10. ABC Corp.

purchased a machinery with a cash price equivalent of P50,000 and list

price of P60,000. ABC made a promise to the supplier to pay 2 years from the date of
purchase. Because of longer payterm, ABC and the supplier agreed to pay the supplier
P80,000 2 years from the date of purchase. How much should be recorded as the cost of
machinery upon acquisition?
a. P80,000
b. P50,000
c. P60,000
d. None of the above

11. In relation to question #10, how much will be the interest expense to be recorded over
the two-year period?
a. P20,000
b. P30,000
c. P10,000
d. None of the above

12. Ayala Corp. acquired a machinery with fair value of P300,000. To pay for the
machinery, Ayala issued its 20,000 shares with fair value per share of P20 and par value
per share of P10. How much should be recorded as the cost of machinery upon
acquisition?
a. P200,000
b. P300,000
c. P400,000
d. None of the above

13. In relation with question number 12, what will be the cost of machinery assuming that
the fair value of shares issued is not available?
a. P200,000
b. P300,000
c. P400,000
d. None of the above
14. In relation with question number 12, what will be the cost of the machinery assuming
that fair value of the machinery received is not available?
a. P200,000
b. P300,000
c. P400,000
d. None of the above

15. Ayala Corporation acquired a machinery by issuing bonds payable. The fair value of
the machinery to be acquired is P300,000 while the bonds payable has fair value of
350,000 and face value of P370,000. What should be the cost of the machinery upon
acquisition?
a. P300,000
b. P350,000
c. P370,000
d. None of the above

16. In relation with question number 15, that is the cost of the machinery assuming that
the fair value of machinery acquired is not available?
a. P300,000
b. P350,000
c. P370,000
d. None of the above

17. ABC Corp. suffered a huge loss because of the recent earthquake that struck its
location. Because of this, the local government provided an immediate financial
assistance amounting to P1 million. In this case, how should ABC Corp. treat the amount
received?
a. Income
b. Deferred income/liability
c. Expense because of the loss
d. None of the above

18. Because of the recent law passed by the congress and approved by the president, the
competitor of ABC Corp. will no longer be able to manufacture its products due to its
hazardous effect to the local community. How should ABC Corp. treat this event? Should
ABC Corp. treat this event as a government assistance?
a. Yes
b. No

19. ABC Corp. was chosen by the government to manufacture face masks for distribution
to its local residents. This is estimated to comprise 20% of the sale of ABC corp. next
year. Is this event a form of government assistance?
a. Yes
b. No

20. ABC Corp. is a manufacturer of wines. Because of the fermentation process,

manufacturing a bottle of wine will take 2 years. Are the wines being manufactured can
be classified as qualifying assets?
a. Yes
b. No
c. Maybe

21. ABC Corp. acquired a building for the purpose of using the said building to
warehouse its inventories. In order to acquire the building, ABC Corp. borrowed P100
million from the bank. The building can be immediately used to house the inventories. Is
this case, is the building can be categorized as a qualifying asset?
a. Yes
b. No
c. Maybe

22. ABC Corp. is currently constructing the a building for use in its business. The funds
used to construct the building were borrowed from the bank. Because it will take another
6 months to complete the building, it temporarily used a space in the building for paid
parking. Because of this, it was able to generate income. How should ABC corp. treat the
income from temporary leasing a portion of the lot?
a. As income in the statement of comprehensive income
b. As deduction from borrowing cost
c. Not sure
23. Tariff cost necessary to ship the property plant and equipment in the Philippines
where it can be used should not form part of the cost of the said PPE.
a. True
b. False

24. ABC Corp. constructed a machinery. Once in every 3 years for use in its construction
as PPE. During the year, because of the recent strike against the company by its
employees, the cost incurred in constructing its machinery is P100,000 higher than its
normal cost. How should the entity account for this excess?
a. As an expense/loss
b. As part of the cost of machinery constructed
c. Not recognized, a disclosure will do
d. None of the above

25. ABC Corp. installed a machinery for the mining of metals in a location. The
government required ABC to dismantle the said machinery after the metals have been
mined. The estimated cost of dismantling is P40,000 after a 3-year period. How should
ABC treat the cost?
a. Should be expensed since it is not necessary cost for the machinery to be used in
mining
b. Should form part of the cost of machinery
c. Not recognized though it requires to be disclosed in the notes to financial statements
d. None of the above

26. Inventories shall be measured at

a. Cost
b. Net realizable value
c. Lower of cost and net realizable value
d. Higher of cost and net realizable value
e. None of the above

27. Factory supplies to be consumed in the production process are included in

a. Inventory
b. PPE
 c. Investment property
d. Intangible assets
e. None of the above

28. Inventories encompasses all of the following, except

a. Merchandise purchased by a retailer
b. Land and other property not held for sale
c. Finished goods produced
d. Materials and supplies awaiting use in the production process

29. The specific identification method is required for

a. All inventory
b. Retail inventory
c. Inventory that is interchangeable
d. Inventory that is not interchangeable and goods produced and segregated for specific
project
e. All of the above

30. Which of the following should not be reported in inventory?

a. Raw materials
b. Equipment
c. Finished goods
d. Factory supplies

31. In a period of rising prices, which inventory method provides the highest amount of
net income?
a. Weighted average method
b. Moving average method
c. FIFO
d. Specific identification
e. None of the above

32. Change in useful life of a machinery should be accounted for

a. Prospectively