Prelims Exam

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FMCC212 CHAPTER 23 TO CHAPTER 32

PPE-IDENTIFIABLE INTANGIBLE ASSETS
Financial Accounting and Reporting (Ateneo de Naga University)
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1.
PAS 16 does not apply to the following, except
Biological assets related to agricultural activity
Mineral rights and mineral reserves such as oil, natural, gas and similar nonregenerative
resources
Noncurrent asset held for sale
Equipment and machinery held for rentals or for undetermined use
Correct answer. 0/1p
2.
The elements of the cost of an item of property, plant and equipment are the following, except
Cost incurred while an item capable of operating in the manner intended by management has yet to
be brought into use or is operated at less than full capacity.
Purchase price, including import duties and nonrefundable purchase taxes, after deducting trade
discounts and rebates.
Cost directly attributable to brining the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
Initial estimate of the cost of dismantling and removing the item and restoring the site on which it is
located, the obligation for which an entity incurs.
3.
The following are examples of costs that are expensed as incurred, except
Cost of introducing a new product or service, including advertising and promotion
Initial operating losses
Cost of employee benefits arising from the construction of an item of property, plant and equipment
Cost of relocating and reorganizing part or all of an entity’s operations.
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4.
The cost of self-constructed property, plant and equipment shall include the following, except
Direct cost of materials and direct labor costs
Indirect cost and incremental overhead specifically traceable to the construction
Normal amount of wasted material, labor and overhead
Internal profit or saving on construction
5.
The following are the rules for the recognition of government grants as income, except
A government grant as compensation for expenses or losses already incurred or for purposes of
giving immediate financial support to the entity with no further related costs shall be recognized as
income in the period in which it is received regardless of the period it becomes receivable.
Grants in recognition of specific expenses shall be recognized as income over the period of the
related expense.
Grants relayed to depreciable assets shall be recognized as income over the periods and in proportion
to the depreciation of the related assets.
Grants related to nondepreciable assets requiring fulfillment of certain conditions shall be recognized
as income over the periods which bear the cost of meeting the conditions.
6.
PAS 20 provides that when a government grant that becomes repayable because the conditions of receipt have not
been met shall be accounted for as a
Change in accounting method
Change in accounting estimate
Change in accounting policy

Change in accounting principle
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7.
PAS 23 does not require capitalization of borrowing costs relating to the following, except
Assets measured at fair value, such as biological assets.
Power generating facilities that takes a substantial time to construct.
Inventories that are manufactured or produced in large quantities on a repetitive basis.
Assets that are ready for their intended use or sale when acquired.
8.
The following costs are normally classified as cost of the land, except
Unpaid taxes up to date of acquisition assumed by the buyer.
Fences, water systems, drainage systems, sidewalks, pavements and landscaping
Cost of relocation or reconstruction of property belonging to others in order to acquire possession
Attorney’s fees and other expenditures for establishing clean title
9.
The following costs are capitalized to land improvement account, except
Costs of trees and shrubs
Parking lot, pavement and sidewalks
Permanent fence
Cost of grading, leveling and landfill
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10.
When a machinery is purchased, the cost normally includes the following, except
Initial estimate of cost of dismantling and removing the machinery and restoring the site on which it is
located, and for which the entity has a present obligation.
Cost of testing, trial run, and other cost necessary in preparing the machinery for its intended use.
Creditable value added tax and refundable import duties.
Installation cost, including site preparation and assembling
11.
Which of the following statements is incorrect concerning property, plant and equipment?
The residual value may increase to an amount equal to or greater than the asset’s carrying amount.
Depreciation is recognized even if the fair value of the asset exceeds its carrying amount as long as
the residual value does not exceed the carrying amount.
The residual value of an asset shall be reviewed at least at each financial year-end and if expectation
differs from previous estimate, the change shall be accounted for as a change in accounting policy.
Each part of an item of property, plant and equipment with a cost that is significant in related to the
total cost of the item shall be depreciated separately.
12.
The method of depreciation is appropriate when the asset is considered more productive in the early part of its useful
life.
Straight line
Group method
Units of production method
Sum of the year’s digit method
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13.
Which method of depreciation does not normally use residual value in computing depreciation especially in the early
years?
Straight line
Declining balance method
Units of production method

Sum of the year’s digit method
14.
What is the formula for computing the composite life of a group of assets?
Total historical cost divided by total annual depreciation
Total annual depreciation divided by total depreciable amount
Total depreciable amount divided by total annual depreciation

Total depreciable amount divided by total historical cost
15.
What is the property treatment of change in the depreciation method?

Change in accounting policy and retrospectively
The change shall affect the current period only.
The depreciation charge for the current and future periods shall be adjusted.
The previous year’s depreciation shall be adjusted.
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16.
The following expenditures are normally classified as cost of a building that is constructed, except
Superintendent fee
Architect fee
Building permit fee
Special assessment fee
17.
In an exchange having commercial substance
Gain or loss is recognized in its entirety
A gain or loss is computed by comparing the fair value of the asset received with the fair value of
the asset given up.
Only gain should be recognized.
18.
An entity imported machinery to install it its new factory premises before year-end. However, due to circumstances
beyond its control, the Machinery was delayed by a few months but reached the factory premises before year-end.
The entity learned from the bank that it was being charged interest on the loan it had taken to fund the cost of the
plant. What is the proper treatment of freight and interest expense?
Both the expenses are capitalized
Interest may be capitalized but freight is expensed
Freight is capitalized but interest cannot be capitalized under these circumstances
Both expenses are expensed
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19.
a)
Maya Company had the following outstanding loans during 2019 and 2020.
Specific construction loan 3,000,000 10%

General loan 25,000,000 12%
The entity began the self-construction of a new building on January 1, 2019 and the building was completed on
June 30, 2020. The following expenditures were made:
January 1, 2019 4,000,000

April 1, 2019 5,000,000
December 1, 2019 3,000,000
March 1, 2020 6,000,000
What is the cost of new building on December 31, 2019?
P11,900,000
P12,900,000
P12,300,000
P12,600,000
b) What is the cost of new building on June 30, 2020?

P19,050,000
P19,884,000
P19,734,000
P16,884,000
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20.
On October 10, 2019, Roy Company purchased machinery for P2,000,000. Salvage value was estimated to be
P100,000. The Machinery will be depreciated over eight years using the sum-of-years’-digits method.
If depreciation is computed on the basis of the nearest full month, how much should Roy record depreciation
expenses for 2020 on this machinery?
P444,444.44
P369,444.44
P388,888.89
P409,027.78
21.
KM Company purchased machinery that was installed and ready for use on January 2, 2019 at a total cost of
P960,000. Salvage value was estimated at P50,000. The machinery will be depreciated over five years using the
double-declining balance method.
How much should be the accumulated depreciation balance at December 31, 2020?
P230,400
P384,000
P768,000
P614,400
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22.
CASURECO has a balance in the electric meters account of 4,000,000 on January 1, 2020. During 2020,
CASURECO installed new meters as follows:
May August November
Cost of new meters installed P600,000 P800,000 P400,000
Cost of old meters replaced 340,000 - P300,000
Proceeds from sale of old meters 45,000 25,000
Using the retirement and replacement methods, what is the amount of depreciation that should be recognized in year
2020?
Retirement Replacement
P590,000 P 830,000
P570,000 P 930,000
P640,000 P1,000,000
P640,000 P 640,000
23.
The following transactions pertain to the general borrowings made during 2020 by Champion Company in
connection with the construction of the company’s new warehouse:
Principal Borrowing Costs
8% bank loan P2,400,000 P192,000
6% short-term note 1,600,000 96,000
8% long-term note 2,000,000 160,000
The construction started on January 1, 2020 and the warehouse was completed on December 31,2020. Expenditures
on the warehouse were as follows:
January 1 P 400,000 September 30 P1,000,000
March 31 1,000,000 December 31 400,000
June 30 1,200,000
How much is the capitalizable borrowing cost of Victory Company?
P 0
P149,400
P298,600
P448,000
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24.
a) Tweeny Company exchanged a delivery van for P50,000 cash for a newer van owned by Thirdy Corporation.
The following data relate to the values of the vans on the date of exchange:
Carrying value Fair Value
Tweeny 300,000 450,000
Thirdy 400,000 500,000
Immediately after the exchange, Tweeny Company determined that the cash flows of the van received differ
from the cash flows of the van transferred.
What is the cost of the new asset acquired as basis for recording in the books of Tweeny?
300,000
400,000
450,000
500,000
b) What amount should Tweeny report as a gain on exchange of the vans?

P 0
.P 7,000
P10,000
150,000
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25.
a) The following costs are obtained from the single PPE account of CON Inc. as of December 31, 2020:
Purchase price of land with a building to be demolished for construction of new one P10,000,000
Cost of option on another land which is not acquired 200,000
Permanent fence after the construction of new building 400,000
Damaged windows due to vandals 100,000
Proceeds from sale of salvaged materials from the demolished old building 50,000
Mortgage payable and related interest assumed by CON in the acquisition of the land 2,000,000
Construction cost of the new building 5,000,000
Excavation of the land before construction 100,000
Initial operating losses of CON 200,000
Medical expenses on injured factory workers who are not insured 300,000
Cost of option on acquired land 100,000
Sidewalks, pavements, parking lot and driveways (not part of building blueprint) 500,000
Cost of grading, leveling and landfill 400,000
Building permit 50,000
Capitalizable borrowing cost during construction 300,000
Safety inspection during construction 50,000
Cost of temporary building used as construction offices and materials shed 400,000
Legal fees to establish clean title 200,000
Real estate broker’s commission 100,000
Cost of clearing and demolishing the old building 300,000
Architect fee 100,000
Cost of temporary fence during construction 100,000
Unpaid real estate taxes of the land assumed by CON 200,000
General and administrative overhead 100,000
Payment to tenants of old building to vacate it 500,000
Cost of opening and blessing the new factory 300,000
Cost of relocating the employees to the new factory 100,000
What is the cost of the land?

P13,750,000
P13,850,000
P14,250,000
P14,150,000
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b) What is the cost of the land improvements?

P500,000
P400,000
P900,000
P1,300,000
c) What is the cost of the newly constructed building?

P6,200,000
P6,100,000
P6,300,000
P6,700,000
d) What is the cost that shall be expensed as incurred?

P1,000,000
P1,100,000
P1,200,000
P1,300,000
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26.
On January 1, 2018, SELF Inc. purchased a building for P33,000,000 with salvage value of P3,000,000 and useful
life of 20 years. SELF Inc. depreciates its building using straight-line method. On January 1, 2020, SELF reviewed
the depreciation of the building and changed from straight-line to Sum of the years unit method. It also determined
that the useful life of the building should only be 12 years from the date of acquisition with no residual value. What
is the book value of the building on December 31, 2020?
P21,545,455
25,384,615
P 24,545,455
P21,384,615
27.
On December 31, 2019, WITT Inc. has a building which has a cost of P42,000,000 and carrying amount of
P32,000,000. The building has a residual value of P2,000,000 and being depreciated using straight line method from
its acquisition date on January 1, 2015. On January 1, 2020, WITT Inc. revised the useful life of the building by
deducting 5 years from the original life and changed the salvage value to P7,000,000. What is the depreciation
expense of the building for the year ended December 31, 2020?
P2,500,000
1,666,667
P2,000,000
P5,000,000
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28.
On December 31, 2019, WAYNE Inc. has a building which has a cost of P40,000,000 and residual value of
P6,000,000. The building has a useful life of 4 years and acquired on January 1, 2018. The PPE accountant of the
company resigned but the following accumulated depreciation was obtained from the accounting records:
December 31, 2018 December 31, 2019
Accumulated Depreciation P20,000,000 P30,000,000
What is the depreciation expense to be recognized for the year ended December 31, 2020 if the same depreciation
method as used in the previous years will be employed by the company?
P5,000,000
P8,500,000
P4,000,000
P6,800,000
29.
KM Company purchased a machine on December 2, 2019 at an invoice price of P4,500,000 with terms 2/10, n/30.
On December 10, 2019, KM paid the required amount for the machine. On December 2, 2019, KM paid P80,00 for
delivery of the machine and on December 31, 2019, it paid P310,000 for installation and testing machine. The
machine was ready for use on January 1, 2020. It was estimated that the machine would have a useful life of 5 years,
and a residual value of P800,000. Engineering estimates indicated that the useful life in productive units was
200,000. Units actually produced during the first two years were 30,000 in 2020 and 48,000 in 2021. KM Company
decided to use the productive output method of depreciation. What is the depreciation of the machine for 2020?
1,560,000
720,000
960,000
600,000
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30.
On January 1, 2019, Kent Company purchased a machine for P500,000. Kent paid shipping expense of P5,000 as
well as installation cost of P12,000. The machine was estimated to have a useful life of ten years and an estimated
salvage value of P30,000. In January 2020, additions costing P72,000 were made to the machine in order to comply
with pollution control ordinances. These additions neither prolonged the life of the machine nor did they have any
residual value. If Kent records depreciation under the straight line method, depreciation for 2020 is
48,700
59,700
56,700
55,900
31.
Carmel Company provided the following information with respect to its building.
*The building was acquired January 1, 2015 at a cost of P7,800,000, with an estimated
useful life of 40 years and salvage value of P200,000. Yearly depreciation was computed
on the straight-line method.
*The wing was added to the building on January 1, 2017 at a cost of P760,000.
Salvage value did not change.
*On January 1, 2020, the management decided to change the total life of the building to
30 years.
What is the depreciation on the building for 2020?
292,400
266,000
334,400
294,000
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32.
A used machine with a carrying value of P8,000 was traded in on a new machine. The new machine, which had a
cash price of P12,000, was acquired and cash boot of P3,000 was received. The old machine had a market value of
P15,000 at the time that it was traded in. The new machine would be recorded at:
5,000
6,400
11,000
12,000
33.
Light Company has recently purchased a computer system for its office. The following information were gathered in
relation to the acquisition of the unit:
List price P152,000
Trade discount and rebates taken 56,000
Installation and assembly cost 3,200
Initial delivery and handling cost 6,400
Purchase discount 2%
What is the acquisition cost of the new computer?
94,080
103,680
105,680
160,600
34.
Gains and losses arising from the derecognition of an item of property, plant and equipment should be determined as
difference between
Gross disposal proceeds and the cost of the asset.
Gross disposal proceeds and the carrying amount of the asset.
Net disposal proceeds and the cost of the asset.
Net disposal proceeds and the carrying amount of the asset.
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35.
For each succeeding period, the declining balance method of depreciation recognizes an amount of depreciation
expense that is:
Decreasing
computed using a declining rate
increasing
constant

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FMCC212 CHAPTER 23 TO CHAPTER 32

StuDocu is not sponsored or endorsed by any college or university

10/11/21, 10:30 AM Exam.net - Easy-to-use and secure digital exams

201910782 Kimberly Gil Pesimo 2021-09-06

Noncurrent asset held for sale

Equipment and machinery held for rentals or for undetermined use

Correct answer. 0/1p

Correct answer. 1/1p

Cost of relocating and reorganizing part or all of an entity’s operations.

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Internal profit or saving on construction

Correct answer. 0/1p

Correct answer. 0/1p

Change in accounting policy

Correct answer. 1/1p

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Inventories that are manufactured or produced in large quantities on a repetitive basis.

Correct answer. 1/1p

Cost of relocation or reconstruction of property belonging to others in order to acquire possession

Attorney’s fees and other expenditures for establishing clean title

Correct answer. 0/1p

Cost of grading, leveling and landfill

Correct answer. 0/1p

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Creditable value added tax and refundable import duties.

Installation cost, including site preparation and assembling

Correct answer. 1/1p

Correct answer. 0/1p

Units of production method

Sum of the year’s digit method

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Units of production method

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Total depreciable amount divided by total annual depreciation

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What is the property treatment of change in the depreciation method?

The previous year’s depreciation shall be adjusted.

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Special assessment fee

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Only gain should be recognized.

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Freight is capitalized but interest cannot be capitalized under these circumstances

Both expenses are expensed

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Specific construction loan 3,000,000 10%

January 1, 2019 4,000,000

What is the cost of new building on December 31, 2019?

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b) What is the cost of new building on June 30, 2020?

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