REAL EXCELLENCE ONLINE REVIEW

SECOND MONTHLY ASSESSMENT EXAMINATIONS

NOVEMBER 2022
1. Which of the following is false statement regarding Property, Plant and Equipment?
A. Land improvements are items of PPE that are non-depreciable and usually includes as its cost,
the cost of paving parkways and sidewalks.
B. When items of PPE are subject to testing procedures, the net proceeds from samples arising
from such testing procedures are NOT deducted from the testing cost but presented directly
within profit or loss.
C. The acquisition cost of land and building acquired on a lump-sum price is allocated to both land
and building based on their relative fair values at purchase date if the is only a construction of a
new building on such land.
D. Not all assets held for rentals are classified as Property, Plant and Equipment.

2. Which of the following is not classified as PPE and accounted for using PAS 16?
A. Land used in agricultural activity
B. Bearer plants related to agriculture
C. Equipment leased out under operating lease
D. Building leased out under operating lease

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E. None from the choices

3. GEORGIA CORP., a non VAT registered company, has recently purchased a new office equipment. The

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following information was gathered in relation to the acquisition of the unit:
List price P152,000
Trade discount and rebates taken 56,000
Installation and assembly cost
Initial delivery and handling cost
Purchase discount
Value added taxes
Cost of water device surrounding the machine
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6,400
2%
15,000
12,000
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Estimated dismantling cost to be incurred as required by contract (at present value) 8,000
Insurance cost 24,000
Cost of training for personnel who will use the machine 4,000
What is the acquisition cost of the new equipment
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A. 148,680 C. P138,680
B. 111,680 D. P162,680

Use the following information in answering the next item(s):

On January 1, 2023, GERMANY acquired a parcel of land with an intention to use it as the company’s
future factory site. At that time, an old building was situated and management decided to demolished
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such old building and construct a new one as the old one is not suited to be a factory. GERMANY paid
for the acquisition of the land and old building at a lump-sum price of P900,000. On that date, the
land and the old building have a fair value of P800,000 and P200,000, respectively.
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In addition, the following costs were incurred:

Payment of delinquent property taxes P50,000
Survey before construction of new building 30,000
Option fee for properties acquired 10,000
Option fee for properties not acquired 8,000
Payments to tenants to vacate the building 20,000
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Cost of razing old building, net of P5,000 proceeds from salvaged materials 85,000
Contract cost of new building 700,000
Landfill for building site 25,000
Excavation cost 40,000
Cost of open house party to celebrate opening of new building 25,000
Savings on construction 4,000
Sidewalk and parking lot (included on the blueprint) 35,000

4. What is the cost of land?

A. P833,000 C. P798,000
B. P864,000 D. P823,000

5. What is the cost of new building?

A. P910,000 C. P850,000
B. P905,000 D. P885,000

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6. What is the net amount to be presented in profit or loss in relation to the above items?
A. P225,000 C. P216,000
B. P220,000 D. P221,000

7. Which of the following is an incorrect statement regarding depreciation?

S1: Depreciation ceases when the item of PPE is derecognized or becomes held for sale whichever is
later.
S2: Management should choose the depreciation method that best reflects the expected pattern of
consumption of the future economic benefits embodied on the asset.
A. S1 only C. Both statements
B. S2 only D. None from the statements

8. Regarding revaluation, determine the incorrect statement.

A. The revalued amount of property plant and equipment is fair value or depreciated replacement
cost whichever is higher.
B. If a revalued asset is non-depreciable, no portion of revaluation surplus is periodically
transferred to retained earnings.
C. If a depreciable property is revalued at the middle of the current year, depreciation for the first
half of the year is based on cost and for the second half on revalued amount.
D. A revaluation decrease shall be charged directly against any revaluation surplus to the extent
that the decrease is a reversal of a previous revaluation; the remaining amount is recognized as

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impairment loss.

9. On January 1, 2022, DENMARK COMPANY acquired equipment for P2,000,000 with a 10-year useful

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life and P200,000 residual value. The straight line method of depreciation is used. During 2026, after
the 2025 financial statements had been issued, the entity determined that this equipments remaining
useful life was only four more years and shall be depreciated using the SYD method of depreciation.
What is the carrying amount of the equipment on December 31, 2027?
A.
B.
P768,000
P384,000
C.
D.

Use the following information for the next two questions:

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P848,000
P524,000
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As of January 1, 2023, GABRIEL COMPANY has the following information regarding its land and
building accounts.
Land P400,000
Building 9,000,000
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Accumulated depreciation 1,500,000

There were no movements on the above assets during the year, meaning there are no additions or
disposals during 2023. Depreciation policy indicates that the building shall be depreciated using
straight line method over its 15 years of useful life. On June 30, 2023, GABRIEL conducted a
revaluation of the land and building and the results of the revaluation were as follows:
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Replacement cost
Land P700,000
Building 12,000,000
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10. The depreciation expense for the year 2023 is

A. P700,000 C. P600,000
B. P800,000 D. P640,000

11. The revaluation surplus as of December 31, 2023 is

A. P2.70 million C. P2.60 million
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B. P2.50 million D. P2.54 million

12. SPAIN CORP. disclosed that the depreciation policy on machinery is as follows:
• A full year depreciation is taken in the year of acquisition.
• No depreciation is taken in the year of disposition.
• The estimated useful life is five years.
• The straight line method is used.
On June 30, 2015, the entity sold for P2,300,000 a machine acquired in 2012 for P4,200,000. The
residual value was P600,000. What amount of gain on the disposal should be recorded in 2015?
A. 140,000 C. 620,000
B. 260,000 D. 980,000

13. In accounting for government grants under PAS 20, determine whether the following statements are
true or false:
S1: The gross method of presentation, as compared to the net method of presentation, will result to
a higher amount presented within profit or loss.

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 S2: Whether gross or net method was employed, the same amount of deferred income from
government grants account will be presented for grant related to asset.
S3: Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to
the grant have been or will be fulfilled.
A. False, true, false D. True, false, true
B. False, false, true E. False, true, true
C. True, false, false

14. If a company uses the net method in accounting for government grants related to assets, which of
the following statements is correct?
A. The book value of the asset is overstated
B. Net income is unaffected
C. Net income is overstated
D. Depreciation expense is overstated

Use the following information for the next two questions:

ECUADOR COMPANY received two government grants during 2023, the information for which are as
follows:

The company purchased a machine for P660,000 on January 1, 2023 and received a local government
grant of P60,000 towards the capital cost. The policy is to treat the grant as a reduction in the cost of

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the asset. The machine is to be depreciated on a straight line basis over 10 years with a residual
value of P50,000. On January 1, 2025, the grant became fully repayable because of noncompliance
with conditions.

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On January 1, 2023, ECUADOR COMPANY received land from a national government agency, the
condition of which is for ECUADOR to construct a factory on it. The fair value of the land at that time
is P300,000. The construction of the factory started immediately and finished on July 1, 2023 with a

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total cost of P1,000,000. The factory has a useful life of 10 years with a salvage value of P100,000
and to be depreciated using the double declining balance method. The grant is accounted for using
the net method of presentation.
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15. What is the amount reported as depreciation expense for 2023?
A. P195,000 C. P175,000
B. P125,000 D. P115,000
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16. What is the amount reported as depreciation expense for 2025?

A. P60,000 C. P73,000
B. P61,000 D. P78,000

17. On January 1, 2021, the local government of Laguna agreed to provide PERU CORP. with a
P10,000,000, three-year, zero-interest bearing loan evidenced by promissory note. On that date, the
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prevailing rate of interest for a loan of this type is 10%. (Round off the present value factors in four
decimal places.)
Which of the following is not included in the journal entry made on January 1, 2021?
A. Credit to note payable P7,513,000
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B. Debit to discount on note payable P2,487,000

C. Credit to deferred income from government grants P2,487,000
D. Debit to cash P10,000,000

18. Determine which of the following statements is correct in relation to borrowing costs, in accordance
with PAS 23.
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A. PAS 23 does not require the segregation of qualifying assets from other assets as part of the
entity’s note disclosures.
B. Borrowing costs related to non-qualifying assets are not capitalized but charged directly to
retained earnings.
C. Investment properties under long-term construction and to be accounted for using the fair value
model are classified as qualifying assets in accordance with PAS 23.
D. None from the choices.

Use the following information in answering the next item(s):

On January 1, 2022, BEAST CORP. began constructing a building on a land that it had previously
acquired. The building is to be used by the company as its main office. The building was completed on
September 30, 2022. The following payments were made to the sub-contractor:

Date of Payment Amount

January 1, 2022 2,000,000
April 1, 2022 3,000,000

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 June 1, 2022 1,800,000
August 31, 2022 900,000

The following amounts represent the borrowings of BEAST CORP. as of December 31, 2022.
• 10%, P 3,000,000, 4-year note dated January 1, 2022 with simple interest payable annually,
specifically borrowed to finance the construction project. Income earned until date of
construction completion from temporary investments amounted to P15,000.
• 14%, P 4,000,000, 5-year note dated January 1, 2022 with interest payable annually.
• 12%, P 36,000,000, 5-year note dated December 31, 2021 with interest payable annually.

19. How much is the capitalizable borrowing cost in 2022 using the traditional approach?
A. P441,800 C. P398,850
B. P414,350 D. P383,850

20. How much is the capitalizable borrowing cost in 2022 using the contemporary approach
A. P441,800 C. P398,850
B. P414,350 D. P383,850

21. Which of the following statements is correct?

A. There is no depreciation during the period(s) of shutdown.
B. Depletion is computed using the double declining balance method.

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C. PFR6 does not provide any clear-cut guidelines for recognition of exploration and evaluation
assets.
D. Both tangible and intangible development costs are capitalized as cost of wasting assets.

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Use the following information in answering the next item(s):
On July 1, 2022, HAWK-EYE CORP. a calendar year corporation, purchased the rights to a mine. The
total purchase price was P11,500,000, of which P800,000 was allocable to the land. As of that date,

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the total estimated reserves were 3,600,000 tons. HAWK-EYE was expecting an extraction of 30,000
tons per month. Exploration costs on the property amounted to P501,000, one-fourths of which
resulted to dry holes. HAWK-EYE’s accounting policy is to use full cost method in accounting for its
exploration costs. Intangible development costs incurred amounted to P2,000,000
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The entity is legally required to restore the land to a condition appropriate for resale at an
undiscounted amount of P650,000. The market rate of interest is 8% at the date of transaction.
(Round-off the present value factors to two decimal places if necessary).
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The entity constructed buildings on the site and was completed on September 30, 2022 at a total cost
of P1,800,000. The useful life of the building is 15 years with a residual value of P300,000. The
depreciation of the building are 60% attributable to mining operations and the remainder was
attributable to operating expenses. Labor cost of miners totaled P150,000 while mining overhead
totalled P180,000 for 2022.
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The mining operations started when the building was completed and three-fourths of the total mineral
mined was sold during 2022?
22. What is the carrying amount of the wasting as of the end of 2022?
A. P14,628,500 C. 13,942,500
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B. P12,678,500 D. 13,962,500

23. What is the total amount of expense in the statement of profit or loss for the year ended 2022?
A. P626,960 C. P725,960
B. P544,460 D. P532,500
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24. LOKI CORP. has the following information pertaining to its mining operations:
Estimated cost of restoring property after mining is completed P400,000
Number of tons mined during the current year 50,000 tons
Cost of land P6.0M
Estimated number of tons of ore to be mined 400,000 tons
Sales value of land after mining P300,000
Development costs incurred P500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion) P7.00
The company already recognized the estimated restoration cost immediately after the resource
property was acquired. How much would be the companys cost of goods sold?
A. P525,000 C. P787,500
B. P603,700 D. P822,500

25. In period/(s) of no extraction, (choose the incorrect statement)

A. Depreciation of movable tangible development costs continues and are unaffected.

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 4

 B. Depletion of wasting assets is suspended.
C. Depreciation of immovable tangible development costs continues and will result to a change in
the depreciation method if its life is longer than the life of the wasting assets.
D. None from the choices.

26. Regarding intangible assets, which of the following statements is false?

A. If the payment for an intangible asset is deferred beyond normal credit terms, the cost is the
cash price equivalent. The difference between the cash price and the total payments is
recognized as interest expense over the life of the intangible asset.
B. When an intangible asset is acquired through exchange and such exchange lacks commercial
substance, no gain or loss on exchange is to be recognized.
C. The revaluation model for intangible assets can only be used if there is an active market for the
intangible asset.
D. Generally, the residual value of an intangible asset shall be presumed to be zero.
E. Not all intangible assets are subject to amortization.

Use the following information in answering the next item(s):

CAITLYN CORP. acquired the following intangible assets during the year with the following
information:
(a) On January 1, 2023, CAITLYN signed an agreement to operate as a franchise of BRAUM CORP.
for an initial franchise fee of P300,000. Of this amount, P100,000 was paid when the agreement

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was signed and the balance is payable in equal annual payment of P50,000 beginning December
31, 2023. The agreement provides that the down payment is not refundable and no future
services are required of the franchisor. CAITLYN’s credit rating indicates that it can borrow

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money at 12% for a loan of this type. The agreement also provides that 5% of the revenue from
the franchise must be paid to the franchisor annually. CAITLYNs revenue from the franchise for
2021 was P120,000. CHINA estimates the useful life of the franchise to be five years. (Round-off
present value factors in four decimal places)

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(b) On July 1, 2023, CAITLYN purchased an item of intangible asset on a deferred settlement basis
with a price of P100,000. The cash price equivalent of the asset is P92,000. Legal fees and other
professional fees paid amounted to P8,000 while administration and overhead costs amounted
to P10,000. The liability was settled before year-end. In addition, costs of introducing a new
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product or service amounted to P3,000 and costs of staff training P2,000. The intangible asset
has a remaining useful life of 10 years and has a remaining legal life of 8 years. Management
estimates that the asset has a residual value of P5,000. On December 31, 2023, the company
successfully defended the intangible asset incurring P5,000 in legal costs.
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27. What is the total initial cost of the above intangible assets?
A. P400,000 C. P405,000
B. P351,865 D. P370,865

28. What is the total amortization expense in 2023?

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A. P56,623 C. P62,873
B. P66,250 D. P56,310

29. What is the total amount of expense reported in 2023 statement of profit or loss?
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A. P96,873 C. P115,097
B. P90,623 D. P108,847
30. BANGLADESH CORP. incurred the following costs during the year ended December 31, 2023:
Routine, on-going efforts to refine, enrich, & improve
upon the qualities of an existing product P100,000
Design, construction, and testing of pre-production prototypes and models 125,000
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R and D equipment with useful life of four years in various R & D projects 500,000
Cost of marketing research 50,000
Advertising expense to introduce a new product 70,000
Testing in search for new products or process alternatives 140,000
Quality control during commercial production including routine testing of products 25,000
What is the total research and development expense?
A. P790,000 C. P765,000
B. P415,000 D. P390,000

- END OF EXAMINATION -

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