MT Quiz 2 Investment Property & Intangible Assets

Part 1: Multiple Choice Questions (50 points)

Identify the choice that best completes the statement or answers the question.

____ 1. It is a group of assets to be disposed of by sale or otherwise, together as a group in a single transaction, and
liabilities directly associated with those assets that will be transferred in the transaction.

a. Disposal c. Noncurrent asset

b. Discontinued operation d. Cash generating unit
____ 2. Any entity shall classify a noncurrent asset or disposal group as “held for sale” when

a. The carrying amount of the asset or disposal group will be recovered through a sale
transaction.
b. The carrying amount of the asset or disposal group will be recovered through continuing
use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.
____ 3. Noncurrent asset or disposal group is classified as “held for sale” when the asset is available for immediate
sale and the sale is highly probable. For the sale to be highly probable, (choose the incorrect one)

a. Management nmust be committed to a plan to sell the asset.

b. An active program to locate a buyer and complete the plan must have been initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to its current
fair market value.
d. The sale is expected to qualify for recognigtion as a completed sale within two years from
the date of classification of the asset as “held for sale”.
____ 4. An entity measure a noncurrent asset or disposal group classified as held for sale at

a. Carrying amount
b. Fair value less cost to sell
c. Lower of carrying amount and fair value less cost to sell.
d. Higher of carrying amount and fair value less cost to sell.
____ 5. An abandoned noncurrent asset

a. Shall be classified as held for sale.

b. Shall not be classified as held for sael because its carrying amount will be recovered
principally through continuing use.
c. Shall be accounted for as a discontinued operation.
d. Shall be treated as a loss.
____ 6. Non current asset classified as held for sale shall be presented in the statement of financial position as

a. Current asset c. Noncurrent investment

b. Other noncurrent asset d. Property, plant and equipment
____ 7. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable.”Highly
probable” means that

a. The future sale is likely to occur.

b. The future sale is more likely than not to occur.
c. The sale is certain.
d. The probability is higher than more likely than not.
____ 8. PFRS 5 states that a noncurrent asset that is to be abandoned shall not be classified as held for sale. The
reason for this is because
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a. Its carrying amount will be recorvered principally through continuing use.

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b. It is difficult to value.
 c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.
____ 9. An entity has an asset that was classified as held for sale. However, the criteria for it to remain as held for sale
no longer apply. The entity shall

a. Leave the noncurrent asset in the financial statements at its current carrying amount.
b. Remeasure the noncurrent asset at fair value.
c. Measure the noncurrent asset at the lower of its carrying amount before the asset was
classified as held for sale (adjusted for subsequent depreciation, amortization or
revaluation) and its recoverable amount at the date of the decision not to sell.
d. Recognize the noncurrent asset at its carrying amount prior to its classification as held for
sale adjusted for subsequent depreciation, amortization or revaluation.
____ 10. An entity classified a noncurrent asset accounted for under the cost model as held for sale December 31,
2009. Because no offers were received at an acceptable price, the entity decided on July 1, 2010 not to sell the
asset but to continue to use it. In accordance with PFRS 5, the asset shall be measured on July 1, 2010 at

a. The lower of its carrying amount and its recoverable amount

b. The higher of its carrying amount and its recoverable amount
c. The lower of its carrying amount on the basis that it had never been classified as held for
sale of its recoverable amount.
d. The higher of its carrying amount on the basis that it had never been classified as held for
sale and its recoverable amount.
____ 11. An entity is planning to dispose of a collection of assets. The entity designates these assets as a disposal
group, and the carrying amount of these assets immediately before classification as held for sale was
P5,000,000. Upon being classified as held for sale, the assets were revalued to P4,000,000. The fairvalue less
cost to sell of the disposal group is P3,500,000 at current year- end. How would the reduction in the value of
the assets on classification as held for sale be treated in the financial statements?

a. The entity recognizes a loss of P1,000,000 immediately before classification as held for
sale and then recognizes an impairment loss of P500,000.
b. The entity recognizes an impairment loss of P1,500,000.
c. The entity recognizes an impairment loss of P1,000,000.
d. The entity recognizes a loss of P1,500,000 immediately before classifying the disposal
group as held for sale.
____ 12. What is the presentation of the results from discounted operation in the income statement?

a. The entity shall disclose a single amount on the face of the income statement with analysis
in the notes or a section of the income statement separate from continuing operations.
b. The amounts from discontinued operations shall be broken down over each category of
revenue and expense.
c. Discontinued operations shall be shown as a movement on retained earnings.
d. Discontinued operations shall be shown as a line item after gross profit with the taxation
being shown as part of income tax expense.
____ 13. Which of the following criteria does not have to be met in order for an operation to be classified as
discontinued?

a. The operation shall represent a separate major line of business or geographical area.
b. The operation is part of a single plan to dispose of a separate major line of business or
geographical area.
c. The operation is a subsidiary acquired exclusively with aview to resale.
d. The operation must be sold within three months of the year- end.
____ 14. An entity manufactures and sells household products. The entity experienced losses associated with its small
appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of the
entity’s operations. The entity plans to sell the small appliance group with its operations. What is the earliest
point at which the enity shall report the small appliance group as a discontinued operation?
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a. When the entity classifies it as held for sale.

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b. When the entity receives an offer for the segment.

 c. When the entity first sells any of the assets of the segment.
d. When the entity sells the majority of the assets of the segment.
____ 15. Which of the following is a requirement for a component of an entity to be classified as a discontinued
operation?

a. Its activities must cease permanently prior to the financial statements being authorized for
issue by management.
b. It must compromise a separately reportable segment in accordance with PFRS 8 Operating
segments.
c. Its assets must have been classified as held for sale in the previous financial statements.
d. It must have been a cash generating unit or a group of cash generating units while being
held for use.
____ 16. An entity has correctly classified its manufacturing operations as a disposal group held for sale and as
discontinued operations during the year ended December 31, 2009. Are the following statements true or false?

Statement 1 The disposal group’s result for the year ended December 31, 2008 shall be re- presented as
relating to discontinued operations in the comparative figures for the 2009 statement of
comprehensive income.

Statement 2 The disposal group’s assets at December 31, 2008 shall be re- presented as held for sale in the
comparative figures for the 2009 statement of financial position.

Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True
____ 17. Which of the following is true?

The results of operations of a component of an entity that either has been disposed of or classified as held for
sale shall be reported in discontinued operation if

I. The operations and cash flows of the component have been or will be eliminated from the ongoing
operations of the entity as a result of the disposal transaction.

II. The entity continues to have a significant continuing involvement in the operations of the component
after the disposal transaction.

III. The entity outsources the manufacturing operations os a component and sells the manufacturing facility of
the component but continues to sell the product previously manufactured by the facility sold.

a. Only I is true c. Only I and II are true

b. Only II is true d. I, II, and III are all true
____ 18. Which of the following most likely would be considered a discontinued operation?

a. Shifting production or marketing function from one location to another.

b. A sporting goods manufacturer has a bicycle division that meets the definition of a
component of the enity and decides to outsource the manufacture of its bicycles.
c. The unprofitable brands of a beauty products component of an entity that manufacturers
and sells consumer products are discontinued.
d. An entity that is a franchisor in the quick-service restaurant business also operates
company- owned restaurants that are unprofitable in a certain region and, as a result, the
entity decides to exit both the quick-service business as well as the company- owned
restaurants in that region.
____ 19. An intangible asset is (choose the incorrect one)

a. An identifiable nonmonetary asset without physical substance.

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b. A resource controlled by an entity as a result of past event.

 c. A resource from which future economic benefits are expected to flow to the entity.
d. Held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes.
____ 20. Which is correct concerning the criterion of identifiability of an intangible asset?

I. An intangible asset is identifiable when it is separable, meaning, the asset could be sold, transferred,
licensed, rented or exchange.

II. An intangible asset is identifiable when it arises from contractual or legal right.
a. I only c. Both I and II
b. II only d. Neither I nor II
____ 21. An intangible asset shall be recognized if

I. It is probable that future economic benefits attributable to the asset will flow to the entity.

II. The cost of the intangible asset can be measured reliably.

a. Both I and II c. I only
b. Neither I nor II d. II only
____ 22. The cost of an internally generated asset includes all of the following, except

a. Cost of materials and services used in generating the intangible asset.

b. Compensation costs of personnel directly engaged in generating the asset.
c. Fees to register a legal right.
d. Expenditure on training staff to operate the asset.
____ 23. The following expenditures shall be expensed when incurred, except

a. Start up costs
b. Advertising and promotion costs
c. Business relocation or recognization costs
d. Payment in advance of delivery of goods or the rendering of services.
____ 24. Which statement is correct concerning amortization of intangible assets?

I. Intangible assets with limited or finite life are amortized over their useful life.

II. Intangible assets with indefinite life are not amortized but are tested for impairment at least annually.
a. I only c. Both I and II
b. II only d. Neither I nor II
____ 25. The amortization method used shall reflect the pattern in which the asset’s economic benefits are consumed
by the entity. If such pattern cannot be determined reliably, what is the amortization method used?
a. Straight line
b. Units of production method
c. Diminishing balance method
d. Ratio of current year’s sales to the total expected sales
____ 26. Which of the following items would qualify as an intangible asset?
a. Advertising and promotion on the launch of a huge product.
b. College tuition fees paid to employees who decide to enroll in an executive M.B.A
program at Harvard University while working with the entity.
c. Operating losses during the initial stages of the project.
d. Legal costs paid to intellectual property lawyers to register a patent.
____ 27. Once recognized, intangible assets can be carried at

a. Cost less accumulated amortization

b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
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d. Cost plus a notional increase in fair value since the intangible asset is acquired
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____ 28. Which disclosure is not required with respect to intangible assets?
 a. Useful lives of the intangible assets
b. Reconciliation of carrying amount at the beginning and the end of the year
c. Contractual commitments for the acquisition of intangible assets
d. Fair value of similar intangible assets used by its competitors
____ 29. A brand name that was acquired separately shall initially be recognized at

a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost
____ 30. The recognition criteria for an intangible asset include which of the following conditions?

I. It must be measured at cost.

II. Its cost can be measured reliably.
III. It is probable that future economic benefits will arise from its use.

a. I, II and III c. I and III only

b. I and II only d. II and III only
____ 31. The following statements relate to intangible assets. Which statements is true?

I. Intangible assets cannot be treated as having an indefinite useful life.

II. Intangible assets with a finite useful life shall be measured at cost and tested annually for impairment.

a. I only c. Both I and II

b. II only d. Neither I nor II
____ 32. The following statements relate to intangible assets acquired in a business combination. Which statements is
correct?

I. Intangible assets acquired in a business combination shall only be recognized if they have already been
recognized by the entity being acquired.

II. Intangible assets acquired in a business combination shall not be recognized separately from goodwill.
a. I only c. Both I and II
b. II only d. Neither I nor II
____ 33. It is defined as property (land or building or part of building or both) by an owner or finance lessee
to earn rentals or for capital appreciation or both.
a. Investment property c. Mining company
b. Owner-occupied property d. Rental company
____ 34. An owner-occupied property is held by an owner or finance lessee
I. For use in the production of goods or services.
II. For administrative purposes.
a. I only c. Both I and II
b. II only d. Neither I and II
____ 35. 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 owned by the reporting entity or held by a finance lessee leased out
under one or more operating leases.
d. Property held for sale in the ordinary course of business or in the process of
construction for such sale.
____ 36. Which statement is correct 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
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portions shall be accounted for separately as investment property and owner-occupied property.
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 II. 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 c. Both I and II
b. II only d. Neither I nor II
____ 37. If an entity owns and manages 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
____ 38. Which statementy is correct concerning property leased to an affiliate?
I. From the perspective of the individual entity that owns it, the property leased to an affiliate is
considered an investment property.
II. 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 c. I only
b. Neither I nor II d. II only
____ 39. 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.
II. The cost of the investment property can be measured reliably.
a. Both I and II c. I only
b. Neither I nor II d. II only
____ 40. Subsequent to initial recognition, the investment property shall be measured at
a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment loss
c. Revalued amount
d. Either fair value or cost less any accumulated depreciation and any accumulated
impairment losses
____ 41. 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 costs that may be incurred upon disposal.
b. The fair value of investment property shall reflect market conditions at the of the
reporting period.
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.
____ 42. 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 to sell
____ 43. 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 and shall be recognized
in profit or loss.
b. Net disposal proceeds and carrying amount of the asset and shall be recognized
in equity.
c. Net disposal proceeds and carrying amount of the asset and shall be recognized
in retained earnings.
d. Net disposal proceeds and fair value of the asset and shall be recognized in profit
or loss.
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____ 44. A gain arising from a change in the fair value of an investment property for which entity has opted to
use the fair value model is recognized in
a. Profit or loss
b. General reserve in the shareholders’ equity
c. Valuation reserve in the shareholders’ equity
d. Retained profits
____ 45. An investment property shall be measured initially at
a. Cost
b. Cost less accumulated impairment losses
c. Depreciable cost less accumulated impairment losses
d. Fair value less accumulated impairment losses
____ 46. In case of property held under an operating lease and classified as investment property
a. The entity has to account for the investment property under the cost model only.
b. The entity has to use the fair value model only.
c. The entity has the choice between the cost model and the fair value model.
d. The entity needs only to disclose the fair value and can use the cost model.
____ 47. Transfer from investment property to property, plant and equipment is appropriate
a. When there is change of use
b. Based on the entity’s direction
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.
____ 48. Which of the following additional disclosure must be made when an entity choose the cost model
as its accounting policy for investment property?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property
____ 49. PAS 40 gives a choice between two different models as the accounting policy to be used in relation
to investment property. Which of the following disclosures shall be made when the fair value model
has been adopted?
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
____ 50. 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
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