1.

Spare parts and servicing equipment that can be used only in

connection with an item of property, plant and equipment are
accounted for as property, plant and equipment and depreciated
over

a) their useful life.

b) their useful life or the useful life of the related asset

whichever is shorter.

c) the useful life of the related asset.

d) their useful life or the useful life of the related asset,

whichever is longer.

2. During 2019, an entity constructed asset costing P4,215,000. The

weighted average expenditures during the year amounted to
P3,900,000. The entity borrowed P2,000,000 at 7.5% on January 1,
2019. Funds not needed for construction were temporarily invested
in short-term securities and earned P59,000 in interest revenue.

In addition to the construction loan, the entity had two other

notes outstanding during the year, a P1,500,000, 10-year, 10%
note payable dated October 1, 2018, and a P1,000,000, 8% 5-year
note payable dated November 1, 2018.

What amount of interest should be capitalized during 2019?

a) P273,000

b) P265,800

c) P297,500

d) P324,800

3. At the beginning of current year, an entity disclosed the

following balances:

Land, P4,000,000
Land improvement, P1,300,000
Building, P20,000,000
Machinery and equipment, P8,000,000

During the current year, the following transactions occurred:

 Land was acquired for P2,000,000 cash as a building site.

  A plant facility consisting of land and building was
acquired in exchange for 200,000 shares of the entity. On
the acquisition date, each share had a quoted price of P45
on a stock exchange. Current appraised values for the land
and the building, respectively, are P2,000,000 and
P8,000,000. The building has an expected life of 40 years
with a P200,000 residual value.
 Items of machinery and equipment were purchased at a total
cost of P4,000,000. Additional costs incurred were freight
and unloading P100,000 and installation P300,000. The
equipment has a useful life of ten years with no residual
value.
 Expenditures totaling P1,200,000 were made for new parking
lot, street and sidewalk at the entity's various plant
locations. These expenditures had an estimated useful life
of 15 years.
 Research and development costs amounted to P1,100,000.
 A machine costing P200,000 acquired seven years ago was
scrapped at year-end. Straight line depreciation had been
recorded on the basis of a 10-year life with not residual
value.
 A machine was sold for P500,000 at the middle of the year.
Original cost of the machine sold was P700,000 when acquired
three years ago and it was depreciated on the straight line
basis over an estimated useful life of 8 years and a
residual value of P50,000.

What is the total cost of land improvement at year-end?

a) P2,500,000

b) P1,300,000

c) P3,600,000

d) P1,200,000

4. Which of the following is not capitalized into the cost of

property, plant and equipment?

a) cost of testing whether the asset works correctly

b) initial delivery and handling cost

 c) cost of excess materials from a purchasing error

d) cost of preparing the site for installation

5. When computing the amount of interest cost to be capitalized, the

concept of avoidable interest refers to

a) that portion of total interest cost which would not have

been incurred if expenditures for asset construction had not
been made.

b) that portion of average accumulated expenditures on which no

interest cost was incurred.

c) the total interest cost actually incurred.

d) a cost of capital.

6. An entity received a government grant of P2,000,000 related

to a factory building that it bought in January 2019. The
entity's policy is to treat the grant as deferred income.

The entity acquired the building from an industrial identified

by the government. If the entity did not purchase the
building, which was located in the slums of the city, it would
have been repossessed by the government agency.

The entity purchased the building for P12,000,000. The useful

life of the building is 10 years with no residual value. On
January 1, 2021, the entire amount of the government grant
became repayable by reason of noncompliance with conditions
attached to the grant.

What amount of loss should be recognized resulting from the

repayment of the grant in 2021?

a) 400,000
b) 1,200,000
c) 1,400,000

d) 2,000,000

7. What is the depreciation of the building for 2019?

 a) P1,000,000

b) P1,200,000

c) P500,000

d) P600,000

8. What amount should be recognized as grant income for 2019?

a) 400,000

b) 0

c) 100,000

d) 200,000

9. Property, plant and equipment are defined as

a) tangible assets held for use in the production or supply of

goods or services, for rentals to others, or for
administrative purposes and expected to be used during more
than one reporting period.

b) tangible assets held for use in the production or supply of

goods or services or for administrative purposes.

c) tangible assets held for sale in the ordinary course of

business.

d) tangible assets held to earn rentals or for capital

appreciation.

10. An entity purchased a machine on July 1, 2019 for

P6,000,000. The machine has an estimated useful life of 5 years
and a residual value of P800,000. The machine is being
depreciated by the 150% declining balance method.

For the year ended December 31, 2020, what amount should be
recorded as depreciation expense on the machine?

a) P1,040,000

b) P1,326,000
 c) P1,800,000

d) P1,530,000

11. At the beginning of current year, an entity disclosed

the following balances:

Land, P4,000,000
Land improvement, P1,300,000
Building, P20,000,000
Machinery and equipment, P8,000,000

During the current year, the following transactions occurred:

 Land was acquired for P2,000,000 cash as a building site.

 A plant facility consisting of land and building was
acquired in exchange for 200,000 shares of the entity. On
the acquisition date, each share had a quoted price of P45
on a stock exchange. Current appraised values for the land
and the building, respectively, are P2,000,000 and
P8,000,000. The building has an expected life of 40 years
with a P200,000 residual value.
 Items of machinery and equipment were purchased at a total
cost of P4,000,000. Additional costs incurred were freight
and unloading P100,000 and installation P300,000. The
equipment has a useful life of ten years with no residual
value.
 Expenditures totaling P1,200,000 were made for new parking
lot, street and sidewalk at the entity's various plant
locations. These expenditures had an estimated useful life
of 15 years.
 Research and development costs amounted to P1,100,000.
 A machine costing P200,000 acquired seven years ago was
scrapped at year-end. Straight line depreciation had been
recorded on the basis of a 10-year life with not residual
value.
 A machine was sold for P500,000 at the middle of the year.
Original cost of the machine sold was P700,000 when acquired
three years ago and it was depreciated on the straight line
basis over an estimated useful life of 8 years and a
residual value of P50,000.

What is the total cost of machinery and equipment at year-end?

a) P11,000,000
b) P11,700,000
c) P12,400,000
d) P11,500,000
12. What is the total cost of land at year-end?

a) P8,000,000

b) P6,800,000

c) P7,600,000

d) P7,800,000

13. 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) capitalized if it increases the quantity of units produced

by the machine.

c) capitalized if it maintains the machine in normal operating

condition.

d) expensed if it merely improves the quality but does not

extend the useful life.

14. Which statement is true concerning acquisition of property,

plant and equipment by self-construction?

a) All of the statements are true.

b) The cost of abnormal amount of wasted material is not

included in the cost of the asset.

c) Any internal profit is eliminated in arriving at the cost of

self-constructed asset.

d) The cost of self-constructed asset is determined using the

same principles as for an acquired asset.

15. The cost of property, plant and equipment comprises all of

the following, except

a) import duties and nonrefundable purchase taxes

 b) any cost directly attributable in bringing the asset to. the
location and condition for the intended use

c) initial estimate of the cost of dismantling the asset for

which the entity has no present obligation

d) purchase price

16. Government grant related to depreciable asset is usually

recognized as income

a) over the useful life of the asset using sum of years' digits

b) over the useful life of the asset using straight line

c) over the useful life of the asset and in proportion to the

depreciation of the asset

d) immediately.

17. An entity exchanged a truck with a carrying amount of

P1,200,000 and a fair value of P2,000,000 for a truck and
P200,000 cash. The fair value of the truck was P1,800,000.

The cash flows from the new truck are not expected to be
significantly different from the cash flows of the old
truck. At what amount should the truck received in the
exchange be recorded?

a) P2,000,000

b) P1,000,000

c) P1,800,000

d) P1,400,000

18. During the current year, an entity exchanged an old

packing machine, which cost P1,200,000 and was 50%
depreciated, for another used machine and paid a cash
difference of P160,000.

The fair value of the old packaging machine was determined

to be P700,000. What is the gain on exchange?
 a) P100,000

b) P60,000

c) 0

d) P540,000

19. An entity acquired two items of machinery.

 On December 31, 2019, the entity purchased a machine in

exchange for a noninterest bearing note requiring ten
payments of P500,000. The first payment was made on December
31, 2020 and the others are due annually on December 31. The
prevailing rate for this type of note at date of issuance
was 12%.
 On December 31, 2019, the entity acquired used machinery by
issuing the seller a two-year, noninterest -bearing note for
P3,000,000. In recent borrowing, the entity has paid a 12%
interest for this type of note.

What is the total cost of the machinery? (Round off PVs to two
decimal points)

a) P5,065,000
b) P5,565,000
c) P8,235,000
d) P5,225,000

20. On April 1, 2019, an entity acquired new machinery for

P3,300,000. The machinery had an estimated useful life of five
years with residual of P300,000. Depreciation is computed by the
sum of years' digits methods.

What amount should be recorded as depreciation for 2019?

a) 900,000
b) 750,000
c) 800,000
d) 500,000

21. The composite depreciation method

a) does not recognize gain or loss on the retirement of single

asset in the group
 b) excludes residual value from the base of the depreciation
calculation

c) is applied to a group of homogenous assets

d) is an accelerated method of depreciation

22. On July 1, 2019, an entity, a calendar year

corporation, purchased the rights to a mine. The total
purchase price was P16,400,000, of which P2,000,000 was
allocable to the land.

Estimated reserves were 1,800,000 tons. The entity expected

to extract and sell 25,000 tons per month. The entity
purchased new equipment on July 1, 2019 for P7,500,000. The
equipment had a useful life of 8 years.

However, after all the resource is removed, the equipment

would be of no use and could be sold for P300,000.

What amount should be recorded as depletion for 2019?

a) P1,366,500

b) P2,733,000

c) P1,200,000

d) P2,400,000

23. 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) carrying amount of the asset given plus cash payment.

c) carrying amount of the asset received plus the cash payment.

d) fair value of the asset received plus cash payment

24. On April 1, 2019, an entity acquired new machinery for

P3,300,000. The machinery had an estimated useful life of
five years with residual of P300,000. Depreciation is
computed by the sum of years' digits methods.
 What amount should be recorded as depreciation for 2020?

a) P1,600,000

b) P600,000

c) P850,000

d) P1,800,000

25. An entity acquired a new processing machine.

Invoice cost, P1,600,000
Cost of transportation, P50,000
Cost of installation, P140,000

The terms of the acquisition include a 5% discount if

payment is made in 10 days. The entity paid beyond the
discount period. The entity's chief engineer spent two-
thirds of his time during trial run of the new machine. The
monthly salary is P60,000.

The entity requested an allowance from the supplier because

the machine proved to be less than standard performance
capability. The supplier granted a cash allowance of
P100,000.

The cost of removing the old machine before the new machine
was installed amounted to P10,000.

The operators of the old machine who as laid off due to the
acquisition of the new machine was paid a gratuity of
P30,000. What amount should be recorded as cost of the new
machine?

a) P1,330,000

b) P1,690,000

c) P1,660,000

d) P1,650,000

26. In an exchange with commercial substance

a) only gain should be recognized.

b) only loss should be recognized.

 c) gain or loss is recognized entirely.

d) gain or loss is not recognized.

27. At the beginning of current year, an entity disclosed

the following balances:

Land, P4,000,000
Land improvement, P1,300,000
Building, P20,000,000
Machinery and equipment, P8,000,000

During the current year, the following transactions

occurred:

 Land was acquired for P2,000,000 cash as a building site.

 A plant facility consisting of land and building was
acquired in exchange for 200,000 shares of the entity. On
the acquisition date, each share had a quoted price of P45
on a stock exchange. Current appraised values for the land
and the building, respectively, are P2,000,000 and
P8,000,000. The building has an expected life of 40 years
with a P200,000 residual value.
 Items of machinery and equipment were purchased at a total
cost of P4,000,000. Additional costs incurred were freight
and unloading P100,000 and installation P300,000. The
equipment has a useful life of ten years with no residual
value.
 Expenditures totaling P1,200,000 were made for new parking
lot, street and sidewalk at the entity's various plant
locations. These expenditures had an estimated useful life
of 15 years.
 Research and development costs amounted to P1,100,000.
 A machine costing P200,000 acquired seven years ago was
scrapped at year-end. Straight line depreciation had been
recorded on the basis of a 10-year life with not residual
value.
 A machine was sold for P500,000 at the middle of the year.
Original cost of the machine sold was P700,000 when acquired
three years ago and it was depreciated on the straight line
basis over an estimated useful life of 8 years and a
residual value of P50,000.

What is the total cost of building at year-end?

a) P27,200,000
 b) P25,400,000
c) P28,000,000
d) P27,000,000

28. When a plant asset is acquired by deferred payment, which

condition generally does not indicate the need to consider the
imputation of interest?

a) The instrument representing the deferred obligation is

noninterest bearing.

b) The cash price of the plant asset is significantly different

from the deferred obligation.

c) The interest rate stated on the deferred obligation is

significantly different from market interest rate.

d) The face amount of the deferred obligation is equal to the

fair value of the plant asset exchanged.

29. Which of the following is not a disclosure required in

relation to exploration and evaluation expenditures?

a) Accounting policy for exploration and evaluation

expenditures.

b) Information recognized in the financial statements arising

from the exploration and evaluation of mineral resources

c) The amounts of operating and investing cash flows arising

from exploration and evaluation of mineral resources

d) Information about commercial reserve quantity.

30. What valuation model should an entity use to measure

property, plant and equipment?

a) The cost model or the fair value model

b) The revaluation model or the fair value model

c) The cost model or the revaluation model

d) The cost model or the fair value through profit or loss

model
 31. When is an entity required to recognize exploration and
evaluation expenditure as an asset?

a) When the technical feasibility and commercial viability of

extracting the associated mineral resource have been
demonstrated.

b) Such expenditure is always expensed as incurred.

c) When required by the entity's accounting policy for

recognizing exploration and evaluation asset.

d) When such expenditure is recoverable in future periods.

32. The initial operating loss should be

a) deferred and amortized over a reasonable period.

b) expensed and charged to the income statement.

c) charged to retained earnings.

d) capitalized as part of the cost of plant.

33. On July 1, 2019, an entity, a calendar year

corporation, purchased the rights to a mine. The total
purchase price was P16,400,000, of which P2,000,000 was
allocable to the land.

Estimated reserves were 1,800,000 tons. The entity expected

to extract and sell 25,000 tons per month. The entity
purchased new equipment on July 1, 2019 for P7,500,000. The
equipment had a useful life of 8 years.

However, after all the resource is removed, the equipment

would be of no use and could be sold for P300,000.

What amount should be recorded as depreciation of the mining

equipment for 2019?

a) P600,000

b) P900,000
c) P450,000

d) P300,000

34. Which is not a disclosure requirement in relation to

borrowing cost?

a) Amount of borrowing cost capitalized during the period

b) Segregation of qualifying asset from other assets

c) Accounting policy adopted for borrowing cost

d) Capitalization rate used to determine the amount of

borrowing cost eligible for capitalization

35. When the revaluation model is used for reporting property,

plant and equipment, the gain should be included in

a) retained earnings

b) an extraordinary gain in the income statement

c) gain from revaluation in the income statement

d) revaluation surplus as component of other comprehensive

income

36. The carrying amount of an existing old building demolished

to make room for the construction of a new building should be

a) accounted for as loss.

b) charged to the land

c) capitalized as cost of the new building

d) charged to the new building if accounted for as inventory

37. On January 1, 2014, an entity purchased a new building

at a cost of P6,000,000. Depreciation was computed on the
straight line basis at 4% per year. On January 1, 2019, the
building had a fair value of P8,000,000.
What amount should be recorded as depreciation for 2019?

a) P240,000

b) P400,000

c) P320,000

d) P100,000

38. During the current year, an entity exchanged an old

packing machine, which cost P1,200,000 and was 50%
depreciated, for another used machine and paid a cash
difference of P160,000.

The fair value of the old packaging machine was determined

to be P700,000. What is the cost of the machine acquired in
the exchange?

a) P540,000

b) P700,000

c) P760,000

d) P860,000

39. Repayment of grant related to an asset shall be recorded by

a) increasing the carrying amount of the asset if the deduction

approach is used.

b) all of these are correct about repayment of grant related to

asset.

c) reducing the deferred income balance to zero if the deferred

income approach is used.

d) recognizing as expense the cumulative additional

depreciation that would have been recorded to date in the
absence of the grant if the deduction approach is used.

40. On January 1, 2014, an entity purchased a new building

at a cost of P6,000,000. Depreciation was computed on the
straight line basis at 4% per year. On January 1, 2019, the
building had a fair value of P8,000,000.
What is the pretax revaluation surplus on December 31, 2019?

a) P1,900,000

b) P3,040,000

c) P1,920,000

d) P3,072,000