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Chapter 16
PPE Part 2
NAME: Date:
Professor: Section: Score:

LONG QUIZ:
1. Subsequent to initial recognition, an entity shall use this model to account for its items of
property, plant and equipment.
a. cost model c. revaluation model
b. fair value model d. a or c as an accounting policy choice

2. It is the systematic allocation of the depreciable amount of an asset over its estimated useful life.
a. Depreciation c. Impairment
b. Revaluation d. all of these

3. Which of the following is considered when depreciating an asset under the cost model?
a. The cost of the asset. c. The change in the fair value of the asset.
b. The useful life of the asset. d. Both a and b.

4. Which of the following depreciation methods will most likely result in the highest amount of
reported profit in the early years of an asset’s useful life?
a. Straight line c. 150% declining balance
b. Double declining balance d. Sum-of-the-years’ digits

5. The most commonly used depreciation method is the

a. straight-line method. c. replacement method.
b. depreciation method based on revenue. d. inventory method.

6. Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended 5
years beyond the original estimate of 10 years. If the asset recognition criteria are met, the cost of
rebuilding the drill press should be charged to the appropriate:
a. expense account c. asset account
b. accumulated depreciation account d. liability account

7. The carrying amount of an item of property, plant and equipment that is subsequently
accounted for under the cost model is equal to
a. the historical cost less any accumulated depreciation.
b. the fair value less any accumulated depreciation.
c. the historical cost less any accumulated depreciation and any accumulated impairment loss.
d. the fair value less any accumulated depreciation and any accumulated impairment loss.

8. On January 1, 20x1, SIMPLETON FOOL Co. acquired a piece of equipment with an estimated
useful life of 4 years and a residual value of ₱80,000 for a total purchase cost of ₱400,000. At
normal capacity, the equipment’s estimated service life is 40,000 hours or a total productive
capacity of 160,000 units of a product. In 20x1 and 20x2, the actual manufacturing hours were
16,000 and 8,000, respectively, and the actual units produced were 60,000 and 30,000,
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respectively. How much is the accumulated depreciation on December 31, 20x2 under each of
the following depreciation methods?
SLM SYD DDB UOPM (input) UOPM (output)
a. 100,000 160,000 200,000 129,000 120,000
b. 160,000 224,000 300,000 192,000 180,000
c. 80,000 128,455 200,000 128,000 120,000
d. 160,000 224,000 300,000 180,000 192,000
*SLM = straight line method; SYD = sum-of-the-years’ digits; DDB = double declining balance; UOPM = units-of-production method

9. DEPLORABLE BAD Co. acquired a machine on October 5, 20x1 for a total cost of ₱160,000. The
machine was estimated to have a useful life of 4 years and a salvage value of ₱10,000.
DEPLORABLE BAD Co. uses the sum-of-the-years’ digits method and prorates full-year
depreciation to the nearest month. DEPLORABLE BAD Co. sold the machine on December 27,
20x2 for ₱40,000. How much is the gain (loss) on the sale?
a. (48,750) c. (32,250)
b. 48,750 d. 32,250

10. On January 1, 20x1, DEVIOUS CROOKED Co. purchased the following assets and decided to
depreciate them as a single unit:
Cost Residual value Useful life
Machine tools 80,000 4,000 3 years
Meters 64,000 2,000 5 years
Returnable containers 120,000 - 6 years

What is the composite life?

a. 5.40 c. 4.70
b. 5 d. 4.50

11. The small tools account of ATROCIOUS CRUEL Co. has a balance of ₱600,000 as of January 1,
20x1. The movements in this account during the year were as follows:
Feb. April Sept. Nov.
Cost of new tools acquired 40,000 - 120,000 88,000
Cost of old tools retired 24,000 48,000 - 72,000
Disposal proceeds of old tools 2,000 3,200 - 4,000

How much is the depreciation expense in 20x1 under the retirement method?
a. 134,800 c. 144,000
b. 166,800 d. 118,800

12. On January 1, 20x1, COCKY ARROGANT Co. acquired a piece of equipment for ₱4,000,000. The
equipment will be used to reproduce gaming software that is expected to be marketed for 3
years. The equipment is expected to be used in producing products over the next two years, after
which the equipment will be disposed of at a negligible amount. The estimated revenues from
the software are as follows:
Estimated
Year revenues
20x1 120,000,000
20x2 80,000,000
20x3 40,000,000
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Total 240,000,000

The actual revenue earned in 20x1 is ₱180,000,000. The depreciation expense in 20x1 is most likely
equal to
a. 3,000,000 c. 2,977,667
b. 2,000,000 d. 333,333

13. On January 1, 20x1, DIMINUTIVE SMALL Co. signed a ten-year lease for office space.
DIMINUTIVE has the option to renew the lease for an additional five-year period on or before
January 1, 2x10. During the first half of January 20x2, DIMINUTIVE Co. incurred the following
costs:
 ₱3,600,000 for general improvements, with an estimated useful life of ten years, on the leased
premises.
 ₱400,000 for office furniture with an estimated useful life of ten years.
 ₱800,000 for movable assembly line equipment with a useful life of 5 years.

At the time the leasehold improvements were finished, DIMINUTIVE Co. was uncertain as to the
exercise of the lease renewal option. How much is the depreciation expense on the leasehold
improvements in 20x2?
a. 400,000 c. 533,333
b. 360,000 d. 488,889

14. On January 1, 20x1, KNAVE RASCAL Co. acquired a machine for a total cost of ₱80,000,000. The
machine was depreciated using the sum-of-the-years’ digits method over a period of 10 years.
On January 1, 20x4, KNAVE Co. changed its depreciation method to the double declining
balance method. How much is the depreciation expense in 20x4?
a. 40,727,272 c. 12,556,780
b. 11,635,782 d. 13,556,702

15. ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for a total cost of
₱24,000,000. The aircraft was estimated to have a useful life of 10 years. ENTREAT Co. uses the
straight line method of depreciation. On January 1, 20x5, a major part of the aircraft was
replaced for a total cost of ₱3,200,000. ENTREAT Co. cannot determine the cost of the replaced
part. How much is the loss on replacement?
a. 1,920,000 c. 1,200,000
b. 1,280,000 b. 0

16. On December 31, 20x1, SWIMMY UNSTEADY Co. determined the following information for the
purpose of revaluing its building:
Historical cost 80,000,000
Initial estimate of useful
life 25
Actual life 10
Replacement cost 140,000,000
Effective life 8
Remaining economic life 17
Income tax rate 30%
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If SWIMMY UNSTEADY Co. uses the proportional method of recording, the entry to record the
revaluation would include which of the following?
a. a debit to accumulated depreciation of ₱32,000,000.
b. a credit to accumulated depreciation of ₱12,800,000.
c. a credit to building of ₱15,200,000.
d. a debit to deferred tax of ₱14,160,000.

17. On December 31, 20x1, the building of LITHE FLEXIBLE Co. was revalued. Information
determined on revaluation date is as follows:
Historical cost 72,000,000
Accumulated depreciation 16,000,000
Initial estimate of residual
value 8,000,000
Actual life on revaluation date 10
Replacement cost 144,000,000
Effective life 12
Remaining economic life 20
Income tax rate 30%

The estimate of residual value remained unchanged. How much are the (1) revaluation surplus, net
of tax, on December 31, 20x1 and (2) revised annual depreciation in periods subsequent to December
31, 20x1?
a. 25,900,000; 4,650,000
b. 37,000,000; 895,000
c. 37,000,000; 4,650,000
d. 25,900,000; 4,250,000

18. On December 31, 20x1, the building of Borong Co. with a historical cost of ₱320,000,000,
accumulated depreciation of ₱160,000,000, and an estimated useful life of 20 years was
determined to have a fair value of ₱200,000,000. Borong Co. is subject to an income tax rate of
30%. Under the elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for ₱160,000,000.
b. a debit to accumulated depreciation for ₱40,000,000.
c. a debit to building for ₱120,000,000.
d. a credit to building for ₱160,000,000.

19. On December 31, 20x1, the land of CONJUNCTION UNION Co. with an original cost of
₱40,000,000 was revalued to a fair value of ₱28,000,000. This was the first revaluation made on
the land since it was purchased 2 years ago. On December 20x4, the building was appraised at a
fair value of ₱48,000,000. How much is the gain on impairment reversal in 20x4?
a. 8,000,000 c. 12,000,000
b. 20,000,000 d. 0

20. FORTITUDE ENDURANCE Co. purchased a piece of equipment on August 14, 20x1 for a total
cost of ₱400,000. The equipment has an estimated useful life of 10 years and a residual value of
₱80,000. It is the policy of FORTITUDE Co. to provide for full-year depreciation in the year of
acquisition and none in the year of disposal. On May 12, 20x4, the equipment was sold for
₱120,000. Disposal costs of ₱8,000 were incurred. How much is the gain (loss) on the sale?
a. (184,000) c. 192,000
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b. 184,000 d. (192,000)

“Pride goes before destruction, a haughty spirit before a fall.” (Proverbs 16:18)
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