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PHINMA UNIVERSITY OF PANGASINAN
ACC106 INTERMEDIATE ACCOUNTING 1
( SET A ) P2- QUIZ 1
NAME: _______________________________________
SECTION: _____________________________________
THEORY: MCQ
Encircle the letter of your answer. ERASURES are considered
wrong. Any form of cheating is PROHIBITED and will be dealt
in accordance with the University Student Manual.
1. Borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset
are
A. Capitalized; other borrowing costs are expensed
B. Expensed; other borrowing costs are capitalized
C. Capitalized; other borrowing costs are also capitalized.
D. Expensed; other borrowing costs are also expensed
2. Which of the following statements is true?
A. Borrowing costs are generally capitalized except when they
do not relate to acquisition or construction of a qualifying
asset.
B. Borrowing costs may or may not be capitalized depending
on the accounting policy chosen by an entity.
C. Exchange differences are ignored when determining
borrowing costs.
D. Borrowing costs are generally expensed except when
they are avoidable and relate to acquisition or construction
of a qualifying asset.
3. According to PAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, which of the
following is a government grant?
A. Tax benefits
B. Free technical or marketing advice
C. Non-interest bearing loan from the government
D. Public improvements that benefit the entire community
E. Provision of guarantees
4. In which of the following instances is the capitalization of
borrowing costs suspended?
A. During periods of suspension where substantial technical
and administrative work is being performed.
B. During extended periods of suspension of active
development of a qualifying asset.
C. During periods of temporary delay which is a necessary
part of the process of getting an asset ready for its intended
use or sale?
D. Any of these
5. According to PAS 20, non-monetary grants are measured at
A. the fair value of the non-monetary asset.
B. nominal amount.
C. the amount of cash received or receivable.
D. a or b
6. According to PAS 20, government grants are presented in
the financial statements using
A. a gross presentation.
B. a net presentation.
C. a or b
D. a functional presentation.
7. According to PAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, which of the
following is not a government grant?
A. Aid from the government to compensate for casualty
losses already incurred.
B. Cash received from the government to be used to acquire
land.
C. Government procurement policy that is responsible for a
portion of the entity's sales.
D. Aid from the government to defray expenses which are yet
to be incurred.
8. For purposes of capitalization of borrowing cost, which of
the following is not a qualifying asset?
A. Manufacturing plant
B. Power generation facility
C. Investment property
D. Asset that is ready for its intended use or sale
9. A government grant that becomes receivable as
compensation for expenses or losses already incurred or for
the purpose of giving-immediate financial support to the
entity with no future related costs 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
10. Which of the following is not specifically excluded from
the purview of PAS 20?
A. Government participation in ownership of the entity.
B. Government grant covered by PAS 41
C. Government assistance provided in the form of tax benefits
D. Forgivable loan from government.
11. If the qualifying asset is financed by general borrowings,
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.
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D. Average expenditures on the asset multiplied by a
capitalization rate or actual borrowing cost incurred,
whichever is higher.
12. 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 temporary
investment of the borrowing.
D. Zero.
13. Borrowing costs are interest and other costs that an entity
incurs in connection with borrowing of funds. Borrowing costs
include (choose the incorrect one)
A. Interest expense on borrowings calculated using the
effective interest method.
B. Interest expense on borrowings calculated using the
straight line method.
C. Finance charge with respect to a finance lease.
D. Exchange difference arising from foreign currency
borrowing that is regarded as an adjustment to the interest
cost.
14. In relation to a benefit included in the term government
assistance', are the following statements true or false
according to PAS 20 Government Grants and Government
Assistance?
I. The provision of infrastructure in developing areas is a
benefit.
II. The imposition of trading constraints on competitors is a
benefit.
A. Statement 1 is false and statement 2 is true.
B. Statements 1 and 2 are false.
C. Statement 1 is true and statement 2 is false.
D. Statements 1 and 2 are true.
15. Which of these disclosures is not required by IAS 20?
A. The accounting policy adopted for government grants,
including methods of presentation adopted in the financial
statements.
B. Unfulfilled conditions and other contingencies attaching to
government assistance.
C. The names of the government agencies that gave the
grants along with the dates of sanction of the grants by
these government agencies and the dates when cash was
received in case of monetary grants.
D. The nature and extent of government grants recognized in
the financial statements and an indication of other forms of
government assistance from which the entity has directly
benefited.
16. An entity starts the capitalization of borrowing costs to
the cost of a qualifying asset when
A. expenditures for the asset are being incurred.
B. borrowing costs are being incurred.
C. activities necessary to prepare the asset for its intended
use or sale are being undertaken.
D. all of the above conditions are met.
17. In which of the following instances is the capitalization of
borrowing costs under PAS 23 would most likely be
suspended?
A. Construction is temporarily stopped for the curing of
concrete.
B. Active development is stopped to give time for the
engineers to reevaluate a design flaw.
C. The construction of a bridge is disrupted by troubled
waters.
D. The construction of a building is discontinued because it
is condemned by the government. The resumption of
development is uncertain.
18. Government grant related to depreciable asset is usually
recognized as income
A. Immediately
B. Over the useful life of the asset using straight line
C. Over the useful life of the asset using sum of years digits
D. Over the useful life of the asset and in proportion to the
depreciation of the asset.
19. Which of the following is a qualifying asset?
A. A large vessel that can be purchased from the
manufacturer.
B. Inventories that are mass produced on a routine basis.
C. A building classified as investment property that takes
three years to complete and is measured under the fair value
model.
D. A self-generated intangible asset that takes 2 years to
complete.
20. Which of the following statements are correct according
to PAS 20 Government Grants and Government Assistance?
I. Any adjustment needed when a government grant becomes
repayable is accounted for as a change in accounting estimate
II. In respect of loans from the government at an interest rate
of 0%, an imputed interest charge should be made in profit or
loss
III. When conditions apply to a government grant, it should
only be recognized when there is reasonable assurance that
the conditions will be met
IV. A government grant should not be recognized until it is
received in cash.
A. I, III C. I, III, IV
B. I, II, III D. I, II, III, IV
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PROBLEM SOLVING: Answer the given problems. Write your

final answer in the space provided. (Use permanent ink/ The safety and environmental cost are expected to be
ballpen). Show your solution. No solution No score. ( 2 incurred over 4 years as follows
points each)
Year 1 P2,000,000
Use the following information for the next six questions
Year 2 4,000,000
questions:
On January 1, 20x1, ABC Co. received a P2,000,000 grant from Year 3 6,000,000
the government to aid in the construction of a new building. Year 4 8,000,000
The construction of the building was finished on March 31, Total Cost P20,000,000
20x2 for a total cost of P6,000,000. The building is estimated
to have a useful life of 30 years and a residual value of
P1,000,000. What amount of grant income should be recognized in 2016?
7. Answer: ________________________________________
1. If Claire Co. uses the gross presentation, how much is the
income from the government grant in 20x1?
Answer: _____________________________ On January 1, 2016, LGU agreed to provide Company X with a
5,000,000 3-year , zero-interest bearing loan evidenced by
2. If Claire Co. uses the gross presentation, how much is the promissory note.
carrying amount of the building on December 31, The prevailing rate for a loan of this type is 10% and the PV
20x2? value of 1 for 3 years is .75
Answer: _______________________________
What is the deferred grant income on January 1, 2016?
3. If Claire Co. uses the net presentation, how much is the 8. Answer: _______________________________________
carrying amount of the building on December 31,
20x2? What is the grant income on December 31, 2016?
Answer: ______________________________ 9. Answer: ___________________________

On July 1, 20x1, a flood damaged one of Jungkook's buildings.

The building had a carrying amount of P24,000,000 before
the flood. Because of damages, the building is now assessed
to have a recoverable amount of only P9,000,000 and a
reduced remaining useful life of 4 years. To aid in the loss, the
government granted Jungkook Co. P200,000 cash. How much
is the income from the government grant in 20x1?
4. Answer _________________________________
Jimin Company purchased a varnishing machine for P150,000
on January 1, 20x7. The company received a government
grant of P13,500 in respect of this asset. Company policy was
to depreciate the asset over 4 years on a straight-line basis
and to treat the grant as deferred income. Under PAS 20,
Government grants and government assistance,
What should be the carrying amounts of the Machine on
Dec. 31,20x8?
5. Answer: __________________________________
At the beginning of current year, X Company received a grant
of 6,000,000 from the Philippine Government to compensate
for massive losses incurred because of a recent typhoon. The
grant was made for the purpose of giving immediate financial
support to the entity. It will take the entity 2 years to
reconstruct the assets destroyed by the typhoon.
What amount of grant income should be recognized for the
current year?
10. _______________________________________
-NOTHING FOLLOWS-
“An investment in knowledge pays the best interest”.
Benjamin Franklin

What is the deferred income (DI) balance at December 31,

20x8?
6. Answer: ____________________________________

On January 1, 2016, XYZ Company received a grant of

25,000,000 from Philippine Government in order to defray
safety and environmental cost within the area where the
entity is located.
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Key answer
MCQ
1-5 ADCBD
6-10 CCDBD
11-15 CCBBC
16-20 DDDDB

PROBLEM SOLVING
1. 0
2. 5,875,000
3. 3,925,000
4. 200,000
5. 75,000
6. 6,750
7. 2,500,000
8. 1,250,000
9. 375,000
10. 6,000,000