GOVERNMENT GRANT 7.

Government grant related to non-depreciable asset

that fulfillment of certain conditions
1. It is an assistance by government in the form of
transfer of resources to an entity in return for past or a. Should not be recognized as income.
future compliance with certain conditions. b. Should be recognized as income immediately.
c. Should be recognized as income over 40 years.
a. Government grant d. Should be recognized as income over the periods
b. Government assistance which bear the cost of meeting the conditions.
c. Government donation
d. Government aid 8. A government grant that becomes receivable as
compensation for expenses or losses already incurred
2. It is an action by a government designed to provide an should be recognized as income.
economic benefit specific to an entity and for which the
government cannot reasonably place a value. a. When received.
b. Of the period in which it becomes receivable.
a. Government grant c. Over a maximum of 5 years using straight line.
b. Government assistance d. Over a maximum of 10 years using straight line.
c. Government takeover
d. Subvention 9. In the case of grant related to an asset, which of
following accounting treatment is prescribed?
3. Government grant shall be recognized when there is
reasonable assurance that a. Record the grant at a nominal value in the first year. b.
Either set up the grant as deferred income or deduct it in
a. The entity will comply with the conditions of the grant arriving at the carrying amount of the asset.
b. The grant will be received. c. Record the grant in the next year.
c. The entity will comply with the conditions of the grant d. Disclose only.
and the grant will be received.
d. The grant must have been received. 10. In the case of grant related to income, which of the
following accounting treatment is prescribed?
4. It is a government grant whose primary condition is
that an entity qualifying for it should purchase, a. Credit the grant to equity.
construct or otherwise acquire long-term asset. b. Present the grant in the income statement as other
income or as a separate line item, or deduct it from the
a. Grant related to asset related expense.
b. Grant related to income c. Credit the grant to retained earnings.
c. Government gift d. Credit the grant to sales revenue
d. Government appropriation
11. The deferred grant income is classified as
5. Government grant in recognition of specific costs is
recognized as income a. Separate component of shareholders' equity
b. Noncurrent liability
a. Over the same period as the relevant expense. c. Other income
(depreciation useful life) d. Partly current and partly noncurrent liability
b. Immediately.
c. Over a maximum of 5 years using straight line. 12. If the cost of the asset is recorded net of the grant
d. Over a maximum of 5 years using sum of digits.
a. Equity is overstated.
6. Grant related to depreciable asset in recognized as b. Liability is overstated.
income. c. Asset is understated.
d. Net income is understated.
a. Immediately.
b Over the useful life of the asset using straight line.
c. Over the useful life of the asset using double declining
d. Over the useful life of the asset and in proportion to
the depreciation the asset
13. Government assistance includes all the following, 3. Borrowing costs can be capitalized as cost of the asset
except when

a. Free technical advice a. The asset is a qualifying asset.

b. Provision of guarantee b. The asset is a qualifying asset and it is not probable
c. Government procurement even responsible for a that the borrowing costs will result in future economic
portion of the entity's sales revenue benefits to the entity.
d. Improved irrigation water system for the benefit of an c. The asset is a qualifying asset and it is probable that
entire local community. the borrowing costs will result in future economic
benefits to the entity but the costs cannot be measured
14. Repayment of grant related to income shall be reliably.
d. The asset is a qualifying asset and it is probable that
a. Recognized as component of other comprehensive the borrowing costs will result in future economic
income benefits to the entity and the costs can be measured
b. Charged to retained earnings reliably.
c. Expensed immediately
d. Applied first against the deferred income and any 4. If the qualifying asset is financed by specific borrowing
excess shall be recognized immediately as an expense. the capitalizable borrowing cost is equal to

15. Which disclosure is not required about government a. Actual borrowing cost incurred
grant? b. Actual borrowing cost incurred up to completion of
asset
a. The accounting policy adopted for government grant b. c. Actual borrowing cost incurred up to completion of
Unfulfilled condition and other contingency attaching to asset minus any investment income from the temporary
government assistance investment of the borrowing
c. The name of the government agency that gave the d. Zero
grant
d. The nature and extent of government grant recognized 5. Which of the following assets could be treated as
qualifying asset for the purpose of capitalizing
BORROWING COST borrowing costs?

1. Borrowing costs are defined as a. Investment property

b. Investment in financial instrument
a. Interest expense using the effective interest method. c. Inventory that is manufactured or produced in large
b. Finance charges in respect of finance lease. quantity on a repetitive basis and takes a substantial
c. Exchange differences arising from foreign currency period of time to get ready for use or sale
borrowings to the extent that these are regarded as d. Biological asset
an adjustment to interest cost. other 3 are excluded
d. Interest and other costs that an entity incurs in
connection with borrowing of funds. 6. If the qualifying asset is financed by general borrowing
the capitalizable borrowing cost is equal to
2. Which statement is true concerning capitalization of
borrowing cost? a. Actual borrowing cost incurred
b. Total expenditures on the asset multiplied by a
I. If the borrowing is directly attributable to a qualifying capitalization rate
asset, the borrowing cost is required to be capitalized as c: Average expenditures on the asset multiplied by a
cost of the asset. capitalization rate or actual borrowing cost incurred,
whichever is lower (capitalizable BC shall not exceed the
II. If the borrowing is not directly attributable to a actual BC so its lower)
qualifying asset, the borrowing cost shall be expensed as d. Average expenditures on the asset multiplied by a
incurred. capitalization rate or actual borrowing cost incurred,
whichever is higher
a. I only b. II only
c. Both I and II d. Neither I nor II
7. Which of the following is not a condition that must be
satisfied before interest capitalization can begin on a
qualifying asset? 13. Which of the following costs may not be eligible for
capitalization as borrowing cost?
a. Interest is being incurred.
b. Expenditures for the asset have been made. a. Interest on bonds issued to finance the construction of
c. The interest rate is equal to or greater than the cost of a qualifying asset.
capital. b. Amortization of discount or premium relating to
d. Activities necessary to get the asset ready for the borrowings that qualify for capitalization.
intended use are in progress., c. Imputed cost of equity.
d. Exchange difference arising from foreign currency
8. Capitalization of borrowing cost borrowing regarded as an adjustment to interest cost
pertaining to a qualifying asset.
a. Shall be suspended during temporary period of delay.
b. May be suspended only during extended period of 14. Which statement about the capitalization of
delay in which active development is delayed. borrowing cost as part of the cost of a qualifying asset is
c. Shall never be suspended. true?
d. Shall be suspended only during extended period of
delay in which active development is delayed. a. If funds come from general borrowings, the amount to
be capitalized is based on the weighted average amount
9. The period of time during which interest must be of expenditures.
capitalized ends when b. Capitalization always continues until the asset is
brought into use.
a. The asset is substantially complete and ready for the c. Capitalization always commences as soon as
intended use. expenditure of the asset is incurred.
b. No further interest is being incurred. d. Capitalization always commences as soon as interest
C. The asset is abandoned, sold or fully depreciated. on relevant borrowings is being incurred.
d. The activities that are necessary to get the asset ready
for the intended use have begun. 15. Which is the correct approach in accounting for
interest incurred in financing specifically the
10. Which is not a disclosure requirement in relation to construction of property, plant and equipment?
borrowing cost?
a. Capitalize only the actual interest incurred during
a. Accounting policy adopted for borrowing cost construction.
b. Amount of borrowing cost capitalized during the b. Charge construction with all costs of funds employed.
period c. Capitalize no interest during construction.
c. Segregation of qualifying asset from other assets d. Capitalize interest equal to the prime interest rate
(this is not required) times the estimated cost of the asset being constructed.
d. Capitalization rate used to determine the amount of
borrowing cost eligible for capitalization 16. When computing the amount of interest cost to be
capitalized, the concept of avoidable interest refers to
11. Which of the following may not be considered a
qualifying asset? a. The total interest cost actually incurred.
b. A cost of capital.
a. A power generation plant that normally takes two c. That portion of total interest cost which would not
years have been incurred if expenditures for asset construction
b. An expensive private jet that can be purchased from had not been made.
local vendor. d. That portion of average accumulated expenditures on
c. A toll bridge that usually takes more than a year to which no interest cost was incurred.
build
d. A ship that normally takes one to two years to 17. An entity can commence capitalization of borrowing
complete. cost on a new construction project when

12. Assets that qualify for interest capitalization include a Loan interest relating to the project starts to be
incurred.
a. Asset under construction for an entity's use. b. Technical site planning commences
b. Asset that is ready for the intended use. c. Expenditures on the project start to be incurred.
c. Asset that is not currently being used. d. Construction work commences.
d. All of these assets qualify for interest capitalization.
 5. Which statement is true when entity with a fleet of
cars and ships decided to revalue the property, plant,
and equipment?
18. Interest revenue earned on specific borrowing for
qualifying asset a. Revalue only one-half of each class of property, plant
and equipment.
a. Reduces the cost of the qualifying asset. b. Revalue an entire class of property, plant and
b. Reduces interest expense reported in the income equipment.
statement. c. Revalue one ship at a time as it is easier than revaluing
c. Increases equity. all ships together.
d. Must be credited to interest income. d. Since assets are being revalued regularly, there is no
need to depreciate.
REVALUATION
6. When accounting for property, plant and equipment,
1. What is the revalued amount of property plant sig an entity
equipment?
a. Must use the cost model.
a. Fair value b. May elect to use the cost model or the revaluation
b. Depreciated replacement cost model on any individual asset.
c. Replacement cost c. May elect to use the cost model or the revaluation
d. Fair value and depreciated replacement cost (sound model on any asset class.
val.) d. Must use the cost model for land.

2. When there is no evidence of fair value because of the 7. Under the revaluation model for accounting for
specialized nature of the property, plant and equipment, property, plant and equipment
the estimate of fair value is
a. Assets must be revalued quarterly
a Replacement cost b. Assets must be revalued annually
b. Depreciated replacement cost c. Assets must be revalued biannually
c. Net realizable value d. There is no rule regarding the frequency of revaluation
d. Present value of cash inflows from the use of the asset
8. When the revaluation model is used for reporting
3. What is the treatment of the accumulated property, plant and equipment, the increase in carrying
depreciation on the date of revaluation? amount should be credited to

a. Restated proportionately with the change in the gross a. Retained earnings

carrying amount of the asset b. Gain from revaluation in the income statement
b. Eliminated against the gross carrying amount of the c. Revaluation surplus as component of other
asset comprehensive income
c. Not adjusted on the date of revaluation d. An extraordinary gain in the income statement
d. Restated proportionately with the change in the gross
carrying amount of the asset or eliminated against the 9. The revaluation surplus that is realized because of the
gross carrying amount of the asset use of the asset or disposal of the asset should be or
reclassified directly to transferred
4. When an entity chooses the revaluation model for
property, plant and equipment, which statement is true? a. Retained earnings
b. Income
a. When an asset is revalued, the entire class of property, c. Share capital
plant and equipment to which that asset belongs must be d. Share premium
revalued.
b. Individual asset within a class to which that asset
belongs can be revalued.
c. Revaluation must be done every three years.
d. Increase in an asset's carrying amount as a result of
the revaluation must be recognized in income.

10. If an entity has a calendar year-end and a depreciable

property is revalued at the middle of the current year,
how is the depreciation expense for the year d. Undiscounted future net cash flows
determined?
6. The estimates of future cash flows in calculating value
a. Depreciation for the year is based on the average of in use include all of the following, except
the depreciation based on cost and on revalued amount
of the property. a. Cash inflows from the continuing use of the asset
b. Depreciation for the entire year is based on cost. b. Cash outflows incurred to generate the cash inflows
c. Depreciation for the entire year is based on revalued from the continuing use of the asset
amount. c.Net cash flows from the disposal of the asset
d. Depreciation for the first half of the year is based on d. Income tax payments
cost and for the second half on revalued amount.
7. Which is not relevant in determining value in use?
Impairment a. The expected future cash flows from the asset
b. The carrying amount of the asset
1. Which statement best describes impairment loss? c. Variation in the amount and timing of future cash flows
d. The time value of money
a. The removal of an asset from the statement.
b. The amount by which the recover the carrying amount 8. Which statement is not true with regard to
of an asset exceeds the recoverable amount impairment?
c. The systematic allocation of cost of an asset less
residual value over the useful life. a. If impairment indicators are present , the entity must
d. The amount by which the recoverable amount of an conduct an impairment test.
asset exceeds the carrying amount. b. The impairment test compares the carrying amount of
the asset with the lower of fair value less cost of disposal
2. What is the recoverable amount of an asset? and value in use. (should be higher)
C. If the recoverable amount is lower than carrying
a. Fair value less cost of disposal amount an impairment loss is recognized.
b. Value in use d. If recoverable amount is higher than carrying amount,
C. Fair value less cost of disposal or value in use, no impairment loss is recognized.
whichever is higher
d. Fair value less cost of disposal or value in use, 9. The level of testing for goodwill impairment is
whichever is lower
a. Reporting entity
3. What is fair value of an asset? b. Subsidiary entity
c. Cash generating unit
a. The price that would be received to sell an asset in an d. Product line
orderly transaction between market participants.
b. The price that would be paid to transfer a liability in an 10. When impairment testing a cash generating unit, any
orderly transaction between market participants. corporate assets should
C. The discounted value of future cash flows.
d. The undiscounted value of future cash flows. a. Be allocated on a reasonable and consistent basis.
b. Be separately impairment tested.
4. What is the best evidence of fair value less cost of c. Be included in the head office assets and impairment
disposal? tested along with that cash generating unit.
d. Not be allocated to cash generating unit.
a. An asset that is trading in an active market
b. The price in a binding sale agreement 11. If the fair value less cost of disposal cannot be
c. Information available that determines the disposal determined
value of an asset in an arm's length transaction
d. The carrying amount of the asset a. The recover not impaired
b. The recoverable amount is the value in use.
5. Which statement best describes value in use? c. The net realizable value is used.
d. The carrying amount of the asset remains the same.
a. The present value of estimated future cash flows from
continuing use of an asset and ultimate disposal
b. The amount of cash 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 12. If the assets are to be disposed of
 19. The impairment rules for long-lived assets apply to all,
a. The recoverable amount is the fair value less cost of except
disposal.
b. The recoverable amount is the value in use. a. Building currently used in business
c. The asset is not impaired. b. Financial instrument
d. The recoverable amount is the carrying value. c. Land
d. Computer used to run a production process
13. When deciding on the discount rate to be used,
which factor should not be taken into account? 20. Estimates of future cash flows normally would cover
projections over a maximum of
a. The time value of money.
b. Risk specific to the asset for which future cash flow a. Five years
estimate has not been adjusted. b. Ten years
c. Risk specific to the asset for which future cash flow c. Fifteen years
estimate has been adjusted. d. Twenty years
d. Pretax rate.
DEPRECIATION
14. What is a cash generating unit?
1. Which statement best describes the term
a. The smallest business segment DEPRECIATION
b. Any group of assets that generate cash flows
с. Any group of assets reported separately to a. The systematic allocation of the cost of an asset LESS?
management d. The smallest group of assets that residual value over the useful life
generate independent cash flows from continuing use b. The removal of an asset from the statement of
financial
15. What is the allocation of an impairment loss C. The amount by which the recoverable amount of an
recognized for a cash generating unit? asset position exceeds carrying amount
d. The amount by which the carrying amount of an asset
a. Across the assets of the unit based on carrying exceeds recoverable amount
amount.
b. Across the assets of the unit based on fair value. 2. Carrying amount is
c. First, to any goodwill and the balance to the other
assets prorata based fair value. a. Cost of an asset or the amount substituted for cost in
d. First, to any goodwill, and the balance to the other the financial statements, less residual value.
assets prorata based on carrying amount b. Amount of cash paid or the fair value of the other
consideration given to acquire an asset at the time of
16. Impairment loss for productive asset is reported acquisition or construction.
C. net amount which the entity expects to obtain for an
a. As an extraordinary item. asset at the end of the useful life after deducting the
b. As a component of discontinued operation. expected cost of disposal.
c. As a component of income from continuing operations. d. Amount at which an asset is recognized in the
d. As a change in accounting estimate. statement of financial position after deducting any
accumulated depreciation and accumulated impairment
17. Long-lived assets are reviewed for impairment loss.

a. Every three years at the end of reporting period. 3. Which statement is incorrect with respect to
b. When the asset is fully depreciated. depreciation?
с. When circumstances indicate that the amount of an
asset might not be recoverable carrying a. The depreciation method shall reflect the pattern in
d. Every year at the end of reporting period. which the asset's economic benefits are consumed by the
entity.
18. Which condition must exist in order for an b. Depreciation of an asset begins when it is available for
impairment loss to be recognized? use or when it is in the location and condition necessary
for the intended use.
a. The carrying amount is less than fair value. c. Depreciation ceases at the earlier between the date
b. The carrying amount of the asset is not recoverable. the asset is classified as held for sale and the date the
c. The carrying amount is less than value in use. asset is derecognized.
d. The carrying amount is recoverable. d. Depreciation is not recognized if the fair value of an
asset exceeds carrying amount.
4.Which statement is not true with respect to residual 4. In which of the following situations is the production
value? method of depreciation most appropriate?

a. Residual value is the estimated net amount currently a. An asset's service potential declines with use
obtainable if the asset is at the end of the useful life. b. An asset's service potential declines with the passage
b. The residual value of an asset may increase to an of time
amount equal to or greater than carrying amount in c. An asset is subject to rapid obsolescence
which case the deprecation charge is zero. d. An asset incurs increasing repairs and maintenance
c. The residual value of an asset shall be reviewed at least with use
at each financial year-end and any change is accounted
for as a change in accounting estimate. 5. Which statement provides the best theoretical
d. Depreciation should be charged if the carrying amount support for accelerated depreciation?
of an asset is less than residual value.
A. Assets are more efficient in early years and initially
5. The useful life of property, plant and equipment is generate more revenue.
b. Expenses should be allocated in a manner that
I. The period of time over which an asset is expected to "smooths" earnings.
be used by the entity. C. Repairs and maintenance costs probably would
increase in later periods so depreciation should
II. The number of production or similar units expected to decrease.
be obtained from the asset by the entity. d. Accelerated depreciation provides easier replacement
because of the time value of money.
a. I only
b. II only 6. An asset has nine-year useful life and is to be
c. Both I and II depreciated under the sum of years' digits method. The
d. Neither I nor II annual depreciation expense would be the same as that
under the straight line method in the
11. Which statement is the assumption on which straight
line depreciation is based? a. Third year
b. Fifth year
a. The operating efficiency of the asset decreases in later c. Seventh year
b. Service value declines as a function of time rather than d. Ninth year
years.
C. use. Service value declines as a function of rather than 7. The composite depreciation method
time. obsolescence
d. Physical wear and tear are more important than a. Is applied to a group of homogeneous assets
economic obsolescence. b. Is an accelerated method of depreciation
C. Does not recognize gain or loss on the retirement of
2. The straight line depreciation is not appropriate for single asset in the group
d. Excludes residual value from the base of the
a. that is neither expanding nor contracting an depreciation calculation
Investment in equipment because it is replacing
equipment as the equipment depreciates. 8. An entity using the composite depreciation method
b. Equipment on which maintenance and repairs increase for a fleet of trucks, cars and campers retired one of the
substantially with age. trucks and received cash from a salvage entity. The net
c. ent with useful life that is Equipment amount of use. carrying amount of these composite asset accounts
not affected by the would be decreased by the
d. Equipment used consistently every period.
a. Cash proceeds received and original cost of the truck
3. The principal objection to the straight line method of b. Cash proceeds received
depreciation is that it c. Original cost of the truck less the cash proceeds
d. Original cost of truck
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
9. A machine with a four-year estimated useful life and
an estimated 15% residual value was acquired at the 5. The double declining balance method
beginning of the current year. The increase in
accumulated depreciation for the second year using the a. Results in a decreasing depreciation charge.
double declining balance method would accumulated b. Means residual value is not deducted in computing the
depreciation base.
a. Original cost x 85% x 50% c. Means the carrying amount should not be reduced
b. Original cost x 50% below residual value.
c. Original cost x 85% x 50% x 50% d. All of these describe double declining balance
d. Original cost x 50% x 50%
6. Which depreciation method applies a uniform
10. A machine with a 5-year estimated useful life and an depreciation rate each period to the carrying amount of
estimated residual value was acquired at the beginning of an asset?
the current year. At the end of the fourth year,
accumulated depreciation using the sum of years' digits a. Straight line
method would be b. Declining balance
c. Output method
a. Original cost less residual value multiplied by 1/15 d. Sum of years' digits
b. Original cost less residual value multiplied by 14/15
c. Original cost multipled by 14/15 7. The production method of depreciation results in
d. Original cost multiplied by 1/15
a. Constant charge over the useful life of the asset.
11. Depreciation is best described as a method of b. Decreasing charge over the useful life of the asset
C. Increasing charge over the useful life of the asset.
a. Asset valuation d. Variable charge based on the use or output of the
b. Current value allocation asset
C. Cost allocation
d. Useful life determination 8. What factor must be present to use the production
method
2. Which statement is not true in relation to
depreciation? a. Total units to be produced can be estimated
b. Production is constant over the life of the asset
a. Depreciation is a matter of valuation. c. Repair costs increase with use
b. Depreciation is part of the matching of revenue and d. Obsolescence is expected
expense.
c. Depreciation retains funds by reducing income tax and 9. The sum of years' digits method
dividend.
d. Depreciation is a cost allocation. a. Results in residual value being ignored.
b. Means the denominator is the number of years
3. Which depreciation method is not based on the remaining at the beginning of the year.
passage of time? c. Means the carrying amount should not be reduced
below residual value.
a. Production method d. Results in an increasing depreciation charge.
b. Sum of years' digits
C. Declining balance 10. All of the following factors are considered in
d. Straight line determining the useful life of an asset, except

4. A method which excludes residual value from the base a. Expected usage of the asset
for the depreciation calculation is b. Expected physical wear and tear
c. Technical obsolescence
a. Straight line d. Residual value
b. Sum of years' digits
c. Double declining balance
d. Output method
 d. Notebook computer

INTANGIBLE ASSETS 7. Which of the following would qualify as an intangible

asset?
1. Which condition must be met for an item to be
recognized as an intangible asset other than goodwill? a. Advertising and promotion
b. Tuition fees paid to employees who decide to enroll in
a. The fair value can be measured reliably. an M.B.A program while working with the entity
b. The item is part of an activity aimed at scientific or c. Operating losses during the initial stages of the project
gaining new technical knowledge d. Legal costs paid to lawyers to register a patent
c. The item is expected to be used in the production
d. The item is nonmonetary, identifiable and lacks 8. Which is not be consideration in determining the
physical supply of goods or services. substance. useful life of an intangible

2. An intangible asset is identifiable when a. Legal, regulatory or contractual provision

b. Provision for renewal or extension
a. It is separable. c. Initial cost
b. It irises from contractual and other legal right. d. Obsolescence (the state of being no longer needed
c. It is either separable or it arises from contractual and because something newer or more efficient has been
and other legal right. invented)
d. It is neither separable nor arises from contractual or
other legal right. 9. Amortization of an intangible asset with a finite useful
life shall commence when
3. The recognition criteria for an intangible asset include
which condition? a. It is first recognized as an asset.
b. It is probable that it will generate future economic
a. The intangible asset must be measured at cost. benefits.
b. The cost can be measured reliably. c. It is available for the intended use.
c. It is probable that future economic benefit will arise. d. The cost can be identified with reasonable certainty.
d. It is probable that future economic benefit will arise
from use and the cost can be measured reliably. 10. Which disclosure is not required for an intangible
asset?
4. After initial recognition, an intangible asset shall be
measured using a. Useful life of the intangible asset
b. Reconciliation of carrying amount at beginning and
a. Cost model end
b. Revaluation model c. Contractual commitment for the acquisition of
c. Cost model or revaluation model intangbile asset
d. Cost model or fair value model d. Fair value of similar intangible asset used by the
competitor
5. An entity that acquired intangible asset may use the
revaluation model for subsequent measurement only 11. Intangible assets are reported
when
a. With an accumulated amortization account
a. The useful life of the intangible asset can be reliably b. Under property, plant and equipment
determined. c. As a separate line item
b. An active market exists for the intangible asset. d. All of these are allowed
c. The cost of the intangible asset can be measured
reliably. 12. Intangible assets are classified as
d. The intangible asset is a monetary asset.
a. Amortizable and unamortizable
6. Which does not qualify as an intangible asset? b. Limited life and indefinite life
c. Specifically identifiable and goodwill type
a. Computer software d. Legally restricted and goodwill type
b. Registered patent
c. Copyright
13. Intangible assets with indefinite useful life are tested
for impairment a. The expected use of the asset
b. Any legal or contractual provision
a. Quarterly at the quarterly reporting date c. Any provision for renewal or extension of the legal life
b. Annually at the annual reporting date d. The amortization method
c. Biannually at the rep reporting repor date
d. There is no definite guideline for impairment

14. The major problem for an intangible asset is

determining 21. Which statement does not describe an intangible
asset?
a. Fair value
b. Separability a. The asset lacks physical substance.
c. Residual value b. The asset is monetary.
d. Useful life c. The asset provides future benefits.
d. The asset is classified as noncurrent asset.
15. Operating losses incurred during the start-up years of
a new entity should be 22. Which is a characteristic of an intangible asset?

a. Accounted for like any other operating loss a. Physical existence

b. Written off directly against retained earnings. b. Claim for a specific amount of cash
c. Capitalized and amortized over five years. c. Long-lived
d. Capitalized as an intangible asset and amortized over d. Held for sale
twenty years.
23. Costs incurred internally to create an intangible asset
16. What is the method of amortizing intangible asset? are generally

a. the straight line method, unless the pattern of the a. Capitalized

economic benefits can be determined reliably b. Capitalized if useful life is indefinite
b. The double declining balance in all circumstances c. Expensed when incurred
c. a subjective amount of periodic amortization d. Expensed if useful life is limited
d. The straight line method in all circumstances
24. An intangible asset that was acquired separately shall
17.The cost of an internally generated asset includes all initially be recognized at
of the following, except
a. Recoverable amount
a. Cost of materials and services used. b. Either cost or fair value at the choice of the acquirer
b. Compensation costs of personnel directly engaged. c. Fair value
c. Fees to register a right d. Cost
d. Expenditure on training staff to operate the asset.
25. Intangible assets with indefinite life tested at least
18. Once recognized, intangible assets can be carried at annually for

a. Cost less accumulated amortization a. Recoverability

b. Cost less accumulated amortization and impairment b. Amortization
c. Revalued amount less accumulated amortization c. Impairment
d. Cost plus a notional increase in fair value d. Estimated useful life

19. One factor that is not considered in determining the Specific intangible assets
useful life of an intangible asset is
1. Patent is an example of which category of intangible
a. Residual value asset?
b. Provision for renewal or extension
C. Legal life a. Market-related
d. Expected action of competitors b. Customer-related
c. Artistic-related
20. Factors in determining the useful life of an intangible d. Technology-based
asset include all, except
2. A patent should be amortized over
 d. Goodwill should be recorded and periodically
a. Twenty years evaluated for impairment.
b. The useful life
c. The useful life or twenty years, whichever is longer 9. Goodwill shall be tested for impairment
d. The useful life or twenty years, whichever is shorter
a. If there is an indication of impairment
b. Annually
c. Every five years
3. When a patent is amortized, the credit is usually made d. On the acquisition of a subsidiary
to
10. Which intangible asset should be reported as a
a. The patent account separate line item in the statement of financial position?
b. As accumulated amortization account
c. An accumulated depreciation account a. Goodwill
d. An expense account b. Franchise
c. Patent
4. When an entity successfully defended a patent from d. Trademark
infringement by a competitor, the cost of successful
litigation should be 11.Purchased goodwill should

a. Amortized over the legal life of the patent. a. Be written off against retained earnings.
b. Amortized over five years. b. Be written off as other expense.
c. Expensed in the period when incurred. c. Be written off by systematic charge as operating
d. Amortized over the remaining useful life of the patent expense over the period benefited.
d. Not be amortized.
5. The cost of purchasing right for a product that might
otherwise have seriously competed with the purchaser's 12. An entity should recognize goodwill at what point?
patented product should be
a. Costs have been incurred in the development of
a. Charged off in the current period. goodwill
b. Amortized over the legal life of the purchased patent. b. Goodwill has been created in the purchase of a
c. Added to factory overhead. business.
d. Amortized over the remaining useful life of the patent c. The entity expects a future benefit from the creation of
for the product whose market would have been impaired goodwill.
by competition from the newly patented product. d. The fair value exceeds the carrying amount.

6. The intangible asset goodwill may be 13. Goodwill should be tested for impairment at which
level?
a. Capitalized only when purchased.
b. Capitalized either when purchased or created a. Each reporting unit
internally. b. Each acquisition unit
c. Capitalized only when created internally c. Each identifiable long-term asset
d. Written off directly against retained earnings. d. Entire business as a whole

7. Goodwill shall be recognized only when 14. Goodwill should be tested periodically for impairment

a. It is purchased from another entity. a. For the entity as a whole

B. It can be established that a definite benefit has b: At the subsidiary level
resulted from good name, capable staff or reputation c. At the industry segment level
C. It is acquired through the purchase of another entity. d. At the operating segment level
d. An entity reports above normal earnings for five years.
15. An impairment loss recognized for goodwill
8. What is required with respect to accounting for
goodwill? a. Shall not be reversed in a subsequent year.
b. May be reversed fully in a subsequent year.
a. Goodwill should be amortized over a five-year period. c. May be reversed partly in a subsequent year.
b. Goodwill should be amortized over the useful life. a d. Shall be reversed in a subsequent year.
C. Goodwill should be recorded and never adjusted.
 b. Goodwill can only be recorded as a result of a business
combination.
c. The cost of internally developing goodwill should be
recognized as expense as incurred.
d. Goodwill should be examined at least annually for
impairment.

5. Which accurately describes the accounting for

goodwill?
16. An entity is performing an annual test of the
a. Recorded at cost and amortized over 40-year period
impairment for a cash generating unit. It was determined
b. Recorded at cost and amortized over a 10-year period
that the fair value of the unit exceeds the carrying
c. Recorded at cost and tested for impairment every
amount of goodwill Which statement is true concerning
three
the test of impairment?
d. Recorded at cost and tested for impairment on an
annual years basis and more often if certain events
a. Impairment is not indicated and no additional
occur
analysis is necessary.
b. Goodwill should be written down as impaired
c. The assets liabilities should be valued to determined if 6. A trademark is an example of which category of
there has been an impairment of goodwill. intangible asset?
d. Goodwill should be retested at the entity level.
goodwill. a. Market-related
b. Customer-related
2. An entity reported goodwill in last year's statement of c. Artistic-related
financial position how should the entity account for the d. Contract-based
reported goodwill in current year?"
7. Which should not be capitalized as cost of trademark"
a. Determine whether fair value of the reporting unit is
less the carrying amount report is Impairment loss on a. Cost of successful litigation of the trademark
goodwill in the income statement b. Design cost
b. Determine whether the fair value of the reporting unit c. Registration with Intellectual Property Office
is greater than the carrying amount and report the d. Legal fee
recovery of any previous impairment in the income
statement. 8. Which cost associated with a trademark should not be
c. Determine the current year's amortizable amount and capitalized?
report amortization expense
d. Determine whether the fair value of the reporting unit a. Attorney fee
is greater than the carrying amount and report a gain on b. Consulting fee
goodwill in the income statement. c. Research and development fee
d. Design cost
3. Why is goodwill referred to as a master valuation
account? 9. What is the legal life of trademark?

a. Goodwill represents the purchase price of an acquired a. 10 years

business. b. 20 years
b. Goodwill is the excess of the purchase price of the C. 10 years and renewable after every 10 years.
acquired business over the fair value of the net d. 20 years and renewable after every 20 years
identifiable assets of the acquiree.
C. The value of a business is computed without 10. Which statement is incorrect in relation to
consideration of goodwill and then goodwill is added to trademark?
arrive at a master valuation.
d. Goodwill is the only account based on fair value. a. A trademark can be regarded as an intangible asset
with an indefinite useful life.
4. Which statement does not accurately describe the b. A trademark is an identifiable intangible asset.
accounting for goodwill? c. A trademark with indefinite useful life is not amortized
but tested for impairment at least annually.
a. Goodwill should be amortized over a reasonable d. A trademark is amortized and tested for impairment
period whenever there is an indication of impairment
11. A copyright is an example of which category of
intangible asset? a. Routine effort to refine an existing product
b. Periodical alteration existing production line
c. Marketing research to promote a new product
a. Market related d. Construction of prototype
b. Customer-related
c. Artistic related
d. Contract-based

2 Franchise is an example of which general category 3. Which of the following costs should not be capitalized
intangible asset?
a. Acquisition cost of equipment to be used on current
a. Market-related and future research
b. Customer-related b. Engineering action incurred to advance the producι το
c. Artistic-related the full production stage.
d. Contract-based c. Cost incurred to file for patent.
d. Cost of testing prototype before economic feasibility.
3 Customer list and order backlog are an example of
which general category of intangible asset? 4. Which is not research and development activity?

a. Market-related a. Adaptation of an existing capability to a particular

b. Customer-related requirement or customer need.
c. Artistic-related b. Application of research finding for a new product.
d. Contract-based C. Laboratory research aimed at new knowledge.
d. Conceptual formulation of product alternative.
4. Copyright should be amortized over
5. Which statement is true about development cost?
a. The legal life
b. The life of the creator plus fifty years a. Development cost must be expensed.
c. Twenty years b. Development cost is not recognized.
d. The useful life or legal life, whichever is shorter c. Development cost may be capitalized as an intangible
asset in very restrictive situations.
5. Which of the following should be expensed as incurred d. Development cost must be capitalized
by the franchisee for a franchise with finite useful life?
6. Research activities include all of the following, except
a. Amount paid to the franchisor for the franchise
b. Payment to an entity other than the franchisor for that a. Search for application of research finding,
entity's franchise b. Search for product or process alternative
c. Legal fees paid to obtain the franchise c. Formulation and design of the possible product.
d. Periodic payments to the franchisor based on the d. Design construction and testing prototype
franchisee's revenue (development)

Research and development 2. Development activities include all of the following,

except
1. How should research and development costs be a. Design of tools, jigs, molds and dies.
accounted for b. Design, construction and operation of a pilot plant.
c. Design, construction and testing of a chosen
a. Capitalized when incurred and then amortized over the for a new or improved product.
useful life. d. Laboratory activities aimed at new knowledge.
b. Expensed in the period incurred. (research)
c. May be either capitalized or expensed when incurred
depending upon the materiality
d. Expensed in the materiality period in 3. Which of the following is not one of the criteria which
alternative future use or unless contractually unless must be met before development costs can be
with reimbursable. capitalized?

2. Which would be considered research and a. The entity has sufficient resources for the project
development? b. The entity intends to complete the project.
c. The entity can reliably identify the research costs b. Development or improvement of technique and
incurred to bring the project to economic feasibility. process
d. The project has achieved technical feasibility. c. process Offshore oil exploration that is the primary
activity of an entity
4. Which of the following costs should be excluded from d. Market research related to a major product for the
research and development expenses? entity
a. Modification of the design of a product.
B. Acquisition of research and development equipment 5. Which is an example of activities that would be
for use on a current project only. excluded from research and development costs?
c. Cost of marketing research for a new product.
d. Engineering activity required to advance the design of a. Quality control during commercial production
a product to the manufacturing stage. b. Laboratory research aimed at discovery of new
5. Which of the following costs should be capitalized? knowledge
c. Design, construction and testing of production
a. Cost of equipment for current research project only
b. Engineering cost incurred to advance the product to d. Testing in search for or process alternative valuation of
the full production stage product or
c. Cost of research to determine whether a market for
the product exists 6. An activity that would be expensed currently as
d. Salaries of research staff research and development costs is

6. Which research and development costs should be a. Engineering follow-through in an early phase of
capitalized and amortized over current and future commercial production
periods? b. Legal work in connection with patent application and
the licensing of patent
a. Research and development general laboratory c. Testing in search for or evaluation of product or
building process alternative
b. Inventory used for a specific research project d. Adaptation of an existing capability to a particular
c. Administer to salaries allocated to research requirement or customer need as a part commercial
d. Research findings purchased from aid another entity a activity of continuing
particular research project currently in process
7. At the beginning of the current year, an entity
7.if an entity constructs a laboratory building to be use as purchased equipment for use in developing a new
a research and development facility, the cost of product. The entity uses the straight line depreciation
laboratory building is matched against earnings as. method. The equipment could provide benefits over a
10-year period. However, the new product development
a. Research and development expense in the period of is expected to take five years, and the equipment can be
construction used only for this project. The expense for the current
b. Depreciation deducted as part of research and year in relation to the equipment equals
development expense
c. Depreciation or immediate right of depending on a. The total cost of the equipment
accounting policy b. One-fifth of the cost of the equipment
d. An expense at such time as productive research has c. One-tenth of the cost of the equipment
been obtained from facility d. Zero

3. A research and development activity for which the cost 8. Which is not considered a research and development
would be expensed incurred activity?

a. Design, construction and testing of pre production a. Routine on-going effort to refine, enrich or improve
prototype and model quality of existing product
b. Quality control during commercial production b. Laboratory research aimed at discovery of new
c. Periodic design change to existing product knowledge
d. Adaptation of an existing capability to a particular c. Conceptual formulation and design of possible product
requirement or customer need or process
d. Design, construction and operation of a pilot plant
4. Which is a research and development cost?
9. An entity has recently completed a highly publicized
a. Research and development performed under contract research and development project. Which statement is
for others the most accurate?
 b. Internal-use software is considered to be software that
a. Costs incurred during the research phase can be is marketed as a separate product or as part of a product
capitalized. or process. (Internal use software is not meant to be
b. Costs incurred during the development phase can be sold)
capitalized if criteria such as technical feasibility of the c. The costs of testing and installing computer hardware
project being established are met. should be capitalized when incurred.
c. Training costs of technicians used in research can be d. The costs of training and application maintenance
capitalized. should expensed when incurred
d. Designing of jigs and tools would qualify as research
activities.

10. Which of the following research and development 4. A computer software purchased as an integral part of
costs should be capitalized and amortized over current a computer controlled machine tool that cannot operate
and future periods? without the specific software shall be treated as

a Labor and material costs incurred in building a a. Intangible asset

prototype model b. Property, plant and equipment
b. Cost of testing equipment that will also be used in c. Inventory
another separate research and development project d. Expense
scheduled to begin next year
C. Administrative salaries allocated to research and 5. At the beginning of the current year, an entity had
development capitalized the cost for a new computer software product
d. Research findings purchased from another entity to aid with an economic life of four years. Sales for the current
a particular research project currently in process year were ten percent of expected total sales of the
software. The pattern of future sales cannot be measured
COMPUTER SOFTWARE reliably. At year-end, the software had a net realizable
value equal to eighty percent of the capitalized cost.
1. The proper accounting for costs incurred in computer What is the unamortized cost of the computer software
software is at the current year-end statement of financial position?

a. To capitalize all costs until the software is sold. a. Net realizable value
b. To charge research and development incurred until b. Ninety percent of net realizable value
technological feasibility has been when established for c.Seventy five percent of capitalized cost
the product. d. Ninety percent of capitalized cost
c. To charge research and development expenses only if
the computer software has alternative future use.
d. To capitalize all costs as incurred until a detailed
program design or working model is created.

2. Which statement is true regarding the proper

accounting treatment for internal-use software cost?

a. Preliminary costs should be expensed as incurred.

b. Application and development costs should be
capitalized.
c. Post Implementation costs should be expensed as
incurred.
d. All of these statements are true about software cost.

3. Which statement is incorrect regarding internal-use

software?

a. The application and development costs of internal-use

software should be amortized on the straight line basis
unless another systematic and rational basis is more
appropriate.
 a. Property being constructed or developed on behalf of
third party b. Property that is being constructed and
developed as

investment property

c. Property held for future development and subsequent

use as owner-occupied property

d. Owner-occupied property awaiting disposal

. Which stateinent is true if the property is partly

investment and partly owner-decupied?

I. If the investment and owner-occupied portions could

1ST EXAM be sold or leased out separately, the portions shall be
1. Which statement best describes investment property? accounted for separately as investment property and
owner-occupied property.
a. Property held for sale in the ordinary course of
business II. If the investment and owner-occupied portions could
not be sold or leased out separately, the property is
b. Property held for use in the production and supply of investment property if only an insignificant portion is
goods or services and property held for administrative held for manufacturing or administrative purposes.
purposes
a. I only
c. Property held to earn rentals or for capital appreciation
b. II only c. Both I and II
d. Property held for capital appreciation
d. Neither I nor II
2. Which of the following statements best describes
owner-occupied property? 6. If an entity owns and manages a hotel and services
provided to guests are a significant component of the
a. Property held for sale in the ordinary course of arrangement as a whole, the hotel is classified as
business
a. Investinent property
b. Property held for use in the production and supply of
goods or service and property held for administrative b. Owner-occupied property

purposes c. Property held to earn rentals c. Partly investment property and partly owner-
occupied . Neither investment property nor owner-
d. Property held for capital appreciation occupied d

3. Investment property includes all of the following, property

except
property 7. Which statement is true concerning property
a. Land held for long-term capital appreciation leased to an affiliate?

b. Land held for currently undetermined use c. Building I. From the perspective of the individual entity that owns
owned by the reporting entity and leased out it, the property leased to an affiliate is considered an
investment property.
under an operating lease.
II. From the perspective of the affiliates as a group and
d. Property held for sale in the ordinary course of for purposes of consolidated financial statements, the
business. property is treated as owner-occupied property.

4. Which of the following is an investment property? a. Both I and II b. Neither I nor II

c. I only d. II only
 d. Fair value less impairment
. Directly attributable expenditures related to investment
property include An investment property is derecognized when

a. Professional fees for legal services, property transfer a. It is disposed to a third party.
taxes and other transaction cost.
b. It is permanently withdrawn from use.
b. Start up costs
c. No future benefits are expected from the disposal.
c. Initial operating losses incurred before the investment
property achieves the planned level of occupancy. d. In all of these cases

d. Abnormal amount of wasted material, labor and other 3. Which additional disclosure must be made when an
resources incurred in constructing or developing the entity chooses the cost model?
property.
a. The fair value of the property
9. Which statement is incorrect in determining the fair
value of an investment, property? b. The present value of the property

a. An entity shall determine the fair value of investment c. The value in use of the property
property by deducting transaction cost that may be
incurred upon disposal. X d. The net realizable value of the property

b. Equipment such as lift or air-conditioning is often an 4. Which disclosure shall be made when the fair value
integral part of a building and is generally included in the model has been adopted?
fair value of investment property. c. If an office is leased
on a furnished basis, the fair value a. Depreciation method used

of the office generally includes the fair value of the b. The amount of impairment loss recognized
furniture because the rental income relates to the
furnished office. Useful life

d. The fair value of investment property excludes prepaid d. Net gain or loss from fair value adjustments
or accrued operating lease income.
5. Under IFRS, assets classified as investment property
10. Gain or loss from disposal of investment propety shall are
be determined as the difference between the
a. Held for rental income
a. Net disposal proceeds and carrying amount.
b. To be sold for quick profit
b. Gross disposal proceeds and carrying amount.
c. Held for rental income or to be sold for a quick profit d.
c. Fair value and carrying amount of the asset. Held for sale in the ordinary course of business

d. Gross disposal proceeds and fair value of the asset

QUESTION 30-15 Multiple choice (IFRS)

QUESTION 30-16 Multiple choice (IAA)
4/22
1. Subsequent to initial recognition, the investment
1. An investment property shall be measured initially at property shall be measured using

n. Cost a. Fair value model or revaluation model b. Fair value

through profit or loss model
b. Cost less impairment
c. Cost model or fair value model
c. Depreciable amount less impairment
d. Cost model or revaluation model
 b. Carrying amount c. Historical cost
2. If the entity uses the fair value model for the
investment property, which statement is true? d. Fair value less cost of disposal

a. Changes in fair value are reported in profit or loss in 3. If owner-occupied property is transferred to
investment property that is to be carried at fair value, the
the current period. b. Changes in fair value are reported difference between the carrying amount of the property
as an extraordinary and the fair value shall be

gain. c. Changes in fair value are reported in other a. Included in profit or loss b. Included in retained
comprehensive income for the period. earnings

d. Changes in fair value are reported as deferred revenue c. Included in equity

for the period.
d. Accounted for as revaluation of property, plant and
3. If the entity uses the fair value model for investment equipment.
property, which statement is true?
4. If an inventory is transferred to investment property
a. The entity should value the property at cost less that is to be carried at fair value, the remeasurement to
accumulated depreciation and impairment. b. The entity fair value is
should report the increase in fair value in
a. Included in profit or loss
other comprehensive income for the period. c. The entity
depreciates the equipment using normal b Included in equity

depreciation method. d. The entity does not record c. Included in retained earnings
depreciation on the investment property.
d. Accounted for as revaluation of inventory.
4. Transfers from investment property to property, plant
and equipment are appropriate 5. When investment property under construction is
completed and carried at fair value, the difference
a. When there is change of use. between fair value and carrying amount should be

b. Based on the discretion of management. a. Disregarded

c. Only when the entity adopts the fair value model. b. Included in profit or loss c. Recognized in retained
earnings
d. The entity can never transfer property into another
classification once it is classified as investment property. d. Accounted for as revaluation

When the entity uses the cost model, transfer between 1. Which of the following is not a characteristic of
investment property, owner-occupied property and property. plant and equipment?
inventory shall be accounted for at
a. The property, plant and equipment are tangible assets.
a. Fair value
b. The property, plant and equipment are used in
b. Carrying amount business.

c. Cost c. The property, plant and equipment are expected to be

d. Assessed value used over a period of more than one year. d. The
property, plant and equipment are subject to
2. A transfer from investment property carried at fair depreciation.
value to owner-occupied property shall be accounted for
at 2. What valuation model should an entity use to neasure
property, plant and equipment?
a. Fair value, which becomes the deemed cost
a. The revaluation model or the fair value model b
 b. Gain or loss is not recognized. c. Only gain should be
. The cost model or the revaluation model recognized.

c. The cost model or the fair value through OCI model d. Only loss should be recognized.

d. The cost model or the fair value model 3. The cost of property, plant and equipment acquired in
an exchange is measured at the
3. The cost of property, plant and equipment comprises
all of the following, except a. Fair value of the asset given plus cash payment.

a. Purchase price b. Fair value of the asset received plus cash payment. c.
Carrying amount of the asset given plus cash payment.
b. Import duties and nonrefundable purchase taxes c.
Any cost directly attributable in bringing the asset to payment.

the location and condition for the intended use d. Initial d. Carrying amount of the asset received plus the cash
estimate of the cost of dismantling the asset for which
the entity has no present obligation. 4. Which exchange has commercial substance?

4. Costs directly attributable to the asset include all, a. Exchange of assets with no difference in future cash
except flows.

a. Initial operating loss b. Exchange by entities in the same line of business.

b. Cost of site preparation c. Exchange of assets with difference in future cash flows.

c. Initial delivery and handling cost d. Exchange of assets that causes the entities to remain in
essentially the same economic position.
d. Installation and assembly cost
5. For a nonmonetary exchange, the configuration of
5. Which cost should be expensed immediately? cash flows includes which of the following?

a. Cost of opening a new facility a. The implicit rate, maturity date and amount of loan

b. Cost of introducing a new product or service, including b. The risk, timing and amount of cash flows of the assets

cost of advertising and promotional activities c. Cost of c. The entity-specific value of the asset
conducting business in a new location
d. The estimated present value of the assets exchanged
d. All of these are expensed immediately
1. Which of the following is not capitalized into the cost
QUESTION 32-16 Multiple choice (IAA) of property, plant and equipment?

1. A nonmonetary exchange is recognized at fair value of a. Cost of excess materials from a purchasing error
the asset exchanged unless
b. Cost of testing whether the asset works correctly
a. Exchange has commercial substance
c. Initial delivery and handling cost d. Cost of preparing
b. Fair value is not determinable the site for installation

c. The assets are similar in nature 2. The total payment on maturity for a machine includes
both principal and interest. The cost of the machine
d. The assets are dissimilar would be the total payment multiplied by what time
value of money concept?
2. In an exchange with commercial substance
a. Present value of annuity of 1
a. Gain or loss is recognized entirely.
b. Present value of 1
 from the deferred obligation. c. The instrument
c. Future amount of annuity of 1 representing the deferred obligation is noninterest
bearing.
d. Future amount of 1
d.. The face amount of the deferred obligation is equal to
3. The initial operating loss should be the fair value of the plant asset exchanged.

a. Deferred and amortized over a reasonable period. 3. If the present value of a note issued in exchange for a
plant asset is less than the face amount, the difference is
b. Expensed and charged to the income statement.
a. Included in the cost of the asset
c. Capitalized as part of the cost of plant.
b. Amortized as interest expense over the life of the note
d. Charged to retained earnings. c. Amortized as interest expense over the life of the asset

4. What is the proper treatment of freight and interest on d. Included in interest expense in the year of issuance
the loan to fund the cost of imported machinery?
4. A plant asset purchased under a deferred payment
a. Both freight and interest are capitalized. contract at P10,000 per year for five years is measured at

b. Interest may be capitalized but freight is expensed. c. a. P50,000

Freight is capitalized but interest cannot be capitalized.
b. P50,000 plus imputed interest
d. Both freight and interest are expensed.
c. PV of P10,000 annuity for five years at an imputed
5. The cost of property, plant and equipment comprises interest d. Future value of a P10,000 annuity for five
the purchase price and years

a. The implied interest on the debt financing 5. An asset purchased under a deferred payment contract
for P10,000 at the time of purchase and P10,000 at the
b. The fair value of any noncash asset surrendered end of each of the next 5 years is measured at

c. The estimated residual value of the asset a. The present value of a P10,000 ordinary annuity

d. All directly attributable costs necessary to bring the b. P60,000 c. P60,000 plus imputed interest
asset to the location and condition for the intended use
d. P60,000 less imputed interest
QUESTION 32-18 Multiple choice (AICPA Adapted)
QUESTION 32-19 Multiple choice (AICPA Adapted)
1. When property is acquired by issuing equity sharts,
which is the best basis for establishing the cost of the 1. Vik Auto and King Clothier exchanged goods, held for
asset? resale, with equal fair value. The retail price of the car
that Vik gave up is less than the retail price of the clothes
a. Historical cost of the asset to the seller received. What profit should Vik recognize for the
nonmonetary exchange?
b. Historical cost of a similar asset
a. A profit is not recognized
Fair value of the asset received d. Fair value of shares
issued b. A profit equal tone difference between the retail price
of the clothes received and the car
2. When a plant asset is acquired by deferred payment,
which condition generally does not indicate the need to c. A profit equal to the difference between the retail
consider the imputation of interest? price and the cost of the car

a. The interest rate stated on the deferred obligation is d. A profit equal to the difference between the fair value
significantly different from market interest rate. b. The and the carrying amount of the car
cash price of the plant asset is significantly different
2. Scott Company exchanged nonmonetary assets with The difference between the fair value and carrying
Dale Company. No cash was exchanged. The carrying amount of the asset transferred is recognized as gain or
amount of the asset surrendered by Scott exceeded both loss.
the fair value of the asset received and Dale's carrying
amount of that asset. Scott should recognize the 2. a
difference between the carrying amount of the asset it
surrendered and Since no cash was exchanged, the fair value of the asset
transferred and the fair value of the asset received are
a. The fair value of the asset it received as a loss equal.

b. The fair value of the asset it received as a gain c. Dale's Thus, the excess of the carrying amount of the asset
carrying amount of the asset it received as a loss transferred over its fair value is recognized as loss.

d. Dale's carrying amount of the asset it received as a 3. a

gain
The excess of the fair value of the truck given by Solen
3. Solen Company and Nolse Company exchanged truck over the carrying amount is recognized as gain.
with fair value in excess of carrying amount. In addition,
Solen paid Nolse to compensate for the difference in 4. a
truck fair value. As a consequence of the exchange, Solen
shall recognize The excess of the fair value of the land given by Slate
over the carrying amount is recognized as gain.
a. A gain equal to the difference between the fair value
and carrying amount of the truck given b. A gain QUESTION 35-9 Multiple choice (AICPA Adapted)
determined by the proportion of cash paid to the
1. The cost of land usually includes all, except
total consideration c. A loss determined by the
proportion of cash paid to the total consideration a. Commission related to acquisition

d. Neither a gain nor a loss b. Property tax after date of acquisition

. Slate Company and Talse Company exchanged plots of c. Property tax to date of acquisition
land with fair value in excess of carrying amqunt. In
addition, Slate received cash from Talse to compensate d. Cost of survey
for the difference in land value. As a result of the
exchange, Slate shall recognize 2. The cost of land typically includes all, except

a. A gain equal to the difference between the fair value a. Grading, filling, draining and clearing cost

and the carrying amount of the land given b. A gain in an b. Special assessment for drainage system
amount determined by the ratio of cash received to total
consideration c. Private driveway and parking lot

c. A loss in an amount determined by the ratio of cash d. Assumption of any lien on the property
received to total consideration
3. Fence and parking lot are reported as
d. Neither gain nor a loss
a. Building
ANSWER 32-19
b. Land improvement
1. d
c. Land
An exchange transaction that is deemed to have
commercial substance is accounted for on the basis of d. Expense
fair value.
4. Which should be capitalized as cost of land?

a. Filling in dirt to level the property prior to excavation

b. Excavation cost 4. When land and an old building are acquired, the cost
of immediately demolishing the old building to prepare
c. Cost incurred to construct sidewalk and fence the land for the intended use as investment property
should be
d. Water and drainage system
a. Expensed immediately
5. Which cost should be charged to land improvement?
b. Charged to the land
a. Grading, leveling and landfill
c. Accounted for as deferred charge
b. Architect fee
d. Charged to retained earnings
c. Installation of a septic system
5. The carrying amount of an existing old building
d. Cost of demolishing an old building demolished to make room for the construction of a new
building should be
QUESTION 35-10 Multiple choice (PIC Interpretation)
a. Accounted for as loss.
1. The single cost of acquiring land and usable old
building is b. Capitalized as cost of the new building

a. Charged to the land only c. Charged to the land

b. Charged to the building only to the new building if accounted for as inventory

c. Allocated between land and building based on relative 1. When an entity acquired land with an old building and
immediately demolished the old building so that the land
fair value can be used for the construction of a plant, the cost
incurred to demolish the old building should be
d. Allocated between land and building based on carrying
amount a. Expensed as incurred

2. The single cost of acquiring land and an unusable old b. Added to the cost of the plant c. Added to the cost of
building.is the land

a. Charged to the land only d. Amortized over the estimated time period between
the demolition of the building and the completion of the
b. Charged to the building only plant

c. Allocated between land and building based on relative 2. If an entity purchased a lot and an old building and
fair value demolished the old building to make room for the
construction of a new building, the proper accounting
d. Allocated between land and building based on treatment of the allocated carrying amount of the old
building would depend on
carrying amount 3. The cost of demolishing an old
building to make room for the construction of a new a. The significance of the cost allocated to the building in
building should be relation to the combined cost of the lot and building

a. Expensed immediately b. The length of time for which the building was held
prior to demolition
b. Charged to the land
c. The contemplated future use of the old building:
c. Charged to the new building
d. The intention of management for the property when
d. Allocated between land and building based on relative the new building was constructed

fair value
3. An entity purchased land to be used as an investment
property. Timber was cut from the site so development c. An expenditure made to improve existing facilities by
of the land could begin. The proceeds from the sale of increasing capacity.
the timber should be
d. An expenditure made to help insure continuity of
a. Classified as other income service capacity.

b. Credited to retained earnings c. Deducted from the 2. Which type of expenditure occurs when an entity
cost of the land installs a higher capacity boiler to heat the plant?

amortized over five d. Classified as deferred income and a. Rearrangement

amortized over five years
b. Ordinary repair and maintenance
4. An entity purchased land and a hotel with the plan to
tear down the hotel and build a new hotel. The allocated c. Addition
cost of the old hotel should be
d. Betterment
a. Depreciated over the remaining life of the old hotel.
3. An improvement made to a machine which increased
b. Written off as loss in the year the hotel is torn down. the fair value and production capacity without extending
the useful life of the machine should be
c. Capitalized as part of the cost of the land.
a. Expensed immediately
d. Capitalized as part of the cost of the new hotel.
b. Debited to accumulated depreciation
5. An entity's forest land was condemned for use as a
national park. Compensation for the condemnation c. Capitalized in the machine account
exceeded the forest land's carrying amount. The entity
purchased similar, but larger, replacement forest land for d. Allocated between accumulated depreciation and the
an amount greater than the condemnation award. As a machine account
result of the condemnation and replacement, what is the
net effect on the carrying amount of forest land reported 4. Which of the following would ordinarily be treated as a
in the statement of financial position? revenue expenditure rather than a capital expenditure?

a. The amount is increased by the excess of the a. Cost of servicing and overhaul to restore or maintain
replacement forest land's cost over the condemned
land's carrying amount the originally assessed standard of performance.

b. The amount is increased by the excess of the b. The replacement of a major component of building
replacement forest land's cost over the condemnation
award c. An addition to an existing building

c. The amount is increased by the excess of the d. Cost of improvement that is expected to provide
condemnation award over the condemned forest land's discernible future benefit
carrying amount
5. A building suffered uninsured fire damage. The
d. No effect, because the condemned forest land's damaged portion of the building was refurbished with
carrying amount is used as the replacement forest land's higher quality materials. The cost and related
carrying amount accumulated depreciation of the damaged portion are
identifiable. What is the accounting for these events?
QUESTION 35-12. Multiple choice (AICPA Adapted)
a. Capitalize the cost of refurbishing and record a loss in
1. The term betterment refers to the current period equal to the carrying amount of the
damaged portion of the building
a. An expenditure made for new facilities which increase
b. Capitalize the cost of refurbishing by adding the cost to
capacity. b. An expenditure made to restore capacity the carrying amount of the building
after abandonment or retirement.
c. Record a loss in the current period equal to the cost of b. Expenditure made to extend the useful life of an
refurbishing and continue to depreciate the original cost existing asset
of the building
c. Expenditure made to maintain an existing asset in
d. Record a loss in the current period equal to the sum of operating condition
the cost of refurbishing and the carrying amount of the
damaged portion of the building d. Expenditure made to add new. asset

6. An entity incurred cost to modify a building and to 10. An expenditure made in connection with a machine
rearrange a production line. As a result, an overall being used by an entity should be
reduction in production cost is expected. However, the
modification did not increase the fair value of the a. Expensed if it merely extends the useful life but does
building and the rearrangement did not extend the life of not improve the quality. b. Expensed if it merely
the production line. Should the building modification cost improves the quality but does not
and the production line rearrangement cost be
capitalized? extend the useful life. c. Capitalized if it maintains the
machine in normal operating condition.
a. Only the building modification cost should be

capitalized. b. Only the production line rearrangement

cost should be capitalized. ● d. Capitalized if it increases the quantity of units
produced by the machine.
Both the building modification cost and production line
rearrangement cost should be capitalized.
Problem 13-1 Multiple choice (ACP/AICPA)
d. The building modification cost and production line
1. Which is not a current fund?
rearrangement cost should be expensed.
a. Petty cash fund
7. Which of the following costs should not be capitalized?
b. Payroll fund
a. Replacement of roof of building every 15 years
c. Sinking fund
b. Cost of site preparation Installation and assembly cost
d. Tax fund
Replacement of small spare parts annually
2. Which is not a noncurrent fund?

a. Insurance fund
8. Which of the following expenditures may properly he
capitalized? b. Dividend fund

a. Expenditure for massive advertising campaign c. Plant expansion fund

b. Insurance on plant during construction d. Preferred stock redemption fund

c. Research and development related to a long-term 3. It is set aside in anticipation of future acquisition of
asset giving the entity a competitive market advantage additional property, plant and equipment.

d. Title search and other legal cost related to a piece of a. Replacement fund
property which was not acquired
b. Insurance fund
9. Which of the following subsequent expenditures
should be expensed immediately? c. Contingency fund d. Plant expansion fund

a. Expenditure made to increase the efficiency or 4. Investments in long term funds shall be carried at the
effectiveness of an existing asset
a. Amount of cash
b. Amount of cash plus cost of securities and other assets 9. If a sinking fund is used to purchase securities, the
in the fund. sinking fund

c. Amount of securities and other assets in the fund a. Increases when revenue is earned on the securities

b. Decreases when the securities are purchased

● d. Amount of cash plus the cost of securities c. Decreases when revenue is earned on the securities
adjusted for any discount or premium
d. Is not affected by revenue earned on the securities
amortization and other assets in the fund
10. An independent trustee holds cash in the sinking fund
5. Interest in life insurance contract shall be carried at
account representing the annual deposits to the fund and
interest earned on these deposits. How should the
a. NIL
sinking fund be classified in the statement of financial
position?
b. Face of policy
a. The entire balance in the sinking fund is classified as
c. Total amount of insurance premiums paid
current asset
d. Cash surrender value
b. The entire balance in the sinking fund is classified as
noncurrent asset.
6. Cash surrender value is classified as
c. The cash in the sinking fund is classified a current asset.
a. Noncurrent asset
d. The accumulated deposits only are shown as
b. Property, plant and equipment
noncurrent investment
c. Current asset
Problem 13-2 Multiple choice (PAS 40)
d. Intangible asset
1. It is defined as property (land or building or part of
building or both) held by an owner or finance lessee to
7. An increase in the cash surrender value of a life
earn rentals or for capital appreciation or both.
insurance policy owned by a company would be recorded
by
a. Investment property
a. Increasing annual insurance expense Increasing
b. Owner-occupied property
investment income
c. Mining property
b. c. Memorandum entry only
d. Rental property
d. Decreasing annual insurance expense
2. An owner-occupied property is held by an owner or
8. Upon the death of an officer, an entity received the
finance lessee
proceeds of a life insurance policy held by the entity on
the officer. The policy's cash surrender value had been
I. For use in the production of goods or services.
recorded by the entity at the time of payment. What
amount of revenue should the entity report in its income
II. For administrative purposes.
statement?
a. I only
a. Proceeds received
b. II only
b. Proceeds received less cash surrender value
c. Both I and II d. Neither I and II
c. Proceeds received plus cash surrender value

d. Zero