DEPRECIATION, DEPLETION, REVALUATION, IMPAIRMENT

1. The A Company purchased for 240,000 cash on July 1, 2015 a machine with an estimated useful
life of 10 years and an estimated residual value of 12,000. Depreciation was recorded on a
monthly basis using the straight-line method. The machine was sold for 130,000 of September 30,
2020
The carrying amount of the machine on September 30, 2020 is
a. 120,300
b. 108,300
c. 126,000
d. 119,700

2. On December 31, 2015, A Company reported the following information related to equipment:
Equipment at cost 5,000,000
Accumulated depreciation 1,750,000
The equipment was measured using the cost model and depreciation on a straight line basis over a
10-year period. On December 31, 2015, the entity decided to change the basis of measuring the
equipment form the cost model to the revaluation model. The equipment was revalued to the
FAIR VALUE of P4,550,000 with an expected remaining useful life of 5 year. What is the
revaluation surplus on December 31, 2016?

a. 1,300,000
b. 3,640,000
c. 1,170,000
d. 1,040,000

3. Depletion expense
a. Excludes intangible development cost from the depletable cost.
b. Includes tangible equipment cost in the depletable cost.
c. is usually part of cost of goods sold
d. Excludes restoration cost from the depletable cost.

4. Which among the following is not part of the capitalizable cost of the wasting asset?
a) Tangible development cost
b) Acquisition cost
c) Exploration cost
d) Intangible development cost

5. A Company determined that due to obsolescence, equipment with original cost of P1.8 M and
accumulated depreciation at January 1, 2009 of P840,000 had suffered permanent impairment and
as a result should have a carrying value of only P600,000 as of the beginning of the year. In
addition, the remaining useful life of the equipment was reduced from eight to three years.
 In its December 31, 2009 statement of financial position, what amount should A report as
accumulated depreciation?
a) P1,400,000
b) P1,500,000
c) P1,200,000
d) 360,000

6. Which of the following statement is the assumption on which straight – line method of
depreciation is based?
a. Service value declines as a function of time rather than use
b. The operating efficiency of the asset decreases in later years.
c. Service value declines as a function of obsolescence rather than time
d. Physical wear and tear are more important than economic obsolescence

7. A machine with a five – year estimated useful life and an estimated 15% salvage value was
acquired on January 1, 2008. The increase in accumulated depreciation for 2009 using the double
– declining balance method would be
a) original cost x 60% x 40%
b) original cost x 85% x 60% x 40%
c) original cost x 40%
d) original cost x 85% x 40%

8. The SYD method of depreciation is being used for a machine with a five – year estimated useful
life. What would be the fraction applied to the depreciable cost to be depreciated in the fourth
year?
a. 2/5
b. 4/15
c. 4/5
d. 2/15

9. The sum of the years’ digits method

a) means the carrying amount should not be reduced below residual value
b) results in residual value being ignored
c) results in an increasing depreciation charge.
d) means he denominator is the number of years remaining at the beginning of the year

10. Depreciation is best described as a method of

a. Asset valuation
b. Current cost determination
c. Useful life determination
d. Cost allocation

11. It is a fall in the market value of an asset so that its recoverable amount is now less than its
carrying amount in the balance sheet
a) value in use
b) impairment
 c) fair value less cost to sell
d) depreciation

12. A method that ignores salvage value in calculating periodic depreciation expense is the
a) productive – output method
b) group composite method
c) double declining balance method
d) sum – of – the – years’ digits method

13. The A Company purchased for 240,000 cash on July 1, 2015 a machine with an estimated useful
life of 10 years and an estimated residual value of 12,000. Depreciation was recorded on a
monthly basis using the straight-line method. The machine was sold for 130,000 of September 30,
2020
The sale resulted in a
a. 9,700 gain
b. 21,700 gain
c. 21,700 loss
d. 9,700 loss

14. A building was acquired on January 1, 1999 at an original cost of P4,000,000 (no residual value).
Depreciation on the building is computed on a straight line bases and the annual depreciation on
cost is P160,000. On January 1, 2009, the building is appraised at a fair market value of
P3,240,000. The appraisal results are to be recognized in the accounts considering the same
remaining life of the building.

What is the amount that should be credited to Revaluation Surplus at January 1, 2009?
a) P3,000,000
b) P1,400,000
c) P0
d) P840,000

15. On April 1, 2007, A Company bought a new equipment for 800,000. The equipment has an
estimated salvage value of 20,000 and useful life of 12 years. Depreciation is computed using the
sum-of-the-years digits method.
How much is the amount of depreciation for 2008?
a. 110,000
b. 112,500
c. 90,000
d. 97,308

16. The recoverable amount of an asset is the

a) Fair value less cost to sell or value in use, whichever is lower.
b) Fair value less cost to sell or value in use, whichever is higher.
c) Present value of future net cash inflows from the use of the asset
d) Fair value less cost to sell
17. When the revaluation surplus is realized because of the use of the asset by the entity or disposal
of the asset, it may be transferred directly to
a. income
b. donated capital
c. retained earnings
d. additional paid in capital

18. A building was acquired on January 1, 1999 at an original cost of P4,000,000 (no residual value).
Depreciation on the building is computed on a straight line bases and the annual depreciation on
cost is P160,000. On January 1, 2009, the building is appraised at a fair market value of
P3,240,000. The appraisal results are to be recognized in the accounts considering the same
remaining life of the building.
What is the revised depreciation expense recognized in the accounts for the year ended December
31, 2009?
a. P160,000
b. P216,000
c. P272,000
d. P360,000

19. Which is the cost incurred in an attempt to locate the natural resource that can economically
extracted?
a. Tangible development cost
b. Intangible development cost
c. Acquisition cost
d. Exploration cost

20. On December 31, 2015, A Company reported the following information related to equipment:
Equipment at cost 5,000,000
Accumulated depreciation 1,750,000
The equipment was measured using the cost model and depreciation on a straight line basis over a
10-year period. On December 31, 2015, the entity decided to change the basis of measuring the
equipment form the cost model to the revaluation model. The equipment was revalued to the
FAIR VALUE of P4,550,000 with an expected remaining useful life of 5 year. What is the
depreciation for 2015?
a) 300,000
b) 250,000
c) 150,000
d) 500,000

21. On July 1, 2006, A Company purchased computer equipment at a cost of P360,000. This
equipment was estimated to have a six – year life with no residual value and was depreciated by
the straight – line method. On January 3, 3009, A Co. determined that this equipment could no
 longer process data efficiently, that its value had been permanently impaired, and that P70,000
could be recovered over the remaining useful life of the equipment.
What is the impairment loss recognized in the accounts at January 3, 2009?
a) P140,000
b) P20,000
c) P50,000
d) P70,000

22. If the asset’s carrying amount is increased as a result of a revaluation, the increase shall be
a. recognized in profit or loss
b. credited directly to equity under the heading of revaluation surplus
c. ignored
d. credited directly to retained earnings

23. In January 2009, the A Company purchased a mineral mine for P3,400,000 with removable ore
estimated by geological surveys at 4,000,000 tons. The property had an estimated value of
P200,000 after the ore has been extracted. the company incurred and capitalized P800,000 of
development costs preparing removed and 375,000 tons were sold.
What is the amount of depletion that A should include in its cost of goods sold for 2009?
a. P375,000
b. P320,000
c. P400,000
d. P393,750

24. Identifiable intangible assets include all of the following, except

a) Computer software
b) Copyright
c) Goodwill
d) Patent

25. The recoverable amount of an asset is the

a) Fair value less cost to sell or value in use, whichever is lower.
b) Fair value less cost to sell
c) Present value of future net cash inflows from the use of the asset
d) Fair value less cost to sell or value in use, whichever is higher.