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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

Name:________________________________________________________Score:________________
INSTRUCTIONS. Read each item carefully. Please choose the correct answer. Place your answers on the
area provided below.

Intermediate Accounting 2 - Quizzer

1. 6. 11. 16.

2. 7. 12. 17.

3. 8. 13. 18.

4. 9. 14. 19.

5. 10. 15. 20.

THEORIES.

1. Property, Plant , and Equipment are:

a. Identifiable non-monetary assets without physical substance.
b. Properties held to earn rentals or for capital appreciation.
c. Assets held for sale in the ordinary course of business.
d. Tangible items that are held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes, and are expected to be used for more
than one period.

2. Which of the following is not a PPE?

a. Equipment that is temporarily idle.
b. Construction Work in Progress for an owner-occupied building in the future.
c. Transportation equipment purchased on installment basis.
d. Land acquired by a real estate company and put on the market for sale.

3. An item of PPE acquired in an exchange (1) with commercial substance (2) without commercial
substance, is measured at:
a. Fair Value/ Carrying Value of the asset given up.
b. Fair Value/ Carrying Value of asset given up minus cash paid or plus cash received.
c. Fair Value/ Carrying Value of asset given up plus cash paid or minus cash received.
d. Fair Value/ Carrying value of the asset received plus cash paid or minus cash received.

4. Which of the following statements is/are correct:

I. There is gain or loss on exchange in an exchange where future cash flows does not vary
differently.
II. When the mode of acquisition is deferred credit - long term ( notes payable ), the cost of
PPE if there is no cash price equivalent is assumed to be the present value of the note.
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

III. Real property taxes accrued after acquisition is capitalized.

IV. Sum of Years depreciation method uses the carrying value as the basis for depreciation.
V. The capitalization rate of general borrowings is equal to the nominal rate if there is only
on general borrowing.
VI. The amount of grant income recognized is equal to the loss on repayment of government
grant.

a. I, III, and IV
b. I, IV, and III
c. II, V, and VI
d. All statements are correct
e. All statements are incorrect

5. Government grants related to non-depreciable assets that requires fulfillment of certain

conditions shall be:
a. Recognized as income immediately.
b. Recognized as income over the periods which bear the cost of meeting the conditions.
c. Recognized as income over a period of 20 years.
d. Ignored and not recognized as income.

6. With regards to PPE, which costs should not be capitalized?

a. Replacement of roof of building every 15 years
b. Cost of site preparation
c. Installation and assembly cost
d. Replacement of low quantity spare parts frequently.

7. A qualifying asset is:

a. An asset that are either ready for use when acquired and/or takes relatively small time for
it to be used as intended by the management.
b. An asset that is measured at Fair value when acquired or ready for use or sale.
c. An asset that takes a substantial period of time to get ready for it to be used or sold as
intended by management.
d. There is not such thing as qualifying asset, only disqualifying asset.

8. The useful life of property, plant, and equipment is :

I. The number of production or similar units expected to be obtained from the asset by the
entity.
II. The period of time over which an asset is expected to be used by the entity.
III. Relevant in calculating depreciation.

a. I
b. I, and II
c. II, and III
d. All statements are correct.
e. All statements are incorrect.
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

9. A method which excludes residual value from the base for depreciation is:
a. Straight-line method
b. Production method
c. Decreasing Charge method
d. Declining balance method

10. Which of the following can be treated as a qualifying asset for the purpose of capitalizing
borrowing costs?
a. Investment property
b. Biological assets
c. Inventory that is measured or produced in large quantity on a repetitive basis that takes at
least one year to finish.
d. Assetate

PROBLEMS.

Problem 1. On July 1, 2024, Rheinmetall Co. Acquired a land with an old and abandoned building on
it for P7,000,000. The fair value of the land is P6,000,000 while the fair value of the building is
P2,000,000. The company will not use the old building and will immediately start the construction
of a new building. In addition to purchase price, the following are the related costs incurred by the
company:

Real property taxes ( land ) before July 1 P253,000

Real property taxes ( land ) after July 1 12,000
Payment for land title 250,000
Mortgage assumed on land 1,300,000
Cost of leveling the land 45,000
Demolition cost of the 0ld building 300,000
Materials used in the new building 4,000,000
Building permit 250,000
Excavation costs 500,000
Labor of construction workers 2,000,000
Utilities used during construction 600,000
Depreciation of PPEs used in construction 430,000
Temporary fencing around the construction site 65,000
Abnormal wastage of materials 354,000
Fire insurance during construction 35,000
Hospitalization costs due to accidents during construction 850,000
Savings by the company 1,200,000
Costs of fencing after the building has been finished 330,000
Cost of option of acquired properties 100,000
Cost of option of properties not acquired 150,000
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

Requirement: Determine the following:

11. What is the cost of the new building?

12. What is the cost of the new building?

13. What amount is not capitalized but expensed?

Problem 2. During the current year 2024, SEE PY EY & Co., received three government grants in
relation to its operations.

First Grant

On January 1, 2024, SEE PY EY & Co. received cash of P2,000,000 from a foreign government to be
used in helping the company’s clean-up drive project on Manila Bay over a five-year period. It was
estimated that the total cleaning cost is P5,000,000. During the year, the actual clearing cost
amounted to P1,500,000.

Second Grant

On April 1, 2024, SEE PY EY & Co. received P5,000,0000 cash from the local government to be used
in purchasing a production equipment. The equipment was purchased on the same day with a
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

total cost of P10,000,000 to be depreciated using the straight-line method over 10 years with
residual value of P1,000,000.

Third Grant

On November 30, 2024, various properties of SEE PEE EY & Co. Were destroyed due to flood, the
estimated amount of which is P1,500,000. On December 5, 2024, the company received P500,000
from the government confidential funds as financial aid.

Requirement:

14. Assuming the company treats the grant as a deferral, what is the total income from grants for
the year 2024?

15. Assuming the company treats the grant as a deferral, what is the balance of the deferred
income from government grants as of the current year?

16. Assuming the company treats the grant as a deduction to the asset or expense, what is the net
amount going into the profit or loss fro the current year?
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

Problem 3. With expaning operations, EY & Co. Began the self-construction of anew building on
January 1, 2024 and the building was completed on November 30, 2024.

EY & Co. Borrowed a 10% annual interest P2,00,000 loan in order to have additional funding for the
construction of the new building. The company had other loans outstanding during 2023, and 2024:

Lockheed P24,000,000 12%

Sukhoi P21,000,000 9%

Expenditures during the year were:

January 1, 2024 P2,000,000

June 30, 2024 4,000,000
November 1, 2024 3,000,000

Requirements:

17. What is capitalizable interest during the life of the construction?

18. What is the amount of interest expense?

Problem 4. Magayon Co. acquired a new logistics truck on January 2, 2024 with a purchase price of
P1,300,000 handling costs of P100,000. The company determined its useful life to be 8 years. After
further research on the open market, the management said that the truck has a P400,000 residual
value.

Requirement:

19. Assuming the company uses SYD method, what is the depreciation for the year 2025 and its
carrying amount as of that date?
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Jan Randel C. Cañete, CPA

Intermediate Accounting 2

20. Assuming the company uses Double declining method, what is the depreciation for the year
2025 and its carrying amount as of that date?

- - End of Handout - -

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- Alber Einstein

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- Randel Cañete

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life’s hardest battles.”
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