BALIUAG UNIVERSITY

APC 5: Auditing & Assurance: Specialized Industries

Module 1: Special Topics – Assets LVC

I. Accounting for Government Grants and Disclosure of Government Assistance (PAS 20)
1. Ali-Muong Inc. acquired a transferable 9-year taxi license by way of government grant on January 1, Year 1, when the
fair value of the license was P180,000. The license was given free of charge on the basis of Ali-Muong performance
and there are no future performance condition attached to the grant. How should the grant be accounted in Year 1?
A. Recognized P180,000 in the profit and loss
B. Recognized P20,000 as grant income in the profit or loss.
C. Recognized P180,000 gain from grants in other comprehensive income.
D. Recognized P20,000 as deferred grant income.
2. Refer to preceding problem. Assume that Ali-Muong is required to operate at least 10 taxis in the deprived
neighborhood of the city during the 9-year period. Failure to do so will result in the revocation of the license. How
should the grant be accounted in Year 1?
A. Recognized P180,000 in the profit and loss
B. Recognized P20,000 as grant income in the profit or loss.
C. Recognized P180,000 gain from grants in other comprehensive income.
D. Recognized P20,000 as deferred grant income.
3. Culany Company received a government grant of P1,800,000 on May 1, Year 1 in return for the reforestation of Mt.
Arayat until April 30, Year 4. The project would be implemented every year. A grant relating to income is reported
separately by Culany as 'other income'. How much would be the grant income to be recognized in the profit and loss
for year ended December 31, Year 1?
A. 450,000 B. 300,000 C. 600,000 D. 400,000

II. Borrowing Costs (PAS 23)

4. Cole Co. began constructing a building for its own use in January year 4. During year 4, Cole incurred interest of
P50,000 on specific construction debt, and P20,000 on other borrowings. Interest computed on the weighted-average
amount of accumulated expenditures for the building during year 4 was P40,000. What amount of interest cost
should Cole capitalize?
A. 20,000 B. 40,000 C. 50,000 D. 70,000
5. On April 1, Year 1, Bootleg Inc. obtained a one-year loan of P4 million specifically to finance the construction of its
new building. Borrowing costs for year 1 amounted to P300,000. Part of the proceeds of the loan was invested to earn
P40,000 interest The building as completed on December 31, Year 1. What would be the amount of borrowing cost
eligible for capitalization?
A. 260,000 B. 300,000 C. 340,000 D. none
6. On October 1, Year 1, Ali-Fu-Nga Corp. obtained a two-year, 12% loan of P6 million specifically to finance the
construction of its new building. The building was completed on November 30, Year 2. Pertinent details about the
construction and the loan are as follows:
Construction Costs Investment Income earned
Period
(excluding borrowing costs) from Loan Proceeds
Oct 1 to Dec 31, Year 1 P 2,000,000 P 10,000
Jan 1 to Nov 30, Year 2 5,000,000 40,000
What would be the total cost of the new building as of December 31, Year 2?
A. 7,720,000 B. 7,670,000 C. 7,790,000 D. 7,840,000
7. Refer to preceding problem. What would be the interest expense of Ali-Fu-Nga for Year 1 and Year 2, respectively?
A. 0 and 60,000 C. 540,000 and 60,000
B. 180,000 and 660,000 D. 720,000 and 0

III. Agriculture (PAS 41)

8. On December 31, Year 1, Kalabasa Inc. has harvested coffee beans costing P3,000,000 and with fair value less cost to
sell of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were still on hand on
December 31, Year 2. On such date, the fair value less cost to sell is P3,900,000 and the net realizable value is
P3,200,000.
What is the measurement of the coffee beans inventory on December 31, Year 2?
A. 3,000,000 B. 3,500,000 C. 3,200,000 D. 3,900,000
9. The following information pertains to the biological asset and agricultural produced of Kamatis Company. The fair
value less cost to sell of the company’s vineyard was P25 million on June 30, Year 1. As of June 30, Year 2 Kamatis
Company determines the following:
Fair value of the grapes harvested at March 31, Year 2 P 5,000,000
Estimated point-of-sale costs of the grapes 100,000
Estimated point-of-sale costs of the vines 200,000
Fair value of the vines as of March 31, Year 2, prior to harvest 31,000,000
Module 12 Page 1 of 2
 Module 12: Special Topics – Assets LVC
Kamatis Company determines that there is no change in fair value of the vines between March 31, Year 2 and June 30,
Year 2. What total amount of gain should Kamatis Company report in its June 30, Year 2 statement of comprehensive
income as a result the change in the fair value of the biological asset and agricultural produce?
A. 800,000 B. 1,000,000 C. 4,900,000 D. 5,700,000
10. Kalabaw Company is in business of deer farming. A herd of 100 deer is held throughout Year 1. The only change
during the year is the increase in their physical attributes due to ageing from two to three years. The relevant data are
as follows:
Fair value of a 2-year old deer at 1 January Year 1 P 3,000
Fair value of a 2-year old deer at 31 December Year 1 3,300
Fair value of a 3-year old deer at December 31 Year 1 4,800
How much is the increase in the fair value of the biological asset due to price change?
A. 30,000 B. 150,000 C. 180,000 D. 480,000
11. Refer to preceding problem. How much is the increase in the fair value of the biological asset due to physical change?
A. 30,000 B. 150,000 C. 180,000 D. 480,000

IV. Other Investments

12. In year 1, Chain, Inc. purchased a P1,000,000 life insurance policy on its president, of which Chain is the beneficiary.
Information regarding the policy for the year ended December 31, year 4, follows: Cash surrender value, 1/1/Y4 P
87,000 Cash surrender value, 12/31/Y4 108,000 Annual advance premium paid 1/1/Y4 40,000 During year 4,
dividends of P6,000 were applied to increase the cash surrender value of the policy. What amount should Chain
report as life insurance expense for year 4?
A. 40,000 B. 25,000 C. 19,000 D. 13,000
13. On March 15, year 1, Ashe Corp. adopted a plan to accumulate P1,000,000 by September 1, year 5. Ashe plans to
make four equal annual deposits to a fund that will earn interest at 10% compounded annually. Ashe made the first
deposit on September 1, year 1. Future value and future amount factors are as follows:
Future value of P1 at 10% for 4 periods 1.46
Future amount of ordinary annuity of P1 at 10% for four periods 4.64
Future amount of annuity in advance of P1 at 10% for four periods 5.11
Ashe should make four annual deposits (rounded) of
A. 250,000 B. 215,500 C. 195,700 D. 146,000
14. The following information relates to noncurrent investments that Fall Corp. placed in trust as required by the
underwriter of its bonds: Bond sinking fund balance, 12/31/Y1 P450,000; Year 1 additional investment P90,000;
Dividends on investments P15,000; Interest revenue P30,000; Administration costs P5,000; and Carrying amount of
bonds payable P1,025,000 What amount should Fall report in its December 31, year 2 balance sheet related to its
noncurrent investment for bond sinking fund requirements?
A. 585,000 B. 580,000 C. 575,000 D. 540,000

“Never be lazy, but work hard and serve the Lord enthusiastically.” Romans 12:11

“Live as if you were to die tomorrow. Learn as if you were to live forever.” Mahatma Gandhi

Module 12 Page 2 of 2