CHAPTER 14 – Inventories 11.

Theoretically, cash discounts

permitted should be deducted from
1. Which of the following should not be
inventory whether taken or not
taken into account when determining
12. Which of the following generally
the cost of inventory? Recoverable
would not be separately accounted
purchase taxes
for in the computation of cost of
2. The cost of inventory does not
goods sold? Trade discounts
include abnormal amount of wasted
applicable to purchases
material
13. The use of purchase discount account
3. Which of the following costs of
implies that the recorded cost of a
conversion cannot be included in cost
purchased inventory is invoice price
of inventory? Salaries of sales staff
14. The use of a discount lost account
4. Which of the following should be
implies that cost of a purchased
taken into account when determining
inventory is invoice price less the
the cost of inventory? Storage cost of
purchase discount allowable
part-finished goods
whether taken or not
5. Costs incurred in bringing the
15. The valuation of inventory on a prime
inventory to the present location and
cost basis would exclude all
condition include cost of designing
overhead form inventory costs
product for specific customers.
16. Which term represents the
6. Inventories encompasses all of the
deduction from the invoice price of
following, except land and other
purchased goods granted for early
property not held for sale
payment? Purchase discount
7. A property developer must classify
17. A discount given to a customer for
properties that it holds for sale in the
purchasing a large volume of
ordinary course of business as
merchandise is typically referred to
inventory
as Trade discount
8. Factory supplies to be consumed in
18. The purchase is recorded as a credit
the production process are reported
to accounts payable as if the
as
discount is to be taken, if using the
9. Which of the following should not be
net method
reported as inventory machinery
19. When recording accounts payable, a
acquired by a manufacturing entity.
purchase discount is recorded if
10. When determining the cost of an
using the gross method, but only if
inventory, which of the following
the payment is made during the
should not be included? Interest on
discount period.
loan obtained to purchase the
20. Using the gross method, purchase
inventory
discount lost is included in purchases
21. Why is inventory included in the CHAPTER 15-PPE
computation of net income? To
1. Property, plant and equipment are
determine COGS
defined as tangible assets held for
22. Which of the following is a
use in the production or supply of
characteristic of a perpetual
goods or services, for rental to
inventory system? Cost of goods sold
others, or for administrative
is determined as the amount of
purposes and expected to be used
purchases less the change in
during more than one reporting
inventory
period.
23. Which of the following is incorrect
2. Which of the following is not a
about the perpetual inventory
characteristic of property, plant and
method? After a physical inventory
equipment? The PPE are subject to
count, inventory is credited for any
depreciation.
missing inventory.
3. Spare parts and servicing equipment
24. An entry debiting inventory and
that can be used only in connection
crediting cost of goods sold would be
with an item of property, plant and
made when merchandise is returned
equipment are accounted for as PPE
using the perpetual system.
and depreciated over their useful life
25. In a periodic system, the beginning
or the useful life of the related asset
inventory is total goods available for
whichever is shorter.
sale minus net purchases.
4. What valuation model should an
26. Which is not acceptable for valuation
entity use to measure PPE? The cost
of inventory? Prime cost
model or the revaluation model
27. Entities must allocate the cost of all
5. The cost of PPE comprises all of the
goods available for sale between the
following, except initial estimate of
income statement and the
the cost of dismantling the asset for
statement of financial position
which the entity has no present
28. An exception to the general rule that
obligation.
costs should be charged to expense
6. Costs directly attributable to bring
in the period incurred is General and
the asset to the location and
administrative overhead
condition for the intended use
29. What is consigned inventory? Goods
include all except cost of employee
shipped and title transfers to the
benefit not arising directly from the
consignee
acquisition of PPE.
30. Freight and other handling charges
7. Which cost should be expensed
incurred in the transfer of goods from
immediately? Cost of opening a new
the consignor to consignee are
facility, cost of introducing a new
inventoriable by the consignor
product or service, including cost of
 advertising and promotional
activities, cost of conducting business
in a new location.
8. Which cost should be expensed
immediately? Administrative
overhead, initial operating loss, cost
of relocating or reorganizing part or
all of an entity’s operation
9. A nonmonetary exchange is
recognized at FV of the asset
exchanged unless fair value is not
determinable.
10. In exchange with commercial
substance, gain or loss is recognized
entirely.
11. The cost of property, plant and
equipment acquired in an exchange
is measured at the fair value of the
asset given plus cash payment.
12. Which exchange has commercial
substance? Exchange of assets that
causes the entities to remain in
essentially the same economic
position.
13. For a nonmonetary exchange, the
configuration of cash flows includes
which of the following? The risk,
timing and amount of cash flows of
the assets
14. 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
fair value of asset given
15. Which statement is true concerning
acquisition of property, plant and
equipment by self-construction? The
cost of self-constructed asset is
determined using the same
principles as for an acquired asset,
any internal profit is eliminated in
arriving at the cost of self-
constructed asset, the cost of
abnormal amount of wasted
material is not included in the cost of
the asset
16. The carrying amount of PPE shall be
derecognized on disposal and when
no future economic benefits are
expected from the use of the asset.
17. Entities are encouraged to disclose all
of the following in relation to
property, plant and equipment,
except the fair value of PPE that is
not materially different from
carrying amount when the cost
model is used.
18. Which of the following is not
capitalized into the cost of PPE? Cost
of excess materials from a
purchasing error
19. An entity purchased a machinery that
it does not have to pay until after
three years. The total payment on
maturity will include both prinicipal
and interest. The cost of the machine
would be the total payment
multiplied by what time value of
money concept? Present value of 1
20. The initial operating loss should be
expensed and charged to the income
statement.
21. 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? Freight is capitalized but
interest cannot be capitalized.
22. The cost of PPE compromises the
purchase price and all directly
attributable costs necessary to bring
the asset to the location and
condition for the intended use.
23. When property is acquired by issuing
equity shares, which of the following
is the best basis for establishing the
historical cost of the acquired asset?
Fair value of the asset received.
24. When a plant asset is acquired by
deferred payment, which condition
generally does not indicate the need
to consider the imputation of
interest? The face amount of the
deferred obligation is equal to the
fair value of the plant asset
exchanged.
25. If the present value of a note issued
in exchange for a plant asset is less
than the face amount, the difference
is amortized as interest expense
over the life of the note
26. An entity purchased a plant asset
under a deferred payment contract.
The agreement was to pay P10,000
per year for 5 years. The plant asset
is initially measured at present value
of P10,000 annuity for 5 years at an
imputed interest.
27. An entity purchased a plant asset
under a deferred payment contract.
The agreement was to pay P10,000 at
the time of purchase and P10,000 at
the end of each of the next five years.
The plant asset is measured initially
at P60,000 less imputed interest.
28. Which of the following is the most
appropriate policy as regards the
allocation of joint overhead cost to
plant and equipment constructed by
the entity for own use? Assign a
proportionate share of overhead to
the construction on the same basis
as that used for the assignment to
normal production.
29. A donated plant asset for which the
fair value has been determined, and
for which directly attributable costs
were incurred, shall be recorded at
an amount equal to fair value and
directly attributable costs incurred.
30. An exchange transaction that is
deemed to have commercial
substance is accounted for on the
basis of fair value. The difference
between the fair value and carrying
amount of the asset transferred is
recognized as gain or loss.
31. Since no cash was exchanged, the
fair value of the asset transferred,
and the fair value of the asset
received are equal. Thus, the excess
of the carrying amount of the asset
transferred over its fair value is
recognized as loss.
32. The excess of the fair value of the
truck given by Solen over the
carrying amount is recognized as
gain.
33. The excess of the fair value of the
land given by Skate over the carrying
amount is recognized as gain.
34. The cost of land usually includes all of
the following except: Property tax
after the date of acquisition
35. The cost of land typically includes all
of the following except: PRivate
driveway and parking lot
36. Fence and parking lot are reported as
Land Improvements
37. The cost of building usually includes
all of the following, except
expenditure for movable equipment
and fixture
38. The single cost of acquiring land and
usable old building is allocated
between land and building based on
relating fair value
39. The cost of demolishing an old
building to make room for the
construction of a new building should
be charged to the new building.
40. The carrying amount of an existing
old building demolished to make
room for the construction of a new
building should be accounted for as
loss.
41. When an entity acquired land with an
old building and immediately
demolished the old building so that
the land can be used for the
construction of a plant, the cost
incurred to demolish the old building
should be added to the cost of the
plant
42. If an entity purchased a lot and an old
building and demolished the old
building to make room for the
construction of a new building, the
proper accounting treatment of the
carrying amount of the old building
would depend on the intention of
management for the property when
the new building was constructed.
43. An entity purchased land to be used
as an investment property. Timber
was out from the side so
development of land could begin.
The proceeds from the sale of the
timber should be deducted from the
cost of the land
44. An entity purchased land and a hotel
with plant tear down the hotel and
build a new hotel. The allocated cost
of the old hotel should be written off
as loss in the year the hotel is torn
down
45. An entity’s forest land was
condemned for use as a national
park. Compensation for the
condemnation exceeded the forest
land’s carrying amount. The entity
purchased similar but larger,
replacement forest land for an
amount greater than the
condemnation award. As a result of
the condemnation and replacement,
what is the net effect on the carrying
amount of forest land reported in the
statement of financial position? The
amount is increased by the excess of
the replacement forest land’s cost
over the condemned land’s carrying
amount.
46. The term “betterment” refers to an
expenditure made to restore
capacity after abandonment or
retirement.
47. Which type of expenditure occurs
when an entity installs a higher
capacity boiler to heat the plant?
Betterment
48. An improvement made to a machine
which increased the fair value and
production capacity without
extending the useful life of the
machine should be capitalized in the
machine account
49. Which of the following would
ordinarily be treated as a revenue
expenditure rather than a capital
expenditure? Cost of servicing and
overhaul to restore or maintain the
originally assessed standard of
performance.
50. A building suffered uninsured fire
damage. The damaged portion of the
building was refurbished with higher
quality materials. The cost and
related accumulated depreciation of
the damaged portion are identifiable.
CHAPTER 35 – GOVERNMENT GRANT
What is the accounting for those
events? Capitalize the cost of
refurbishing and record a lose in the
current period equal to the carrying
amount of the damaged portion of
the building
51. An entity incurred cost to modify a
building and to rearrange a
production line. As a result, an overall
reduction in production cost is
expected. However, the modification
did not increase the fair value of the
building and the rearrangement did
not extend the life of the production
line. Should the building modification
cost and the production line
rearrangement cost be capitalized?
Both the building modification cost
and production line rearrangement
cost should be capitalized
52. Which of the following costs should
not be capitalized? Replacement of
small spare parts annually
53. Which of the following expenditures
may properly be capitalized?
Insurance on plant during
construction
54. Which of the following subsequent
expenditures should be expensed
immediately? Expenditure made to
maintain an existing asset in
operating conditions.
55. An expenditure made in connection
with a machine being used by an
entity should be capitalized if it
increases the quantity of units
produced by the machine
1. This is defined as assistance by the
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
2. Government grant shall be
recognized when there is reasonable
assurance that
c. The entity will comply with the
conditions of the grant and the grant
will be received
3. 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
4. Government grant in recognition of
specific cost is recognized as income
a. Over the same period as the
relevant expense
5. Government grant related to
depreciable asset is usually
recognized as income
d. Over the useful life of the asset
and in proportion to the
depreciation of the asset
6. Government grant related to
nondepreciable asset that requires
fulfillment of certain conditions
d. Should be recognized as income
over the periods which bear the cost
of meeting the conditions
7. A government grant that becomes
receivable as compensation for
expenses or losses already incurred
or for the purpose of giving
for the benefit of an entire local community
immediate financial support to the
entity with no future related costs
should be recognized as income
b. Of the period in which it becomes
receivable
8. A government grant that becomes
repayable shall be accounted for as
a. Change in accounting estimate
9. Repayment of grant related to
income shall be
d. Applied first against the deferred
income balance and any excess shall
be recognized immediately as an
expense
10. 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. 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.
c. Reducing the deferred income
balance to zero if the deferred
income approach is used.
d. All of these
35-12
1. Government assistance includes all
the following except
d. Improved irrigation water system
2. Which of the following is included in
government assistance
a. The construction of infrastructure
in developing (unreadable)
b. The imposition of trading
constrains on competitors
c. Improvement to the general
transport and communication
network
d. None of these can be included in
government assistance
3. 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
4. The amount of benefit in a zero
interest government loan is
measured as the difference between
a. Face amount and present value of
loan
35-13
1. In the case of a nonmonetary grant,
which of the following accounting
treatment is prescribed?
c. Record both the grant and the
asset at fair value of the
nonmonetary asset
2. In the case of grant related to an
asset which of following accounting
treatment is prescribed?
b. Either set up the grant as deferred
income or deduct it in arriving at the
carrying amount of the asset
3. In the case of grant related to
income, which of the following
accounting treatment is prescribed?
b. Present the grant in the income
statement as other income or as a
separate line item, or deduct it from
the related expense.
4. Which disclosure is not required
about government grant?
c. The name of the government
agency that gave the grant.
CHAPTER 36 – BORROWING COSTS
1. Borrowing costs are defined as
d. Interest and other costs that an
entity incurs in connection with
borrowing of funds.
2. 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
the cost of the asset.
II. If the borrowing is not directly
attributable to a qualifying
asset, the borrowing cost
shall be expensed as incurred.
c. Both I and II
3. Borrowing cost can be capitalized as
cost of the asset when
 d. The asset is a qualifying asset but 36-11
it is probable that the borrowing
1. Which of the following may not be
costs will result in future economic
considered a qualifying asset?
benefits to the entity and the costs
can be measured reliably b. An expensive private jet that can
be purchased from a local vendor
4. If the qualifying asset is financed by
specific borrowing, the capitalizable 2. Assets that qualify for interest
borrowing cost is equal to capitalization include

c. Actual borrowing cost incurred up a. Asset under construction for an

to completion of asset minus any entity’s use
investment income from the
3. Which of the following costs may not
temporary investment of the
be eligible for capitalization as
borrowing.
borrowing cost?
5. Which of the following assets could
c. Imputed cost of equity
be treated as qualifying asset for the
purpose of capitalizing borrowing 4. Which statement about the
costs? capitalization of borrowing cost as
part of the cost of a qualifying asset
a. Investment property
is true?
6. If the qualifying asset is financed by
a. If funds come from general
general bowing the capitalizable
borrowings, the amount to be
borrowing cost is equal to
capitalized is based on the weighted
c. Average expenditures on the asset average amount of expenditures
multiplied by a capitalization rate or
5. Which is the correct approach in
actual borrowing cost incurred
accounting for interest incurred in
whichever is lower.
financing the construction of
7. Which of the following is not a property, plant, and equipment?
condition that must be satisfied
a. capitalize only the actual interest
before interest capitalization can
incurred during construction
begin on a qualifying asset.
6. When computing the amount of
c. The interest rate is equal to or
interest cost to be capitalized, the
greater than the cost of capital.
concept of “avoidable interest” refers
8. Unreadable to
9. Unreadable
10. Unreadable
 c. That portion of total interest cost
which would not have been incurred
if expenditures for asset
construction had not been made.

7. An entity can commence

capitalization of borrowing cost on a
new construction project when

c. Expenditures on the project start

to be incurred.

8. Interest revenue earned on specific

borrowing for qualifying asset

a. Reduces the cost of qualifying

asset.