CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARD

PAS 8, 10, 16, 20, 23, 24

1. Which of the following 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. 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. The useful life of the related asset
c. Their useful life or the useful life of the related asset, whichever is longer
d. Their useful life or the useful life of the related asset whichever is shorter

3. 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 profit or loss model
d. The cost model or the fair value model

4. The cost of property, plant and equipment comprises all of the following, except
a. Purchase price
b. Import duties and non-refundable 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.

5. Costs directly attributable to bring the asset to the location and condition for the intended use include
all, except
a. Cost of employee benefit not arising directly from the acquisition of property, plant and equipment
b . Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost

6. 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

7. A nonmonetary exchange is recognized at fair value 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
8. 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 amount of the asset received plus the cash payment.

9. 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.

10, If an entity is able to determine reliably the fair value of the asset received and the fair value of the
asset given in an exchange transaction, the cost is measured at
a. Fair value of asset given
b. Fair value of asset received
c. Either the fair value of asset received or the fair value of asset given
d. Neither the fair value of asset received nor the fair value of asset given

11. Which statement is true concerning acquisition of property, plant and equipment by self-
construction?
a. The cost of self-constructed asset is determined using the same principles as for an acquired asset.
b. Any internal profit is eliminated in arriving at the cost of self-constructed asset.
c. The cost of abnormal amount of wasted material is not included in the cost of the asset.
d. All of the statements are true.

12. The carrying amount of property, plant and equipment shall be derecognized
a. On disposal
b. When no future economic benefits are expected from the use of the asset.
c. On acquisition
d. On disposal and when no future economic benefits are expected from the use of the asset.

13. Entities are encouraged to disclose all of the following in relation to property, plant and equipment.
Except?
a. The carrying amount of temporarily idle property, plant and equipment.
b. The gross carrying amount of fully depreciated property, plant and equipment still in use.
c. The carrying amount of property, plant and equipment classified as held for sale.
d. The fair value of property, plant and equipment that is not materially different from carrying amount
when the cost model is used.

14. Which of the following is not capitalized into the cost of property, plant and equipment?
a. Cost of excess materials from a purchasing error
b. Cost of testing whether the asset works correctly
c. Initial delivery and handling cost
d. Cost of preparing the site for installation
15. The initial operating loss should be
a. Deferred and amortized over a reasonable period.
b. Expensed and charged to the income statement.
c. Capitalized as part of the cost of plant.
d. Charged to retained earnings.

16. An entity imported machinery to be installed in the new factory premises before year-end. What is
the proper treatment of freight and interest on the loan to fund the cost of machinery?
a. Both freight and interest are capitalized.
b. Interest may be capitalized but freight is expensed.
c. Freight is capitalized but interest cannot be capitalized.
d. Both freight and interest are expensed.

17. The cost of property, plant and equipment comprises the purchase price and
a. The implied interest on the debt financing
b. The fair value of any noncash asset surrendered
c. The estimated residual value of the asset
d. All directly attributable costs necessary to bring the asset to the location and condition for the
intended use

18. This is defined as assistance by government in the form of transfer of resources to an entity in return
for past or future compliance with certain conditions relating to the operating activities of the entity.
a. Government grant
b. Government assistance
c. Government donation
d. Government aid

19. 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.

20. 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

21. 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.
22. 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.

23. Government grant related to non-depreciable asset that requires fulfilment 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.

24. 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.

25. A government grant that becomes repayable shall be accounted for as

a. Change in accounting estimate
c. Both change in accounting estimate and change in accounting policy
b. Change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy

26. Government assistance includes all the following, except

a. Free technical advice
b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the entity's sales
d. Improved irrigation water system for the benefit of an entire local community.

27. Which of the following is included in government assistance?

a. The construction of infrastructure in developing areas
b. The imposition of trading constraints on competitors
c. Improvement to the general transport and communication network
d. None of these can be included in government assistance

28. A forgivable loan from a government or the benefit of a government loan at NIL or below market
interest rate is accounted for as
a. Government grant
b. Government assistance
c. Both government grant and government assistance
d. Neither government grant nor government assistance
29. The amount of benefit in a zero-interest government loan is measured as the difference between
a. Face amount and present value of loan
b. Face amount and fair value of loan
c. Fair value and present value of loan
d. Fair value and face amount of loan

30. In the case of a nonmonetary grant, which of the following accounting treatment is prescribed?
a. Record the asset at replacement cost and the grant at a nominal value
b. Record the grant at a value estimated by management
c. Record both the grant and the asset at fair value of the nonmonetary asset
d. Record only the asset at fair value and not recognize the fair value of the grant

31. In the case of grant related to an asset, which of following accounting treatment is prescribed?
a. Record the grant at a nominal value in the first year and write it off in the subsequent 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 at fair value in the first year and take it to Income in the subsequent year.
d. Take it to the income statement and disclose it as an extraordinary gain.

32. 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 in the income statement as other income or as a separate line itern, or deduct it
from the related expense.
c. Credit the grant to retained earnings.
d. Credit the grant to sales.

33. Which disclosure is not required about government grant?

a. The accounting policy adopted for government grant
b. Unfulfilled condition and other contingency attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized in the financial statements

34. If the cost of the asset is recorded net of the grant

a. Equity is overstated.
b. Liability is overstated.
c. Asset is understated.
d. Net income is understated.

35. Which statement is true regarding the accounting for government grant related to an asse!?
a. Depreciation is higher and net income lower if the grant is recorded as deferred income.
b. Depreciation is higher and net income lower if the grant is accounted for as an adjustment to the
asset.
c. Depreciation is higher if the grant is recorded as deferred income but net income is the same under
the deferred income approach and deduction from asset approach.
d. Depreciation is higher if the grant is recorded as an adjustment to the asset.
36. Borrowing costs are defined as?
a. Interest expense using the effective interest method.
b. Finance charges in respect of finance lease.
c. Exchange differences arising from foreign currency borrowings to the extent that these are regarded as
an adjustment to interest cost.
d. Interest and other costs that an entity incurs in connection with borrowing of funds.

37. Which statement is true concerning capitalization of borrowing cost?

I. if the borrowing is directly attributable to a qualifying asset, the borrowing cost is required
to be capitalized as cost of the asset.

II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be
expensed as incurred.

a. I only
b. ll only
c. Both I and II
d. Neither I nor lI

38. 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
economic benefits to the entity.
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.

39. It 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

40. 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 and takes a
substantial period of time to get ready for use or sale
d. biological asset
41. 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

42. 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.

43. 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.

44. 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.

45. 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

46. Which of the following may 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 vendor.
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.

47. 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 because of excess capacity.
d. All of these assets qualify for interest capitalization.
48. Which statement about the capitalization of borrowing cost as part of the cost of a qualifying asset is
True?
a. If funds come from general borrowings. the amount to be capitalized is based on the weighted
average amount of expenditures.
b. Capitalization always continues until the asset is brought into use.
c. Capitalization always commences as soon as expenditure of the asset is incurred.
d. Capitalization always commences as soon as Interest on relevant borrowings is being incurred.

49. Which is the correct approach in accounting for Interest incurred in financing the construction of
property, plant and equipment?
a. Capitalize only the actual interest incurred during construction.
b. Charge construction with all costs of funds employed.
c. Capitalize no interest during construction.
d. Capitalize interest equal to the prime interest rate times the estimated cost of the asset being
constructed.

50. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest"
refers to?
a. The total interest cost actually incurred.
b. A cost of capital.
c. That portion of total interest cost which would not have been incurred if expenditures for asset
construction had not been made.
d. That portion of average accumulated expenditures on which no interest cost was incurred.

51. 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.

52. Interest revenue earned on specific borrowing for qualifying asset

a. Reduces the cost of the qualifying asset.
b. Reduces interest expense reported in the income statement.
c. Increases equity.
d. Must be credited to interest income.

53. Related parties include all of the following, except?

a. Affiliates
b. Associates
c. Individuals owning, directly or indirectly, an interest in the voting power of the reporting entity that
gives them significant influence over the entity
d. Two entities that have a common director
54. Unrelated parties include all of the following, except
a. Providers of finance in the course of their normal dealings with an entity by virtue only of those
dealings.
b. Two venturers simply because they share joint control over a joint venture.
c. Single customer with whom an entity transacts a significant volume of business merely by virtue of
the resulting economic dependence.
d. Key management personnel

55. Close family members of an individual include all of the following, except
a. The individual's spouse and children
b. Children of the individual's spouse
c. Dependents of the individual or individual's spouse
d. Brothers and sisters of the individual

56. The minimum disclosures about a related party transaction include all of the following, except?
a. The amount of the transaction
b. The amount of outstanding balance
c. Allowance for doubtful accounts related to the outstanding balance
d. Nature of the relationship

57. Which is not a mandated related party disclosure?

a. Relationship between parent and subsidiaries
b. Names of all the associates that an entity has dealt with during the year
c. Name of the entity's parent and the ultimate controlling party
d. If neither the entity's parent nor the ultimate controlling entity produces financial statements
available for public use, then the name of the next most senior parent that does so

58. Which is not a required minimum related party disclosure?

a. The amount of the related party transaction
b. The amount of the outstanding balance
c. The amount of similar transaction with unrelated parties to establish that comparable related party
transactions have been entered into at arm's length
d. Allowance for doubtful accounts related to the outstanding balance

59. An entity that entered into a related party transaction would be required to disclose all, except
a. Nature of the relationship between the parties.
b. Nature of any future transaction planned between the parties and the terms involved.
c. Peso amount of the transaction.
d. Amount due from or to related parties.

60. Which of the following would not be considered key management personnel compensation?
a. Short-term benefits
b. Share-based payments
c. Termination benefits
d. Reimbursement of out-of-pocket expenses
61. All of the following fall within the definition of an entity's related party, except
a. Joint venture in which the entity is a venturer
b. A post-employment benefit plan for the benefit of the employees
c. An executive director of the entity
d. The partner of a key manager is a major supplier of the entity

62. Which of the following is not a related party of an entity?

a. The son of the chief executive officer of the entity
b. A bank providing loan to the entity
c. An associate of the entity
d. Director of the entity

63. Which of the following is a related party transaction?

a. Sold a car to the uncle of the entity's finance director.

b. Sold goods to another entity owned by the daughter of the entity's managing director.
c. Took out a huge bank loan.
d. All of these are related party terminations.