INVESTMENT PROPERTY
II only
Problem 22-17 Multiple choice (PAS 40)
1. Which statement 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 purposes
c. Property held to earn rentals or for capital appreciation
d. Property classified as held for sale
2. Which of the following statements best describes owner-
occupied 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 service and property held for administrative
purposes
c. Property held to earn rentals
d. Property held for capital appreciation
3. 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 leased out under an
operating lease.
d. Property held for sale in the ordinary course of business.
4. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third
party
b. Property 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
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.
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
b.
c. Both I and II
d. Neither I nor II
6. If an entity owns and manages a hotel and services
provided to guests are a significant component of the
arrangement as a whole, 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 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
b. Neither I nor II
c. I only
d. II only
8. Directly attributable expenditures related to investment
property include
a. Professional fees for legal services, property transfer
taxes and other transaction cost.
b. Start up costs
c. Initial operating loss incurred before the investment
property achieves the planned level of occupancy.
d. Abnormal amount of wasted material, labor and other
resources incurred in constructing or developing the property.
9. 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. The fair value of investment property shall reflect market
conditions at the end 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.
10. An investment property is derecognized when
a. It is disposed to a third party.
b. It is permanently withdrawn from use.
c. No future benefits are expected from the disposal.
d. In all of these cases.
Problem 22-18 Multiple choice (IFRS)
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. If the entity uses the fair value model for investment
property, changes in fair value are reported
a. In profit or loss in the current period.
b. As an extraordinary gain.
c. In other comprehensive income for the period.
d. As deferred revenue for the period.
3. If the entity uses the fair value model for investment
property, which statement is true?
a. The entity should value the property at cost less
accumulated depreciation and impairment.
b. The entity depreciates the equipment
c. The entity does not record depreciation.
d. All of these statements are true.
4. Which disclosure 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
d. Net gain or loss from fair value adjustments
5. Transfers from investment property to property, plant
and equipment are appropriate
a. When there is change of use.
b. Based on the discretion of management.
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 property.
PROPERTY, PLANT & EQUIPMENT
Problem 23-28 Multiple choice (PAS 16)
1. Which is not a characteristic of property, plant and
equipment?
a. The property, plant and equipment are tangible assets.
b. The property, plant and equipment are used in business.
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.
2. 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 fair value through OCI
d. The cost model or the fair value model
3. The cost 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 the asset for
which the entity has no present obligation.
4. Costs directly attributable to the asset include all, except
a. Initial operating loss
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
5. Which cost 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 new location
d. All of these are expensed immediately
Problem 23-29 Multiple choice (IAA)
1. A nonmonetary recognized fair of the asset 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
2. In an exchange with commercial substance
a. Gain or loss is recognized entirely.
b. Gain or loss is not recognized.
c. Only gain should be recognized.
d. Only loss should be recognized.
3. The cost of property, plant and equipment acquired in
an exchange is measured at the
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 of the asset received plus the cash payment.
4. 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 difference in future cash flows.
d. Exchange of assets that causes the entities to remain in
essentially the same economic position.
5. For a nonmonetary exchange, the configuration of cash
flows includes which of the following?
a. The implicit 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
Problem 23-30 Multiple choice (AICPA Adapted)
1. A property acquired by issuing equity shares should be
recorded at
a. Historical cost of the asset
b. Historical cost of a similar asset
c. Fair value of the asset received
d. Fair value of shares issued
2. When a plant asset is acquired by deferred payment,
which condition does not need 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
c. from the deferred obligation. The instrument representing
the deferred obligation is noninterest bearing.
d. The face amount of the deferred obligation is equal to
the fair value of the plant asset exchanged.
3. 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 the year of issuance
4. The total payment on maturity for a machine includes
both principal and interest. The cost would be the total
payment multiplied by what time value of money concept?
a. Present value of an ordinary annuity of 1
b. Present value of 1
c. Future amount of an ordinary annuity of 1
d. Future amount of 1
5. A plant asset purchased under a deferred payment of
P10,000 per year for 5 years is measured at
a. P50,000
b. P50,000 plus imputed interest
c. Present value of P10,000 annuity for 5 years at an
imputed interest
d. Future value of P10,000 annuity for 5 years
GOVERNMENT GRANT
Problem 24-14 (Multiple choice (PAS 20)
1. It is an assistance by government in the form of transfer
of resources to an entity in return for past or future
compliance with certain conditions.
a. Government grant
b. Government assistance
c. Government donation.
d. Government aid
2. 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
b. Government assistance
c. Government takeover
d. Subvention
3. Government grant shall be recognized when there is
reasonable assurance that
a. The entity will comply with the conditions of the grant.
b. The grant will be received
c. The entity will comply with the conditions of the grant
and the grant will be received.
d. The grant must have been received.
4. It is a government grant whose primary condition is that
an entity qualifying for it should purchase, construct or
otherwise acquire long-term asset.
a. Grant related to asset
b. Grant related to income
c. Government gift
d. Government appropriation
5. 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.
6. Government grant related to depreciable asset is
recognized as income usually
a. Immediately.
b. Over the useful life of the asset using straight line.
c. Over the useful life of the asset using sum of digits.
d. Over the useful life of the asset and in proportion to the
depreciation of the asset.
7. Government grant related to non depreciable 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.
8. A government grant that becomes receivable as
compensation for expenses or losses already incurred
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.
9. In the case of grant related to an asset, which of
following accounting treatment is prescribed?
a. Record the grant income in the first 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 income in the next year.
d. Disclose only.
10. In the case of grant related to income, which of the
following accounting treatment is prescribed?
a. Credit the grant to equity.
b. Present the grant 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.
BORROWING COSTS
Problem 25-23 Multiple choice (IAA)
1. Borrowing costs can be capitalized as cost of the asset
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 benefits.
c. The asset is a qualifying asset and it is probable that the
borrowing costs will result in future economic benefits 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 benefits, to
the entity and the costs can be measured reliably.
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 borrowing
d. Zero
3. 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
d. Biological asset
4. Which of the following is not a condition that must be
satisfied before interest capitalization can begin on a
qualifying asset?
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 necessary to get the asset ready for the intended
use are in progress.
5. 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
6. 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.
d. Shall be suspended only during extended period of delay
in which active development is delayed.
7. 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.
8. Which 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
Problem 25-24 Multiple choice (IFRS)
1. Which is not be considered a qualifying asset?
a. A power generation plant that normally takes two years to
construct.
b. An expensive private jet that can be purchased from a
local manufacturer.
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.
2. Assets that qualify for interest capitalization include
a. Asset under construction for an entity's 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.
3. Which cost may not be capitalized?
a. Interest on bonds issued to finance construction.
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
borrowing regarded as an adjustment to interest cost pertaining
to a qualifying asset.
4. An entity can commence capitalization of borrowing
cost on a new construction project 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.
5. Interest revenue earned on specific borrowing
a. Reduces the cost of the qualifying asset.
b. Reduces interest expense in the income statement.
c. Increases equity
d. Must be credited to interest income.
LAND AND BUILDING
Problem 26-13 Multiple choice (AICPA Adapted)
1. The cost of land usually includes all, except
a. Commission related to acquisition
b. Property tax after date of acquisition
c. Property tax to date of acquisition
d. Cost of survey
2. The cost of land typically includes all, except
a. Grading, filling, draining and clearing cost
b. Special assessment for drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
3. Fence and parking lot are reported as
a. Building
b. Land improvement
c. Land
d. Expense
4. Which should 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
5. Which cost should be charged to land improvement?
a. Clearing of trees and grading
b. Architect fee
c. Installation of a septic system
d. Cost of demolishing an old building
Problem 26-14 Multiple choice (AICPA Adapted)
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 building and the completion of the plant
2. If an entity purchased a lot and an old building and
demolished the old building to make room for the
construction of a 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 cost 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 old building
d. The intention of management for the property 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 years
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 off 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
MACHINERY
Problem 27-18 Multiple choice (AICPA Adapted)
1. The term betterment means
a. An expenditure made for new facilities which increase
capacity.
b. An expenditure made to restore capacity after
c. abandonment or retirement. An expenditure made to
improve existing facilities by increasing capacity.
d. An expenditure made to help ensure continuity of service
capacity.
2. Which type of expenditure occurs when an entity installs
a higher capacity boiler to heat the plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment
3. An improvement made to a machine which increased the
fair value and production capacity without extending the
life of the machine should be
a. Expensed immediately
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the
machine account
4. 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
future benefit
5. Which cost should not be capitalized?
a. Replacement of roof of building every 15
b. Cost of site preparation
c. Installation and assembly cost years
d. Replacement of small spare parts annually
6. Which expenditure may properly be capitalized?
a. Expenditure for massive advertising campaign
b. Insurance on plant during construction
c. Research and development related to a long-term asset
giving the entity a competitive market advantage
d. Title search and other legal cost related to a piece of
property which was not acquired
7. 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
8. An expenditure made in connection with a machine
being used by an entity 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.
DEPRECIATION – STRAIGHT LINE AND VARIABLE
METHOD
PROBLEM 28-18
1.Depreciation is best described as a method of
a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life determination
2. All of the following factors are considered in
determining the useful life of an asset, except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
3.Technical or commercial obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Change or improvement in production or change in the
market demand for the product output of the asset
d. Expiry date of related lease of the asset
4.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.
5. What factor must be present under the production
method of depreciation?
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
PROBLEM 28-19
1.Which statement is the assumption on which straight line
depreciation is based?
a. The 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.
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.
b. Equipment on which maintenance and repairs increase
substantially with age.
c. Equipment with useful life not affected by use.
d. Equipment used consistently every period.
3. The 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
d. Gives smaller periodic write off than a decreasing 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 time
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 homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of
single asset in the group
d. Excludes residual value from the base of the
depreciation calculation
DEPRECIATION - SUM OF YEARS’ DIGITS &
DECLINING BALANCE
PROBLEM 29-22
1.A method which excludes residual value from the base for
the depreciation calculation in the earlier years is
a. Straight line
b. Sum of years' digits
c. Double declining balance
d. Output method
2. The double declining balance method
a. Results in a decreasing depreciation charge.
b. Means residual value is not deducted in computing the
depreciation base.
c. Means the carrying amount should not be reduced below
residual
d. All of these describe double declining balance
3.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 a. Successful effort method

d. Sum of Year's Digit b. Full cost method

4.The sum of years' digits method c. Both successful effort and full cost

a. Results in residual value being ignored. d. Neither successful effort nor full cost method

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.
5.Which of the following is not part of depletable amount?
a. Acquisition cost of the mineral resource deposit
b. Exploration cost

d. Results in an increasing depreciation charge c. Tangible equipment used to extract the mineral resource

5. An asset has a nine-year useful life and is to be d. Intangible development cost such as drilling and tunnel
depreciated under the sum of years' digits method. The
annual depreciation 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

DEPLETION

PROBLEM 30-20

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 in the depletable amount.

c. Excludes intangible development cost from the depletable

amount.

d. Excludes restoration cost from the depletable amount.

3. Information needed to compute a depletion charge per

unit includes the

a. Estimated total amount of resources available.

b. Amount of resources removed during the period

c. Cumulative amount of resources removed.

d. Amount of resources sold during the period.

4. Which accurately describes the GAP regarding the

accounting for the costs of drilling dry holes in the oil and
gas industry?