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AEC 106 ACD4 - SPECIAL TOPICS IN ACCOUNTING

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Question 1 The cost of an item of property, plant and equipment is the cash price equivalent at the
Answer saved recognition date. If payment is deferred beyond normal credit terms, the difference between 1 2 3 4 5 6 7 8 9
Marked out of the cash price equivalent and the total payment is recognized as
1.00 10 11 12 13 14 15 16 17 18
Flag a. Interest at the recognition date
question 19 20 21 22 23 24 25 26 27
b. Either as interest over the period of credit or as part of the carrying amount of the
asset depending on the entities accounting policy.
28 29 30
c. Part of the carrying amount of the asset
d. Interest over the period of credit unless such interest is capitalized in accordance Finish attempt ...
with PAS 23.
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Question 2 ABC Company uses the composite method of depreciation based on a composite rate of
Answer saved 25%. At the beginning of 2021, the total cost of equipment was P5,000.000 with a total 1 2 3 4 5 6 7 8 9
Marked out of residual value of P600,000. The accumulated depreciation was P3,000,000 at that time. In
2.00 January 2021, ABC purchased an equipment for P2,500,000 with no residual value. At the 10 11 12 13 14 15 16 17 18
Flag end of 2021, ABC sold an equipment with an original cost of P1,000,000 and a residual value
question of P200,000 for P350,000. This asset was acquired on January 1, 2019. 19 20 21 22 23 24 25 26 27

What is the gain or loss from the derecognition of the asset on December 31, 2021?
28 29 30

Answer: 0
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Question 3 Items of property, plant and equipment acquired for safety or environmental reasons
Answer saved 1 2 3 4 5 6 7 8 9
Marked out of a. Qualify as assets because the acquisition of such property, plant and equipment
1.00 directly increases the future economic benefits of existing item of property, plant 10 11 12 13 14 15 16 17 18
Flag and equipment.
question 19 20 21 22 23 24 25 26 27
b. Do not qualify as assets because the acquisition of such property, plant and
equipment does not directly increase the future economic benefits of existing item
28 29 30
of property, plant and equipment.

c. Do not qualify as assets because the acquisition of such property, plant and
Finish attempt ...
equipment is not necessary for an entity to obtain the future economic benefits
from its other assets. Time left 0:02:14
d. Qualify as assets because they enable an entity to derive future economic benefits
from related assets in excess of what could be derived had those items not been
acquired.

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Question 4 ABC Co. sold a used asset to DEF Co. for 800,000 accepting a five-year 6% note for the
Answer saved entire amount. DEF's incremental borrowing rate was 14%. The annual payment of principal 1 2 3 4 5 6 7 8 9
Marked out of and interest on the note was to be P189,930. The asset could have been sold at an
2.00 established cash price of P651,460. The present value of an ordinary annuity of P1 at 8% for 10 11 12 13 14 15 16 17 18
Flag five periods is 3.99. The asset should be capitalized on DEF's books at
question 19 20 21 22 23 24 25 26 27

Answer: 651460
28 29 30

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Question 5 On January 1, 2017, ABC Company acquired equipment for P1,000,000 with a 10-year useful
Answer saved life and P100,000 residual value. The straight line method of depreciation is used. During 1 2 3 4 5 6 7 8 9
Marked out of 2021, after its 2020 financial statements had been issued, ABC determined that this
2.00 equipment's remaining useful life was only four more years and its residual value would be 10 11 12 13 14 15 16 17 18
Remove flag P40,000.
What is the carrying amount of the equipment on December 31, 2021? 19 20 21 22 23 24 25 26 27

28 29 30
Answer: 818181.82

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Question 6 ABC Company owns a machine that was bought on January 1, 2018 for P3,760.000. The
Answer saved machine was estimated to have a useful life of five years and a residual value of P240,000. 1 2 3 4 5 6 7 8 9
Marked out of ABC uses the sum of years' digits method of depreciation. At the beginning of 2021, ABC
2.00 determined that the total useful life of the machine should have been four years and the 10 11 12 13 14 15 16 17 18
Flag residual value is P352,000.
question 19 20 21 22 23 24 25 26 27
What amount should ABC records as depreciation expense on the machine for 2021?

28 29 30
Answer: 592000

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Question 7
The following figures have been extracted from the accounting records of ABC Corporation
Not yet 1 2 3 4 5 6 7 8 9
on December 31, 2017:
answered

Marked out of 25-year leasehold factory : Cost - 50,000,000; Accumulated Dep- 10,000,000
10 11 12 13 14 15 16 17 18
2.00
15-year leasehold factory : Cost - 30,000,000; Accumulated Dep- 10,000,000
Flag 19 20 21 22 23 24 25 26 27
question
On January 1, 2018 ABC had its two leasehold factories revalued for the first time by an
Independent surveyor as follows:
28 29 30
25-year leasehold - P52,000,000
15-year leasehold - P18,000,000
Finish attempt ...
ABC depreciates its leaseholds on a straight-line basis over the life of the lease.
Time left 0:01:47
The directors of ABC are disappointed in the value placed on the 15-year leasehold. The
surveyor has said that the fall in its value is due mainly to its unfavorable location, but in
time the surveyor expects its value to increase. The directors are committed to
incorporating the revalued amount of the 25-year leasehold into the financial statements,
but wish to retain the historical cost basis for the 15-year leasehold.

The revaluation surplus as of December 31, 2018 should be

Answer:

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Question 8 ABC Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive
Answer saved industry and thus has significant other property, plant and equipment that it carries in its 1 2 3 4 5 6 7 8 9
Marked out of books. It decided to revalue its property, plant and equipment. The company's accountant
1.00 has suggested the alternatives that follow. Which one of the options should ABC Inc. select 10 11 12 13 14 15 16 17 18
Flag in order to be in line with the provisions of PAS 16?
question 19 20 21 22 23 24 25 26 27
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. 28 29 30

b. Revalue one ship at a time, as it is easier than revaluing all ships together
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c. Revalue an entire class of property, plant and equipment
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d. Since assets are being revalued regularly, there is no need to depreciate

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Question 9 When an item of PPE is revalued, any accumulated depreciation at the date of the
Answer saved revaluation is 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. Neither of the choices 10 11 12 13 14 15 16 17 18
Flag
question
b. Either of the choices
19 20 21 22 23 24 25 26 27
c. Eliminated against the gross carrying amount of the asset and the net amount
restated to the revalued amount of the asset 28 29 30

d. Restated proportionately with the change in the gross carrying amount of the asset
so that the carrying amount of the asset after revaluation equals its revalued Finish attempt ...
amount.
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Question 10 ABC Company acquired a machine in the first week of July 2021 and paid the following
Answer saved bills: 1 2 3 4 5 6 7 8 9
Marked out of
Invoice price - 5,000,000
2.00 10 11 12 13 14 15 16 17 18
Freight in - 50,000
Flag
question Installation cost - 150,000 19 20 21 22 23 24 25 26 27

Cost of removing the old machine preparatory to the installation of the new machine -
100,000 28 29 30

The estimated life of the machine is 8 years or a total of 100,000 working hours with no
residual value. The operating hours of the machine totaled 5,000 hours in 2021 and 12,000 Finish attempt ...
hours in 2022. The entity follows the working hours method of depreciation.
Time left 0:01:32
On December 31, 2022, what is the carrying amount of the machine?

Answer: 1650000

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Question 11 ABC Company provided the following information with respect to its building:
Answer saved 1 2 3 4 5 6 7 8 9
* The building was acquired January 1, 2016 at a cost of P7,800,000 with an estimated
Marked out of
useful life of 40 years and residual value of P200,000. Yearly depreciation was computed
2.00 10 11 12 13 14 15 16 17 18
on the straight line method.
Flag
question *The building was renovated on January 1, 2018 at a cost of P760,000. This was
19 20 21 22 23 24 25 26 27
considered as improvement. Residual value did not change.

*On January 1, 2021, the management decided to change the total life of the building to 30 28 29 30
years.
What is the depreciation of the building for 2021? Finish attempt ...

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Answer: 294000

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Question 12
The following figures have been extracted from the accounting records of ABC Corporation
Not yet 1 2 3 4 5 6 7 8 9
on December 31, 2017:
answered

Marked out of 25-year leasehold factory : Cost - 50,000,000; Accumulated Dep- 10,000,000
10 11 12 13 14 15 16 17 18
2.00
15-year leasehold factory : Cost - 30,000,000; Accumulated Dep- 10,000,000
Flag 19 20 21 22 23 24 25 26 27
question
On January 1, 2018 ABC had its two leasehold factories revalued for the first time by an
Independent surveyor as follows:
28 29 30
25-year leasehold - P52,000,000
15-year leasehold - P18,000,000
Finish attempt ...
ABC depreciates its leaseholds on a straight-line basis over the life of the lease.
Time left 0:01:22
The directors of ABC are disappointed in the value placed on the 15-year leasehold. The
surveyor has said that the fall in its value is due mainly to its unfavorable location, but in
time the surveyor expects its value to increase. The directors are committed to
incorporating the revalued amount of the 25-year leasehold into the financial statements,
but wish to retain the historical cost basis for the 15-year leasehold.

The carrying amount of the leasehold factories as of December 31, 2018 should be

Answer:

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Question 13 Under the revaluation model, an item of property, plant and equipment whose fair value can
Answer saved be measured reliably shall be carried at a revalued amount. Revalued amount means 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. Fair value at the date of the revaluation less any accumulated depreciation and any 10 11 12 13 14 15 16 17 18
Flag accumulated impairment losses
question 19 20 21 22 23 24 25 26 27
b. Fair value at the date of the revaluation less any subsequent accumulated
depreciation and subsequent accumulated impairment losses
c. Fair value at the date of the revaluation 28 29 30

d. Cost less any accumulated depreciation and accumulated impairment losses

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Question 14 When an entity chooses the revaluation model as its accounting policy for measuring PPE,
Answer saved which of the following statements is correct? 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. Revaluation of PPE must be made at least every 3 years 10 11 12 13 14 15 16 17 18
Flag
question
b. When an asset is revalued, the entire class of PPE to which that asset belongs
19 20 21 22 23 24 25 26 27
must be revalued

c. Increases in an asset's carrying value as a result of the first revaluation must be 28 29 30

recognized as a component of profit or loss

d. When an asset is revalued, individual assets within a class of PPE to which that Finish attempt ...
asset belongs can be revalued
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Question 15 A condition of continuing to operate an item of property, plant and equipment (for example,
Answer saved an aircraft) may be performing regular major inspections for faults regardless of whether 1 2 3 4 5 6 7 8 9
Marked out of parts of the item are replaced. When each major inspection is performed, its cost is
1.00 10 11 12 13 14 15 16 17 18
Flag a. Recognized in other comprehensive income as incurred.
question 19 20 21 22 23 24 25 26 27
b. Recognized in profit or loss as incurred

c. Recognized in the carrying amount of the item of property, plant and equipment as 28 29 30
a replacement if the recognition criteria are satisfied.

d. Often described as for the "repairs and maintenance" of the item of property, plant Finish attempt ...
and equipment
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Question 16 On January 1, 2021, ABC Company purchased a large quantity of personal computers. The
Answer saved cost of these computers was P6,000,000. On the date of purchase, the management 1 2 3 4 5 6 7 8 9
Marked out of estimated that the computers would last approximately 4 years and would have a residual
2.00 value at that time of P600,000. The entity used the double declining balance method. During 10 11 12 13 14 15 16 17 18
Flag January 2022, the management realized that technological advancements had made the
question computers virtually obsolete and that they would have to be replaced. Management proposed 19 20 21 22 23 24 25 26 27
changing the remaining useful life of the computers to 2 years. What is the depreciation
expense for 2022? 28 29 30

Answer: 2430000 Finish attempt ...

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Question 17 If a reporting entity chooses to switch from the cost model to the revaluation model for PPE,
Answer saved the periodic depreciation charge usually will 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. No longer be required 10 11 12 13 14 15 16 17 18
Flag
question
b. Decrease
19 20 21 22 23 24 25 26 27
c. Increase
28 29 30
d. Not be affected

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Question 18 The initial application of a policy to revalue assets in accordance with PAS 16-Property, Plant
Answer saved and Equipment 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. Must not be accounted for as a change in accounting policy 10 11 12 13 14 15 16 17 18
Flag
question
b. May be accounted for in accordance with the requirements of the Conceptual
19 20 21 22 23 24 25 26 27
Framework

c. Must be treated as an extraordinary event 28 29 30

d. Must be accounted for as a change in accounting policy

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Question 19 If items of PPE are stated at revalued amounts, the following shall be disclosed except
Answer saved 1 2 3 4 5 6 7 8 9
Marked out of a. Whether an independent valuer was involved
1.00 10 11 12 13 14 15 16 17 18
b. The revaluation surplus, indicating the change for the period and any restrictions on
Flag
question
the distribution of the balance of the shareholders
19 20 21 22 23 24 25 26 27
c. The expected date of the next revaluation
28 29 30
d. For each revalued class of PPE, the carrying amount that would have been
recognized had the assets been carried under the cost model
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Question 20 ABC Co purchased a building on 1 January 2008 for P1,250,000. At acquisition, the useful life
Answer saved of the building was 50 years. Depreciation is calculated on the straight-line basis, On 1 1 2 3 4 5 6 7 8 9
Marked out of January 2018, the building was revalued to P1,600,000. ABC Co has a policy of transferring
2.00 the excess depreciation on revaluation from the revaluation surplus to retained earnings. 10 11 12 13 14 15 16 17 18
Flag Assuming no further revaluations take place, what is the balance on the revaluation surplus at
question 31 December 2018? 19 20 21 22 23 24 25 26 27

28 29 30
Answer: 11400000

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Question 21 Which statement is incorrect regarding the change in an asset's carrying amount as a result
Answer saved of revaluation? 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. The increase shall be recognized in profit or loss to the extent that it reverses a 10 11 12 13 14 15 16 17 18
Flag revaluation decrease of the same asset previously recognized in profit or loss
question 19 20 21 22 23 24 25 26 27
b. The decrease shall be recognized in other comprehensive income

c. The increase shall be recognized in OCI and accumulated in equity under the 28 29 30
heading of revaluation surplus

d. The decrease shall be recognized in OCI to the extent of any credit balance Finish attempt ...
existing in the revaluation surplus in respect of the asset
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Question 22 Property, plant and equipment are
Answer saved 1 2 3 4 5 6 7 8 9
Marked out of a. Assets held for sale in the ordinary course of business.
1.00 10 11 12 13 14 15 16 17 18
b. Properties held to earn rentals or for capital appreciation.
Flag
question c. Identifiable non-monetary assets without physical substance. 19 20 21 22 23 24 25 26 27

d. Tangible items that are held for use in the production or supply of goods or services,
28 29 30
for rental to others or for administrative purposes; and are expected to be used
during more than one period.
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Question 23 ABC Company's depreciation policy on machinery is as follows:
Answer saved 1 2 3 4 5 6 7 8 9
*A full year's depreciation is taken in the year of an asset's acquisition.
Marked out of
2.00 *No depreciation is taken in the year of an asset's disposition.
10 11 12 13 14 15 16 17 18
Flag *The estimated useful life is five years.
question 19 20 21 22 23 24 25 26 27
*The straight line method is used.
On June 30, 2022, ABC sold for P2,300,000 a machine acquired in 2019 for P4,200,000.
28 29 30
The estimated residual value was P600,000. What amount of gain on the disposal should
ABC record in 2022?
Finish attempt ...

Answer: 260000 Time left 0:00:25

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Question 24 ABC Company purchased a machine on December 1, 2020 at an invoice price of
Answer saved P4,500,000 with terms 2/10, n/30. On December 10, 2020, ABC paid the required amount 1 2 3 4 5 6 7 8 9
Marked out of for the machine. On December 1, 2020, ABC paid P80,000 for delivery of the machine and
2.00 on December 31, 2020, it paid P310,000 for installation and testing of the machine. The 10 11 12 13 14 15 16 17 18
Flag machine was ready for use on January 1, 2021. It was estimated that the machine would
question have a useful life of 5 years and a residual value of P800,000. Engineering estimate 19 20 21 22 23 24 25 26 27
indicated that the useful life in productive units was 200,000. Units actually produced during
the first two years were 30,000 in 2021 and 48,000 in 2022. ABC Company decided to use 28 29 30
the output method of depreciation.
What is the accumulated depreciation of the machine on December 31. 2022? Finish attempt ...

Time left 0:00:21

Answer: 1560000

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Question 25 At 1 January 2018, the revaluation surplus of ABC Co. was P1,257,000. This was in respect
Answer saved of the company's head office. During the year to 31 December 2018, the value of the head 1 2 3 4 5 6 7 8 9
Marked out of office increased by a further P82,000. In the same period, the company's factory suffered an
2.00 impairment of P90,000. 10 11 12 13 14 15 16 17 18
Flag
What is the value of the revaluation surplus at 31 December 2018?
question 19 20 21 22 23 24 25 26 27

Answer: 1339000 28 29 30

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Question 26 Costs directly attributable to bringing the asset to the location and condition necessary for it to
Answer saved be capable of operating in the manner intended by management exclude 1 2 3 4 5 6 7 8 9
Marked out of
1.00 a. Administration and other general overhead costs 10 11 12 13 14 15 16 17 18
Flag
question
b. Costs of site preparation
19 20 21 22 23 24 25 26 27
c. Cost of employee benefits arising directly from the construction or acquisition of the
item of property, plant and equipment. 28 29 30

d. Initial delivery and handling costs

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Question 27 ABC Company acquired a machine on January 1, 2019 for P10,000,000. The machine has
Answer saved an 8-year useful life with a P1,000,000 residual value and was depreciated using the sum of 1 2 3 4 5 6 7 8 9
Marked out of years' digits method. ABC recorded a full year's depreciation on the asset in 2019 and 2020.
2.00 In January 2021, ABC estimated that the asset's useful life from the date of acquisition should 10 11 12 13 14 15 16 17 18
Flag have been 6 years and its residual value is P400,000.
question 19 20 21 22 23 24 25 26 27
What is the accumulated depreciation on December 31, 2021?

28 29 30
Answer: 6090000

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Question 28 ABC Company takes a full year's depreciation expense in the year of an asset's
Answer saved acquisition, and no depreciation expense in the year of disposition. Data relating to one of 1 2 3 4 5 6 7 8 9
Marked out of ABC's depreciable assets on December 31, 2020 are as follows:
2.00 10 11 12 13 14 15 16 17 18
Acquisition year - 2018
Flag
question Cost - 1,100,000
19 20 21 22 23 24 25 26 27
Residual value - 200,000
Accumulated depreciation - 720,000 28 29 30

Estimated useful life - 5 years

Finish attempt ...
Using the same depreciation method in 2018, 2019 and 2020, what amount of depreciation
should ABC record in 2021 for the asset? Time left 0:00:03

Answer: 120000

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Question 29 Annual revaluation is required for items of property, plant and equipment
Answer saved 1 2 3 4 5 6 7 8 9
Marked out of a. In all cases
1.00 10 11 12 13 14 15 16 17 18
b. With only insignificant changes in fair value
Flag
question c. That experience significant and volatile changes in fair value 19 20 21 22 23 24 25 26 27

d. When fair value differs materially from its carrying amount

28 29 30
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