Fin Acc Valix PDF

Problem 22-22 Multiple choice (IFRS 9)
1. Depending on the business model for managing financial assets, an entity shall classify financial assets subsequent
to initial recognition at
a. Fair value through profit or loss

b. Amortized cost
c. Fair value through other comprehensive income
d. All of these are used in measuring financial assets
2. Which is not a category of financial assets?
a. Financial assets at fair value through profit or loss

b. Financial assets at fair value through other comprehensive income
c. Financial assets at amortized cost
d. Financial assets held for sale
3. All of the following financial assets shall be measured at fair value through profit or loss, except
a. Financial assets held for trading

b. Debt investments irrevocably designated on initial recognition as at fair value through profit or loss
c. Investments in quoted equity instruments
d. Financial assets at amortized cost
4. How does the standard distinguish between the measurement methods to be used?
a. By reviewing the business model and the risks and rewards of the transaction
b. By reviewing the business model and the contractual cash flow characteristics of the instrument
c. By reviewing the realizability and contractual cash flow characteristics of the instrument
d. By reviewing the realizability of the instrument and risks and rewards of ownership
5. Which is not a characteristic of financial asset classified as held for trading?
a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
b. On initial recognition, it is part of a portfolio of identified financial assets that are managed together and for
which there is evidence of a recent actual pattern of short-term profit taking.
c. It is a derivative that is not designated as an effective hedging instrument.
d. It is a derivative that is designated as an effective hedging instrument.
6. The irrevocable election to present changes in fair value in other comprehensive income is applicable only to
a. Equity instrument that is not held for trading. (OCI)

b. Equity instrument that is held for trading.
c. Financial asset measured at amortized cost.
d. Financial asset
7. A debt investment shall be measured subsequently at amortized cost
a. By irrevocable
b. When the debt investment is managed and evaluated on a document risk-management strategy.
c. When the debt investment is held for trading.
d. When the business model is to collect contractual cash flows that are solely payments of principal and
interest.
8. A debt investment shall be measured at fair value through other comprehensive income
a. When the debt investment is held for trading.

b. When the debt investment is not held for trading.
c. By irrevocable designation.
d. When the business model is to collect contractual cash flows that are solely Payments of principal and interest
and also to sell the financial asset.
1. Entities are required to measure financial asset based on all of the following, except
a. The business model for managing financial asset
b. Whether the financial asset is a debt or an equity
c. The contractual cash flow characteristics
d. All of the choices are required *
2. Debt investments that meet the business model and contractual cash flow tests are reported at
a. Net realizable
b. Fair value
c. Amortized cost
d. The lower of amortized cost and fair value
3. Under IFRS, the presumption is that equity investments are
a. Held for trading

b. Held to profit from price changes
c. Held for trading and held to profit from price changes
d. Held as financial assets at fair value through other comprehensive income
4. Debt investments not held for collection are reported at
a. Amortized cost
b. Fair value
c. The lower of amortized cost and fair value
d. Net realizable value
5. Debt investments that are reported at amortized cost are
a. Managed and evaluated based on a documented risk-management strategy

b. Trading debt investments
c. Held for collection debt investments
d. All of these are correct
6. Equity investments irrevocably accounted for at fair value through other comprehensive income are
a. Nontrading investments of less than 20%.

b. Trading investments of less than 20%.
c. Investments of between 20% and 50%.
d. Investments of more than 50%.
7. What financial assets are assessed for impairment?
a. Equity investments at FVPL

b. Equity investments at FVOCI
c. Debt investments at FVPL
d. Debt investments at amortized cost and debt investments at FVOCI
8. Impairments of debt Investments are
a. Based on discounted contractual cash flows.

b. Recognized as component of other comprehensive income.
c. Based on negotiated value for held for collection investments.
d. Evaluated at each reporting date for every held for collection investment.
9. An impairment loss is the excess of the carrying amount of the debt investment over the
a. Expected cash flows

b. Present value of the expected cash flows
c. Contractual cash flows
d. Present value of the contractual cash flows
10. Under IFRS, an entity
a. Should evaluate every investment for impairment.

b. Accounts for an impairment as an unrealized loss as a component of other comprehensive income.
c. Calculates the impairment loss on debt investment as the difference between the carrying amount plus accrued
interest and the expected discounted future cash flows.
d. All of the choices are correct.
Problem 22-24 Multiple choice (IFRS)
1. Reclassifications of investments between categories are recognized
a. Prospectively, at the end of the period after the change in the business model.
b. Prospectively, at the beginning of the period after the change in the business model.
c. Retroactively, at the end of the prior period.
d. Currently, at the date of change in business model.
2. Transfers of investments between categories
a. Result in omitting recognition of fair value.

b. Are accounted for at fair value for all transfers.
c. Are unrecognized. *
d. Should always result in an impact on net income.
3. When a debt investment at amortized cost is reclassified to FVPL, the difference between the previous carrying
amount and fair value at reclassification date is
a. Recognized in profit or loss
b. Not recognized
c. Recognized in other comprehensive income
d. Included in retained earnings
4. When a debt investment at FVPL is reclassified to amortized cost, what is the new carrying amount at amortized
cost?
a. Fair value at reclassification date
b. Face amount of the debt investment
c. Present value of the contractual cash flows
d. Present value of expected cash flows
5. Which statement is true when a debt investment at amortized cost is reclassified to FVOCI?
a. The debt investment is measured at fair value at reclassification date.

b. The difference between the previous carrying amount and fair value at reclassification date is recognized in
other comprehensive income.
c. The original effective rate is not adjusted.
d. All of these statements are true.
6. Which statement is true when a debt investment at FVOCI is reclassified to amortized cost?
a. The fair value at reclassification date becomes the new carrying amount.
b. The cumulative gain or loss previously recognized in OCI is removed from equity and adjusted against the fair
value at reclassification date.
c. The original effective rate is not adjusted. *
7. When a financial asset at FVPL is reclassified to FVOCI, the new carrying amount is equal to
a. Fair value at reclassification date

b. Original carrying amount
c. Present value of contractual cash flows
d. Present value of expected cash flows
8. Which statement is true when a financial asset at FVOCI is reclassified to FVPL?
a. The financial asset continues to be measured at fair value.

b. The fair value at reclassification date becomes the new carrying amount
c. The cumulative gain or loss previously recognized in OCI is reclassified to profit or loss
1. It is the date on which the stock and transfer book of the corporation is closed for
a. Date of declaration
b. Date of payment
c. Date of record
d. Date of mailing the dividend check
2. Dividends are recognized on the
a. Date of issuing statements

b. Date of record
c. Date of declaration
d. Date of statement of financial position
3. Property dividends are recorded as
a. Dividend income at fair value of the property

b. Dividend income at carrying amount of the property
c. Return of investment
d. Memorandum only
4. Liquidating dividends are credited to
a. Investment account
b. Retained earnings
c. Share premium
d. Share capital
5. What is the effect of split up?
a. Increase in number of shares and decrease in cost per share

b. Decrease in number of shares and decrease in cost per share
c. Increase in number of shares and increase in cost per share
d. Decrease in number of shares and increase in cost per share
6. What is the effect of stock dividend of the same class:
a. Increase in investment and increase in cost per share

b. Decrease in investment and decrease in cost per share
c. No effect on investment but decrease in cost per share
d. No effect on investment but increase in cost per share
7. When stock dividends of different class are received
a. No formal entry is made but only a memorandum

b. Cash is debited and dividend income is credited
c. A new investment account is debited and dividend income is credited
d. A new investment account is debited and the original investment account is credited
8. Shares received in lieu of cash dividend are recorded as
a. Income at carrying amount of the shares received

b. Income at fair value of the shares received
c. Income at the cash dividend that would have been received
d. Stock dividends
9. Cash received in lieu of stock dividends is accounted for as
a. Dividend income
b. Return of investment
c. Partly dividend income and partly return of investment
d. If the stock dividends are received and subsequently sold and gain or loss is recognized
10. An investor that owns 10% of the ordinary shares of an investee has the right to
a. Be paid 10% of the investee's profit in cash each year.

b. Receive dividend equal to 10% of the par each year.
c. Receive dividend equal to 10% of the total dividend paid by the investee for the year to shareholders.
d. Keep investee from issuing any new shares unless the investor is willing to buy 10% of the new shares.
Problem 24-33 Multiple choice (PAS 28)
1. It is an entity over which the investor has significant influence.
a. Associate
b. Investee
c. Venture capital organization
d. Mutual fund
2. Which of the following statements best describes the term "significant influence"?
a. The holding of a significant proportion of the share capital in another entity.

b. The contractually agreed sharing of control over an economic entity.
c. The power to participate in the financial and operating policy decisions of an entity.
d. The mutual sharing in the risks and benefits of a combined entity
3. Which of the following statements is true concerning significant influence?
I. If an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it is presumed that the
investor does not have significant influence, unless such influence can be clearly demonstrated.
Il. If an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it iS presumed that the
investor does have significant influence, unless it can be clearly demonstrated that this is not the case.
Ill. A substantial or majority ownership by another entity does not necessarily preclude an investor from having
significant influence.
a. 1, 11 and 111
b. I and Il only
c. Ill only
d. Il only
4. Which of the following statements is incorrect concerning the equity method?
a. The investment in associate is initially recorded at cost.

b. The investment in associate is increased or decreased by the investor's share of the profit or loss of the investee
after the date of acquisition.
c. The investor's share of the profit or loss of the investee is recognized in the investor's profit or loss.
d. Dividends received from the associate are accounted for as income.
5. If an associate has outstanding cumulative preference share, held by outside interests, the investor computes its
share of profit or losses
a. After adjusting for preference dividends which were actually paid during the year.
b. Without regard for preference dividends.
c. After adjusting for the preference dividends only when declared
d. After adjusting for the preference dividends, whether or not the dividends have been declared.
6. When an entity holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the
following statements is true?
a. The investor should always use the equity method.

b. The investor should use the equity method unless Circumstances indicate that it is unable to exercise significant
influence over the investee.
c. The investor must use the fair value method unless it can be clearly demonstrated that the investor has the
ability to exercise significant influence over the investee.
d. The investor should always use the fair value method.
7. Goodwill arising from an investment in associate is
a. Included in the carrying amount of the investment and amortized over the useful life.
b. Included in the carrying amount of the investment and not amortized.
c. Charged to retained earnings.
d. Charged to expense immediately.
8. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized.
b. It is impairment tested individually.
c. It is written off against profit or loss.
d. Goodwill is not recognized separately within the carrying amount of the investment.
9. The excess of the investor's share of the net fair value of the associate's net assets over the cost of the investment is
a. Included in the determination of the investor's share of the associate's profit or loss in the period in which the
investment is acquired.
b. Credited to retained earnings directly.
c. Included in other comprehensive income.
d. A deferred gain.
10. How is the impairment test carried out for an associate?
a. The goodwill is impairment tested individually.

b. The entire carrying amount of the investment is tested for impairment by comparing the recoverable amount
with the carrying amount.
c. The carrying amount of the investment shall b e compared with the market value.
d. The recoverable amounts of all investments in associates shall be assessed together.
Problem 24-34 Multiple choice (AICPA Adapted)
1. After the date of acquisition, the investment account using the equity method would
a. Not be affected by its share of the earnings or losses of the investee

b. Not be affected by its share of the earnings of the investee, but be deczeased by its share of the losses of the
investee
c. Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the
investee
d. Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee
2. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the
period in which the
a. Investor sells the investment

b. Investee declares a dividend
c. Investee pays dividend
d. Earnings are reported by the investee
3. When an investor uses the equity method to account for investment in ordinary shares, cash dividends received by
the investor from the investee are recorded as
a. Dividend income
b. A deduction from the investor's share of profit
c. A deduction from the investment account
d. A deduction from shareholders' equity
4. When an investor uses the equity method to account for investment in ordinary shares, the investment account will
be increased when the investor recognizes
a. A proportionate interest in the net income of the investee.

b. A cash dividend received from the investee.
c. Periodic amortization of the goodwill.
d. Depreciation related to the excess of market value over carrying amount of the investee's depreciable assets at
the date of purchase by the investor.
5. An investor uses the equity method to account for investment in ordinary shares. The purchase price implies a fair
value of the investee's depreciable assets in excess of the investee's net asset carrying values. The investor's
amortization of the excess
a. Decreases the investment account

b. Decreases the goodwill account
c. Increases the investment revenue account
d. Does not affect the investment account
6. An investor uses the equity method for 30% interest. At year-end, the investor has a receivable from the investee.
How should the receivable be reported in investor's financial statements for the current year?
a. None of the receivable should be reported, but the entire receivable should be offset against the investee's payable
to the investor.
b. Seventy percent of the receivable should be separately reported, with the balance offset against 30% of the
investee's payable to the investor.
c. The total receivable should be disclosed separately.
d. The total receivable should be included as part of the investment in associate, without separate disclosure.
7. At the beginning of the current year, an investor acquired 30% of the ordinary shares of another entity. In the
current year, the investee had net earnings which exceeded the dividends paid. The investor mistakenly recorded
these transactions using the cost method instead of the equity method of accounting. What effect would this have
on investment account, net earnings and retained earnings, respectively?
a. Overstate, overstate, overstate

b. Overstate, understate, understate
c. Understate, overstate, understate
d. Understate, understate, understate
8. An investor uses the equity method to account for 30% investment. Amortization of the investor's share of the
excess of fair value over carrying amount of depreciable assets at the date of the purchase shall be reported in the
investor's income statement as part of
a. Other expense
b. Depreciation expense
c. Equity in earnings of investee
d. Amortization of goodwill
9. An investor uses the equity method to account for purchase of another entity's ordinary shares at the beginning of
the current year. On the date of acquisition, the fair value of the investee's inventory and land exceeded their
carrying amount. How would the inventory excess and land excess affect respectively the investor's reported equity
in earnings of the investee for the current year?
a. Decrease and decrease

b. Decrease and no effect
c. Increase and increase
d. Increase and no effect
10. When an investor purchases sufficient ordinary shares to gain significant influence over the investee, what is the
proper accounting treatment of any excess of cost over carrying amount of net assets acquired?
a. The excess remains in the investment account until it is sold.

b. The excess is immediately expensed in the period in which the investment is made.
c. The excess is amortized over the time period that is reasonable in the light of the underlying cause of the excess.
d. The excess is charged to retained earnings at the time the investor resells the investment.
1. An investor shall discontinue the use of the equity method when
a. The investor ceases to have significant influence over the associate.

b. The associate operates under severe long-term restrictions.
c. The investor ceases to have control over the associate.
d. The business activities of the investor and associate are dissimilar.
2. When an investment ceases to be an associate and is accounted for in accordance with IFRS 9, the fair value of the
investment at the date when it ceases to be an associate.
a. Is regarded as its initial recognition as a financial asset.

b. Is regarded as its fair value on initial recognition as a financial asset.
c. Is regarded as its fair value on initial recognition as a financial liability.
d. Is regarded as its amortized cost on initial recognition as an investment.
3. On the loss of significant influence, the investor shall recognize in profit or loss any difference between
a. The initial carrying amount of any retained investment, any proceeds from disposing of the part interest and the
carrying amount of the investment at the date when significant influence is lost.
b. The fair value of any retained investment and the carrying amount of the investment .at the date significant
influence is lost.
c. Any proceeds from disposing of the part interest and the carrying amount of the investment at the date
significant influence is lost.
d. The fair value of any retained investment, any Proceeds from disposing of the part interest and the carrying
amount of the investment at the date significant influence is lost.
4. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary.

b. The investor's debt and equity instruments are not traded.
c. The investor is in the process of filing financial statements with SEC for the purpose of issuing debt and equity
instruments in a public market.
d. The ultimate parent of the investor produces consolidated financial statements.
5. What is the accounting treatment when the financial statements of an associate are not prepared as of the same
date as the financial statements of the investor?
a. The associate shall prepare financial statements at the same date as that of the investor.
b. The financial statements of the associate prepared up to a different date would be used.
c. Any major transactions during the time gap of the financial statements shall be accounted for.
d. As long as the gap is not greater than three months, there is no problem.
1. When an investor uses the cost method to account for investment in ordinary shares, cash dividends received by the
investor from the investee should be recorded as
a. Deduction from the investment account

b. Dividend income
c. Addition to the investor's share of the investee's profit
d. Deduction from the investofs share of the investee's profit
2. An investor uses the cost method to account for an investment in ordinary shares. A portion of the dividends
received this year were in excess of the investor's share of investee's earnings subsequent to the date of investment.
The amount of dividend revenue that should be reported in the investor's income statement for this year would be
a. Zero
b. The total amount of dividends received this year
c. The portion of the dividends received this' year that were in excess of the investor's share of investee's earnings
subsequent to the date of investment
d. The portion of the dividends received this year that were not in excess of the investor's share of investee's
earnings subsequent to the date of investment.
3. An investor uses the cost method to account for investment in ordinary shares. Dividends received in excess of the
Investor's share of investee's earnings subsequent to the date of investment
a. Do not affect the investment account

b. Increase the investment account
c. Decrease the investment account
d. Increase the dividend revenue account
4. An investor uses the cost method for 15% ownership in an investee. At year-end, the investor has a receivable from
the investee. How should the receivable be reported in the investor's year-end financial statements?
a. The total receivable should be reported separately.

b. The total receivable should be included as part of the investment, without separate disclosure.
c. Eighty-five percent of the receivable should be reported separately, with the balance offset against the
investee's payable to the investor.
d. The total receivable should be offset against the investee's payable to the investor, without separate disclosure.
5. On January 1 of the current year, an entity purchased 10% of another entity's ordinary shares. The entity purchased
additional shares bringing the ownership up to 40% on August 1 of the current year. During October of the current
year, the investee declared and paid a cash dividend on all of the outstanding ordinary shares. How much income
from the investment should the entity report for the current year?
a. 10% of investee's income from January 1 to July 31, plus 40% of investee's income from August 1 to December
31
b. 40% of investee's income from August 1 to December 31 only
c. 40% of investee's income for the current year
d. Amount equal to dividends received from the investee
Problem 26-13 Multiple choice (IAA)
1. Trading bond investments are reported at
a. Amortized cost
b. Face value
c. Fair value
d. Maturity value
2. Which of the following statements is correct in regard to trading bond investments?
a. Trading bond investments are held with the intention of selling them in a short period of time.
b. Unrealized gains and losses are reported as part of net income.
c. Any discount or premium is not amortized.
d. All of the stateménts are correct.
3. Transaction costs directly related to acquisition of trading bond investments are
a. Part of the initial carrying amount

b. Expensed immediately
c. A component of other comprehensive income
d. Accounted for separately as deferred charge
4. Trading bond investments are
a. Held for collection

b. Not held for collection
c. Either held for collection or not held for collection depending on management strategy
d. Noncurrent investments
5. A gain or loss on sale of trading bond investment is the difference between
a. Sale price and carrying amount

b. Sale price and fair value
c. Fair value and carrying amount
d. Face amount and carrying amount
1. Accrued interest on bonds purchased between interest dates
a. Is ignored by both the seller and the buyer.

b. Increases the amount a buyer must pay.
c. Is recorded as a loss on the sale of the bonds.
d. Decreases the amount a buyer must pay.
2. When an investor purchased a bond between interest dates at a premium, the cash paid to the seller is
a. The same as the face amount of the bond

b. The same as the face amount of the bond plus accrued interest
c. More than the face amount of the bond
d. Less than the face amount of the bond
3. The interest income for the year would be higher if the bond was purchased at
a. Par
b. Face amount
c. A discount
d. A premium
4. The interest income for the year would be lower if the bond was purchased at
a. Fair value
b. Face amount
c. A discount
d. A premium
5. Amortized cost is the initial recognition amount
a. Minus repayments
b. Plus discount amortization or minus premium amortization
c. Minus reduction for impairment
d. All of these are correct about amortized cost
1. The actual interest earned on bond investment is

a. Effective rate
b. Yield rate
c. Market rate
d. Effective rate, yield rate or market rate
2. The interest rate written on the face of bond is
a. Nominal rate
b. Coupon rate
c. Stated rate
d. Nominal rate, coupon rate or stated rate
3. To compute the price to•pay for a bond, what present value concept is used?
a. The present value of 1

b. The present value of an annuity of 1
c. The present value of 1 and the present value of an annuity of 1
d. The future value of 1
4. The effective interest rate on bond is lower than the stated rate when bond sells
a. At maturity value
b. Above face amount (premium)
c. Below face amount
d. At face amount
5. The effective interest rate on bond is higher than the stated rate when bond sells
a. At face amount
b. Above face amount
c. Below face amount (discount)
d. At maturity value
6. The interest method of amortizing discount provides for
a. Increasing amortization and increasing interest income

b. Increasing amortization and decreasing interest income
c. Decreasing amortization and increasing interest income
d. Decreasing amortization and decreasing interest income
7. The interest method of amortizing premium provides for
a. Increasing amortization and increasing interest income

b. Increasing amortization and decreasing interest income
c. Decreasing amortization and decreasing interest income
d. Decreasing amortization and increasing interest income
8, Bonds usually sell at a discount when investors are willing to invest in bonds
a. At the stated intåest rate.

b. At rate lower than the stated interest rate.
C. At rate higher than the stated interest rate. *
d. Because a capital gain is expected.
9. Bonds usually sell at a premium
a. When market rate is greater than stated rate.

b. When stated rate is greater than market rate
c. When the price of the bonds is greater than maturity value.
d. In none of the above cases.
10. When the interest payment dates of a bond are May 1 and November 1, and a bond is purchased on June 1, the
amount of cash paid by the investor would be
a. Decreased by accrued interest from June 1 to November 1

b. Decreased by accrued interest from May 1 to June 1.
c. Increased by accrued interest from June 1 to November 1
d. Increased by accrued interest from May 1 to June 1.
1. The fair value option

a. Must be applied to all debt instruments.
b. May be selected as a valuation method at any time.
c. Reports all gains and losses in income.
d. All of the choices are correct.
2. The fair value option allows an entity to
a. Record income when the fair value increases.

b. Measure bond investments at fair value in some years.
c. Report most financial instruments at fair value.
d. All of the statements are true.
3. Which statement is true about the interest method?
a. The interest method applied to bond is différent from that applied to other debt investment.
b. Amortization of discount decreases each period.
c. Amortization of premium decreases each period.
d. The interest method applies the effective interest rate to the beginning carrying amount.
4. A bond investment that satisfies the amortized cost measurement may be designated
a. Irrevocably at fair value through profit or loss

b. Revocably at fair value through profit or loss
c. Irrevocably at fair value thropgh OCI
d. Irrevocably at amortized cost s
4. Under what condition can an entity classify financial asset that meets the amortized cost criteria as at FVPL?
a. Where the instrument is held to maturity

b. Where the business model approach is adopted
c. Where the contractual cash flow test is met
d. If doing so eliminates or reduces an accounting mismatch
1. Which of the following statements best describes investment property
a. Property held for sale in the ordinary course of business

b. Property held for use in the production and supply of goods or services and property held for administrative
c. Property held to earn rentals or for capital appreciation
d. Property held for capital appreciation
2. Investment property includes all of the following, except
a. Land held for long-term capital appreciation.

b. Land held for currently undetermined use.
c. Building held by a finance lessee leased out under an operating lease.
d. Property held for sale in the ordinary course of business.
3. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third parties.

b. Property that is being constructed and developed as investment property.
c. Property held for future development and subsequent use as owner-occupied property.
d. Owner-occupied property awaiting disposal.
4. Which of the following statements best describes owner-occupied property?
a. Property held for sale in the ordinary course of

b. Property held for use in the production and supply of goods or services and Property held for administrative
c. Property held to earn rentals
d. Property held for capital aPpreciation
5. Which statement is true if the property is partly investment and partly owner-occupied?
I. If the investment and owner-occupied portions could be sold or leased out separately, the portions shall be accounted
for separately as investment property and owner-occupied property.
Il. If the investment and owner-occupied portions could not be sold or leased out separately, the property is investment
property if only an insignificant portion is held for manufacturing or administrative purposes.
a. I only
b. Il only
c. Both 1 and 11
d. Neither I nor Il
6. If an entity owns and mariages a hotel, services provided to guests are a significant component of the arrangement
as a whole. In such a case, the hotel is classified as
a. Investment property
b. Owner-occupied property
c. Partly investment property and partly owner-occupied property
d. Neither investment property nor owner-occupied property
7. Which statement is true concerning property leased to an affiliate?
I. From the perspective of the individual entity that owns it, the property leased to an affate is considered an
investment property.
Il. From the perspective of the affiliates as a group and for purposes of consolidated financial statements, the
property is treated as owner-occupied property.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
8. An investment property is recognized when
I. It is probable that the future economic benefits that are associated with the investment property will flow to the
entity.
Il. The cost of the investment property can be measured reliably.
a. Both 1 and 11
b. Neither I nor Il
c. I only
d. Il only
9. Which statement is incorrect concerning initial measurement of an investment property?
a. The investment property shall be measured initially at fair value. (cost dapat)
b. The cost of the purchased investment property includes the purchase price and any directly attributable
expenditure
c. The investment property held by a leasee as right of use asset is initially measured at cost.
d. If payment for an investment property is deferred, the cost is the cash price equivalent.
10. Directly attributable expenditures related to investment property include
a. Professional fees for legal services, property and transfer taxes and other transaction costs.
b. Start up costs.
c. Operating losses incurred before the investment property achieves the planned level of occupancy.
d. Abnormal amounts of wasted material, labor and other resources incurred in constructing or developing the
property.
1. Subsequent to initial recognition, the investment property shall be measured using
a. Fair value model or revaluation model

b. Fair value through profit or loss model
c. Cost model or fair value model
d. Cost model or revaluation model
2. Which statement is true if the entity uses the fair value model for the investment property?
a. Changes in fair value are reported in profit or loss in the current period.
b. Changes in fair reported as an extraordinary gain.
c. Changes in fair value are reported in other comprehensive income for the period.
d. Changes in fair value are reported as deferred revenue for the period.
3. Which statement is true if the entity uses the fair value model for investment property?
a. The entity should value the property at cost less accumulated depreciation and impairment.
b. The entity should report the increase in fair value in other comprehensive income for the period.
c. The entity depreciates the equipment using normal depreciation method.
d. The entity does not record depreciation on the investment property.
4. When the entity uses the cost model, transfers between investment property, owner-occupied property and
inventory shall be made at
a. Fair value
b. Carrying amount
c. Cost
d. Assessed value
5. A transfer from investment property carried at fair value to owner-occupied property shall be accounted for at
a. Fair value, which becomes the deemed cost for subsequent accounting
b. Carrying amount
c. Historical cost
d. Fair value less cost of disposal
6. If owner-occupied property is transferred to investment property that is to be carried at fair value, the difference
between the carrying amount of the property and the fair value shall be
a. Included in profit or loss

b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property, plant and equipment.
7. If an inventory is transferred to investment property that is to be carried at fair value, the remeasurement to fair
value is

b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus
8. When an investment property under construction is completed and to be carried at fair value, the difference
between the carrying amount and fair value shall be

b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property, plant and equipment.
9. Gain or loss from disposal of investment property shall be determined as the difference between the
a. Net disposal proceeds and carrying amount of the asset.

b. Gross disposal proceeds and carrying amount of the asset.
c. Fair value and carrying amount of the asset.
d. Gross disposal proceeds and fair value of the asset.
10. Which statement is incorrect in determining the .fair value of an investment property?
a. An entity shall determine the fair value of investment property by deducting transaction cost that may be
incurred upon disposal.
b. Equipment such as lift or air-conditioning is often an integral part of building and generally is included in the fair
value of the investment property.
c. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the
furniture because the rental income relates to the furnished office.
d. The fair value of investment property excludes prepaid or accrued operating lease income.
1. An investment property shall be measured initially at
a. Cost
b. Cost less accumulated impairment loss.
c. Depreciable cost less accumulated impairment loss.
d. Fair value less accumulated impairment loss.
2. Transfer from investment property to property, plant and equipment is appropriate
a. When there is change of use.

b. Based On the entity's discretion.
c. Only when the entity adopts the fair value model.
d. The entity can never transfer property into another classification once it is classified as investment.
3. Which of the following statements regarding investment property is correct?
a. If the entity elects the fair value model, no depreciation is taken.

b. Gain or loss from fair value adjustment is reported in the income statement.
c. If the entity elects the cost model, depreciation should be recognized.
d. All of these statements are correct regarding investment property.
4. Under IFRS, assets classified as investment property are
a. Held for rental income

b. To be sold for a quick profit
c. Held for rental income or to be sold for a quick profit
d. Held for sale in the ordinary course of business
5. An investment property is derecognized when
a. It is disposed to a third party.

b. It is permanently withdrawn from use.
c. No future economic benefits are expected from the disposal
d. Under all of these circumstances
6. Which of the following additional disclosures must be made when an entity chooses the cost model as the
accounting policy for investment property?
a. The fair value of the property

b. he present value of the property
c. The value in use of the property
d. The net realizable value of the property
7. Which disclosure shall be made when the fair value model has been adopted for investment property?
a. Depreciation method used

b. The amount of impairment loss recognized
c. Useful life or depreciation rate used
d. Net gains or losses from fair value adjustments
8. All of the following properties fall under the definition of investment property, except
a. Land held for long-term capital appreciation

b. Property occupied by an employee paying market rent
c. Land held for a currently undetermined use
d. A building owned by an entity and leased out under an operating lease
9. What is the best evidence of fair value of an investment property?
a. Quoted price in an active market for identical asset.

b. Quoted price in an active market for a similar asset.
c. Quoted price in an inactive market for identical asset
d. Unobservable input price for the asset.
10. Which of the following would be considered a Level 2 input for fair value measurement?
a. Quoted price in active market for an identical asset

b. Historical performance and return on the investment
c. Quoted price for a similar asset in active market
d. All of these would be considered Level 2 input for fair value measurement
1. Property, plant and equipment are defined as
a. Assets held for sale in the ordinary course of business.

b. Assets held to earn rentals or for capital appreciation.
c. Tangible assets held for use in the production or supply of goods or services or for administrative purposes.
d. Tangible assets held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes and expected to be used during more than one reporting period.
2. Which is not an essential characteristic of property, plant and equipment?
a. The property, plant and equipment are tangible assets.

b. The property, plant and equipment are used in production or supply' of goods and services, for rental purposes
and for administrative purposes.
c. The property, plant and equipment are expected to be used over a period of more than one year.
d. The property, plant and equipment are subject to depreciation.
3. An item of property, plant and equipment shAll be recognized as an asset when
a. It is probable that future economic benefits will flow to the entity.

b. The cost of the asset can be measured reliably.
c. The cost is material
d. It is probable that future economic benefits will flow to the entity and the cost of the asset can be measured
reliably.
4. What valuation model should an entity use 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 revaluation model through profit
d. The cost model Or the fair value model
5. The cost of an item of property, plant and equipment comprises all of the following, except
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Any 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 removing the item and restoring the site, the obligation for which the
entity does not incur when the item was acquired
6. Costs directly attributable to bringing .the asset to e the location and condition for the intended use include all of
the following, except
a. Cost of employee benefits not arising directly from acquisition of proberty, plant and equipment
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
7. Which of the following costs should be expensed immediately?
a. Cost of opening a new facility

b. Cost of introducing a new product or service, including cost of advertising and promotional activities
c. Cost of conducting business in a nem,v location
d. All of these are expensed immediately
8. Which of the following costs should be included in the carrying amount of property, plant and equipment?
a. Cost incurred while an item capable of operating in a manner intended by management has yet to be brought
into use, or is operated at less than full capacity
b. Initial operating loss
c. Cost of relocating or reorganizing part or all of an entity's operations
d. None of these should be included in the carrying amount of property, plant and equipment
1. The cost of an item of property, plant and equipment that is acquired in exchange for a combination of monetary
and nonmonetary asset is measured at
a. Fair value of the asset given plus cash payment.

b. Fair value of the asset received plus cash payment.
c. Carrying amount of the asset given plus cash payment.
d. Carrying amount of the asset received plus cash payment.
2. The cost of a nonmonetary asset acquired in exchange with commercial substance is usually recorded at
a. The fair value of the asset given up and a gain or loss is recognized.
b. The fair value of the asset given up and a gain but not a loss may be recognized.
c. The fair value of the asset received if it is equally reliable as the fair value of the asset given up.
d. Either the fair value of the asset given up or the asset received, whichever one results in the largest gain or smallest
loss.
3. Which exchange has commercial substance?
a. Exchange of assets with no difference in future cash flows

b. Exchange by entities in the same line of business
c. Exchange of assets with a difference in future cash flows
d. Exchange of assets that causes the entities to remain in essentially the same economic position
4. Which statement is true concerning acquisition by self-construction?
a. The cost of self-constructed asset is determined using the same principles as for an acquired asset.
b. Any internal profit is eliminated in arriving at the cost of self-constructed asset.
c. The cost Of abnormal amount of wasted material is not included in the cost of the self-constructed asset*
5. Which of the following terms best describes the removal of an asset from the statement of financial position?
a. Derecognition
b. Impairment
c. Writeoff
d. Depreciation
6. The carrying amount of property, plant and equipment shall be derecognized
a. On disposal
b. When no future economic benefits are expected from the use of the asset.
c. On acquisition
d. On disposal and when no future economic benefits are expected from the use of the asset.
7. Gain and loss arising from the derecognition of property, plant and equipment shall be determined as the difference
between
a. Gross disposal proceeds and cost of the asset.

b. Gross disposal proceeds and carrying amount.
c. Net disposal proceeds and the cost of the asset.
d. Net disposal proceeds and carrying amount.
8. Entities are encouraged to disclose all of the following relation to property, plant and equipment, except
a. The carrying amount of temporarily idle property, plant and equipment.

b. The gross carrying amount of fully depreciated property, plant and equipment still in use.
c. The carrying amount of property, plant and equipment classified as held for sale.
d. The fair value of property, plant and equipment that is not materially different from carrying amount when the cost
model is used.
1. Which of the following shall not be capitalized as cost of property, plant and equipment?
a. Cost of excess materials from a purchasing error

b. Cost of testing whether the asset works correctly.
c. Initial delivery and handling cost
d. Cost of preparing the site for installation
2. An entity purchased a new machinery that it does not have to pay until after three years. The total payment on
maturity will include both principal and interest. The cost would be the total payment multipled by what time value
of money concept?
a. Present value of annuity of 1
b. Present value of 1
c. Future amount of annuity of 1
d. Future amount of 1
3. The initial operating losses should be
a. Deferred and amortized over a reasonable period.

b. Expensed and charged to the income statement.
c. Capitalized as part of the cost of plant.
d. Taken to retained earnings.
4. An entity imported machinery to be installed in the new factory premises before year-end. What is the proper
treatment of freight and interest on the loan to fund the cost of machinery?
a. Both expenses are capitalized.

b. Interest may be capitalized but freight is expensed'
c. Freight is capitalized but interest cannot be capitalized.
d. Both expenses are expensed.
1. The configuration of cash flows in an exchange includes which of the following?
a. The implicit interest rate, maturity date 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.
d. The estimated present value of the assets exchanged.
2. A nonmonetary exchange is recognized at fair value of the assets exchanged unless
a. Exchange has commercial substance.

b. Fair value is not determinable.
c. The assets are similar in nature.
d. The assets are dissimilar.
3. In an exchange having commercial substance
a. Gain or loss is fully recognized.

b. Gain or loss is not recognized.
c. Only gain should be recognized.
d. Only loss should be recognized,
4. Which of the following statements describes the proper accounting for loss in a nonmonetary exchange?
a. A loss is recognized immediately.

b. A loss is deferred.
c. An unrelated loss should be recorded.
d. A loss can occur only when asset is sold for cash.
5. When determining the .commercial substance of the exchange; which of the following is not considered?
a. Cash flow of exchanged asset.
b. Cash flow of new asset.
c. Cash flow from tax effect on the exchange to avoid taxes.
d. Cash flow from potential sale of new equipment.
Problem 33-38 Multiple choice
1. The cost of an item of property, plant and equipment comprises the purchase price and
a. The implied interest on the debt financing

b. The fair value of any noncash asset surrendered
c. The estimated residual value of the asset
d. All directly attributable costs to bring the asset to the location and condition for the intended use
2. When property is acquired by issuing equity shares, which of the following is the best basis for establishing the
historical cost of the acquired asset?
a. Historical cost of the asset to the seller

b. Historical cost of a •similar asset
c. Fair value of the asset received or the fair value of the shares issued, whichever is more readily reliable
d. Historical cost of the asset is zero
3. When a plant asset is acquired by deferred payment, which condition generally does not indicate the need to
consider the imputation of interest?
a. The interest rate stated on the deferred obligation is significantly different from market interest rate
b. The cash price of the plant asset is significantly different from the deferred obligation
c. The instrument representing the deferred obligation is noninterest bearing
d. the face amount of the deferred obligation is equal to the market value of the plant asset exchanged
4. If the present value of a note issued in exchange for a plant asset is less than the face amount, the difference is
a. Included in the cost of the asset

b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in th ear of issuance
5. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay P 10,000 per year
for five years. What is the initial measurement of the plant asset?
a. P50,OOO
b. P50,000 plus imputed interest
c. Present value of P 10,000 annuity for five years at an imputed interest
d. Present value of P 10,000 annuity for five years discounted at the bank prime interest rate
6. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay P 10,000 at the
time of purchase and P 10,000 at the end of each of the next five years. What is the initial measurement of the plant
asset?
a. The present value of P 10,000 ordinary annuity for five years

b. P60,000
c. P60,000 plus imputed interest
d. P60,000 less imputed interest
7. A donated plant asset for which the fair value has been determined and for which directly attributable costs were
incurred shall be recorded at an amount equal to
a. Directly attributable costs incurred.

b. Fair value and directly attributable costs incurred.
c. Carrying amount and directly attributable costs incurred.
d. Carrying amount.
8. Which of the following is the most appropriate policy as regards the allocation of joint overhead cost to plant and
equipment constructed by the entity for own use?
a. Assign no overhead.
b. Assign only variable
c. Assign overhead equal to the amount that would have been assigned to production that is curtailed because of the
construction.
d. Assign a proportionate share of overhead to the construction on the same basis
1. This represents assistance by government in the form of transfer of resources to an entity in return for past or future
compliance with certain conditions relating to the operating activities of the entity.
a. Government grant
b. Government assistance
c. Government
d. Government aid
2. Government grant when there is reasonable assurance
a. The entity will comply with the conditions of the grant.

b. The grant will be received.
c. The entity will comily with the conditions of the grant and the grant will be received.
d. The grant must have been received.
3. This is government grant whose primary condition is that an entity qualifying for the grant shall purchase, construct
or otherwise acquire long-term asset.
a. Grant related to asset

b. Grant related to income
c. Government gift
d. Government appropriation
4. Government grant, in recognition of specific costs is recognized as income
a. Over the same period as the relevant expense.

b. Immediately.
c. Over a maximum of 5 years using straight line.
d. Over a maximum of 5 years using sum of digits.
5. Government 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 ofyears' digits.
D. Over the useful life of the asset and in proportion to the depreciation of the asset.
6. Government grant related to nondepreciable asset that requires fulfillment of certain conditions
a. Should not be recognized as income.

b. Should be recognized as income immediately.
c. Should be recognized as income over 40 years.
d. Should be recognized as income over the periods which bear the cost of meeting the conditions.
7. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the entity with no future related costs should be recognized as
income
a. When received.
b. Of the period in which it becomes receivable.
c. Over a maximum of 5 years using straight line.
d. Over a maximum of 10 years using straight line.
8. A government grant that becomes repayable shall be accounted for as
a. Change in accounting estimate

b. Change in accounting policy
c. Both change in accounting estimate and change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy
9. Repayment of grant related to income shall be
a. Recognized as component of other comprehensive income

b. Charged to retained earnings
c. Expensed immediately
d. Applied first against the deferred income balance and any excess shall be recognized immediately as an expense.
10. Repayment of grant related to an asset shall be recorded by
a. Increasing the carrying amount of the asset if deduction approach is used.

b. Recognizing the cumulative additional depreciation that would have been recorded to date in the absence of the
grant if the deduction approach is used,
c. Reducing the deferred income balance to zero if the deferred income approach is used
d. All of these
Problem 34-20 Multiple choice
1. It is an action by a government designed to provide an economic benefit specific to an entity and for which the
government cannot reasonably place a value.
a. Government grant
c. Government takeover
d. Subvention
2. Government assistance includes all the following, except
a. Free technical advice

b. Provision of guarantee
c. Government procurement policy.
d. Improved irrigation water system for the benefit of an entire local community
3. Which is included in government
a. The provision of infrastructure in developing areas

b. The imposition of trading constraints on competitors
c. Improvement to the general transport and communication network
d. None of these can be included
4. A forgivable loan from a government or the benefit of a government loan at NIL or below market interest .rate is
accounted for as
a. Government grant
c. Both government grant and government assistance
d. Neither government grant nor government assistance
5. The amount of benefit in a zero-interest government loan is measured as the difference between
a. Face amount and present value of loan

b. Face amount and fair value of loan
c. Fair value and present value of loan
d. Face amount of loan and implied interest
1. In the case of a nonmonetary grant, which of the following accounting treatment is prescribed?
a. Record the asset at replacement cost and the grant at a nominal value
b. Record the grant at a value estimated by management
c. Record both the grant and the asset at fair value of the nonmonetary asset
d. Record the asset at fair value and not recognize the fair value of the grant
2. In the case of grant relatéd to an asset, which of following accounting treatment is prescribed?
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.
3. In the case of grant related to income, which of the following accounting treatment is prescribed?
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 revenue
4. Which disclosure is not required in relation to government grant?
a. The accounting policy adopted for government grant

b. Unfulfilled condition and other contingency attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized in the financial statements
1. The deferred grant income is classified as
a. Separate component of shareholders' equity

b. Noncurrent liability
c. Current Liability
d. Partly current liability and partly noncurrent liability
2. If the cost of the asset is recorded net of the government grant
a. Equity is overstated
b. Liability is overstated
c. Asset is understated
d. Net income is understated
3. Which statement is in-correct regarding an interest-free government loan to an entity?
a. Interest expense may be offset against grant income

b. The loan payable is initially reported at the present value.
c. The interest element is amortized over the term of the loan using the effective interest method.
d. The deferred grant income is amortized over the term of the loan using the straight line method.
4. Which statement is true regarding the accounting for government grant related to an asset?
a. Depreciation is higher and net income lower if the grant is recorded as deferred income.
b. Depreciation is higher and net income lower if the grant is accounted for as an adjustment to the asset.
c. Depreciation is higher if the grant is recorded as deferred incöme but net income will be the same under the
deferred income approach and deduction from asset approach.
d. Depreciation is higher if the grant is recorded as an adjustment to the asset.
1. Borrowing costs are incurred in connection with borrowing of funds and include all of the following, except.
a. Interest expense calculated using the effective interest method.

b. Finance charge in respect of finance lease.
c. Exchange difference arising from foreign currency borrowing to the extent that the exchange difference is
regarded as an adjustment to interest costs.
d. All of these are included in borrowing costs.
2. 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
3. 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.
4. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing borrowing costs?
a. Investment property
b. Investment in financial instrument
c. Inventory that is manufactured or produced in large quantity on a repetitive basis and takes a substantial period
of time to get ready for use or sale
d. Biological asset
1. Borrowing costs can be capitalized when
a. The asset is a qualifying asset.

b. The asset is a qualifying asset and it is not probable that the borrowing costs will result in future economic
c. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefit to
the entity but the costs cannot be measured reliably.
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefit to
the entity and the costs can be measured reliably.
2. Which should not be considered a qualifying asset?
a. A power generation plant that normally takes two years to construct

b. An expensive jet that can be purchased from a vendor
c. A toll bridge that usually takes more than a year to build
d. A ship that normally takes one to two years to complete
3. Which of the following cost 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 borrowings to the extent the exchange difference is regarded
as an adjustment to interest cost pertaining to a qualifying asset
4. 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.
5. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
a. The total interest cost actually incurred.

b. A cost of capital charge for shareholders' equity.
c. That portion of total interest cost which would not have been incurred if expenditures for asset construction had
not been made.
d. That portion of average accumulated expenditures on which no interest cost was incurred.
6. Which statement about the capitalization of borrowing costs as part of the cost of a qualifying asset is true?
a. If funds come from general borrowings, the amount to be capitalized is based on the weighted average amount of
expenditures.
b. Capitalization always continues until the asset is brought into use.
c. Capitalization always commences as soon as expenditure of the asset is incurred.
d. Capitalization always commences as soon as interest on relevant borrowings is being incurred.
7. Which of the following is required for borrowing costs incurred that are directly attributable to the construction of a
qualifying asset?
a. Recognize as an expense in the period incurred.

b. Capitalize as part of the cost of the asset.
c. Either recognize as an expense in the period incurred or capitalize as part of the cost of the asset.
d. Recognize as a deferred charge and amortize over the useful life of the asset.
8. Which of the following is not a disclosure requirement in relation to borrowing cost?
a. Accounting policy adopted for borrowing cost

b. Amount of borrowing cost capitalized during the period
c. Segregation of qualifying asset from other assets
d. Capitalization rate used to determine the amount of• borrowing cost eligible for capitalization
1. Assets that qualify for interest capitalization include
a. Asset under construction for own use.

b. Asset that is ready for the intended use.
c. Asset that is not currently being used.
d. All of these assets qualify for interest capitalization.
2. Which of the following is not a condition that must be satisfied before interest capitalization can begin?
a. Interest is being incurred.

b. Expenditures for the asset have been made.
c. The interest rate is equal to or greater than the cost of capital.
d. Activities that are necessary to get the asset ready for the intended use are in progress.
3. 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.
4. Interest earned on specific borrowing for qualifying asset
a. Reduces the cost of the qualifying asset.

b. Reduces interest expense reported in the income statement.
c. Increases equity.
d. Must be credited to interest income.
5. The capitalization of interest is appropriate during a construction delay that is
a. Intentional
b. Related to permit processing or inspection
c. Permanent due to extended period of interruption
d. All of these require capitalization of interest
6. Which of the following is the recommended approach in accounting for interest incurred in financing the
construction of property, plant and equipment?
a. Capitalize only the actual interest incurred during construction

b. Charge construction with all costs of funds employed
c. Capitalize no interest during construction
d. Capitalize interest equal to the prime interest rate times the estimated cost of the asset being constructed
7. Which is a required disclosure regarding interest?
a. Total interest incurred for the period

b. Total capitalized interest for the period
c. The capitalization rate used to determine the capitalizable interest
d. All of these are required disclosurea•egarding interest y
8. Which statement is correct regarding capitalized interest?
a. Capitalized interest is reduced by income received on the unexpended portion of the general contruction loan.
b. The amount of capitalized interest on general borrowing is the lower of actual interest incurred or computed
capitalized interest.
c. Interest after completion of construction is capitalized.
d. All of these statements are correct.
9. An asset constructed for own use has been financed with a specific borrowing. The interest incurred during the
construction period is
a. Interest expense in the construction period
b. A prepaid expense
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 specific, borrowing
10. An entity can commence capitalization of interest when
a. Loan interest relating to the project starts to be incurred.

b. Technical site planning commences.
c. Expenditures on the project start to be incurred.
d. Construction work commences.
1. When an entity acquired land with an old building and immediately demolished the old building so that the land can
be used for the construction of a plant, the cost inCUrred to demolish the old building should be
A. Expensed as incurred
B. Added to the cost of the plant
C. Added to the cost of the land
D. Amortized over the estimated time period between the demolition of the old building and the completion of the
plant
2. If an entity purchased a lot and an old building and immediately demolished the old building to make room for the
construction of & new building, the proper accounting treatment of the allocated carrying amount of the old
building would depend on
a. The significance of the cost allocated to the building in relation to the combined cest of the lot and building.
b. The length of time for which the building was held prior to demolition.
c. The contemplated future use of the land.
d. The intention of management when the new building was constructed.
3. An entity purchased land to be used as an investment property. Timber was cut from the site so development of the
land could begin. The proceeds from the sale of the timber should be
a. Classified as other income

b. Credited to retained earnings
c. Deducted from the cost of the land
d. Classified as deferred income and amortized over five
4. An entity purchased land and a hotel with the plan to tear down the hotel and build a new hotel. The allocated cost
of the old hotel should be
a. Depreciated over the remaining life of the old hotel.

b. Written as loss in the year the hotel is torn down.
c. Capitalized as part of the cost of the land.
d. Capitalized as part of the cost of the new hotel.
5. An entity's forest land was condemned for use as a national park. Compensation for the condemnation exceeded
the forest land's carrying amount. The entity purchased similar, but larger, replacement forest land for an amount
greater than the condemnation award.
As a result of the condemnation and replacement, what is the net effect on the carrying amount of forest land
reported in the statement of financial position?
a. The amount is increased by the excess of the replacement forest land’s cost over the condemned land's carrying
amount.
b. The amount is increased by the excess of the replacement forest land's cost over the condemnation award.
c. The amount is increased by the excess of the condemnation award over the condemned forest land's carrying
amount.
d. No effect, because the condemned forest land's carrying amount is used as the replacement forest land's
carrying amount.
Problem 36-18 Multiple choice (PIC Interpretation)
1. The single cost of acquiring land and a usable old building is
a. Charged to the land only

b. Charged to the building only
c. Allocated between land and building based on relative fair value
d. Allocated between land and building based on carrying amount
2. The single cost of acquiring land and an unusable old building is
a. Charged to the land only

b. Charged to the building only
c. Allocated between land and building based on relative fair value
d. Allocated between land and building based on carrying amount
3. The cost of demolishing an old building to make room for the construction of a new building should be
a. Expensed immediately
b. Charged to the land
c. Charged to the new building
d. Allocated between land and building based on relative fair value
4. When land and an old building are acquired, the cost of immediately demolishing the old building to prepare the
land for the intended use as investment property should be
a. Expensed immediately
b. Charged to the land
c. Accounted for as deferred charge
d. Charged to retained earnings
5. The carrying amount of an existing old building demolished to make room for the construction of a new building
should be
a. Accounted for as loss

b. Capitalized as cost of the new building
c. Charged to the land
d. Charged to the new building if accounted for as inventory
1. The cost of building usually includes all, except
a. Any renovating cost incurred to put the building purchased in a condition for the intended use
b. Cost of excavation
c. Expenditure for movable equipment and fixture
d. Cost incurred to have existing building removed to make room for construction of new building
2. The cost of land typically includes all, except
a. Grading, filling, draining and clearing cost

b. Special assessment for street light and drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
3. Which of the following costs would be capitalized as cost of land?
a. Filling in dirt to level the property prior to excavation

b. Excavation cost
c. Cost incurred to construct sidewalk and fence
d. All of these are capitalized as cost of land
4. The cost of land usually includes all of the following, except
a. Commission related to acquisition

b. Property tax after date of acquisition
c. Property tax to date of acquisition
d. Cost of survey
5. Which of the following should be charged to land improvements?
a. Clearing of trees and grading

b. Architect fee
c. Installation of a septic system
d. Cost of demolishing an old building
1. The term "betterment" refers to
a. An expenditure made for new facilities which increase "capacity".

b. An expenditure made to restore "capacity" after abandonment or retirement.
c. An expenditure made to improve existing facilities by increasing "capacity".
d. An expenditure made to help insure continuity of service capacity.
2. Which type of expenditure occurs when an entity installs a higher capacity boiler to heat the plant?
a. Rearrangement d. Betterment
b. Ordinary repair and maintenance
c. Addition
d. Betterment
3. A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher quality
materials. The cost and related accumulated depreciation of the damaged portion are identifiable. To account for
these events, the entity should
a. Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the
damaged portion of the building
b. Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building
c. Record a loss in the current period equal to the cost of refurbishing and continue to depreciate the original cost of
the building
d. Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the
damaged portion of the building
4. Which of the following costs relating to property, plant and equipment should not be capitalized?
a. Replacement of roof of building every 15 years

b. Cost of site preparation
c. Installation and assembly costs
d. Replacement of small spare parts annually
5. Which of the following would ordinarily be treated as a revenue expenditure rather than a capital expenditure?
a. Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance.
b. The replacement of a major component of building
c. An addition to an existing building
d. Cost of improvement that is expected to provide discernible futurö benefit
6. An improvement made to a machine which increased the fair value and production capacity without extending the
useful life of
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account
7. If an old asset's life is extended by a replacement of a major part but the carrying amount of the part replaced is not
known, what happens to the amount spent to extend the life of the old asset?
a. Charged to accumulated depreciation

b. Capitalized in the asset account
c. Expensed
d. Recognized in retained earnings
8. An entity incurred costs to modify a building and to improve a production line. As a result, an overall increase in
production is expected. However, the modification did not increase the market value of the building and the
improvement did not extend the life of the production line. Should •the building modification cost and the
production line improvement cost be capitalized?
a. Only the building modification cost should be capitalized.

b. Only the production line improvement cost should be capitalized.
c. Both the building modification cost and production line improvement cost should be capitalized.
d. The building modification cost and production line improvement cost should be expensed.
9. Which of the following subsequent expenditures 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
10. An expenditure made in connection with a factory machine should be
a. Expensed if it merely extends the useful life but does not improve the quality.
b. Expensed if it merely improves the quality but does not extend the useful life.
c. Capitalized if it maintains the machine in normal operating condition.
d. Capitalized if it increases the quantity of units produced by the machine.
1. Which of the following statements best describes the term "depreciation"?
a. The systematic allocation of an asset's cost less residual value over the useful life
b. The removal of an asset from an entity's statement of financial position
c. The amount by which the recoverable amount of an asset exceeds carrymg amount
d. The amount by which the carrying amount of an asset exceeds recoverable amount
2. Carrying amount is the
a. Cost of an asset or the amount substituted for cost in the financial statements, less residual value.
b. Amount of cash or cash equivalent paid or the fair value of the other consideration given to acquire an asset at
the time of acquisition or construction.
c. Net amount which the entity expects to obtain for an asset at the end of useful life after deducting the expected
costs of disposal.
d. Amount at which an asset is recognized in the statement of financial position after deducting any accumulated
depreciation and accumulated impairment loss.
3. Which of the following statements is incorrect with respect to depreciation?
a. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the
entity.
b. Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary
for the intended use.
c. Depreciation ceases at the date the asset is classified as held for sale.
d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount.
4. All of the following factors are considered in determining
a. Expected usage of the asset

b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
5. The production method of depreciation results in
a. Constant charge over the useful life of the asset.

b. Decreasing charge over the useful life of the asset.
c. Increasing charge over the useful life of the asset.
d. Variable charge based on the expected use or output of the asset.
6. Which of the following statements 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.
7. The useful life of property, plant and equipment is
l. The period of time over which an asset is expected to be used by the entity.
ll. The number of production or similar units expected to be obtained from the asset by the entity.
a. I only
b. Il only
c. Both 1 and 11
d. Neither I nor Il
8. Which statement is true in relation to depreciation?
a. Depreciation is not a matter of valuation.

b. Depreciation is part of the matching of revenue and expense.
c. Depreciation retains funds by reducing income tax and dividend.
9. Economic factors that shorten the useful life of an asset include
a. Wear and tear

b. Deterioration or decay through aging or passage of time
c. Damage or destruction due to fire, flood earthquake and other casualty
d. Obsolescence, supersession and inadequacy
10. Technical or commercial obsolescence arises from
a. Expected usage of the asset

b. Expected physical wear and tear
c. Changes or improvements in production or change in the market demand for the product output of the asset
d. Expiry date of related lease of the asset.
1. Which of the following best describes "residual value"?
a. The estimated net amount currently obtainable if the asset is at the end of the useful life
b. The present value of future cash flows to be derived from the asset.
c. The amount at which the asset could be exchanged.
d. The amount of cash that could currently be obtained by selling the asset in an orderly disposal.
2. Which of the following statements is true?
a. An asset is depreciated even if the fair value exceeds carrying amount.

b. Land and building not accounted for separately.
c. A noncurrent asset acquired as the result of an exchange is not recognized.
d. A gain on disposal is classified as revenue.
3. Which of the following statements regarding depreciation is true?
a. An asset must be depreciated from the date of purchase to the date of sale.
b. The annual depreciation charge shall be constant.
c. The total cost must eventually be depreciated.
d. If the carrying amount of an asset is less than the residual value, depreciation is not charged.
4. A private jet is expected to be used over a period of 7 years. The engine of the jet has a useful life of 5 years. The
tires are replaced every 2 years. The private jet' shall be depreciated using the straight line method over
a. 7 years composite useful life.

b. 5 years for the engine, 2 years for the tires, and 7 years applied to the balance cost of the jet.
c. 2 years based on conservatism.
d. 5 years based on a simple average.
1. Which of the following statements is the assumption on which straight line depreciation is based?
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.
2. 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 repairs and maintenance increase substantially with age.
c. Equipment with useful life -that is not affected by the amount of use.
d. Equipment used consistently every period.
3. A principal objection to the straight line method of depreciation is that it
a. Provides for the declining productivity of an aging asset

b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment base
d. Gives smaller periodic write off than a decreasing charge method
4. In which of the following situations is the production method of depreciation most appropriate?
a. An asset's service potential declines with use

b. An asset's service potential declines with the passage
c. An asset is subject to rapid obsolescence
d. An asset incurs increasing repairs and maintenance
5. The composite depreciation method
a. Is applied to a group of homogenous assets

b. is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of a single asset in the group
d. Excludes residual value from the base of the depreciation calculation
6. An entity using the composite depreciation method for a fleet of trucks, cars, and campers retired one of the trucks
and received cash from a salvage entity. The net carrying amount of these composite assets would be decreased by
a. Cash proceeds received and original cost of the truck.

b. Cash proceeds received.
c. Original cost of the truck less the cash proceeds.
d. Original cost of the truck.
7. What factor must be present under the production method?
a. Total units to be produced can be estimated

b. Production is constant over the life of the asset
c. Repair costs increase with use
d. Obsolescence is expected
8. As generally used in accounting, what is depreciation?
a. It is a process of asset valuation.

b. It applies technically to intangible asset.
c. It is used to indicate a decline in market value of property, plant and equipment.
d. It is an accounting process which systematically allocates cost of property, plant and equipment to accounting
periods.
1. Which of the following reasons provides 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. Repair and maintenance costs would probably increase significantly in later periods so depreciation should
decline.
d. Accelerated depreciation provides earlier replacement because of the time value of money.
2. Which depreciation method applies a uniform depreciation rate each period to the carrying amount of an asset?
a. Straight line
b. Declining balance
c. Output method
d. Sum of years’ digit
3. A method which excludes residual value from the base for the depreciation calculation is
a. Straight line
b. Sum of years' digits
c. Double declining balance
d. Output method
4. An asset has a nine-year useful life and is to be depreciated under the sum of years' digits method. The annual
depreciation expense would be the same as that under the straight line method in the
a. Third year
b. Fifth year
c. Seventh year
d. Ninth year
5. Which of the following uses straight line depreciation?
a. Group depreciation
b. Composite depreciation
c. Both group depreciation and composite depreciation
d. Neither group depreciation nor composite depreciation
6. A depreciable asset has an estimated 15% residual value. At the end of the estimated useful life, the accumulated
depreciation would equal the original cost of the asset under which of the following depreciation methods?
a. Straight line
b. Output method
c. Double declining balance
d. None of these depreciation methods
7. A machine with a five-year estimated useful life and a 10% residual value was acquired at the beginning of the
current year. At the end of the fourth year, accumulated depreciation, using the sum of the years' digits method,
would be
a. Original cost less residual value multiplied by 1/15.

b. Original cost less residual value multiplied by 14/15.
c. Original cost multiplied by 14/15.
d. Original cost multiplied by 1/15
8. A machine with a four-year estimated useful life and a 15% residual value was acquired at the beginning of the
current year. The increase in accumulated depreciation for the second year using the double declining balance
method would be
a. Original cost x 85% x 50%

b. Original cost x 50%
c. Original cost x 85% x 50% x 50%
d. Original cost x 50% x 50%
1. Depreciation is best described as a method of
a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life determination
2. Which method is not based on the passage of time?
a. Output method
b. Sum of years' digits
c. Declining balance
d. Straight line
3. In which method is residual value not a factor in determining depreciatiorf in early years of the useful life of an
asset?
a. Straight line
b. Service hours
c. Productive output
d. Declining balance
4. The double declining balance method
a. Results in a decreasing depreciation charge.

b. Means residual value is not deducted in computing the depreciation base.
b. Means the carrying amount should not be reduced below residual value.
c. All of these describe double declining balance
5. The sum of the years' digits method
a. Results in residual value being ignored.

b. Means the denominator is the number of years remaining at the beginning of the year.
c. Means the carrying amount should not be reduced below residual value.
d. Results in an increasing depreciation charge.
6. Which of the following must be known when using the sum of years' digits method?
a. Acquisition cost
b. Residual value
c. Useful life
d. All of these must be known
7. An addition that is an integral part of an older asset normally would be depreciated over
a. The useful life of the addition

b. The useful life of the addition or the original asset, whichever is shorter
c. The useful life of the original asset
d. Either the useful life of the addition or the original asset as a matter of professional judgment
8. The major difference between the service life of an asset and physical life is that
a. Service life refers to the time an asset shall be used by an entity and physical life refers to how long the asset
shall last.
b. Physical life is the life of an asset without consideration of residual value and service life requires the use of
residual value,
c. Physical life is always longer than service life.
d. Service life refers to the length of time an asset is Of use to the original owner, while physical life refers to how
long the asset shall be used by all owners.
9. If there is a change from double declining balance to straight line method
a. The accumulated depreciation is adjusted to the appropriate balance through retained earnings based on the
straight line method
b. The accumulated depreciation is adjusted to the appropriate balance through net income based on the straight
line method.
c. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the remaining
useful life using the straight line method.
d. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the original
useful life using the straight line method.
10. An entity acquired equipment and used the straight line depreciation with a useful life of 15 years and no residual
value. After 4 years of using the asset, the entity estimated that the remaining life of the equipment was six years
with no residual value. How should this change be accounted for?
a. Revising future depreciation annually to equal the original cost divided by six.
b. Revising future depreciation annually to equal the carrying amount' after 4 years divided by six.
c. Disclosing the effect of the change on each year's earnings but maintaining the depreciation as originally
determined.
d. . Revising future depreciation annually to equal the depreciable amount divided by six.
1. The most common method of computing depletion is
a. Percentage depletion method

b. Decreasing charge method
c. Straight line
d. Production method
2. Depletion expense
a. Is usually part of cost of goods sold

b. Includes tangible equipment cost in the depletable cost.
c. Excludes intangible development cost from the depletable cost.
d. Excludes restoration cost from the depletable cost.
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 removed during the period.
C. Cumulative amount of resources removed.
D. Amount of resources sold during the period.
4. Which describes the method of accounting for the costs of drilling dry holes in the oil and gas industry?
a. Only successful effort method

b. Only full cost method
c. Both successful effort and full cost method
d. Neither successful effort nor the full cost method
5. Which of the following is not part of depletable amount?
a. Acquisition cost o! the mineral resource deposit

b. Exploration cost
c. Tangible development cost associated with equipment used to extract the mineral resource
d. Intangible development cost such as drilling, tunnel and shaft
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 of 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.
2. When is an entity required to recognize exploration and evaluation expenditure as an asset?
a. When such expenditure is recoverable in future periods.

b. When the technical feasibility and commercial viability of extracting the associated mineral resource have been
demonstrated.
c. When required by the entity's accounting policy for recognizing exploration and evaluation asset.
d. Such expenditure is always expensed as incurred.
3. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of right to explore.

b. Expenditure for exploratory drilling.
c. Expenditure related to the development of mineral resource.
d. Expenditure in relation to evaluating the technical feasibility and commercial viability of extracting a mineral
resource.
4. Which measurement model applies to exploration and evaluation asset subsequent to initial recognition?
a. Cost model or fair value model

b. Revaluation model
c. Cost model or revaluation model
d. The recoverable amount model
5. An entity is required to consider which of the following in developing accounting policy for exploration and
evaluation activities?
a. The requirements and guidance in Standards and Interpretations dealing with similar and related issues
b. The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses
c. Recent pronouncements of standard-setting bodies
d. Whether the accounting policy results in information that is relevant and reliable
6. Which of the following is not a disclosure required in relation to exploration and evaluation expenditures?
a. Information about commercial reserve quantity

b. Accounting policy for exploration and evaluation expenditures
c. The amounts of operating and investing cash flows arising from exploration and evaluation of mineral resources
d. Information recognized in the financial statements arising from the exploration and evaluation of mineral resources
7. Which is not a characteristic of the “full cost” method in the oil and gas industry?
a. All costs incurred in exploring within a defined cost center are capitalized and amortized.
b. Costs are capitalized even if a specific project in a cost center was a failure.
c. Costs of unsuccessful exploration activities are charged to expense.
d. Exploration and evaluation asset is classified either as tangible or an intangible asset.
8. Which type of expenditure is included in the term "exploration and evaluation" of mineral resources?
a. The extraction and processing of mineral resource for to market

b. The commercial review of possible areas for mineral extraction before bidding for the legal right to explore a specific
area
c. The expenditure incurred after the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable
d. None of these should be included in exploration and evaluation expenditures
9. Which is not a similarity for depreciation and depletion?
a. The estimated life is based on productive life.

b. Assets are reported in the same classification.
c. The rate may be changed upon revision of productive life.
d. Both depreciation and depletion are based on time.
10. Which of the following is not a difference between the accounting treatment for depreciation and depletion?
a. Depletion applies to natural resources while depreciation applies to plant and equipment.
b. Depletion refers to the physical exhaustion or consumption of the asset while depreciation refers to the wear and
tear, and obsolescence of the asset.
c. Many formulas are used in computing depreciation but only one is used to any extent in computing depletion.
d. The cost of the asset is the starting point for the computation of the amount of depreciation but the fair value
reassessed each year is the starting point for the periodic charge for depletion.
1. What is the revalued amount of property plant and equipment?
a. Fair value
b. Depreciated replacement cost
c. Replacement cost
d. Fair value and depreciated replacement cost
2. When there is no evidence of market value because of the specialized nature of the plant and equipment and
because these items are rarely sold, the estimate of fair value is
a. Replacement cost
b. Depreciated replacement cost
c. Net realizable value
d. Present value of cash inflows from the use of the asset
3. What is the treatment of the accumulated depreciation on the date of revaluation?
a. Restated proportionately with the change in the gross carrying amount of the asset
b. Eliminated against the gross carrying amount of the asset
c. Not adjusted on the date of revaluation
d. Restated proportionately with the change in the gross carrying amount of the asset or eliminated against the gross
carrying amount of the asset
4. Which of the following is not considered a separate class of property, plant and equipment?
a. Land and building

b. Machinery
c. Ship and aircraft
d. Furniture and fixtures
5. When an asset's carrying amount is increased as a result of a revaluation, the increase shall be credited to
a. Revaluation surplus as component of other comprehensive income
b. Revaluation surplus as component of profit or loss
c. Retained earnings
d. Deferred income
6. When an asset's carrying amount is decreased as a result of a revaluation, the decrease shall be
a. Recognized in profit or loss

b. Charged to retained earnings
c. Recognized in other comprehensive income
d. Charged to revaluation surplus
7. When the revaluation surplus is realized because of the use of the asset or disposal of the asset, it may be
transferred directly to
a. Retained earnings
b. Income
c. Share capital
d. Share premium
8. If a depreciable property is revalued at the middle of the current year, how is the depreciation expense for the year
determined when the entity has a calendar year-end?
a. Depreciation for the year is based on the average of the depreciation based on cost and on revalued amount.
b. Depreciation for the entire year is based on cost.
c. Depreciation for the entire year is based on revalued amount.
d. Depreciation for the first half of the year is based on cost and for the second half on revalued amount.
9. If an entity with a fleet of cars and ships decided to revalue property, plant, and equipment, which of the following
statements is true?
a. Revalue only one-half of each class of property, plant and equipment.

b. Revalue an entire class of property, plant and equipment.
c. Revalue one ship at a time as it is easier than revaluing all ships together.
d. Since assets are being revalued regularly, there is no need to depreciate.
10. Which statement is true about the revaluation model for property, plant and equipment?
a. The frequency of revaluation depends upon the changes in fair value of the property, plant and equipment.
b. Property, plant and equipment with significant and volatile changes in fair value necessitate annual revaluation.
c. Property, plant and equipment- with insignificant changes in fair value may be revalued only every three to five
Years.
d. All of these statements are true about the revaluation model.
Problem 41-20 (IFRS)
1. When an entity chooses the revaluation model, which of the following statements is correct?
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 to which that asset belongs 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 first revaluation must be recognized in income.
2. When accounting for property, plant and equipment, an entity
a. Must use the cost model.

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.
3. Under the revaluation model for accounting for property, plant and equipment
a. Assets must be revalued quarterly

b. Assets must be revalued annually
c. Assets must be revalued biannually
d. There is no rule regarding the frequency of revaluation
4. When the revaluation model is used for reporting plant asset, the gain should be included in
a. Retained earnings
b. Gain from revaluation in the income statement
c. A revaluation surplus account as component of other
d. An extraordinary gain in the income statement
1. An impairment loss is the amount by which
a. The carrying amount of an asset exceeds recoverable amount.

b. The carrying amount of an asset exceeds value in use.
c. The carrying amount of an asset exceeds fair value less cost of disposal.
d. The recoverable amount of an asset exceeds carrying amount.
2. What is the recoverable amount of an asset?
a. Fair value less cost of disposal

b. Value in use
c. Fair value less cost of disposal or value in use, whichever is higher
d. Fair value less cost of disposal or value in use, whichever is lower
3. Fair value of an asset is defined as
a. The price that would be received to sell an asset in an orderly transaction between market participants at' the
measurement date
b. The price that would be paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
c. The discounted future cash flows expected to be derived from the asset.
d. The undiscounted future cash flows expected to be derived from an asset.
4. What is the best evidence of fair value?
a. Quoted price in an active market for identical asset

b. Quoted price in an active market for a similar asset
c. Quoted price in an inactive market for identical asset
d. Unobservable input price for the asset
5. Costs of disposal include all of the following, except
a. Legal cost
b. Stamp and similar transaction tax
c. Cost of removing the asset
d. Finance cost
6. Value in use is
a. The market value.

b. The discounted amount of future cash flows arising from continuing use of the asset and from the disposal.
c. The higher of fair value less cost of disposal and market value.
d. The amount at which the asset is recognized in the statement of financial position.
7. The estimates of future cash flows in calculating value in use include all of the following, except
a. Cash inflows from the continuing use of the asset

b. Cash outflows incurred to generate the cash inflows from the continuing use of the asset
c. Net cash flows from the disposal of the asset at the end of useful life.
d. Income tax payments.
8. Estimates of future cash flows normally would cover projections over a maximum of
a. Five years
b. Ten years
c. Fifteen years
d. Twenty years
1. 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.
2. If an 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.
3. Impairment loss for productive asset is reported
a. As an extraordinary item.
b. As a component of discontinued operation.
c. As a component of income from continuing operations.
d. As a change in accounting estimate.
4. Long-lived assets are reviewed for impairment
a. Every three years at the end of reporting period.

b. When the asset is fully depreciated.
c. When circumstances indicate that the carrying amount of an asset might not be recoverable.
d. Every year at the end of reporting period.
5. Which of the following conditions must exist •in order for an impairment loss to be recognized?
a. The carrying amount is less than fair value.

b. The carrying amount of the asset is not recoverable.
c. The carrying amount is less than value in use.
d. The carrying amount is less than recoverable amount.
6. When deciding on the discount rate in determining value in use, which factor should not be taken into account?
a. The time value of money.

b. Risk specific to the asset for which future cash flow estimate has not been adjusted.
c. Risk specific to the asset for which future cash flow estimate has been adjusted.
d. Pretax discount rate.
7. Which of the following is not relevant in determining value in use of an asset?
a. The expected future cash flows from the asset

b. The carrying amount of the asset
c. Variation in the future, cash flows
d. The time value of money
8. Which statement is incorrect with regard to impairment?
a. If impairment indicators are present, the entity must conduct an impairment test.
b. The impairment test compares the carrying amount 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 recoverable amount is higher than carrying amount, no impairment loss is recognized.
9. An impairment loss that relates to an asset that has been revalued is recognized in
a. Profit or loss
b. Revaluation surplus that relates to the revalued asset
c. Opening retained earnings
d. Any reserve in equity
9. The impairment rules for long-lived assets apply to all of the following, except
a. Building currently used in business

b. Financial instrument
c. Land
d. Computer used to run a production process
Problem 43-16 (IFRS)
1. What is a cash generating unit?
a. The group of assets that generate cash inflows from continuing use that are largely independent of the cash
flows from other group of assets.
b. The group of assets that generate cash inflows from continuing use that are not independent of the cash flows
from other group of assets.
c. The largest group of assets that generate cash inflows from continuing use that are largely independent of the
cash flows from other group of assets.
d. The smallest group of assets that generate cash inflows from continuing use that are largely independent of the
cash inflows from other gorup of assets.
2. 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 noncash assets prorata based on fair value
d. First, to any goodwill, and the balance to the other noncash assets prorata based on carrying amount
3. When allocating an impairment loss, such a loss should reduce the carrying amount of which asset first?
a. Property, plant, and equipment

b. Intangible assets.
c. Goodwill
d. Current assets
4, where part of a cash generating unit is disposed of, the goodwill associated with the part disposed of
a. Should not be written off to the income statement

b. Should not be included in the calculation of gain or loss.
c. Should be included in the calculation of gain or loss.
d. Should be written off against retained earnings.
5. Goodwill should be tested for impairment
a. If there is an indication of impairment

b. Annually
c. Every five years
d. On the acquisition of a subsidiary
6. Impairment loss should never be reversed?
a. loss on property, plant and equipment

b. Loss on goodwill
c. Loss on business segment
d. Loss on inventory
7. An entity is considering to apply an impairment test to an individual asset or to the cash generating unit to which the
asset belongs. Which of the following statements is true?
a. If the individual asset does not generate cash inflows that are largely independent from other assets, the cash
generating unit should be identified.
b. If the individual asset generates a significant proportion of cash inflows of the entity as a whole, the cash
generating unit should not be identified.
c. If the individual asset generates an insignificant proportion of the cash inflows of the entity as a whole, the cash
generating unit should not be identified.
8. Assets other than goodwill that contribute to the future cash flows of both the cash generating unit under review and
other cash generating units are known as
a. Corporate assets
b. Property, plant and equipment
c. Disposal group
d. Cash generating unit
9, which of the following statements is incorrect concerning corporate assets?
a. Corporate assets are group or divisional assets such as head office building, EDP, equipment or a research center.
b. Essentially, corporate assets generate cash inflows independently from other assets.
c. The recoverable amount of an individual corporate asset cannot be determined unless management has decided to
dispose of the asset
d. If there is an indication that a corporate asset may be impaired, the recoverable amount of the cash generating unit
to which the corporate asset belongs is determined and compared with the carrying amount of the cash generating
unit.
10 When impairment testing a cash generating unit, any corporate assets should
a. Be allocated on a reasonable and consistent basis.

b. Be separately impairment tested.
c. Be included in the head office assets or parent assets and impairment tested along with that cash generating unit.
d. Not be allocated to cash generating units.
1. Which of the following is a criterion that must be met in order for an intangible asset to be recognized other than
goodwill?
a. The fair value can be measured reliably.

b. The asset is part of the activities aimed at gaining new scientific or technical knowledge.
c. The asset is expected to be used in the production or supply of goods or services.
d. The asset is nonmonetary, identifiable and lacks physical substance.
2. An intangible asset is identifiable when
a. It is separable.
b. It arises from contractual and other legal right.
c. It is either separable or it arises from contractual and other legal right.
d. It is neither separable nor it arises from contractual and other legel right.
3. Which of the following statements is true in relation to control by the entity of the intangible asset?
a. The capacity of the entity to control the economic benefits from an intangible asset would normally stem from legal
rights that are enfor0eable in a court of law.
b. The skill of employees arising out of the benefits of training costs cannot be recognized as intangible asset.
c. Market share and customer loyalty cannot normally be recognized as intangible asset because an entity cannot
control the action of customers.
4. The recognition criteria for an intangible asset include which of the following conditions?
a. The intangible asset must be measured at cost.

b. The cost can be measured reliably.
c. It is probable that future economic benefit will arise
d. It is probable that future economic benefit will arise from use and the cost can be measured reliably.
5. Which statement is incorrect concerning acquisition of intangible asset as part of a business combination?
a. The cost of the intangible asset is based on the fair value at the date of acquisition.
b. If there is an active market for the intangible asset, the fair value is equal to the quoted price of an identical asset
c. If there is an active market for the intangible asset, the fair value may also be equal to the quoted price of a similar
asset
d. If an intangible asset acquired in a business combination arises from contractual or legal right, sufficient
information does not exist to measure the fair value of the asset.
6. Which statement is true in relation to internally generated intangible asset?
a. Internally generated brand, masthead, publishing title, and customer list shall not be recognized as an intangible
asset.
b. The cost of internally generated intangible asset comprises all directly attributable costs necessary to create,
produce and prepare the asset for the intended use.
c. Internally generated goodwill shall not be recognized as an intangible asset.
7. The cost of an internally generated intangible asset includes all of the following, except
a. Expenditure on materials used in generating the

b. Compensation costs of personnel directly engaged in
c. Fees to register a legal right.
d. Expenditure on training staff to operate the asset'
8. An intangible asset acquired by way of government grant may be initially recorded at
a. Fair value
b. Nominal amount or zero plus any directly attributable expenditure
c. Either fair value or nominal amount or zero plus directly attributable expenditure
d. Neither fair value nor nominal amount
9. The Cost of a separately acquired intangible asset comprises the purchase price, including import duties and
nonrefundable purchase taxes, and
a. Cost of introducing a new product or service

b. Cost of conducting a. business in a new location
c. Administration and other general overhead cost
d. Directly attributable cost of preparing the asset for the intended use
10. Directly attributable costs of preparing the intangible asset for the intended use include all, except
a. Cost of employee benefits arising directly from bringing the asset to working condition
b. Professional fee arising directly from bringing the asset to working condition
c. Cost of testing whether the asset is functioning properly
d. Initial operating loss
1. After initial recognition, an intangible asset shall be measured using
a. Cost model
b. Revaluation model
c. Cost model or revaluation model
d. Cost model or fair value model
2. An entity that acquired an intangible asset may use the revaluation model for subsequent measurement only when
a. The useful life of the intangible asset can be reliably determined.

b. An active market exists for the intangible asset.
c. The cost ofthe intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
3. Which statement is true concerning amortization and impairment of intangible assets?
a. Intangible assets with finite useful life are amortized over the useful life.
b. Intangible assets with finite useful life are tested for impairment at the end of reporting period when there is an
indication of impairment.
c. Intangible assets with indefinite useful life are not amortized but are tested for impairment at least annually.
4. An intangible asset is regarded as having an indefinite useful life when
a. There is no foreseeable limit to the period over which the asset is expected to generate net cash inflows to the
entity.
b. There is a foreseeable limit to the period over which the asset is expected to generate net cash inflows to the entity.
c. The useful life of the intangible asset arises from contractual right.
d. The useful life of the intangible asset arises from legal right.
5. What is the appropriate method of amortizing?
a. The straight line method, unless the pattern in which the asset's economic benefits are consumed by the entity can
be determined reliably.
b. The double declining balance in all circumstances.
c. A subjective amount of periodic amortization without regard to any particular method.
d. The straight line method in all circumstances.
6. The residual value of an intangible asset with a finite useful life shall be assumed zero, except
a. When there is a commitment by a third party to purchase the asset at the end of the useful life.
b. When there is an active market for the asset and it is probable that such market will exist at the end of the
useful life.
c. When there is a commitment by a third party to purchase the asset at the end of useful life or there is an active
market for the asset and it is probable that sucu market will exist at the end of useful life.
d. There are no exceptions.
7. One factor that is not considered in determining the useful life of an intangible asset is
a. Residual value
b. Provision for renewal or extension
c. Legal life
d. Expected action of competitors
8. Factors in determining the useful life of an intangible asset include all except
a. The expected use of the asset

b. Any legal or contractual provision that may limit the useful life
c. Any provision for renewal or extension of the legal life
d. The amortization method
1. Which does not qualify as an intangible asset?
a. Computer software
b. Registered patent
c. Copyright
d. Notebook computer
2. Which of the following would qualify as an intangible asset?
a. Advertising and promotion

b. College tuition fees paid to employees who decide to enroll in an executive MBA program while working with the
entity
c. Operating loss during the initial stage of the project
d. Legal cost paid to lawyer to register a patent
3. Once recognized, an intangible asset can be carried at
a. Cost less accumulated amortization

b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value
4. Which disclosure is not required with respect to an intangible asset?
a. Useful life of the intangible asset

b. Reconciliation of carrying amount at the beginning and end of the year
c. Contractual commitment for the acquisition of intangible asset
d. Fair value of similar intangible asset used by competitor
5. Which is not a consideration in determining the useful life of an intangible asset?
a. Legal, regulatory or contractual provision

b. Provision for renewal or extension
c. Initial cost
d. Obsolescence
6. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset.
b. It is probable that it will generate economic benefit.
c. It is available for the intended use.
d. The cost can be identified with reasonable certainty.
7, an intangible asset that was acquired separately shall
a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost
8, Intangible assets with indefinite useful life are tested for impairment
a. Quarterly at the quarterly reporting date

b. Annually at the annual reporting date
c. Biannually at the repprting date
d. There is no guideline for impairment
9. Intangible assets are reported
a. With an accumulated amortization account

b. Under property, plant and equipment
c. As a separate line item
d. All of these are allowed in presenting intangible assets
10. Operating losses incurred during the start-up years of a new entity should be
a. Accounted for like any other operating loss.

b. Written off directly against retained earnings.
c. Capitalized and amortized over five years.
d. Capitalized as an intangible asset and amortized over twenty years.
1. Which of the following does not describe an intangible
a. The asset lacks physical existence.

b. The asset is monetary.
c. The asset provides long-term benefit.
d. The asset is classified as noncurrent asset.
2. Which of the following is a characteristic of an intangible asset?
a. Physical existence
b. Claim to a specific amount of cash in the future
c. Long-lived
d. Held for sale
3. Costs incurred internally to create, intangible asset are
a. Capitalized
b. Capitalized if useful is indefinite
c. Expensed when incurred
d. Expensed if useful life is limited
4. Which method of amortization is normally used for an intangible asset

a. Sum of the years' digits
b. Straight line
c. Units of production
d. Double declining balance
5. Under current accounting practice, intangible assets are classified as

a. Amortizable and unamortizable
b. Limited life and indefinite life
c. Specifically identifiable and goodwill type
d. Legally restricted and goodwill type
6. Which type of intangible asset is amortized?
a. Limited life
b. Indefinite life
c. Both limited life and indefinite life
d. Neither limited life nor indefinite life
7. Entities should evaluate indefinite life intangible assets at least annually for
a. Recoverability
b. Amortization
c. Impairment
d. Estimated
8. The major problem of accounting for an intangible asset is determining
a. Fair value
b. Separability
c. Residual value
d. Useful life
9. Which of the following is not an intangible asset?
a. Trade name
b. Research and development cost
c. Franchise
d. Copyright
10. Which of the following represents the maximum amortization period mandated for an intangible asset with finite
useful life?
a. 10 years
b. 20 years
c. 40 years
d. No arbitrary cap on the useful life has been established.
Problem 47-18 (AICPA Adapted)
1. An entity should recognize goodwill at what point?
a. Costs have been incurred in the development of goodwill

b. Goodwill has been created in the purchase of a business
c. The entity expects a future benefit from the creation of goodwill
d. The fair value exceeds the carrying amount
2. Which statement does not accurately describe the accounting for goodwill?
a. Goodwill should be amortized over 40 years.

b. Goodwill can only be recorded as a result of business combination.
c. The cost of internally developing goodwill should be recognized as expense as incurred.
d. Goodwill should be examined at least annually for impairment.
3. Which accurately describes the accounting for goodwill?
a. Record at cost and amortize over 40-year period

b. Record at cost and amortize over a 10-year period
c. Record at cost and test for impairment every three years
d. Record at cost and test for impairment on an annual basis and more often if certain events occur
4. Goodwill should be tested for impairment at which level?

a. Each reporting unit
b. Each acquisition unit
c. Each identifiable long-term asset
d. Entire business as a whole
5. Goodwill should be tested periodically for impairment
a. For the entity as a whole

b. At the subsidiary level
c. At the industry segment level
d. At the operating segment level
6. What does the standard require with respect to goodwül?
a. Goodwill should be amortized over a five-year period.

b. Goodwill should be amortized over the useful life.
c. Goodwill should be recorded and never adjusted.
d. Goodwill should be periodically evaluated for impairment.
7. An entity is performing an annual test of the impairment of goodwill for a cash generating unit. It has determined
that the fair value of the unit exceeds the carrying amount. Which of the following statements is true concerning
the test of impairment?
a. Impairment is not indicated and no additional analysis is necessary.

b. Goodwill should be written down as impaired.
c. The assets and liabilities should be valued to determine if there has been an impairment of goodwill.
d. Goodwill should be retested at the entity level.
8. An entity reported goodwill in last year's statement of financial position. How should the entity account for the
reported goodwill in the current year?
a. Determine whether fair value of the reporting unit is less than the carrying amount and report an impairment
loss on goodwill in the income statement.
b. Determine the current year's amortizable amount and report the amortization expense.
c. Determine whether the fair value of the reporting unit is greater than the carrying amount and report the
recovery of any previous impairment in the income statement.
d. Determine whether the fair value of the reporting unit is greater than the carrying amunt and repört a gain on
goodwill in the income statement.
9. An impairment loss recognized for goodwill
a. Shall not be reversed in a subsequent year.

b. May be reversed fully in a subsequent year.
c. May be reversed partly in a subsequent year.
d. Shall be reversed in a subsequent year.
1. Purchased goodwill should
a. Be written off against retained earnings.

b. Be written off as other expense.
c. Be amortized over the period benefited.
d. Not be amortized.
2. The intangible asset goodwill may be
a. Capitalized only when purchased.

b. Capitalized either when purchased or created internally.
c. Capitalized only when created internally.
d. Written off directly against retained earnings.
3. Goodwill shall be recognized only when
a. It is purchased from another entity.

b. It can be established that a definite benefit has resulted from good name and good reputation.
c. It is acquired through the purchase of another entity.
d. An entity had above normal earnings for five years.
4. Which asset should be reported as a separate line item?
a. Goodwill
b. Franchise
c. Patent
d. Trademark
5. Why is goodwill a master valuation account?
a. Goodwill represents the purchase price of a business.

b. Goodwill is the excess of the purchase price of the business over the fair value of net assets acquired.
c. The value of business is computed without goodwill and then goodwill is added to arrive at a master valuation.
d. Goodwill is the only account based on fair value.

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Problem 22-22 Multiple choice (IFRS 9)

a. Fair value through profit or loss

2. Which is not a category of financial assets?

a. Financial assets at fair value through profit or loss

a. Financial assets held for trading

5. Which is not a characteristic of financial asset classified as held for trading?

a. Equity instrument that is not held for trading. (OCI)

7. A debt investment shall be measured subsequently at amortized cost

a. When the debt investment is held for trading.

3. Under IFRS, the presumption is that equity investments are

a. Held for trading

4. Debt investments not held for collection are reported at

5. Debt investments that are reported at amortized cost are

a. Managed and evaluated based on a documented risk-management strategy

a. Nontrading investments of less than 20%.

a. Equity investments at FVPL

8. Impairments of debt Investments are

a. Based on discounted contractual cash flows.

a. Expected cash flows

10. Under IFRS, an entity

a. Should evaluate every investment for impairment.

Problem 22-24 Multiple choice (IFRS)

1. Reclassifications of investments between categories are recognized

2. Transfers of investments between categories

a. Result in omitting recognition of fair value.

a. The debt investment is measured at fair value at reclassification date.

a. Fair value at reclassification date

8. Which statement is true when a financial asset at FVOCI is reclassified to FVPL?

a. The financial asset continues to be measured at fair value.

2. Dividends are recognized on the

a. Date of issuing statements

a. Dividend income at fair value of the property

4. Liquidating dividends are credited to

5. What is the effect of split up?

a. Increase in number of shares and decrease in cost per share

6. What is the effect of stock dividend of the same class:

a. Increase in investment and increase in cost per share

7. When stock dividends of different class are received

a. No formal entry is made but only a memorandum

8. Shares received in lieu of cash dividend are recorded as

a. Income at carrying amount of the shares received

9. Cash received in lieu of stock dividends is accounted for as

a. Be paid 10% of the investee's profit in cash each year.

Problem 24-33 Multiple choice (PAS 28)

1. It is an entity over which the investor has significant influence.

a. The holding of a significant proportion of the share capital in another entity.

3. Which of the following statements is true concerning significant influence?

4. Which of the following statements is incorrect concerning the equity method?

a. The investment in associate is initially recorded at cost.

a. The investor should always use the equity method.

7. Goodwill arising from an investment in associate is

10. How is the impairment test carried out for an associate?

a. The goodwill is impairment tested individually.

a. Not be affected by its share of the earnings or losses of the investee

a. Investor sells the investment

a. A proportionate interest in the net income of the investee.

a. Decreases the investment account

a. Overstate, overstate, overstate

a. Decrease and decrease

a. The excess remains in the investment account until it is sold.

Problem 25-12 Multiple choice (IFRS)

1. An investor shall discontinue the use of the equity method when

a. The investor ceases to have significant influence over the associate.