PPE lang future CPA
Which exchange has commercial substance
1. Which of the following is not a characteristic of
PPE
a. PPE are tangible asset
b. PPE are used in business
c. PPE are expected to be used over a period of
more than one year
d. PPE are subject to depreciation
2. What valuation model should an entity use to
measure PPE
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
OCI
d. The cost model or the fair value model
3. The cost of PPE comprises all of the following
except
a. Purchase prize
b. Import duties and nonrefundable purchase
taxes
c. Any cost directly attributable in bringing the
asset to the location and condition intended
to use
d. Initial estimate of the cost of dismantling the
asset for which the entity has no present
obligation
4. Cost directly attributable to the asset include all
except
a. Initial operating loss
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
5. Which cost should expensed immediately
a. Cost of opening 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
6. A nonmonetary exchange is recognized at fair
value of the asset exchange unless
a. Exchange has a commercial substance
b. Fair value is not determinable
c. The asset is similar in the nature
d. The asset are dissimilar
7. In an exchange with commercial substance
a. Gain or loss is recognized entirely
b. Gain or loss not recognized
c. Only gain should recognized
d. Only loss should recognized
8. The cost of PPE acquired in an exchange is
measured at the
a. Fair value of 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.
a. Exchange of asset with no difference in
future cash flow
b. Exchange of asset with difference in future
cash flow
c. Exchange of asset that cause the entities to
remain in essentially the same position
d. Exchange by entities in the same line of
business
10. For a nonmonetary exchange the configuration
of cash flows included which of the following
a. The implicit rate maturity date of loan and
amount of loan
b. The risk timing and amount of cash flows of
the asset
c. The entity specific value of the asset
d. The estimated present value of the asset
exchange
11. A property acquired by issuing equity shares
should be recorded at
a. Historical cost of the asset
b. Historical cost of the same asset
c. Fair value of the asset receive
d. Fair value of the shares issued
12. When plant asset is acquired by deferred
payment, which condition does not need
imputation of interest
a. The interest rate stated on the deferred
obligation is significantly different from
market interest rate
b. The cash price of the plant asset is
significantly different from the deferred
obligation
c. The instrument representing the deferred
obligation is non interest bearing
d. The face amount of the deferred obligation
is equal to the fair value of the plant asset
exchange
13. If the present value of note issued in exchange
for plant asset less the face amount the
difference is
a. Included in the cost of asset
b. Amortized as an interest expense over the
life of the note
c. Amortized as an interest expense over the
life off the asset
d. Included interest expense in the year of
issuance
14. The total payment on maturity for a machine
includes both principal and interest . the cost
would be the total payment multiplied by what
time value of money concept
a. Present value of an ordinary annuity 1
b. Present value of 1
c. Future amount of an ordinary annuity 1
d. Future amount of 1
15. A plant asset purchased under a deferred
payment of 10, 000 per year for 5 years is
measured at
a. 50, 000
b. 50,000 plus imputed interest
c. Present value of 10,000 annuity for 5 years
at an imputed interest
d. Future value of 10,000 annuity of 5 years
16. 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. Directly attributable cost necessary to bring
the asset to the location and condition for the
intended use
17. This represents assistance by government in the
form of transfer of resources to an entity in
return for past or future compliance with certain
conditions.
a. Government grant
b. Government assistance
c. Government donation
d. Government aid
18. 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.
19. This is government grant whose primary
condition is that an entity shall purchase or
construct asset
a. Grant related to asset
b. Grant related to income
c. Government gift
d. Government appropriation
20. Government grant in recognition of specific
cost 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
21. 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.
22. Government grant related to non depreciable
asset that requires fulfillment 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.
23. A government grant that becomes receivable as
compensation for expenses or losses already
incurred 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.
24. It is an action by a government designed to
provide an economic benefit specific to an
entity and for which the government cannot
reasonably place a value.
a. Government grant
b. Government assistance
c. Government takeover
d. Government benefit
25. Government assistance includes all the
following, except
a. Free technical advice
b. Provision of guarantee
c. Government procurement policy
d. Improved irrigation water system for the
benefit of an entire local community
26. Which disclosure is not required about
government grant?
a. The accounting policy adopted for
government grant
b. Unfulfilled condition
c. The name of the government agency that
gave the grant.
d. The nature and extent of government grant
27. 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 record it as income in the
subsequent year
d. As an extraordinary gain.
28. 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 as other income or as a
separate line item, or deduct it from the
related expense
c. Credit the grant to retained earnings
d. Credit the grant to sales revenue
29. The deferred grant income is classified as
a. Separate component of shareholders' equity
b. Noncurrent liability
c. Current liability
d. Partially current and non current liability
30. If the cost of the asset is recorded net of the
grant
a. Asset is understated
b. Equity is overstated
c. Liability is overstated
d. Net income is understated
31. Which is included in government assistance?
a. The provision 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
32. Borrowing cost is defined as
a. Interest expense using the effective interest
method
b. Finance charge in respect of finance lease.
c. Exchange difference arising from foreign
currency borrowing to the extent that this is
regarded as an adjustment to interest cost.
d. Interest and other cost that an entity incurs
in connection with borrowing of fund.
33. 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. II only
c. Both I and II
d. Neither. I nor II
34. Borrowing cost 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 cost will result
in future economic benefit to the entity.
c. The asset is a qualifying asset and it is
probable that the borrowing cost will result
in future economic benefit to the entity but
the cost cannot be measured reliably
d. The asset is a qualifying asset and it is
probable that the borrowing cost will result
in future economic benefit to the entity and
the cost can be measured reliably
35. 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
36. Which of the following could be treated as
qualifying asset for the purpose of capitalizing
borrowing cost?
a. Investment property
b. Financial asset at fair value
c. Inventory that is manufactured in large
quantity on a repetitive basis and takes a
substantial period of time to get ready for
use or sale
d. Biological asset
37. 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
38. 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 the bank prime
rate
d. Activities necessary to get the asset ready
for the intended use are in progress
39. Which of the following cost may not be eligible
for capitalization as borrowing cost?
a. Interest on bonds issued to finance the
construction of a qualifying asset
b. Amortization of discount or premium
relating to borrowings that qualify for
capitalization
c. Imputed cost of equity
d. Exchange difference arising from foreign
currency borrowings pertaining to a
qualifying asset.
40. Interest income 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
41. Which statement is correct regarding
capitalized interest?
a. Capitalized interest is reduced by income
received on the unexpended portion of the
general construction loan.
b. The amount of capitalized interest on
general borrowing is the lower of actual
interest incurred or computed capitalized
interest.
c. Interest after completion of construction is
capitalized.
d. All of these statements are correct.
42. When computing the amount of interest to be
capitalized the concept of avoidable interest
refers to
a. The total interest actually incurred.
b. A cost of capital charge for shareholders'
equity
c. That portion of total interest 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 was
incurred.
43. 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
average 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 borrowing is being
incurred.
44. Which is the approach in accounting for interest
incurred in financing construction of property?
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
45. The capitalization of interest is appropriate
during a construction delay that is
a. Intentional
b. Related to permit processing or inspection
c. Permanent due to extended period of
interruption
d. All of these require capitalization of interest
46. Which is a required disclosure regarding
interest?
a. Total interest incurred for the period
b. Total capitalized interest for the period
c. The capitalization rate used to determine the
capitalizable interest.
d. All of these are required disclosure
regarding interest
47. Exploration and evaluation expenditures are
incurred
a. When searching for an area that may
warrant detailed exploration even though the
entity has not yet obtained the legal rights to
explore a specific area
b. When the legal right to explore a specific
area has been obtained but the technical
feasibility and commercial viability of
extracting a mineral resource are not yet
demonstrable
c. When a specific area is being developed and
preparations for commercial extraction are
being made.
d. In extracting mineral resource and
processing the resource to make it
marketable or transportable.
48. When is an entity required to recognize
exploration and evaluation expenditure as an
asset?
a. When such expenditure is recoverable in
future periods.
b. When the technical feasibility and
commercial viability of extracting the
associated mineral resource have been
demonstrated.
c. When required by the entity's accounting
policy for recognizing exploration an
evaluation asset.
d. Such expenditure is always expensed as
incurred.
49. Which of the following expenditures would
never qualify as an exploration and evaluation
asset?
a. Expenditure for acquisition of right to
explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of
mineral resource
d. Expenditures for activities in relation to
evaluating the technical feasibility and
commercial viability of extracting a mineral
resource
50. Which measurement model applies to
exploration and evaluation asset subsequent to
initial recognition?
a. Cost model
b. Revaluation model
c. Cost model and revaluation model
d. Recoverable amount model
51. Which type of expenditure is included in
exploration and evaluation of mineral
resources?
a. The extraction and processing of mineral
resource for transport to market
b. The commercial review of possible areas for
mineral extraction before bidding for the
legal right to explore a specific area.
c. The expenditure incurred after the technical
feasibility and commercial viability of
extracting a mineral resource are
demonstrable
d. None of these should be included in
exploration and evaluation expenditures.
52. Interest cost that is capitalized should
a. be written off over the remaining term of
the debt.
b. be accumulated in a separate deferred
charge account and written off equally over
a 40-year period.
c. not be written off until the related asset is
fully depreciated or disposed of.none of
these.
53. When funds are borrowed to pay for
construction of assets that qualify for
capitalization of interest, the excess funds not
needed to pay for construction may be
temporarily invested in interest-bearing
securities. Interest earned on these temporary
investments should be
a. offset against interest cost incurred during
construction.
b. used to reduce the cost of assets being
constructed.
c. multiplied by an appropriate interest rate to
determine the amount of interest to be
capitalized.
d. recognized as revenue of the period.
54. Construction of a qualifying asset is started on
April 1 and finished on December 1. The
fraction used to multiply an expenditure made
on April 1 to find weighted-average
accumulated expenditures is
a. 8/8.
b. 8/12.
c. 9/12
d. 11/12.
55. Which of the following statements is true
regarding capitalization of interest?
a. Interest cost capitalized in connection with
the purchase of land to be used as a
building site should be debited to the land
account and not to the building account.
b. The amount of interest cost capitalized
during the period should not exceed the
actual interest cost incurred.
c. When excess borrowed funds not
immediately needed for construction are
temporarily invested, any interest earned
should be offset against interest cost
incurred when determining the amount of
interest cost to be capitalized.
d. The minimum amount of interest to be
capitalized is determined by multiplying a
weighted average interest rate by the
amount of average accumulated
expenditures on qualifying assets during
the period.
56. Assets that qualify for interest cost
capitalization include
a. assets under construction for a company's
own use.
b. assets that are ready for their intended use
in the earnings of the company.
c. assets that are not currently being used
because of excess capacity.
d. All of these assets qualify for interest cost
capitalization
57. Which of the following assets do not qualify for
capitalization of interest costs incurred during
construction of the assets?
a. Assets under construction for an
enterprise's own use.
b. Assets intended for sale or lease that are
produced as discrete projects.
c. Assets financed through the issuance of
long-term debt.
d. Assets not currently undergoing the
activities necessary to prepare them for
their intended use.
58. 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
59. When land and old building are acquired, the
cost of immediately demolishing the old
building to prepare the land for the intended use
as investment property should be
a. Expensed immediately
b. Charged to the land
c. Accounted for as deferred charge
d. Charged to retained earnings
60. 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 entity's statement of
financial position?
a. The amount is increased by the
excess of the replacement forest
land's cost over the condemned
land's carrying amount
b. The amount is increased by the
excess of the replacement forest
land's cost over the condemnation
award
c. The amount is increased by the
excess of the condemnation award
over the condemned forest land's
carrying amount
d. No effect, because the condemned
forest land's carrying amount is used
as the replacement forest land's
carrying amount
61. When a company purchases land with a
building on it and immediately tears down the
building so that the land can be used for the
construction of a plant, the costs incurred to tear
down the building should be
a. Added to the cost of land
b. Added to the cost of plant
c. Amortized over the estimated time period
between the tearing down of the building
and the completion of the plant
d. Expense is incurred
62. A company purchased land to be used as the
site for the construction of the plant. Timber
was cut from the building site so that the
construction of the plant could begin. The
proceeds from the sale of the timber should be
a. Netted against the costs to clear the land
and expensed incurred
b. Deducted from the cost of the land
c. Classified as other income
d. Deducted from the cost of the plant
63. 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
a. Expensed as incurred
b. Added to the cost of the plant
c. Added to the cost of the land
d. Amortized over the estimated time period
between the demolition of the building and
the completion of the plant
64. 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 allocated
carrying amount of the old building would
depend on
a. The significance of the cost allocated to the
building in relation to the combined cost of
the lot and building
b. The length of time for which the building
was held prior to demolition
c. The contemplated future use of the old
building
d. the intention of management for the
property when the new building was
constructed
65. An entity purchased land to be used as an
investment property. Timber was cut from the
site so development of the land could begin.
The proceeds from the sale of the timber should
be
a. Classified as other income
b. Credited to retained earnings
c. Deducted from the cost of the land
d. Classified as deferred income and
amortized over five years
66. An entity purchased land and a hotel with the
plan to tear down the hotel and build a new
hotel. The allocated cost of the old hotel should
be
a. Depreciated over the remaining life of
the old hotel
b. Written off as loss in the year the hotel is
torn down
c. Capitalized as part of the cost of the land
d. Capitalized as part of the cost of the new
hotel
67. The cost of land usually includes all, except
a. Commission related to acquisition
b. Property tax after date of acquisition
c. Property tax to date of acquisition
d. Cost of survey
68. The cost of land typically includes all, except
a. Grading, filling, draining and clearing cost
b. Special assessment for drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
69. Fence and parking lot are reported as
a. Building
b. Land improvement
c. Land
d. Expense
70. Which should be capitalized as cost of land?
a. Filling in dirt to level the property prior to
excavation
b. Excavation cost
c. Cost incurred to construct sidewalk and
fence
d. All of these are capitalized as cost of land
71. Which cost should be charged to land
improvement?
a. Clearing of trees and grading
b. Architect fee
c. Installation of a septic system
d. Cost of demolishing an old building
72. The single cost of acquiring land and usable
old building is
a. Charged to the land only
b. Charged to the building only
c. Allocated between land and building based
on relative fair value
d. Allocated between land and building based
on carrying amount
73. The single cost of acquiring land and an
unusable old building is
a. Charged to the land only
b. Charged to the building only
c. Allocated between land and building based
on relative fair value
d. Allocated between land and building based
on carrying amount
74. The cost of demolishing an old building to
make room for make room for construction for
a new building should be
a. Expensed immediately
b. Charged to the land
c. Charged to the new building
d. Allocated between land and building based
on relative fair value
75. The carrying amount of an existing old building
demolished to make room for the construction
of a new building should be
a. Accounted for as loss
b. Capitalized as cost of the new building
c. Charged to the land
d. Charged to the new building if accounted
for as inventory
76. The term betterment refers to
a. An expenditure made for the new facilities
which increase capacity
b. An expenditure made to restore capacity
after abandonment or retirement
c. An expenditure made to improve existing
facilities by increasing capacity
d. An expenditure made to help insure
continuity of service capacity.
77. Which type of expenditure occurs when an
entity installs a higher capacity boiler to heat
the plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment
78. An improvement made to a machine
which increased the fair value and
production capacity without extending the
useful life of the machine should be
a. Expensed immediately
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated
depreciation and the machine account
79. Which of the following would ordinarily be
treated as a revenue expenditure rather than a
capital expenditure
a. Cost of servicing and overhaul to
restore or maintain the originally
assessed standard of performance
b. The replacement of a major component of
building
c. An addition to an existing building
d. Cost of improvement that us expected to
provide discernible future benefit
80. A building suffered uninsured fire damages.
The damaged portion of the building was
refurbished with higher quality materials. The
cost and related accumulated depreciation of the
damaged portion are identifiable. What is the
accounting for these events?
a. Capitalize the cost of republishing and
record a lose in the current period equal to
the carrying amount of the damaged
portion of the building
b. Capitalize the cost of refurbishing by
adding the cost to the carrying amount of
the building
c. Record a loss in the current period equal to
the cost of refurbishing and continue to
depreciate the original cost of the building
d. Record a loss in the current period equal to
the sum of the cost of refurbishing and the
carrying amount of the damaged portion of
the building
81. 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?
a. Only the building modification cost should
be capitalized
b. Only the production line rearrangement
cost should be capitalized
c. Both the building modification cost
and production line rearrangement
cost should be capitalized
d. The building modification cost and
production line rearrangement cost should
be expensed
82. Which of the following costs should not be
capitalized?
a. Replacement of roof of building every 15
year
b. Cost of site preparation
c. Installation and assembly cost
d. Replacement of small spare parts annually
83. Which of the following expenditure may
properly be capitalized?
a. Expenditure for massive advertising
campaign
b. Insurance on plant during construction
c. Research and development related to
a long-term asset giving the entity a
competitive market advantage
d. Title search and other legal cost related t9 a
piece of property which was not acquired
84. Which of the following subsequent
expenditures should be expensed immediately?
a. Expenditure made to increase the
efficiency or effectiveness of an existing
asset
b. Expenditure made to extend the useful life
of an existing asset
c. Expenditure made to maintain an existing
asset in operating condition
d. Expenditure made to add new asset
85. An expenditure made in connection with a
machine being used by an entity should be
a. Expensed if it merely extends the useful
life but does not improve the quality
b. Expensed if it merely improves the quality
but does not extend the useful life.
c. Capitalized if it maintains the machine in
normal operating condition
d. Capitalized if it is increases the quantity of
units produces by a machine.
86. Which statement is the assumption on which
straight line depreciation is based?
a. The operating efficiency of the asset
decreases in later years
b. Service value declines as a function of time
rather than use
c. Service value declines as a function of
obsolescence rather than time
d. Physical wear and tear are more important
than economic obsolescence.
87. The straight line depreciation is not appropriate
for
a. An entity that is neither expanding
nor contracting an investment in
equipment because it is replacing
equipment as the equipment depreciates
b. Equipment on which maintenance and
repairs increase substantially with age
c. Equipment with useful life that is not
affected by the amount of use
d. Equipment used consistently every period.
88. The principal objection to the straight line
method of depreciation is that it
a. Provides for the declining productivity of
an aging asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return
on a diminishing investment base
d. Gives smaller periodic write off than a
decreasing charge method
89. In which of the following situations is
the production method of depreciation
most appropriate?
a. An asset's service potential declines with
use
b. An asset’s service potential declines with
the passage of time
c. An asset is subject to rapid obsolescence
d. And asset incurs increasing repairs and
maintenance with use
90. Which statement provides the best theoretical
support for accelerated depreciation?
a. Assets are more efficient in early years
and initially generate more revenue
b. Expenses should be allocated in the manner
that “smooths” earnings.
c. Repairs and maintenance costs probably
would increase in later periods so
depreciation should decrease.
d. Accelerated depreciation provides easier
replacement because of the time value of
money
91. An asset has a nine-year useful life and is to be
appreciated under the sum of year’s digits
method. The annual depreciation expense
would be the same as that under the straight
line method in the
a. Third year
b. Fifth year
c. Seventh year
d. Ninth year
92. The composite depreciation method
a. Is applied to a group of homogeneous
assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the
retirement of single asset in the group
d. Excludes residual value from the base of
the depreciation calculation
93. An entity using the composite depreciation
method for a fleet of trucks, cars and campers
retired one of the trucks and received cash from
a salvage entity. The net carrying amount of
these composite asset accounts would be
decreased by the
a. Cash proceeds received and original cost
of the truck
b. Cash proceeds received
c. Original cost of the truck less the cash
proceeds
d. Original cost of truck
94. A machine with a four-year estimated useful
life and an estimated 15% residual value was
acquired at the beginning of the current year.
The increase in accumulated depreciation for
the second year using the double declining
balance method would be
a. Original cost x 85% x 50%
b. Original cost x 50%
c. Original cost x 85% x 50% x 50%
d. Original cost x 50% x 50%
95. A machine with a 5-year estimated useful life
and an estimated residual value was acquired at
the beginning of the current year. At the end of
the fourth year, accumulated depreciation using
the sum of years' digits method would be
a. Original cost less residual value multiplied
by 1/15
b. Original cost less residual value multiplied
by 14/15
c. Original cost multipled by 14 / 15
d. Original cost multiplied by 1 / 15
96. Depreciation is best described as a method of
a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life determination
97. Which depreciation method is not based on the
passage of time?
a. Production method
b. Sum of years’ digits
c. Declining balance
d. Straight line
98. A method which excludes residual value from
the base for the depreciation calculation is
a. Straight line
b. Sum of year's digits
c. Double declining balance
d. Output method
99. The double declining balance method
a. Results in a decreasing depreciation
charge
b. Means residual value is not deducted in
computing the depreciation base.
c. Means the carrying amount should not be
reduced below residual value.
d. All of these describe double declining
balance
100.Which depreciation method applies a uniform
depreciation rate each period to the carrying
amount of an asset?
a. Straight line
b. Declining balance
c. Output method
d. Sum of years' digits
101.What factor must be present to use the
production method of depreciation?
a. Total units to be produced can be
estimated
b. Production is constant over the life of the
asset
c. Repair costs increase with use
d. Obsolescence is expected
102.The sun of years' digits method
a. Results in residual value being ignored.
b. Means the denominator is the number of
years remaining at the beginning of the
year
c. Means the carrying amount should not be
reduced below residual value.
d. Results in an increasing depreciation
charge.
103.In order to calculate. the depreciation of asset
for the third year using the sum of years’ digits
method, which of the following must be known
about the asset?
a. Acquisition cost
b. Residual value
c. Useful life
d. All must be known
104.Which depreciation method is not appropriate
for situations involving a large number of
similar items, each having a small peso cost?
a. Inventory method
b. Retirement method
c. Replacement method
d. Composite method
105.Which statement regarding depreciation is true?
a. An asset must be depreciated from the date
of purchase.
b. The annual depreciation charge must be
constant
c. The total cost of an asset must eventually
be depreciated
d. If the carrying amount of an asset is less
than hi residual value, depreciation is not
charged.

106.Which statement best describes the term
depreciation?
a. The systematic allocation of the cost of an
asset less residual value over the useful
life.
b. The removal of an asset from the statement
of financial position.
c. The amount by which the recoverable
amount of an asset exceeds carrying
amount.
d. The amount by which the carrying amount
of an asset exceeds recoverable amount
107.Carrying amount is
a. Cost of an asset or the amount substituted
for cost in the financial statements, less
residual value
b. Amount of cash paid or the fair value of the
other consideration given to acquire an
asset at the time of acquisition or
construction.
c. Net amount which the entity expects to
obtain for an asset at the end of the useful
life after deducting the expected cost of
disposal.
d. Amount at which an asset is recognized in
the statement of financial position after
deducting any accumulated depreciation
and accumulated impairment loss.
108.Which statement is incorrect with respect to
depreciation?
a. The depreciation method shall reflect the
pattern in which the asset's economic
benefits are consumed by the entity.
b. Depreciation of an asset begins when it is
available for use or when it is in the
location and condition necessary for the
intended use.
c. Depreciation ceases at the earlier between
the date the asset is classified as held for
sale and the date the asset is derecognized.
d. Depreciation is not recognized if the fair
value of an asset exceeds carrying amount.
109.Which statement is true with respect to residual
value?
a. Residual value is the estimated net amount
currently obtainable if the asset is at the
end of the useful life.
b. The residual value of an asset may increase
to an amount equal to or greater than
carrying amount in which case the
deprecation charge is zero.
c. The residual value of an asset shall be
reviewed at least at each financial year-end
and any change is accounted for as a
change in accounting estimate.
d. All of these statements are true.
110.The useful life of property, plant and equipment
is
I. The period of time over which an asset is
expected to be used by the entity.
II. The number of production or similar unite
expected to be obtained from the asset by the
entity.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
111.All of the following factors are considered in
determining the useful life of an asset, except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
112.The production method of depreciation results
in
a. Constant charge over the useful life of the
asset.
b. Decreasing charge over the useful life of
the asset.
c. Increasing charge over the useful life of the
asset.
d. Variable charge based on the expected use
or output the asset.
113.Which statement is true in relation to
depreciation?
a. Depreciation is not a matter of valuation
b. Depreciation is part of the matching of
revenue and expense
c. Depreciation retains funds by reducing
income tax and dividend.
d. All of the statements are true about
depreciation.
114.Economic factors that shorten the useful life of
an asset include
a. Wear and tear
b. Deterioration or decay through aging or
passage of time
c. Damage or destruction due to fire, flood,
earthquake and other casualty
d. Obsolescence, supersession and
inadequacy
115.Technical or commercial obsolescence arises
from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Change or improvement in production or
change in the market demand for the
product output of the asset
d. Expiry date of related lease of the asset
116. What is the basis of revaluation of PPE
a. Fair value
b. Depreciated replacement cost
c. Replacement cost
d. Fair value and depreciated replacement
cost
117.When accounting for PPE, an entity
a. Must use cost model
b. May elect to use cost model or the
revaluation
c. May elect to use the cost model or the
revaluation model on any asset class
d. Must use the cost model for land
118.Under the revaluation model
a. Asset must be revalued quarterly
b. Asset must be revalued annually
c. Asset must be revalued biannually
d. There is no rule regarding the frequency of
revaluation
119.When the revaluation model use for reporting
PPE, the gain should be included in
a. Retained earnings
b. Revaluation gain in the income statement
c. Revaluation surplus
d. An extraordinary gain in the income
statement
120.The revaluation surplus realize because of the
use or disposal of the asset is transferred
directly to
a. Retained earnings
b. Income
c. Share capital
d. Share premium
121.Which of the following statements best
describes the term “impairment loss”?
a. The removal of an asset from the
statement of financial position.
b. The amount by which the carrying amount
of an asset exceeds the recoverable amount.
c. The systematic allocation of a n asset’s cost
less residual value over the useful life.
d. The amount by which the recoverable
amount of an asset exceeds the carrying
amount.
122.What is the recoverable amount of an asset?
a. Fair value less cost of disposal
b. Value in use
c. Fair value less cost of disposal or value in
use, whichever is higher
d. Fair value less cost of disposal or value in
use, whichever is lower
123.If the fair value less cost of disposal cannot be
determined
a. The asset is not impaired.
b. The recoverable amount is the value in use.
c. The net realizable value is used.
d. The carrying amount of the asset remains
the same.
124. If the asset is to be disposed of
a. The recoverable amount is the fair value
less cost of disposal.
b. The recoverable amount is the value in use.
c. The asset is not impaired.
d. The recoverable amount is the carrying
amount.
125.What is the best evidence of fair value?
a. Quoted price of an identical asset in an
active market
b. Quoted price of a similar asset in an active
market
c. Quoted price of an identical asset in an
inactive market
d. Quoted price of a similar asset in an
inactive market
126.Which of the following best describes value in
use?
a. The present value of estimated future cash
flows expected to arise from the continuing
use of an asset and from the ultimate
disposal.
b. The amount of cash or cash equivalents
that could currently be obtained by selling
an asset in an orderly disposal.
c. The amount which an entity expects to
obtain for an asset at the end of the useful
life.
d. The amount at which an asset could be
exchanged between knowledgeable and
willing parties in arms’ length transaction.
127.Which of the following is NOT relevant in
determining value in use?
a. The expected future cash flows from the
asset
b. The carrying amount of the asset
c. Expectation about possible variation in the
amount and timing of future cash flows
d. The time value of money
128.The estimates of future cash flows in
calculating value in use include al;l of the
following, except
a. Cash inflows from the continuing use of
the asset.
b. Cash outflows incurred to generate the cash
inflows form the continuing use of the asset
c. Net cash flows from the disposal of the
asset at the end of the useful life
d. Cash outflows for income tax
129.What is the allocation of an impairment loss
recognized for a cash generating unit?
a. Across the assets of the unit based on
carrying amount
b. Across the assets of the unit based on fair
value.
c. First, to any goodwill, and the balance of
the other assets prorate based on fair value.
d. First, to any goodwill, and the balance of
the other assets prorate based on carrying
amount.
130.It is the smallest identifiable group of asserts
that generate cash inflows from continuing use
that are largely independent of the cash inflows
form other assets or group of assets.
a. Cash generating unit
b. Goodwill
c. Corporate asset
d. The entity as a whole