7_Property, plant and equipment and related accounts Theory of Accounts

Property, plant and equipment – general and initial measurement

1. Which of the following is not within the definition of property, plant and equipment?
a. Tangible items.
b. Are expected to be used during more than one period.
c. For capital appreciation or to earn rentals.
d. Are held for use in the production or supply of goods or services, for rental to others,
or for administrative purposes.

2. An item of property, plant and equipment should be recognized as an asset when

I. It is probable that future economic benefits associated with the asset will flow to the
enterprise.
II. The cost of the asset to the enterprise can be measured reliably.
a. Both I and II c. I only
b. Neither I nor II d. II only

3. Examples of costs that are expensed rather than recognized as an element of cost of
property, plant and equipment include all of the following, except
a. Cost of employee benefits arising directly from the construction or acquisition of an item
of property, plant and equipment.
b. Cost of opening a new facility
c. Cost of introducing a new product or service, including cost of advertising and
promotion.
d. Cost of relocating or reorganizing part or all of an entity’s operations.

4. The carrying amount of property, plant and equipment subsequent to acquisition is the
a. Historical cost less accumulated depreciation
b. Revalued amount less accumulated depreciation and accumulated impairment losses
thereon
c. Fair value less accumulated impairment losses thereon
d. Amount at which an asset is recognized in the balance sheet less accumulated
depreciation and accumulated impairment losses thereon

5. I. Which is correct concerning measurement of property, plant and equipment?

II. When a corporation issues ordinary shares for land, the land should be recorded at the
a. Total par value of the shares issued
b. Total book value of the shares issued
c. Fair value of the land
d. Total liquidating value of the shares issued

6. Which statement is incorrect concerning measurement of cost of property, plant and

equipment?
a. The cost of an item of property, plant and equipment is the cash price equivalent at the
recognition date.
b. If payment is deferred beyond normal credit terms, the difference between the cash
price equivalent and the total payment is recognized as interest expense over the life
of the asset.
7_Property, plant and equipment and related accounts Theory of Accounts

c. If an item of property, plant and equipment is acquired in exchange for a nonmonetary

asset or a combination of monetary and nonmonetary asset, the cost of such item is
measured at fair value unless the exchange transaction lacks commercial substance.
d. If an entity is able to determine reliably the fair value of either the asset received or
asset given up in an exchange, the fair value of the asset received is used to measure
the cost of asset received in exchange.

7. An entity imported machinery to install in its factory premises before year-end. However
due to circumstances beyond its control, the machinery was delayed by a few months but
reached the factory premises before year-end. While this was happening, the entity
learned from a bank that it was being charged interest on the loan it had taken to fund the
cost of the machinery. What is the proper treatment of freight and interest expense?
a. Both expenses should be capitalized.
b. Interest may be capitalized but freight should be expensed.
c. Freight should be capitalized but the interest should not be capitalized under these
circumstances.
d. Both costs should be expensed.

8. When an enterprise is the recipient of a donated asset, the account credited may be
a. Paid in capital
b. Revenue account
c. Deferred revenue account
d. Retained earnings

9. As to land, capitalizable incidental costs include all, except

a. Attorney’s fees for establishing clean title
b. Special assessments for local improvement which benefits the property
c. Cost of relocation or reconstruction of property belonging to others in order to acquire
possession
d. Expenditures for sidewalks, pavements, parking lot and driveways

10. The cost of the plant asset “building” should usually include all, except
a. Cost of renovation or remodeling required to prepare the building for its intended use
b. Expenditures for service equipment and fixtures made as permanent part of the building
c. Property taxes related to the period prior to acquisition that are assumed by the buyer
d. Costs incurred to have existing building removed to make room for the construction of
new building

11. When an entity 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 cost incurred to tear the
building should be
a. Expensed
b. Charged to retained earnings
c. Added to the cost of the plant
d. Added to the cost of the land
7_Property, plant and equipment and related accounts Theory of Accounts

12. An entity purchased land to be used as the construction site of a plant. Timber was cut
from the building site so that construction of the plant could begin. The proceeds from the
sale of the timber should be
a. Credited to income
b. Netted against the cost to clear the land and expensed as incurred.
c. Deducted from the cost of the land
d. Deducted form the cost of the plant.

13. The cost of the land to be used in the operations of a business should include all of the
following, except
a. Commission related to the land acquisition
b. Property taxes at the date of acquisition assumed by the purchaser
c. Excavation in preparation for the construction of a new building on the land.
d. The cost of a survey.

14. In order for a cost to be capitalized (capital expenditure), the following must be present:
a. The useful life of an asset must be increased.
b. The quantity of assets must be increased.
c. The quality of assets must be increased.
d. Any one of these.

15. Which type of expenditure occurs when an entity installs a higher capacity boiler to heat its
plant?
a. Replacement c. Addition
b. Betterment d. Ordinary repair and maintenance

16. An improvement made to a machine increased its fair value and its production capacity by
25% without extending the machine’s useful life. The cost of the improvement should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized on the machine account
d. Allocated between the accumulated depreciation and the machine account

PPE – subsequent measurement

17. The following statements related to the depreciation of property, plant and equipment,
which one is false?
a. The depreciation charge for each period shall be recognized in profit or loss unless it
is included in the carrying amount of another asset.
b. The depreciation method used shall reflect the pattern in which the asset’s future
economsic benefits are expected to be consumed by the entity.
c. The depreciation method applied to an asset shall be reviewed at least at each
financial year-end and, if there has been a significant change in the pattern of
consumption of the future economic benefits embodied in the asset, the method shall
be changed to reflect the changed pattern.
d. The cost of an asset shall be allocated on a systematic basis over its useful life.
7_Property, plant and equipment and related accounts Theory of Accounts

18. Which is incorrect concerning the residual value of an item of property, plant and equipment?
a. The depreciable amount of an asset is determined after deducting the accumulated
depreciation of the asset.
b. In practice, the residual value of an asset is often insignificant and therefore is
immaterial in the calculation of the depreciable amount.
c. The residual value of an asset may increase to an amount equal or greater than the
asset’s carrying amount.
d. The residual value of an asset shall be reviewed at least at each financial year-end and
if expectation differs from previous estimate, the change shall be accounted for as a
change in accounting estimate.

19.The useful life of an item of property, plant and equipment should be reviewed periodically
and if expectations are significantly different from previous estimates, the depreciation
charge for the
a. Current and future periods should be adjusted
b. Current and future periods should not be adjusted
c. Current period only should be adjusted
d. Future periods only should be adjusted

20. The composite depreciation method

a Is applied to a group of homogeneous assets.
a.
.
b Is an accelerated method of depreciation.
b.
.
c Does not recognize gain or loss on the retirement of
c.
.
specific assets in the group.
d Excludes salvage value from the base of the depreciation
d.
.
calculation.

21. Which of the following depreciation methods applies a uniform depreciation rate each period
to an asset's book value?
a. Straight-line c. Sum-of-the-years'-digits
b. Units-of-production d. Declining-balance

22. Which statement is true concerning depreciation?

I. When a change in depreciation method is necessary to reflect the new pattern of economic
benefits the change should be accounted for as a change in accounting policy and the
depreciation charge for the current and future periods should be adjusted.
II. The useful life of an item of property, plant and equipment should be reviewed periodically
and if expectations are significantly different from previous estimates, the depreciation for the
current and future periods should be adjusted.
a. Both I and II c. I only
b. Neither I nor II d. II only
7_Property, plant and equipment and related accounts Theory of Accounts

23. The sum of years’ digit 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. Charge based on the expected use or output of the asset

24. The cost of fully depreciated asset remaining in service and the related accumulated
depreciation
a. Should be removed from the accounts and excluded from property, plant and equipment
b. Should not be removed from the accounts and therefore included in property, plant and
equipment with disclosure
c. Should not be removed from the accounts and therefore included in property, plant and
equipment without disclosure
d. Should be adjusted to conform with new estimated useful life

25. Enterprises are encouraged to disclose all of the following amounts, except
a. Gross carrying amount of fully depreciated property that is still in use.
b. Carrying amount of property, plant and equipment retired from active use and held for
disposal.
c. Fair value of property, plant and equipment when the fair value is not materially different
from the carrying amount.
d. Carrying amount of temporarily idle property, plant and equipment.

26. An entity bought a private jet. The jet is expected to be used over a period of 7 years, its
engine has a useful life of 5 years and its tires are replaced every 2 years. The jet shall be
depreciated using straight-line method over
a. 7 years composite useful life
b. 5 years for the engine, 2 years for the tires and 7 years for the balance of the cost of the
private jet
c. 2 years based on conservatism as this is the lowest useful life of all parts of the jet.
d. 5 years based on a simple average of the useful lives of the major components of the jet.

27. In recording the trade of one asset for another, which of the following accounts is usually
debited?
a. Accumulated Depreciation-Old Asset
b. Cash
c. Gain on Exchange of Asset
d. None of the above

28. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale
were
a) Less than book value..
b) Less than current market value.
c) Greater than cost
d) Greater than book value.
7_Property, plant and equipment and related accounts Theory of Accounts

29. The most common method of recording depletion for accounting purposes is the
a. Percentage depletion method
b. Straight-line method
c. Decreasing charge method
d. Production or output method

Government grants and Borrowing costs

30. What is the acceptable approach in accounting for government grants?
a. Government grants should be recognized as income over the periods necessary to match
them with the related costs.
b. Government grants should be credited directly to donated capital.
c. Government grants should be credited directly to retained earnings.
d. Government grants should be deferred and amortized over a maximum period of 20 years.

31. Government grants related to assets should be presented in the balance sheet
I. By setting the grant as deferred income
II. By deducting the grant in arriving at the carrying amount of the asset
a. Both I and II c. I only
b. Neither I nor II d. II only

32. The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for its intended use.
b. No further interest cost is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset for its intended use have begun.

33. When funds are borrowed specifically for the purpose of obtaining a qualifying asset, the
capitalizable borrowing cost is equal to
a. Actual borrowing cost incurred during the period
b. Actual borrowing cost incurred during the period plus any investment income on the
temporary investments of the borrowings
c. Actual borrowing cost incurred during the period minus any investment income on the
temporary investments of the borrowings
d. Estimate borrowing cost during the period

34. 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.
7_Property, plant and equipment and related accounts Theory of Accounts

35. Which of the following may not be eligible for capitalization as borrowing costs?
a. Interest on bonds issued to finance construction of a qualifying asset.
b. Amortization of discount or premium or ancillary cost relating to borrowings that qualify
for capitalization.
c. Imputed cost of equity
d. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest cost pertaining to a qualifying asset.

36. The capitalization of borrowing costs as part of the cost of a qualifying asset should
commence when (choose the incorrect one)
a. Expenditures for the asset are being incurred.
b. Borrowing cost are being incurred.
c. Activities that are necessary to prepare the asset for its intended use or sale are in
progress.
d. Substantially all the activities necessary to prepare the qualifying asset for its intended
use or sale are complete.

Revaluation
37. I. When an item of property, plant and equipment is revalued, any accumulated depreciation
at the date of the revaluation is

II. Restated proportionately with the change in the gross carrying amount of the asset so that
the carrying amount of the asset after revaluation would equal its revalued amount.
III. Eliminated against the gross carrying amount of the asset and the net amount restated to
the revalued amount of the asset.
a. Both I and II c. I only
b. Neither I nor II d. II only

38. When the revaluation surplus is realized because of the use of the asset by the enterprise or
disposal of the asset, it may be transferred directly to
a. Income c. Donated capital
b. Deferred income d. Retained earnings

39. An entity owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry
and thus has significant other property, plant and equipment. It decided to revalue its
property, plant and equipment. The company’s accountant has suggested the following
alternative below. Which one of the options should the entity select in order to be in line with
the provisions of PAS 16?
a. Revalue only one-half of each class of property, plant and equipment, as that method is
less cumbersome and easy compared to revaluing all assets together.
b. Revalue an entire class of property, plant and equipment.
c. Revalue one ship at a time, as it is easier than revaluing all ships together.
d. Since assets are being revalued regularly, there is no need to depreciate.
7_Property, plant and equipment and related accounts Theory of Accounts

40. When the carrying amount of a revalued asset is decreased as a result of a revaluation, the
decrease should be charged to
a. Expense
b. Retained Earnings
c. Revaluation surplus
d. Revaluation surplus first, if any, then, remaining balance, to expense

Impairment of assets
41. It is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s
length transaction between knowledgeable and willing parties, less cost of disposal.
a. Fair value
b. Fair value less cost to sell
c. Value in use
d. Undiscounted future cash flows expected to be derived from an asset or cash-generating
unit

42. White Printing Company determines that a printing press used in its operations has suffered
a permanent impairment in value because of technological changes. An entry to record the
impairment should
a. Recognize an extraordinary loss for the period.
b. Include a credit to the equipment accumulated impairment losses account.
c. Include a credit to the equipment account.
d. Not be made if the equipment is still being used.

43. External sources of information about impairment of asset include all of the following, except
a. Significant decline in the market value of the asset
b. Significant change in the technological, market, legal or economic environment of the
business in which the asset is employed.
c. Increase in the interest rate or market rate of return on investment, which will likely affect
the discount rate in computing value in use.
d. Obsolescence or physical damage of the asset

44. Which statement is incorrect concerning an estimate of future cash flows?

a. The discount rate used in the estimate should be the current rate after tax
b. Foreign currency future cash flows should be forecast in the currency in which they will
be generated and discounted at appropriate rate.
c. Future cash flows should be based on reasonable and supportable assumptions.
d. Future cash flows should be based on the most recent budgets or financial forecast up to
a maximum of 5 years.

45. If the assets are to be disposed of

a. The recoverable amount is the fair value less cost to sell.
b. The recoverable amount is the value in use
c. The asset is not impaired
d. The recoverable amount is the carrying value
7_Property, plant and equipment and related accounts Theory of Accounts

46. The estimates of future cash flows in calculating value in use include all of the following,
except
a. Cash flows from continuing use of the asset.
b. Cash outflows necessarily incurred to generate the cash inflows from continuing use of
the asset.
c. Net cash flows from the disposal of the asset at the end of its useful life.
d. Income tax payments

47. When allocating an impairment loss, such a loss should reduce the carrying amount of which
asset first?
a. Property, plant and equipment
b. Intangible assets
c. Goodwill
d. Current assets

Practice questions:
1. Which is an essential characteristic of property, plant and equipment?
a. The property, plant and equipment are subject to depreciation.
b. The property plant and equipment are tangible assets.
c. The property, plant and equipment are used in production or supply of goods and
services, for rental, administrative purposes and capital appreciation.
d. The property, plant and equipment is not expected to be used over a period of
more than one year.

2. The cost of an item of property, plant and equipment includes all of the following, except
a. Trade discount and rebates
b. Purchase price
c. Import duties and nonrefundable purchase taxes
d. Directly attributable costs of bringing the asset to working condition for its intended use.

3. Cost of day-to-day servicing such as labor and consumables should be

a. Charged to repairs and maintenance expense
b. Included in the carrying amount of the property plant and equipment
c. Deferred and amortized over a reasonable period
d. Charged to retained earnings

4. I. An entity shall choose either the cost model or the revaluation model as its accounting
policy and shall apply that policy to an entire class of property, plant and equipment.
II. The cost model means that property, plant and equipment are carried at are carried at
cost less any accumulated depreciation and any accumulated impairment loss.
III, The revaluation model means that property, plant and equipment revalued amount,
being the fair value at date of revaluation less any subsequent accumulated depreciation
and accumulated impairment loss.
a. I, II and III c. I and III only
b. I and II only d. II and III only
7_Property, plant and equipment and related accounts Theory of Accounts

5. If an entity is able to determine reliably the fair value of either asset receive or the asset
given up, which is used in measuring the cost of the asset received?
a. Fair value of the asset given up
b. Fair value of the asset received
c. Carrying amount of asset given up
d. Either the fair value of asset given up or fair value of asset received.

6. Which is incorrect concerning self-constructed asset?

a. The cost of self-constructed asset is determined using the same principles for an
acquired asset.
b. Any internal profits from construction are part of the cost of self- constructed asset.
c. The cost of abnormal amounts of wasted material, labor or other resources
incurred in the production of a self- constructed asset is excluded in the cost of
asset.
d. The cost of normal amounts of wasted material, labor or other resources incurred
in the production of a self-constructed asset is included in the cost of the asset.

7. In a “basket price” or “lump sum” purchase of assets, which of the following best describes
the process by which the historical cost of the various assets should be determined?
a. Allocation of the total cost to the individual assets on the basis of the historical cost
of the individual assets to the original owner.
b. Allocation of the total cost to the individual assets on the basis of the fair value of
the individual assets at the time of purchase.
c. Recording of the individual assets at their fair value with recognition of the gain or
loss for the difference between the price and the fair value of the assets.
d. Recording of the individual assets at their historical cost to the seller with gain or
loss recognized as the difference between the price paid and the original cost
figures.

8. Improvements which result to increased future economic benefits include all, except
a. Modification of an item of property to extend its useful life or increase its capacity.
b. Upgrade of machine parts to improve quality of output
c. Adoption of a new production process leading to large reduction in operating cost
d. Expenditure on repair or maintenance of property, plant and equipment, such as
cost of servicing or overhauling plant and equipment.

9. If the cost of ordinary repairs is capitalized as an addition to the building account during
the current year
a. Net income for the current year will be understated
b. Shareholders’ equity at the end of the current year will be understated.
c. Total assets at the end of the current year will not be affected.
d. Total liabilities at the end of the current year will not be affected.
7_Property, plant and equipment and related accounts Theory of Accounts

10. Future economic benefits will arise from all of the following except
a. Modification of an item to extend its useful life, including an increase in its capacity.
b. Upgrading of machine parts to achieve a substantial improvement in the quality of
output.
c. Adoption of a new production process enabling a substantial reduction in
previously assessed operating costs.
d. Cost of servicing and overhauling to restore or maintain the future economic
benefits.

11. I. The useful life of an item of property, plant and equipment is

II. The period of time over which an asset is expected to be used by the enterprise.
III. The number of production or similar units expected to be obtained from the asset by the
enterprise.
a. Both I and II c. I only
b. Neither I nor II d. II only

12. As generally used in accounting, what is depreciation?

a. It is a process of asset valuation for balance sheet purposes.
b. It applies only to long-lived intangible assets
c. It used to indicate a decline in market value of long-lived asset.
d. It is an accounting process that systematically allocates long-lived asset cost to
accounting periods.

13.The depreciation method should be reviewed periodically and if there is a significant change
in the expected pattern of economic benefits, the change should
a. Not be accounted for
b. Be accounted for as a change in accounting estimate
c. Be accounted for as a change in accounting policy
d. Be accounted for as a prior period error.

14. A company using the group depreciation method for its delivery trucks retired one of the
trucks after the average service life of the group was reached. Cash proceeds were received
from a salvage company. The net carrying amount of these group asset accounts would be
decreased by the
a. Original cost of the truck.
b. Original cost of the truck less the cash proceeds.
c. Cash proceeds received.
d. Cash proceeds received and original cost of the truck.

15. Gain or loss from disposal of an item of property, plant and equipment is equal to the
difference between
a. Fair value of the asset on balance sheet date and its carrying amount
7_Property, plant and equipment and related accounts Theory of Accounts

b. Net realizable value on balance sheet date and its carrying amount
c. Net proceeds from disposal and the cost of the asset
d. Net proceeds from disposal and the carrying amount of the asset

16. How much is the “depletable cost” of a natural resource?

a. Acquisition cost
b. Acquisition cost plus all exploration costs and development cost
c. Acquisition cost plus all exploration cost and intangible development costs.
d. Acquisition cost plus all exploration cost and intangible development costs minus
the estimated residual value

17. This represents assistance by government in the form of transfers 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

18. These are government grants whose primary condition is that the enterprise qualifying for
them should purchase, construct or otherwise acquire long-term assets.
a. Grants related to assets c. Government gift
b. Grants related to income d. Government appropriation

19. Government grants related to income are presented preferably as

a. Other income in the income statement
b. Deduction from related expense
c. Addition to beginning balance of retained earnings
d. Additional paid in capital

20. Borrowing costs include all of the following, except

a. Interest on borrowing
b. Amortization of premium or discount related to borrowings
c. Finance charges with respect to a finance lease.
d. Exchange differences from translation of foreign currency borrowing

21. If the qualifying asset is financed by general borrowings, 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.
7_Property, plant and equipment and related accounts Theory of Accounts

d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing

cost incurred, whichever is higher.

22. An asset is being constructed for an enterprise’s own use. The asset has been finance with
a new specific borrowing. The interest cost incurred during the construction period as a result
of the expenditures for the asset is
a. Interest expense in the construction period
b. A prepaid asset to be written off over the estimated useful life of the asset
c. A part of the historical cost of acquiring the asset to be written off over the
estimated useful life of the asset
d. A part of the historical cost of acquiring the asset to be written off over the term of
the borrowing used to finance the construction of the asset

23. Which of the following may not be considered as a qualifying asset?

a. A power generation plant that normally takes three 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 two years to build.

24. Capitalization of borrowing costs

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. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended period of delay in which active development is
delayed.

25. Which statement is incorrect concerning revaluation of property, plant and equipment?
a. When an item of property, plant and equipment is revalued, the entire class of property,
plant and equipment to which that asset belongs should be revalued.
b. The basis of revaluation is fair value which is usually the market value determined by
appraisal undertaken by professional qualified valuers, or depreciated replacement cost,
in the absence of evidence of market value.
c. Items of property, plant and equipment that experience significant and volatile movements
in fair value should be revalued annually.
d. Frequent revaluations are unnecessary for items of property, plant and equipment with
only insignificant movements in fair value and instead, revaluation every five to ten years
may be sufficient.

26. Which is not valid with respect to revaluation of property?

a. The entire class of property, plant and equipment should be revalued.
b. The items within a class of property, plant and equipment are revalued selectively.
c. A class of property, plant and equipment is a grouping of assets of similar use and
nature.
7_Property, plant and equipment and related accounts Theory of Accounts

d. A class of assets may be revalued on a rolling basis provided the revaluation is

completed within a short period of time and kept up to date.

27. PAS 16 require that revaluation surplus resulting from initial revaluation of property, plant ad
equipment should be treated in which of the following way?
a. Credited to retained earnings as this is unrealized gain.
b. Released to the income statement at the amount equal to the difference between the
depreciation calculated on historical cost vis-à-vis revalued amount.
c. Deducted from current assets and added to the property, plant and equipment.
d. Debited to the class of property, plant and equipment that is being revalued and credited
to “revaluation surplus”, which is presented under “equity”.

28. Which statement is incorrect concerning revaluation of property, plant and equipment?
a. When an item of property, plant and equipment is revalued, any accumulated
depreciation at the date of revaluation is restated proportionately with the change
in the gross carrying amount of the asset so that the carrying amount of the asset
after revaluation should equal its revalued amount, or eliminated against the gross
carrying amount of the asset and the net amount restated to the revalued amount
of the asset.
b. Any revaluation increase should be credited to equity as revaluation surplus.
c. The revaluation surplus included in equity may be transferred directly to retained
earnings when the surplus is realized.
d. Any revaluation decrease should be debited to revaluation loss, a contra equity
account.

29. The following statements pertain to recognition and measurement of an impairment loss.
Which statement is incorrect?
a. An impairment loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount.
b. After the recognition of an impairment loss, depreciation of the asset for the future periods
should be equal to the revised carrying amount less its residual value allocated on a
systematic basis over its original life.
c. An impairment loss shall be recognized in profit or loss immediately.
d. If the recoverable amount of an asset is less than its carrying amount, the carrying amount
of the asset shall be reduced to its recoverable amount.

30. It is the smallest identifiable group of assets that generate cash inflows from continuing use
that are largely independent of the cash inflows from other assets or group of assets.
a. Foreign operation c. Foreign entity
b. Corporate asset d. Cash generating unit (CGU)

31. The estimates of future cash flows in calculating value in use include all of the following,
except
7_Property, plant and equipment and related accounts Theory of Accounts

a. Future cash flows for improving or enhancing the asset’s performance

b. Cash inflows from the use of the asset
c. Cash outflows incurred to generate cash inflows from the use of the asset
d. Net cash flows from the disposal of the asset

32. If an impairment of property, plant and equipment is indicated, any impairment loss is
recorded at an amount equal to the
a. Excess of the carrying amount over the fair value of the asset regardless of the
discounted net cash flows from the asset.
b. Excess of the carrying amount over the discounted net cash flows from the asset,
regardless of the fair value of the asset.
c. Excess of the carrying amount over the recoverable amount of the asset
d. Excess of the recoverable amount of the carrying amount of the asset

33. The best evidence if an asset’s fair value less cost to sell is
a. A price in a binding sale agreement in an arm’s length transaction, adjusted for
incremental cost directly attributable to the disposal of an asset.
b. The market price of the asset in an active market.
c. Best estimate between knowledgeable, willing parties in an arm’s length
transaction.
d. The higher between the price in a binding sale agreement and the market price of
the asset in an active market.

34. Estimates of future cash flows normally would cover projections over a maximum of
a. Five years c. Fifteen years
b. Ten years d. Twenty years

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