Financial Accounting and Reporting

Quiz 7

Instructions: Choose the letter of your answer to the following questions. Select the corresponding
letter to your answer sheet found in the Google Forms attached.

1. Capitalization of borrowing costs shall cease when

a. All the activities necessary to prepare the qualifying asset for its intended use or
sale are substantially complete
b. No further interest is being incurred
c. The asset is abandoned or disposed
d. In no case capitalization of borrowing costs shall cease

2. The grant in recognition of specific expenses shall be

a. Recognized as income in excess of the period of the related expenses
b. Recognized as income over the period of the related expenses
c. Recognized as income shorter than the period of the related expenses
d. Not be recognized as income

3. Government grants
a. Excludes the form of grants which cannot reasonably have a value place upon
them
b. Includes the form of grants which cannot reasonably have a value place upon
them
c. Assistance provided by a government of another country
d. Given in return for favor that is unconstitutional

4. Cost of wasting asset is commonly divided into four categories that does not include:
a. Restoration cost
b. Exploration cost
c. Development cost
d. Importation cost

5. Impairment occurs when

a. The carrying amount of an asset exceeds its recoverable amount
b. The recoverable amount of an asset exceeds its carrying amount
c. The carrying amount of an asset exceeds its fair value
d. The fair value of an asset exceeds its carrying amount
6. Which of the following depreciation methods approximates the method used to deplete
the cost of natural resources?
a. Straight-line depreciation method
b. Sum of the years digits method
c. Double declining balance
d. Units of production method

Use the following information for questions number 7-9:

On January 1, 2022, New World Company borrowed P30,000,000 at an annual interest

rate of 12% to finance specifically the cost of building a manufacturing plant.
Construction commenced on January 1, 2022 with a cost of P30,000,000

Not all the cash borrowed was used immediately, so the interest income of P400,000 was
earned during the period up to the completion of the plant by temporarily investing
some of the borrowed funds prior to use. The manufacturing plant was completed on
October 31, 2022.

7. How much is the capitalizable borrowing cost for 2022?

a. 2,600,000 c. 3,200,000
b. 3,000,000 d. 3,600,000

8. How much is the interest expense for 2022?

a. Zero c. 600,000
b. 400,000 d. 1,000,000

9. What is the carrying amount of the plant on December 31, 2022?

a. 30,000,000 c. 33,000,000
b. 32,600,000 d. 33,200,000

Use the following information for questions number 10-13:

Ian Inc. purchased a machine for P5,000,000 on January 1, 2021, and received a
government grant of P2,000,000 for this asset. The award mandates the entity to produce
food goods and sell them at a discount of 20% below market value.

The machine will be depreciated over an 8-year period on a straight-line basis. The
residual value is supposed to be 10% of the purchase price.

10. How much is the income to be recognized in 2021 under the deferred income approach?
a. Zero c. 250,000
b. 562,500 d. 312,500
11. How much is the net effect in the 2021 profit or loss under the deferred income
approach?
a. Zero c. 250,000
b. (562,500) d. (312,500)

12. How much is the income to be recognized in 2021 under the deduction from asset
approach?
a. Zero c. 250,000
b. 325,000 d. 312,500

13. How much is the net effect in the 2021 profit or loss under the deduction from asset
approach?
a. Zero c. 250,000
b. (325,000) d. (312,500)

Use the following information for questions number 14-17:

On January 1, 2021, Dhong Mining Corp. purchased an ore mine at P30,000,000. The cost
of exploration was P6,000,000, while additional development costs were P4,000,000. The
resource deposit is estimated to be around 2,000,000 units.

A total of 150,000 units were extracted in 2021. 250,000 units were extracted the
subsequent year.

Additional development expenditures for the mine were P2,000,000 at the beginning of
2023. The entity also calculated that there are still 2,500,000 units in the resource deposit.

In 2023, 300,000 units were extracted.

14. How much is the computed depletion rate in 2021?

a. P20.00 c. P15.00
b. P17.00 d. P18.00

15. How much is the depletion in 2022?

a. P3,000,000 c. P5,000,000
b. P4,000,000 d. P6,000,000

16. How much is the depletion rate to be applied in 2023?

a. P7.11 c. P13.60
b. P17.00 d. P7.56

17. How much is the depletion in 2023?

a. P2,133,000 c. P5,100,000
b. P2,268,000 d. P4,080,000
 Use the following information for questions number 18-20:

On January 1, 2021, Savitar Company acquired a machine at a cost of P2,500,000. It was

estimated to have a useful life of 10 years and no residual value. The company uses the
cost model to account for the machinery and the straight-line depreciation method is
used in depreciating the machinery.

On December 31, 2022, the company tested the machinery for possible impairment and
determined that the recoverable value of the said machinery amounted to P1,500,000.

On December 31, 2023, it was revealed that the recoverable value of the machinery had
increased to P1,875,000.

18. How much is the impairment loss reported in 2022?

a. Zero c. P1,000,000
b. P500,000 d. P1,500,000

19. What is the carrying value of the machinery on December 31, 2023 before reversal of
impairment?
a. 1,312,500 c. 1,500,000
b. 1,350,000 d. 1,750,000

20. What amount of gain or loss on reversal of impairment should be reported in profit or
loss for 2023?
a. Zero c. 437,500
b. 187,500 d. 562,500