not affected by the amount of use.
d. Equipment used consistently every period.
16. In which of the following is the output or activity method of depreciation most appropriate?
a. An asset’s service potential declines with use.
b. An asset’s service potential declines with the passage of time.
c. An asset is subject to rapid obsolescence.
d. An asset incurs increasing repairs with use.
17. What is the best theoretical support for accelerated depreciation?
a. Assets are more efficient in early years and initially generate more revenue.
b. Expenses should be allocated in a manner that “smooths” earnings.
c. Repairs will probably increase in later periods so depreciation should decrease.
d. Accelerated depreciation provides easier replacement.
18. Which of the following subsequent outlays should be expensed immediately?
a. Expenditure made to increase the efficiency or effectiveness of an existing asset
b. Expenditure made to extend the useful life of an existing asset
c. Expenditure made to maintain an existing asset in operating condition
d. Expenditure made to add new asset

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19. What valuation model should be used to measure property, plant and equipment?
a. The revaluation model or the fair value model
b. The cost model or the revaluation model
c. The cost model or the fair value through profit or loss model
d. The cost model or the fair value model
20. Which statement is true when an entity chooses the revaluation model?
a. When an asset is revalued, the entire class of property, plant and equipment to which that asset
belongs must be revalued.
b. Individual asset within a class of property, plant and equipment can be revalued.
c. Revaluation of property, plant and equipment must be made at least every three years.
d. Increase in an asset’s carrying amount as a result of the first revaluation must be recognized as a
component of profit or loss.
21. When an accounting for property, plant and equipment, an entity
a. Must use the cost model for presenting the asset
b. May elect to use the cost model or the revaluation model on any individual asset.
c. May elect to use the cost model or the revaluation model on any asset class
d. Must use the cost model for land
22. Under the revaluation model in accounting for property, plant and equipment
a. Assets must be revalued quarterly.
b. Assets must be revalued annually.
c. Assets must be revalued at the discretion of management
d. There are no specific rules regarding the frequency of revaluation

PAS 20 – GOVERNMENT GRANT

23. 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.
24. 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
25. 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.
26. 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
27. Which disclosure is not required in relation to government grant?
a. The accounting policy adopted for government grant.
b. Unfulfilled conditions and other contingencies attaching to government assistance.
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized and government assistance.

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PAS 23 BORROWING COSTS

28. Which statement is true about capitalization of borrowing cost?
a. All borrowing costs are capitalized.
b. All borrowing costs are expensed immediately.
c. Borrowing costs directly attributable to a qualifying asset are capitalized
d. Borrowing costs not directly attributable to qualifying asset may be capitalized or expensed.
29. Which can be treated as qualifying asset for purposes of capitalizing borrowing cost?
a. Investment property
b. Investment in financial instrument
c. Inventory manufactured or produced in large quantity or a repetitive basis
d. Biological asset
30. Assets that qualify for interest capitalization include
a. Assets under construction for an entity’s own use.
b. Assets that are ready for the intended use.
c. Assets that are not currently being used because of excess capacity.
d. All of these assets qualify for interest capitalization.
31. 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.
32. The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for the intended use.
b. No further interest is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset ready for the intended use have begun.
33. Which is not a required disclosure regarding interest cost?
a. Total interest cost incurred for the period
b. Total capitalized interest cost for the period
c. The capitalization rate used to determine the capitalizable interest cost
d. Segregation of qualifying asset from other assets
34. Which of the following costs may not be eligible for capitalization as borrowing cost?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discount or premium relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange difference arising from foreign currency borrowing to the extent that it is regarded as an
adjustment to interest cost pertaining to a qualifying asset.
35. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to
a. Actual borrowing cost incurred
b. Actual borrowing cost incurred up to completion of asset
c. Actual borrowing cost incurred up to completion of asset minus any investment income from the
temporary investment of the borrowing
d. Zero
36. If the qualifying asset is financed by general borrowing, 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

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PAS 36 – IMPAIRMENT OF ASSETS

37. If the fair value less cost of disposal cannot be determined

a. The asset is not impaired.
b. The recoverable amount is the value in use.
c. The net realizable value is used.
d. The carrying amount of the asset remains the same.
38. If the asset is to be disposed of
a. The recoverable amount is the fair value less cost of disposal.
b. The recoverable amount is the value in use.
c. The asset is not impaired
d. The recoverable amount is the carrying amount.
39. The estimates in calculating value in use include all of the following, except
a. Cash inflows from continuing use of the asset.
b. Cash outflows incurred to generate the cash inflows from continuing use of the asset.
c. Net cash flows from the disposal of the asset at end of useful life.
d. Income tax payments
40. Which is not relevant in determining value in use?
a. Expected future cash flows from the asset
b. Carrying amount of asset
c. Possible variation in the amount and timing of future cash flows
d. Time value of money
41. Which of the following statements in not true with regard to impairment of asset?
a. If impairment indicators are present, the entity must conduct an impairment test.
b. The impairment test compares the carrying amount of the asset with the lower of fair value less
cost of disposal and value in use.
c. If the recoverable amount is lower than carrying amount, an impairment loss is recognized.
d. If the recoverable amount is higher than carrying amount, no impairment loss is recognized.
42. What is the allocation of an impairment loss recognized for a cash generating unit?
a. Across the assets of the unit based on carrying amount.
b. Across the assets of the unit based on fair value.
c. First, to any goodwill, and the balance to the other assets prorata based on fair value.
d. First, to any goodwill, and the balance to the other assets prorata based on carrying amount.

PFRS 6 – EXPLORATION AND EVALUATION OF MINERAL RESOURCES

43. 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 an area have been obtained but the technical feasibility and
commercial viability of extracting a mineral resource are not yet demonstrable.
c. When preparations for commercial extraction are being made.
d. In extracting mineral resource and processing the resource to make it marketable.
44. Which accurately describes the GAAP regarding accounting for costs of drilling dry holes?
a. Only the successful effort method may be used.
b. Only the full cost method may be used.
c. Both the successful effort method and the full cost method may be used.
d. Neither the successful effort method nor the full cost method may be used.
45. Depletion expense
a. Is usually part of cost of goods sold.
b. Includes tangible equipment cost in the depletion base.
c. Excludes intangible development cost from the depletion base.
d. Excludes estimated restoration cost from the depletion base.

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