Week 3: Theory of Accounts (Part III) PROPERTY, PLANT AND

EQUIPMENT QUIZ

Which exchange has a commercial substance?

Select one:
a. Exchange of an equivalent interest in similar productive asset that caused the entities involved to
remain in essentially the same condition.
b. Exchange of assets with no difference in future cash flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange by entities in the same line of business.

Which of the following is the most appropriate policy as regards the allocation of joint overhead costs to
plant and equipment constructed by the entity for own use?

Select one:
a. Assign only variable overhead.
b. Assign no overhead.
c. Assign overhead equal to the amount that would have been assigned to production that is
curtailed because of the construction.
d. Assign a proportionate share of overhead to the construction on the same basis as the used for
the assignment to normal production.

Which is not an essential characteristics of property, plant and equipment?

Select one:
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 purposes and for administrative purposes.
d. The property, plant and equipment are expected to be used over a period of more than one year.

Which of the following statements best described entity-specific value?

Select one:
a. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants.
b. The present value of the cash flows of an entity expects to arise from the continuing use of an asset and
from the disposal at the end of the useful life or an entity expects to incur when settling a liability.
c. The cost or an amount substituted for cost of the asset less residual value.
d. The amount at which the asset is recognized after deducting any accumulated depreciation and impairment
losses.

In an entity is able to determine reliably the fair value of the asset given and the fair value of the asset received in an
exchange transaction, the cost of the asset acquired is measured at

Select one:
a. Fair value of asset given.
b. Fair value of asset received.
 c. Neither the fair value of the asset received nor the fair value of the asset given.
d. Either the fair value of the asset received or fair value of the asset given.

An tem of property, plant and equipment shall be recognized as an asset when

Select one:
a. The cost is material.
b. The cost of an asset can be measured reliably.
c. It is probable that future economic benefits will flow to the entity and the cost of the asset can be measured
reliably.
d. It is probable that future economic benefits will flow to the entity.

An entity purchase a plant asset under a deferred payment contract. The agreement was to pay P10,000 per year for
five years. What is the initial measurement of the plant asset?

Select one:
a. Present value of P10,000.00 annuity for five years discounted at the bank prime interest rate.
b. Present value of P10,000.00 annuity for five years at an imputed interest
c. P50,000.00
d. P50,000.00 plus imputed interest

An entity purchased a plant asset under a deferred payment contract. The agreement was to pay P10,000 at the time
of purchase and P10,000 at the end of each of the next five years. What is the initial measurement of the plant asset?

Select one:
a. P60,000.00
b. The present value of P10,000 ordinary annuity for five years
c. P60,000.00 less imputed interest
d. P60,000.00 plus imputed interest

The cost of an item of property, plant and equipment comprises the purchase price and

Select one:
a. The implied interest on the debt financing.
b. All directly attributable costs to bring the asset to the location and condition for the intended use.
c. The fair value of any noncash asset surrendered.
d. The estimated residual value of the asset.

An entity purchased a new machinery that it does not have to pay until after three years. The total payment on
maturity will include both principal and interest. The cost would be the total payment multiplied by what time value of
money concept?

Select one:
a. Future amount of annuity of 1
b. Present value of annuity of 1
c. Future amount of annuity of 1
d. Present value of 1

Cost directly attributable to bringing the asset to the location and condition for the intended use include all of the
following, except

Select one:
 a. Initial delivery and handling cost
b. Installation and assemble cost
c. Cost of site preparation
d. Cost of employee benefits not arising directly from acquisition of property, plant and equipment

When a plant asset is acquired by deferred payment, which condition generally does not indicate the need to
consider the imputation of interest?

Select one:
a. The interest rate stated on the deferred obligation is significantly different from market interest rate.
b. The cash price of the plant asset is significantly different from the deferred obligation.
c. The face amount of the deferred obligation is equal to the market value of the plant asset exchanged.
d. The instrument representing the deferred obligation is noninterest bearing.

The cost of an item of property, plant and equipment that is acquired in exchange for a combination of monetary and
nonmonetary asset is measured at

Select one:
a. Fair value of the asset received plus cash payment
b. Carrying amount of the asset given plus cash payment
c. Carrying amount of the asset received plus cash payment
d. Fair value of the asset given up plus cash payment

Which of the following shall not be capitalized as cost of property, plant and equipment?

Select one:
a. Cost of excess materials from a purchasing error
b. Cost of preparing the site for installation.
c. Cost of testing whether the asset works correctly.
d. Initial delivery and handling cost

The cost of nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has
commercial substance is usually recorded at

Select one:
a. Either the fair value of the asset given up or the asset received, whichever one results in the largest gain or
smaller loss.
b. The fair value of the asset given up or the asset received, whichever one results in the largest gain or smallest
loss.
c. The fair value of the asset given up and a gain or loss is recognized.
d. The fair value of the asset given up and a gain but not loss may be recognized.

The configuration of cash flows is an exchange includes which of the following?

Select one:
a. The risk, timing and amount of cash flows of the assets.
b. The entity-specific value of the asset.
c. The estimated present value of the assets exchanged.
d. The implicit interest rate, maturity date of loan and amount of loan.

When determining the commercial substance of exchange, which of the following is not considered?
Select one:
a. Cash flow from potential sale of new equipment.
b. Cash flow of exchanged asset.
c. Cash flow from tax effect on the exchange to avoid taxes.
d. Cash flow of new asset.
Entities are encouraged to disclose all of the following in relation to property, plant and equipment, except

Select one:
a. The gross carrying amount of fully depreciated property, plant and equipment.
b. The carrying amount of property, plant and equipment classified as held for sale.
c. The carrying amount of temporarily idle property, plant and equipment.
d. The fair value of property, plant and equipment that is not materially different from carrying amount when
the cost model is used.

In an exchange having commercial substance

Select one:
a. Gain or loss is not recognized.
b. Only loss should be recognized.
c. Only gain should be recognized.
d. Gain or loss is fully recognized.

Major spare parts and standby equipment which are expected to be used over a period of more than one year shall
be classified as

Select one:
a. Property, plant and equipment
b. Inventory
c. Noncurrent investment
d. Expense

When payment for property, plant and equipment is deferred beyond normal credit terms, the difference between the
cash price equivalent and the total payments is recognized as

Select one:
a. Interest expense over the credit period
b. Interest expense of the current year
c. Component of cost of the property, plant and equipment
d. Interest expense over the life of the asset.

The cost of an item of property, plant and equipment comprises all of the following, except

Select one:
a. Initial estimate of the cost of dismantling and removing the item and restoring the site, the obligation for
which the entity does not incur when the item was acquired.
b. Any cost directly attributable in bringing the asset to the location and condition for the intended use.
c. Purchase price
d. Import duties and non-refundable purchase taxes

The carrying amount of property, plant and equipment shall be derecognized

Select one:
 a. On disposal and when no future economic benefits are expected from the use of the asset.
b. On disposal
c. When no future economic benefits are expected form the use of the asset.
d. On acquisition

When a plant asset is acquired by issuance of ordinary shares, the cost is properly measured at

Select one:
a. Par value of the shares.
b. Stated value of the shares.
c. Book value of the shares.
d. Fair value of the shares.

An entity imported machinery to be installed in the new factory premises before year-end. What is the proper
treatment of the freight and interest on the loan to fund the cost of machinery?

Select one:
a. Both expenses are expensed.
b. Freight is capitalized but interest cannot be capitalized.
c. Both expenses are capitalized.
d. Interest may be capitalized but freight is expensed.

Which of the following terms best describes the removal of an asset from the statement of financial position?

Select one:
a. Impairment
b. Writeoff
c. Derecognition
d. Depreciation

If the present value of a note issued in exchange for a plant asset is less than the face amount, the difference is

Select one:
a. Included in interest expense in the year of issuance
b. Included in the cost of the asset
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the life of the note

Which of the following statements describes the proper accounting for loss in a nonmonetary exchange?

Select one:
a. A loss is deferred.
b. An unrelated loss should be recorded.
c. A loss is recognized immediately.
d. A loss can occur only when asset is sold for cash.

Property, plant and equipment are defined as

Select one:
a. Assets held for sale in the ordinary course of business.
b. Assets held to earn rentals or for capital appreciation.
c. Tangible assets held for use in the production or supply of goods or services or for administrative purposes.
 d. Tangible assets held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes and expected to be used during more than one reporting period.

A nonmonetary exchange is recognized at fair value of the assets exchanged unless

Select one:
a. The assets are dissimilar.
b. Exchange has no commercial substance.
c. The assets are similar in nature.
d. Fair value is not determinable.