CHAPTER 7

PROBLEM 7-1: TRUE OR FALSE

False 1. According to the GAM for NGAs, inventories of government entities are
subsequently measured at net realizable value or current replacement cost
depending on whether the inventory is classified as held for sale or held for
distribution.
False 2. According to the GAM for NGAs, purchases of machinery, equipment,
furniture and fixtures and similar items below the Ᵽ10,000 capitalization
threshold for PPE are recorded as inventories.
False 3. Relief goods, office supplies, equipment and furniture and fixture are items
that may appropriately be recorded as inventories by a government entity.
False 4. The GAM for NGAs allows government entities to use the FIFO cost flow
formula.
False 5. The GAM for NGAs allows government entities to use a periodic inventory
system.
False 6. The specific identification cost formula is not available for use by government
entities, according to the GAM for NGAs.
False 7. The Purchase Request (PR) form is prepared when end users request for the
issuance of items of inventory that are available on stock.
True 8. If the beginning balance of inventory is P50, the net purchases are P100 and
the cost of goods sold is P30, the ending inventory must be P120.

Fact pattern
Entity A, a government entity, sells eggs. At the start of the period, Entity A’s inventory
consisted of (1) red egg with a carrying amount of P2. During the period, Entity A acquired
one (1) brown egg for P3 and one (1) blue egg for P4. Entity A sold the brown egg during the
period.
9. Under the Specific identification cost formula, Entity A’s cost of sale is P2.
10. If the eggs are ordinarily interchangeable, Entity A’s cost of sale is P2.5,
assuming the sale occurred only after all the purchases were made.

PROBLEM 7-2: MULTIPLE CHOICE

1. Entity A, a government entity, purchases inventories. To record a purchase, Entity A would
likely debit the (an).
a. Inventory account
b. Purchases Account
c. Expense Account
d. a or b

2. Entity A, a government hospital, acquires medicines to be sold in its pharmacy. Entity A

would record the medicines acquired as
a. Semi-Expendable Property
b. Inventory Held for Consumption
c. Inventory Held for Distribution
d. Inventory Held for Sale
3. Entity A, a government entity, purchases relief goods which are to be held on standby, ready
to be distributed when a calamity strikes. Entity A would most likely classify the goods
purchased as
a. Inventory Held for Consumption
b. Inventory Held for Distribution
c. Purchases
d. None of these, only a note disclosure shall be made

4. According to the GAM for NGAs, this shall be used for large numbers of items of inventory
that are ordinarily interchangeable.
a. Specific identification
b. FIFO
c. Weighted average cost applied in a period inventory system
d. Weighted average cost applied in a perpetual inventory system
e. Any of these as a matter of accounting policy choice

5. This refers to the cost an entity would incur to acquire an asset on the reporting date.
a. Net realizable value
b. Fair value
c. Current replacement cost
d. Present value

6. Which of the following inventories of a government entity would be subsequently measured

at the lower of cost and current replacement cost?
a. Inventories of rice that are held for sale
b. Medicines being sold by a government-owned pharmacy
c. Books to be distributed to students in public schools
d. Forest products held for sale

7. Which of the following events or transactions would not lead to the recognition of the cost of
inventory as expense?
a. The inventory is written down.
b. The inventory is distributed for free.
c. The inventory is exchanged for dissimilar inventory.
d. The inventory is consumed in the manufacturing process.

8. The accounting division of a government entity uses this record and monitor the movements
and balances inventories.
a. Stock Card
b. Stock Ledger Card
c. Journal Entry
d. Special Journal
9. Which of the following statements correctly differentiates the Stock Card from the Stock
Ledger Card?
a. The Stock Ledger Card is maintained by the Budget Division while the Stock Card is
maintained by the Accounting Division.
b. The Stock Card is subject to audit by the COA while the Stock Ledger Card is not.
c. The Stock Card shows quantities only while the Stock Ledger Card shows monetary
balances only.
d. The stock Card shows quantities only while the Stock Ledger Card shows
quantities as well as monetary amounts.

10. This document is prepared when end users request for the issuance of inventories that are
available on stock.
a. Purchase Requisition Form
b. Custodian Inventory Slip
c. Purchase Order
d. Requisition and Issue Slip

PROBLEM 7-3: MULTIPLE CHOICE

1. Entity A, a government entity, purchases inventory to be held for sale in the ordinary course
of activities. Which of the following is the correct entry, to record the purchase?
a. Merchandise Inventory xxx
Account Payable xxx
b. Purchase xxx
Accounts Payable xxx
c. a or b depending on the accounting policy being used
d. none, a government entity cannot hold inventories for sale; only for consumption.

2. Entity A, a government entity, distributed welfare goods to the intended recipients. The entry
to recognize the event is
a. Cost of sales xxx
Welfare Goods for Distribution xxx
b. Welfare Goods Expense xxx
Welfare Goods for Distribution xxx
c. Distribution costs xxx
Welfare Goods for Distribution xxx
d. None. The expense is recognized at the end of the period when a physical count is
performed. The expense is closed to the Income Summary account.
3. At year-end, Entity A, a government entity, determines the following information:
 Carrying amount of goods held for distribution — P100,000.
 Net realizable value — P80,000.
 Current replacement cost — P90,000.

How much of the carrying amount of the inventory is recognized as expense?

a. 10,000
b. 20,000
c. 90,000
d. None of these

Use the following information for the next two questions:

Entity A, a government entity, determines the following information regarding the inventory of
Goods A, a non-unique item:

4. How much is ending inventory?

a. 116,382
b. 117,300
c. 116,495
d. Any of these.

5. How much is the cost of sale?

a. 207,805
b. 207,918
c. 207,000
d. Any of these.

PROBLEM 7-4: FOR CLASSROOM DISCUSSION

1. Entity A, a government entity, purchases furniture and fixtures amounting to P14,000. Entity
A would most likely record the purchase as
a. Property, Plant and Equipment
b. Inventory Held for Consumption
c. Inventory Held for Manufacturing
d. Semi-Expendable Property

2. Accountable forms such as pre-printed forms used in government transactions are most
likely to be classified by a government entity as
 a. Inventory Held for Consumption
b. Inventory Held for Sale
c. Semi-Expendable Property
d. Not considered inventory, according to the GAM for NGAs

3. Inventories are initially measured at cost and subsequently measured at

a. The Lower of Cost and Net realizable value for good s held for sale
b. The Lower of Cost and Current replacement cost for goods held for distribution.
c. a and b
d. cost

4. Which of the following cost formulas is not available for use by government entities?
a. Specific identification
b. FIFO
c. Weighted Average
d. All of these are available

5. The GAM for NGAs requires the use of which of the following inventory systems?
a. Perpetual inventory system
b. Periodic inventory system
c. a or b
d. none of these

6. Government entities record purchases of inventories

a. in an inventory account
b. in the Purchases account
c. a orb
d. as expenses

7. Which of the following may be included as cost of inventory?

a. freight-in under a freight collect, FOB destination sale term
b. trade discounts
c. cost of insurance while the goods are in transit
d. advertisement cost that resulted to the resale of inventory purchased
8. Arrange the following in the sequence they are used in the requisition and receipt of
inventories by a government entity
I. Inspection and Acceptance Report (IAR)
II. Disbursement Voucher (DV)
III. Purchase Request (PR)
IV. Journal entry
V. Purchase Order (PO).
VI. Stock Card (SC)

a. III, V, I, VI, IV and II

b. III, V, I, IV, VI and II
c. III, V, I, II, VI and IV
d. V, III, I, II, VI and IV

9. This is maintained in the Property/Supply Division to record the movements of inventories.

a. Stock Card (SC)
b. Property/Supply Card (PSC)
c. Supplies Ledger Card (SLC)
d. Magic Card (MC)

10. This is used to report wasted materials, such as destroyed spare parts and other spoilages.
a. Wasted Stocks Card (WSC)
b. Waste Materials Report
c. Report on the Physical Count of Inventories
d. Inventory Custodian Slip
CHAPTER 8
PROBLEM 8-1: TRUE OR FALSE
True 1. Living animals and plants are always accounted for biological assets.
True 2. Biological assets are initially and subsequently measured at fair value less
costs to sell.
True 3. Agricultural produce is measured at fair value less costs to sell only at the
point of harvest.
True 4. An essential element of agricultural activity is the management of the
biological transformation of biological assets.
False 5. Entity A’s dairy cattle gave birth to a calf. The fair value less costs to sell of
the new born calf is P10,000. Entity A recognizes a gain of P10,000 from the
initial recognition of the calf.
False 6. A loss can arise from the initial measurement of a biological asset.
True 7. Fair value is quoted price in an active market less transaction costs.
8. Entity A acquires a biological asset for P100, equal to fair value, and incurs
transaction cost of P10 on the purchase. If the asset’s costs to sell is P20,
Entity A will recognize a loss of P30 on the initial recognition of the
purchased asset.
9. Entity A recognizes a gain of P100 from the change in FVLCS of its biological
assets during the period. If the change in FVLCS due to price change is P70,
the change in FVLCS due to physical change must be P40.
True 10. If there are more than one active markets for a biological asset, the entity
shall use the price in the market expected to be used when determining fair
value.

PROBLEM 8-2: MULTIPLE CHOICE

1. According to the GAM for NGAs, a biological asset is

a. an animal or plant
b. an asset used in farming
c. a living animal or plant
d. a harvested product

2. The common features of agricultural activities include all of the following except
a. capability to change
b. management of change
c. measurement of change
d. wind of change

3. Which of the following is an agricultural produce?

a. carabao
b. harvested palay
c. extra rice
d. powdered milk
4. According to the GAM for NGAs, biological assets are measured as follows:
Initial measurement Subsequent measurement
a. fair value less cost to sell fair value less cost to sell
b. cost cost less accumulated
depreciation
c. cost cost less accumulated
depreciation and impairment
losses
d. fair value less costs to sell cost

5. Which of the following are not considered costs to sell?

a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs

6. According to the GAM for NGAs, if there is no active market for a biological asset
a. the entity shall measure the biological asset at cost less accumulated depreciation.
b. the entity shall measure the biological asset at cost less accumulated depreciation and
accumulated impairment losses.
c. the entity shall use a contract price in determining the fair value.
d. the entity shall estimate the market price using the guidance set forth in the GAM
for NGAs.

7. Agricultural produce after the point of harvest is accounted for as

a. Inventory
b. PPE
c. Prepaid assets
d. Investment property

8. The carrying amount of a group of biological assets of Entity A is P100,000 before any year-
end adjustment. If the year-end fair value is P120,000 while the year-end estimate of costs
to sell is P5,000, which of the following statements is correct?
a. Entity A will recognize a gain of P15,000 in surplus or deficit.
b. Entity A will recognize a gain of P15,000 directly in equity.
c. Entity A will recognize a gain of P10,000 in surplus or deficit.
d. Entity A will recognize a gain of P25,000 in surplus or deficit.

9. Which of the following need not be disclosed in relation to the accounting for biological
assets?
a. Consumable and bearer biological assets
b. Mature and immature biological assets
c. The amount of change in fair value less costs to sell due to physical changes and due to
price changes
d. The gain or loss on initial recognition of agricultural produce separately from that
of biological assets
10. Entity A is determining the measurement of its biological assets at the end of the period.
Entity A’s biological assets consist of trees in a plantation forest. There is no separate active
market for these trees. However, Entity A was able to gather the following information:
 FVLCS of land, land improvements and trees as a package, P10M.
 FVLCS of land, P8M.
 FVLCS of land improvements, P500,000

How much is the valuation of the trees in Entity A’s year-end statement of financial position?
a. P10,000,000
b. P2,000,000
c. P1,500,000
d. P1,000,000

PROBLEM 8-3: FOR CLASSROOM DISCUSSION

1. Living animals and plants are accounted for as biological assets
a. only if they are harvested for sale.
b. only if they relate to agricultural activity.
c. in all cases.
d. all of these.

2. The essential element of an agricultural activity is

a. the management of the biological transformation of biological assets.
b. the assets are alive.
c. it involves harvesting activity.
d. the conversion of raw materials into finished goods.

3. Which of the following is a biological asset?

a. Land used in farming
b. Picked fruits
c. Fruit cocktail
d. Trees in a plantation forest

4. Which of the following statements is correct regarding the measurement of assets related to
agricultural activities?
a. Biological assets are initially and subsequently measured at fair value.
b. No gain or loss shall be recognized on the initial recognition of a biological asset.
c. Agricultural produce is initially and subsequently measured at fair value less
costs to sell.
d. The gain or loss arising from the initial measurement of biological asset or agricultural
produce is recognized in surplus or deficit.
5. According to the GAM for NGAs, biological assets whose fair value cannot be reliably
determined on initial recognition are measured as follows:
Initial measurement Subsequent measurement
a. fair value less cost to sell fair value less cost to sell
b. cost cost less accumulated
depreciation
c. cost cost less accumulated
depreciation and impairment
losses
d. fair value less costs to sell cost

Use the following information for the next three questions:

A group of Entity A’s biological assets has a carrying amount of P100,000 before year-end
adjustments. Information at year-end is as follows:

6. If Entity A expects to transact in Active Market #1, how much is the fair value?
a. 130,000
b. 120,000
c. 118,000
d. 123,000

7. If Entity A expects to transact in Active Market #2, how much is the carrying amount of the
biological assets in the year-end statement of financial position?
a. 135,000
b. 132,000
c. 120,000
d. 123,000

8. If Entity A expects to transact in Active Market #1, how much is the gain or loss from the
year-end remeasurement?
a. 18,000
b. 28,000
c. 32,000
d. 23,000
Use the following information for the next two questions:
On January 1, 20x1, Entity A has one 1-year old biological asset with carrying amount of
P1,000.

The following transactions occurred during the period:

a. On July 1, 20x1, one I-year old biological asset is acquired for P1,100, equal to the FVLCS
on this date.
b. On October 1, 20x1, one biological asset is born. The FVLCS of a newborn on this date is
P500.

The FVLCS on December 31, 20x1 are as follows:

Age FVLCS
new born P600
3 mos. old P800
1 yr. old P1,200
1.5 yr. old P1,500
2 yrs. Old P2,000

9. How much is change in FVLCS due to price change?

a. 400
b. 800
c. 1,800
d. 2,400

10. How much is change in FVLCS due to physical change?

a. 600
b. 800
c. 1,600
d. 1,800
CHAPTER 9
PROBLEM 9-1: TRUE OR FALSE

1. An entity shall capitalize as part of the cost of an investment property the

operating losses incurred before the investment property achieves the
planned level of occupancy.
2. According to the GAM for NGAs, government entities may choose to use
either the cost model or the fair value model to subsequently measure
investment properties.
3. According to the GAM for NGAs, an entity shall not depreciate an asset while
it is classified as investment property.
4. Recoverable amount is the lower of an asset’s fair value less costs to sell
and value in use.
5. If an asset’s recoverable amount exceeds its carrying amount, the asset is
impaired.
6. An investment property with carrying amount of PIO is determined to have a
fair value less costs to sell of P7 and a value in use of P8. The impairment
loss is P3.
7. An investment property with carrying amount of P10 is sold for P7.
Transaction costs on the sale amounted to P1. The loss on derecognition is
P4.
8. An investment property that was previously impaired is determined to have a
new recoverable amount of P10. Right now, the asset’s carrying amount is
P7. However, if no impairment loss had been recognized in the prior year’
the asset would have a carrying amount of P9 by now. The gain on reversal
of impairment, therefore, is P1.
9. According to the GAM for NGAs, a government entity shall, at each reporting
date, determine the recoverable amount of an investment property and
compare it with its carrying amount.
10. An entity need not compute for the value in use of an asset if the entity has
no reason to believe that the value in use exceeds the fair value less costs to
sell.

PROBLEM 9-2: MULTIPLE CHOICE

1. Which of the following is considered an investment property?
a. Owner-occupied property awaiting disposal.
b. Property that is leased to another entity under a finance lease.
c. Property held for use in the production or supply of goods or services or for
administrative purposes.
d. A building held by the entity under a finance lease and leased out under one or more
operating leases on a commercial basis.

2. Which of the following would not be reported as investment property?

a. Property owned by the entity and leased out under one or more operating leases.
b. Property head by the entity to be leased out under one or more operating leases.
c. Real estate held with an undetermined future use.
d. Property owned by the entity and leased out to another entity under a finance lease.
3. Which of the following costs may properly be included in the carrying amount of an
investment property?
a. Start-up costs, such as opening costs.
b. Operating losses incurred before the investment property achieves the planned level of
occupancy.
c. Abnormal amounts of wasted materials, labor or other resources incurred in constructing
or developing the property.
d. Accrued taxes prior to acquisition date that the entity assumes an obligation to pay.

4. Entity A, a government entity, acquires a building to be leased out under various operating
leases on commercial basis. Entity A incurs the following costs on the acquisition:
Purchase price P10,000,000
Legal services and transfer taxes 10,000
Refurbishments before occupancy 30,000
Occupancy permit fees 25,000
Property taxes after occupancy 8,000
Opening costs (blessing and feng shui) 500,000

The entry to initially recognize the investment property in Entity A’s books of account is
a. Investment Property, Land 10,065,000
Cash Modified Disbursement System (MDS), Regular 10,065,000
b. Investment Property, Land 10,565,000
Cash Modified Disbursement System (MDS), Regular 10,565,000
c. Investment Property, Land 10,010,000
Cash Modified Disbursement System (MDS), Regular 10,010,000
d. Investment Property, Land 10,040,000
Cash Modified Disbursement System (MDS), Regular 10,040,000

5. During the period, Entity A, government entity, decides to use as an office one of its building
that has previously been leased out under various operating leases on commercial basis.
Information on the investment property is as follows:
Investment property – Building P1,000,000
Accumulated depreciation 800,000

At the date of change in use, the fair value of the investment property is P250,000. How
much is the gain (loss) on the transfer?
a. 50,000
b. (50,000)
c. 0
d. A transfer is prohibited.
6. On January 1, 20x1, Entity A acquires a building to be held as investment property for a total
cost of P1,500,000. The building is estimated to have a 30-year useful life and a 5% residual
value. Entity A uses the straight-line method of depreciation. On December 31, 20x5, Entity
A sells the building for P1,300,000. How much is gain (loss) on the sale?
a. 35,700
b. 37,500
c. 53,700
d. 75,300

Use the following information for the next three questions:

Entity A determines an indication that its investment property might be impaired. Entity A then
gathers the following information:
Carrying amount of investment property P1,000,000
Fair value less costs to sell 900,000
Value in use 880,000

Following the impairment, Entity A revises its estimate of residual value to 5% of the recoverable
amount and the remaining useful life to 10 years.

7. How much is the impairment loss?

a. 120,000
b. 20,000
c. 100,000
d. 0

8. How much is the annual depreciation after the impairment?

a. 85,500
b. 90,000
c. 85,000
d. 95,000

9. Five years after the impairment, Entity A determines an indication that the impairment may
no longer exist. Entity A makes the following estimates and computations:
Fair value less costs to sell P800,000
Value in use P700,000

The investment property would have a carrying amount of P600,000 by now if no

impairment loss had been recognized in the past.

How much is the gain on the reversal of impairment?

a. 125,000
b. 129,500
c. 127,500
d. 327,500

10. During the period, one of the buildings of Entity A, a government entity, was completely
destroyed by fire. The building has a historical cost of P1,000,000 and an accumulated
 depreciation of P400,000. The building is insured for P700,000. Which of the following
statements is correct?
a. Entity A reports a net gain of P300,000 from the event in its year-end financial
statements.
b. Entity A reports a net gain of P100,000 from the event in its year-end financial
statements.
c. Entity A recognizes a loss of P600,000 but no gain.
d. Entity A shall treat the loss event and the insurance claim as separate events.

PROBLEM 9-3: FOR CLASSROOM DISCUSSION

1. Which of the following is an investment property?
a. Property held to provide a social service and which also generate cash inflows.
b. Property held for strategic purposes.
c. Property occupied by employees.
d. Property that is being constructed or developed for future use as investment property.

2. Which of the following is not an investment property?

a. Land held for long-term capital appreciation rather than for short-term sale in the
ordinary course of operations.
b. Land held for a currently undetermined future use.
c. A building owned by the entity (or held by the entity under a finance lease) and leased
out under one or more operating leases on a commercial basis.
d. Equipment held to be leased out under one or more operating leases on a commercial
basis to external parties.

3. According to the GAM for NGAs, government entities shall measure an investment property
as follows:
Initial Subsequent
a. cost Cost model or Fair value Model
b. cost Cost Model
c. fair value Fair value Model
d. fair value Cost Model or Fair value Model

4. Investment property acquired through donation is initially measured

a. equal to the carrying amount in the donor’s books
b. at the cost to the donor
c. at fair value on acquisition date
d. equal to the costs incurred in transferring title of the investment property to the entity
5. An entity acquires investment property in exchange for a long-term noninterest-bearing note.
Assuming all of the following are determinable with sufficient reliability but differ in amounts,
which of them is most likely to be used in the initial measurement of the investment
property?
a. cash price equivalent of the investment property
b. cash price equivalent of the note payable
c. present value of future cash flows on the note payable discounted at the current market
rate
d. face amount of note which is equal to the installment price

6. Entity A acquires an investment property for P1,000,000 cash. Additional costs incurred are
as follows:
 Repairs and remodeling before occupancy, P50,000.
 Legal costs of transferring title to the property, P20,000.
 Repairs after occupancy, P15,000.

The investment property is estimated to have a remaining useful life of 10 years and a
residual value equal to 5% of initial cost. Entity A uses the straight line method of
depreciation. How much is the carrying amount of the investment property after one year?
a. 914,850
b. 968,350
c. 923,100
d. 872,100

7. According to the GAM for NGAs, transfers to or from investment property shall be made only
when there is a
a. change in management’s intention
b. change in use
c. change in business model
d. change in classification
8. During the period, Entity A decides to lease out under various operating leases on
commercial basis one of its buildings that has previously been used as office building.
Information on the building is as follows:
Historical cost P1,000,000
Accumulated depreciation 800,000

At the date of change in use, the fair value of the building is P250,000. Which of the
following is the correct reclassification entry?
a. Investment Property, Buildings 200,000
Accumulated Depreciation – Buildings 800,000
Buildings 1,000,000
b. Investment Property, Buildings 250,000
Accumulated Depreciation – Buildings 800,000
Buildings 1,000,000
Gain on reclassification 50,000
c. Investment Property, Buildings 250,000
Accumulated Depreciation – Buildings 800,000
Buildings 1,000,000
Revaluation Surplus 50,000
d. a or c, depending on the entity’s accounting policy

Use the following information for the next two questions:

On January 1, 20x1, Entity A acquires a building to be held as investment property for a total
cost of P1,500,000. The building is estimated to have a 30-year useful life and a 5% residual
value. Entity A uses the straight-line method of depreciation.

On December 31, 20x5, Entity A determines that the building is impaired and makes the
following estimates:
Fair value less costs to sell P900,000
Value in use P1,000,000

Following the impairment, Entity A revises its estimate of residual value to 5% of the recoverable
amount.

9. How much is the impairment loss on December 31, 20x5?

a. 226,500
b. 326,500
c. 257,500
d. 262,500
10. On December 31, 2x10, Entity A determines an indication that the impairment loss
recognized in the prior period may no longer exist. Entity A makes the following estimates
and computations:
Fair value less costs to sell P1,100,000
Value in use P1,050,000

How much is the gain on the reversal of impairment?

a. 215,000
b. 290,000
c. 75,000
d. 218,000
CHAPTER 11

PROBLEM 11-1: TRUE OR FALSE

1. If it is not clear whether an expenditure is a research or a development cost,
it is treated as development cost.
2. The development cost of an internally generate intangible asset may be
capitalized if certain conditions are met.
3. A government entity does not amortize intangible assets.
4. Government entities amortize all of their intangible assets over a period of 2
to 10 years, unless a more appropriate estimate of useful life is available.
5. For subsequent measurement, government entities classify intangible assets
into those with finite and indefinite useful lives, similar to business entities.
6. Government entities normally assign their intangible assets a residual value
of 5% of cost.
7. Subsequent expenditures on recognized intangible assets are generally
expensed unless it is clear that the expenditures meet the recognition criteria
for intangible assets.
8. A government entity acquires an intangible asset with indefinite useful life for
P100. Assuming the entity uses the maximum amortization period for
intangible assets under the GAM for NGAs, the appropriate annual
amortization expense on the intangible asset is P10.
9. The amortization of an intangible asset is credited directly to the intangible
asset account, according to the GAM for NGAs.
10. An entity determines an indication of impairment for the intangible asset with
carrying amount of P100. The entity calculates a fair value less costs to sell
of P90 and a value in use of P105. The impairment loss is P5.

PROBLEM 11-2: MULTIPLE CHOICE

1. In which of the following instances is an asset not considered to be identifiable?
a. The asset can be sold separately regardless of whether the entity intends to do so.
b. The asset arises from a contractual right.
c. The asset can be leased out separately on its own or licensed to be used separately by
other entities in exchange for cash payments.
d. The asset can only be transferred if the entity is liquidated.

2. Which of the following is most likely to be recognized as intangible asset by a government

entity?
a. Internally generated brand
b. Subsequent expenditure on a copyright
c. Development costs incurred in internally generating a patent
d. Publishing title acquired as a donation
3. Subsequent expenditures on recognized intangible assets are
a. generally capitalized and amortized over the remaining useful life or the extended useful
life.
b. generally expensed, unless they meet the definition of an intangible asset and the asset
recognition criteria.
c. generally capitalized if they meet the conditions of technical feasibility, probable future
economic benefits, and reliable measurement.
d. not accounted for.

4. According to the GAM for NGAs, government entities shall use this measurement model in
subsequently measuring intangible assets.
a. Cost model
b. Revaluation model
c. Fair value model
d. a or b

5. Intangible assets held by government entities are measured as follows:

Initial Subsequent
a. cost cost less accumulated amortization and impairment losses
b. cost fair value less accumulated amortization and impairment losses
c. cost fair value through surplus or deficit
d. a or b

6. The default amortization method for intangible assets with finite useful life is
a. straight line method
b. sum-of-the-years digits
c. double declining
d. none of these

7. which of the following statements is incorrect regarding the accounting for impairment of
intangible assets under the GAM for NGAs?
a. An entity is required to test for impairment an intangible asset with indefinite useful life or
an intangible asset not yet available for use at least annually or whenever there is an
indication of impairment.
b. An entity shall test for impairment an intangible asset with definite useful life only when
an indication of impairment exists.
c. The accounting for impairment of intangible assets, and reversal thereof, is the same as
those of investment property and PPE.
d. Intangible assets are subject to amortization using the straight line method over a period
of 2 to 10 years but are not subject to impairment.
Use the following information for the next three questions:
On December 1, 20x1, Entity A acquired a computed software for P1,000,000 and incurred the
following costs:
 Non-refundable purchase taxes of P30,000, not included in the purchase price above.
 Professional fees incurred in the installation of the software, P100,000.
 Modifications to the software before it was brought to the condition intended by
management for use, P60,000.
 Costs of testing the software, P10,000.
 Training costs of staff who will be using the software, P200,000.
 Costs of updating the software after it was available for use in the condition originally
intended by management, P5,000.
 Administrative and other general overhead costs incurred on the acquisition and
installation of the software, P15,000.

The software’s useful life is 5 years.

8. The entry to initially recognize the software is

a. Computer Software 1,200,000
Cash-Modified Disbursement
System (MDS), Regular 1,200,000
b. Computer Software 1,140,000
Cash-Modified Disbursement
System (MDS), Regular 1,140,000
c. Computer Software 1,400,000
Cash-Modified Disbursement
System (MDS), Regular 1,400,000
d. Computer Software 1,190,000
Cash-Modified Disbursement
System (MDS), Regular 1,190,000

9. Entry to recognize the amortization expense for the current year is

a. Amortization-Intangible Assets 240,000
Computer Software 240,000
b. Amortization-intangible Assets 240,000
Accumulated Amortization-Computer Software 240,000
c. Amortization-Intangible Assets 20,000
Accumulated Amortization-Computer Software 20,000
d. Amortization-Intangible Assets 20,000
Computer Software 20,000
10. On December 31, 20x2, Entity A assesses an indication impairment and makes the following
estimates:
Fair value less costs to sell P700,000
Value in use P800,000

The entry to recognize the event is

a. Impairment Loss-Intangible Assets 140,000
Accumulated Impairment Losses-Computer Software 140,000
b. Impairment Loss-Intangible Assets 140,000
Computer Software 140,000
c. None, the intangible asset is not impaired.
d. None, intangible assets held by government entities are not subject to impairment.

PROBLEM 11-3: FOR CLASSROOM DISCUSSION

1. Which of the following is not one of the essential an intangible asset?
a. Separability
b. Arising from binding arrangement
c. Control
d. Held for use in the production or supply of goods

2. An intangible asset is identifiable if it

a. is separable
b. arises from binding arrangements
c. is a non-monetary asset without physical substance.
d. a orb

3. Which of the following is an indicator of control?

a. the ability of an entity to benefit from an asset.
b. the ability of an entity to deny or regulate the access of others to the benefit of an asset.
c. an entity can, depending on the nature of the asset, exchange it, use it to provide goods
or services, exact a price for others’ use of it, use it to settle liabilities, hold it, or perhaps
even distribute it to owners.
d. all of these.

4. Which of the following is most likely not an intangible asset?

a. Computer Acquired import quota
b. Trademark
c. Acquired import quota
d. Customer list

5. A purchased intangible asset is initially measured at

a. cost
b. fair value
c. the sum of research and development costs
d. the total of development costs
6. The development costs of an internally generated intangible asset can be capitalized if
certain conditions are met. Which of the following is not one of those conditions?
a. Technical feasibility of completing the intangible asset.
b. Intention to complete the intangible asset.
c. Ability to measure reliably the expenditure attributable to the intangible asset during its
development.
d. Existence of similar assets in the market or economic environment where the entity
operates.

7. Internally generated brands, mastheads, publishing titles, lists of users of a service, and
items similar in substance are not recognized as intangible assets because
a. it is illegal to recognize these items as assets, according to international intellectual
property laws and other business laws.
b. it is often difficult to measure separately the costs of these items.
c. these cannot be distinguished from the cost of developing the entity’s operations as a
whole.
d. the entity normally cannot demonstrate its ability to use these, when completed during
their development phase.

8. Government entities normally assign their intangible assets a residual value of

a. 5% of cost
b. 10% of cost
c. 25% of cost
d. zero

9. Which of the following intangible assets is not amortized?

a. Intangible asset with infinite useful life
b. Intangible asset with finite useful life
c. All intangible assets held by a government entity
d. Intangible asset not yet available for use

10. An entity shall test for impairment an intangible asset with finite useful life
a. only when an indication of impairment exists.
b. at least annually or whenever there is an indication of impairment.
c. at each reporting date, including interim periods, if the entity prepares interim financial
statements.
d. Never, because intangible assets held by a government entity is not subject to
impairment; only amortization.