Mindanao State University

College of Business Administration and Accountancy

Department of Accountancy
Marawi City

ACT112 – Intermediate Accounting I

First Final Quiz Assignment
Property, Plant, and Equipment

QUESTIONNAIRE

Name: Score:
Instructor: Norhanimah M. Mangondato Date: June 15, 2022

Part I. Theories
Instruction: Select the answer that best relates to the statement being described. Write your
final answers in the Google Form link provided.

1. Which of the following standards addresses the accounting for property, plant and
equipment?
a. PAS 12
b. PAS 16
c. PAS 26
d. PFRS 5

2. Which of the following is least likely capitalized as cost of land?

a. Grading, filling, draining clearing and similar site development activities
b. Survey
c. Landscaping and similar improvements that have limited useful lives.
d. Special assessment

3. Subsequent to initial recognition, an entity shall use this model to account for its items of
property, plant and equipment.
a. cost model
b. fair value model
c. revaluation model
d. a or c as an accounting policy choice

4. It is the systematic allocation of the depreciable amount of an asset over its estimated
useful life.
a. Depreciation
b. Revaluation
c. Impairment
d. all of these

5. Which of the following is considered when depreciating an asset under the cost model?
a. The cost of the asset.
b. The useful life of the asset.
c. The change in the fair value of the asset.
d. Both a and b.

6. Which of the following depreciation methods will most likely result in the highest amount
of reported profit in the early years of an asset’s useful life?
a. Straight line
b. Double declining balance
c. 150% declining balance
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 d. Sum-of-the-years’ digits

7. The most commonly used depreciation method is the

a. straight-line method.
b. depreciation method based on revenue.
c. replacement method.
d. inventory method.

8. Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended
5 years beyond the original estimate of 10 years. If the asset recognition criteria are met,
the cost of rebuilding the drill press should be charged to the appropriate:
a. expense account
b. accumulated depreciation account
c. asset account
d. liability account

9. The carrying amount of an item of property, plant and equipment that is subsequently
accounted for under the cost model is equal to
a. the historical cost less any accumulated depreciation.
b. the fair value less any accumulated depreciation.
c. the historical cost less any accumulated depreciation and any accumulated
impairment loss.
d. the fair value less any accumulated depreciation and any accumulated impairment
loss.

10. Property, plant and equipment are defined as

a. Tangible assets held for sale in the ordinary course of business.
b. Tangible assets held to earn rentals or for capital appreciation or both.
c. Tangible assets held for use in the production or supply of goods or services and
expected to be used during more than one reporting period.
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.

11. Which of the following is not a major characteristic of property, plant and equipment?
a. The property, plant and equipment are tangible assets.
b. The property, plant and equipment are used in business.
c. The property, plant and equipment are expected to be used over a period of more
than one year.
d. The property, plant and equipment are subject to depreciation.

12. An item of property, plant and equipment shall be recognized as an asset when
I. It is probable that future economic benefits associated with the asset will flow to
the entity.
II. The cost of the asset to the entity can be measured reliably.
a. I only
b. II only
c. Both I and II
d. Either I or II

13. Major spare parts and standby equipment which are expected to be used over a
period of more than one year shall be classified as
a. Property, plant and equipment
b. Inventory
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 c. Noncurrent investment
d. Expense

14. Which of the following statements is true concerning recognition of property, plant
and equipment?
I. Most spare parts and servicing equipment are usually carried as inventory and
recognized as expense when consumed.
II. If the spare parts and servicing equipment can be used only in connection with
an item of property, plant and equipment and their use is expected to be irregular,
they are accounted for as property, plant and equipment and are depreciated
over their useful life or useful life of the related asset, whichever is shorter.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

15. Under the cost model, subsequent to initial recognition as an asset, an item of
property, plant and equipment shall be carried at
a. Cost
b. Revalued amount
c. Cost less accumulated depreciation and any accumulated impairment loss
d. Revalued amount less accumulated depreciation and any accumulated
impairment loss

16. The cost of an item of property, plant and equipment comprises all of the following,
except
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Any cost directly attributable in bringing the asset to the location and condition for
its intended use
d. 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

17. Costs directly attributable to bringing the asset to the location and condition for the
intended use include all of the following, except
a. Cost of employee benefit not arising directly from the construction and acquisition
of property, plant and equipment.
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost

18. Cost that are expensed immediately include all of the following, except
a. Cost of opening a new facility
b. Cost of introducing a new product or service, including cost of advertising and
promotional activities
c. Cost of conducting business in a new location, including cost of staff training
d. Cost of testing whether the asset is functioning property

19. Costs that are expensed immediately include all of the following, except
a. Cost incurred while an item capable of operating in a manner intended by
management has yet to be brought into use, or is operated at less than full
capacity
b. Initial operating loss
c. Cost of relocating or reorganizing part or all of an entity’s operation

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 d. Professional fee arising directly from the acquisition of an item of property, plant and
equipment

20. It is the systematic allocation of the depreciable amount of an item of property, plant
and equipment
a. Depreciation
b. Depletion
c. Amortization
d. Realization

21. The useful life of an item of property plant and equipment is

I. the period of time over which an asset is expected to be used by the entity
II. the number of production or similar units expected to be obtained from the asset
by the entity
a. I only
b. II only
c. both
d. neither I or II

22. Carrying amount is

a. cost of an asset or the amount substituted for cost in the financial statements, less its
residual value
b. amount of cash or cash equivalent paid or the fair value of the other consideration
given to acquire an asset at the time of its acquisition or construction
c. Net amount which the entity expects to obtain for an asset at the end of its useful life
after deducting the expected costs of disposal
d. Amount at which an asset is recognized in the statement of financial position after
deducting any accumulated depreciation and accumulated impairment loss

23. Which of the following statements is incorrect with respect to depreciation?

a. The depreciable amount of item of property plant and equipment shall be
allocated on a systematic basis over its useful life
b. the depreciation method used shall not reflect the pattern in which the asset’s
economic benefits are consumed by the entity
c. the depreciation charge for each period shall be recognized as an expense unless it
is included in the carrying amount of another asset
d. the estimation of the useful life of an item of property, plant and equipment is a
matter of judgment based on the experience of the entity with similar assets

24. All following factors need to be considered in determining the useful life of an asset,
except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual Value

25. The production method of depreciation results in

a. Constant charge over the life of the asset
b. Decreasing charge over the life of the asset
c. Increasing charge over the life of the asset
d. charge based on the expected use or output of the asset

26. Which of the following statements is incorrect concerning the residual value of an item
of property plant and equipment?
a. the depreciable amount is determined without deducting the residual value of the
asset
b. in practice, the residual value of an asset is often insignificant and therefore
immaterial in the calculation of the depreciable amount
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 c. the residual value of an asset may increase to an amount equal to greater than the
asset ‘s carrying amount
d. the residual value of an asset shall be reviewed at least at each financial year-end

27. The useful life of an item of property plant and equipment shall be review periodically
and if expectations are significantly different from previous estimates, the depreciation
charge for the
a. current period only shall be adjusted
b. future period only shall be adjusted
c. prior periods shall be adjusted
d. Current and future periods shall be adjusted

28. The depreciation method applied to property, plant and equipment shall be reviewed
periodically, and if there has been a significant change in the expected pattern of
consumption of economic benefits from those assets, the change
a. shall be accounted for as a change in accounting policy
b. shall not be recognized
c. shall be accounted for as a change in accounting estimate
d. shall be accounted for as correction of prior period error

29. Technical obsolescence arises from

a. Expected usage of the asset
b. expected physical wear and tear
c. Changes or improvements in production or change in the market demand for the
product output of the asset
d. expiry date of related lease of the asset

30. Which of the following terms best describes the cost or an amount substituted for cost
of an asset less the residual value?
a. Revalued amount
b. Carrying amount
c. Recoverable amount
d. Depreciable amount

31. Which of the following statements best describes residual value?

a. The estimated net amount currently obtainable if the asset is at the end of the useful
life
b. The present value of estimated future cash flows expected to rise from the
continuing use of the asset and from its ultimate disposal
c. the amount at which the asset could be exchanged between knowledgeable and
willing parties in an arm’s length transaction
d. the amount of cash or cash equivalents that could currently be obtained by selling
the asset in an orderly disposal

32. Which of the following is true?

a. assets are depreciable even if their fair value exceeds their carrying amount
b. Land and buildings are not accounted for separately when acquired together
c. a non-current asset acquired as the result of an exchange of assets is not recognized
d. a gain on disposal of an noncurrent asset is classified revenue

33. Which of the following statements regarding depreciation is true?

a. an asset must be depreciated from the date of its purchase to the date of sale
b. the annual depreciation charge must be constant over the life of the asset
c. the total cost of an asset must eventually be depreciated
d. if the carrying amount of an asset is less than the residual value, depreciation is not
charge

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

35. Which of the following statements is the assumption on which straight line depreciation
is based?
a. the operating efficiency of the asset decreases in later years
b. Service value declines as a function of time rather than use
c. Service value declines as a function of obsolescence rather than time
d. physical wear and tear are more important than economic obsolescence

Part II. Problems

Instruction: Choose the letter of the correct amount being asked from the choices given.
Write your final answers in the Google Form link provided. In addition, you are required to
show your corresponding solution for each problem in a separate sheet of paper.

36. LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment overseas on cash
basis for 400,000. Additional costs incurred include the following: commission paid to
broker for the purchase of the equipment, 20,000; import duties of 100,000; non-
refundable purchase taxes of 40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, 4,000; costs of assembling and installing the equipment, 8,000;
costs of testing the equipment, 6,000; administration and other general overhead costs,
16,800; and advertisement and promotion costs of the new product to be produced by
the equipment, 15,200. The samples generated from testing the equipment were sold at
2,000. How much is the initial cost of the equipment?
a. 576,000
b. 578,000
c. 592,800
d. 594,800

37. On January 1, 2021, REEDY SLENDER Co. purchased fixtures at an installment price of
520,000. REEDY paid 40,000 cash down payment and issued a three-year noninterest
bearing note of 480,000 payable in three equal annual installments starting December
31, 2021 for the balance. The prevailing rate for the note as of January 1, 2021 is 12%.
How much is the initial cost of the fixtures?
a. 360,000
b. 424,293
c. 480,000
d. 520,000

On April 1, 2021, ESCULENT EDIBLE Co. purchased land and building by paying 40,000,000
and assuming a mortgage of 8,000,000. The land and building have appraised values of
20,000,000 and 40,000,000, respectively. The building will be used by ESCULENT Co. as its new
office.

Additional costs relating to the purchase include the following:

Legal cost of conveying and registering title to land 32,000
Payment to tenants to vacate premises 36,000
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 Option paid on the land and building 24,000
Option paid on similar land and building not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1, 2021 assumed
by ESCULENT Co. – assessed on land 120,000
Real estate taxes after April 1, 2021 80,000
Repairs and renovation costs before the building is occupied 160,000
Repair costs after the building is occupied 200,000

38. How much are the respective costs of the land and the building?
Land Building
a. 14,592,000 24,440,000
b. 15,492,000 32,640,000
c. 16,192,000 32,240,000
d. 17,292,000 23,420,000

Old Room Co. purchased land and building for a lump-sum price of 48,000,000. The existing
building will be demolished and a new building will be constructed. Old Room incurred the
following additional costs:
Title guarantee 80,000
Option paid for the land and old building acquired 24,000
Payments to tenants to vacate premises 48,000
Cost of razing the old building 240,000
Construction cost of new building (completed) 34,000,000

o The land and old building have fair values of 20,000,000 and 40,000,000, respectively.
o Some salvaged wood planks from the demolition were used as wall panels in the new
building. Old Room estimates that the salvaged wood planks have a fair value of
120,000. The other salvaged materials were sold for 60,000.

39. How much are the allocated costs of the land and the new building?
Land New building
a. 16,864,000 33,780,000
b. 16,104,000 34,180,000
c. 15,980,000 36,670,000
d. 16,014,000 34,810,000

LOATH HATE Co. purchased a lot for 8,000,000. Immediately after the purchase, LOATH Co.
started the construction of a new building on the lot. Additional information follows:
Legal cost of conveying title to land 40,000
Special assessment 20,000
Survey costs 60,000
Materials, labor, and overhead costs 22,000,000
Cash discounts on materials purchased not taken 120,000
Clerical and other costs related to construction 56,000
Excavation costs 400,000
Architectural fees and building permit 240,000
Supervision by management on construction 48,000
Insurance premiums paid for workers 520,000
Payment for claim for injuries not covered by
insurance 180,000
Savings on construction 800,000
Cost of changes to plans and specifications due to
560,000
inefficiencies
Paving of streets and sidewalks (not included in 40,000
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 blueprint)
Income earned on a vacant space rented as parking
lot during construction 36,000

40. How much are the capitalized costs of the land and the building?
Land Building
a. 8,160,000 23,096,000
b. 8,120,000 23,144,000
c. 8,100,000 23,184,000
d. 8,060,000 23,264,000

FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are shown below:
FEEBLE Co. WEAK, Inc.
Equipment 4,000,000 8,000,000
Accumulated depreciation 800,000 3,200,000
Carrying amount 3,200,000 4,800,000
Fair value 3,800,000 4,400,000
Cash paid by FEEBLE to WEAK 600,000 600,000

41. In WEAK’s books, what amounts are recognized for the following?
Equipment Gain (Loss)
a. 3,400,000 400,000
b. 3,800,000 (400,000)
c. 4,400,000 (1,000,000)
d. 5,000,000 0

TRANSCEND EXCEED Co. traded-in an old machine for a new model. Pertinent data are as
follows:

Old equipment:
Cost 200,000
Accumulated depreciation 80,000
Average published retail value 24,000

New equipment:
List price 380,000
Cash price without trade in 280,000
Cash price with trade in 220,000

42. How much is the gain (loss) recognized by TRANSCEND Co. on the transaction?
a. 60,000
b. 160,000
c. (60,000)
d. 0

43. Nail Bite Co. acquired land with fair value of 4,000,000 in exchange for Nail Bite’s 10,000
shares with par value of 40 per share and quoted price of 360 per share. How much gain
(loss) should Nail Bite Co. recognize on the exchange?
a. 3,200,000
b. 400,000
c. (400,000)
d. 0

44. On January 1, 2021, SIMPLETON FOOL Co. acquired a piece of equipment with an
estimated useful life of 4 years and a residual value of 80,000 for a total purchase cost of
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 400,000. At normal capacity, the equipment’s estimated service life is 40,000 hours or a
total productive capacity of 160,000 units of a product. In 2021 and 2022, the actual
manufacturing hours were 16,000 and 8,000, respectively, and the actual units produced
were 60,000 and 30,000, respectively. How much is the accumulated depreciation on
December 31, 2022 under each of the following depreciation methods?
SLM SYD DDB UOPM (input) UOPM (output)
a. 100,000 160,000 200,000 129,000 120,000
b. 160,000 224,000 300,000 192,000 180,000
c. 80,000 128,455 200,000 128,000 120,000
d. 160,000 224,000 300,000 180,000 192,000

 SLM = straight line method; SYD = sum-of-the-years’ digits; DDB = double declining
balance; UOPM = units-of-production method

45. DEPLORABLE BAD Co. acquired a machine on October 5, 2021 for a total cost of 160,000.
The machine was estimated to have a useful life of 4 years and a salvage value of 10,000.
DEPLORABLE BAD Co. uses the sum-of-the-years’ digits method and prorates full-year
depreciation to the nearest month. DEPLORABLE BAD Co. sold the machine on
December 27, 2022 for 40,000. How much is the gain (loss) on the sale?
a. (48,750)
b. 48,750
c. (32,250)
d. 32,250

On January 1, 2021, DEVIOUS CROOKED Co. purchased the following assets and decided
to depreciate them as a single unit:
Cost Residual value Useful life
Machine tools 80,000 4,000 3 years
Meters 64,000 2,000 5 years
Returnable containers 120,000 - 6 years

46. What is the composite life?

a. 5.40
b. 5
c. 4.70
d. 4.50

The small tools account of ATROCIOUS CRUEL Co. has a balance of 600,000 as of January
1, 2021. The movements in this account during the year were as follows:
Feb. April Sept. Nov.
Cost of new tools acquired 40,000 - 120,000 88,000
Cost of old tools retired 24,000 48,000 - 72,000
Disposal proceeds of old tools 2,000 3,200 - 4,000

47. How much is the depreciation expense in 2021 under the retirement method?
a. 134,800
b. 166,800
c. 144,000
d. 118,800

On January 1, 2021, COCKY ARROGANT Co. acquired a piece of equipment for 4,000,000.
The equipment will be used to reproduce gaming software that is expected to be marketed
for 3 years. The equipment is expected to be used in producing products over the next two
years, after which the equipment will be disposed of at a negligible amount. The estimated
revenues from the software are as follows:

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 Estimated
Year revenues
2021 120,000,000
2022 80,000,000
2023 40,000,000
Total 240,000,000

The actual revenue earned in 2021 is 180,000,000.

48. The depreciation expense in 2021 is most likely equal to

a. 3,000,000
b. 2,000,000
c. 2,977,667
d. 333,333

On January 1, 2021, DIMINUTIVE SMALL Co. signed a ten-year lease for office space.
DIMINUTIVE has the option to renew the lease for an additional five-year period on or before
January 1, 2x10. During the first half of January 2022, DIMINUTIVE Co. incurred the following
costs:
o 3,600,000 for general improvements, with an estimated useful life of ten years, on the
leased premises.
o 400,000 for office furniture with an estimated useful life of ten years.
o 800,000 for movable assembly line equipment with a useful life of 5 years.

At the time the leasehold improvements were finished, DIMINUTIVE Co. was uncertain as to
the exercise of the lease renewal option.

49. How much is the depreciation expense on the leasehold improvements in 2022?
a. 400,000
b. 360,000
c. 533,333
d. 488,889

50. On January 1, 2021, KNAVE RASCAL Co. acquired a machine for a total cost of
80,000,000. The machine was depreciated using the sum-of-the-years’ digits method
over a period of 10 years. On January 1, 2024, KNAVE Co. changed its depreciation
method to the double declining balance method. How much is the depreciation
expense in 2024?
a. 40,727,272
b. 11,635,782
c. 12,556,780
d. 13,556,702

51. ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 2021 for a total cost of
24,000,000. The aircraft was estimated to have a useful life of 10 years. ENTREAT Co. uses
the straight line method of depreciation. On January 1, 2025, a major part of the aircraft
was replaced for a total cost of 3,200,000. ENTREAT Co. cannot determine the cost of the
replaced part. How much is the loss on replacement?
a. 1,920,000
b. 1,280,000
c. 1,200,000
d. 0

On December 31, 2021, SWIMMY UNSTEADY Co. determined the following information for
the purpose of revaluing its building:
Historical cost 80,000,000
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 Initial estimate of useful life 25
Actual life 10
Replacement cost 140,000,000
Effective life 8
Remaining economic life 17
Income tax rate 30%

52. If SWIMMY UNSTEADY Co. uses the proportional method of recording, the entry to
record the revaluation would include which of the following?
a. a debit to accumulated depreciation of 32,000,000.
b. a credit to accumulated depreciation of 12,800,000.
c. a credit to building of 15,200,000.
d. a debit to deferred tax of 14,160,000.

On December 31, 2021, the building of LITHE FLEXIBLE Co. was revalued. Information
determined on revaluation date is as follows:
Historical cost 72,000,000
Accumulated depreciation 16,000,000
Initial estimate of residual value 8,000,000
Actual life on revaluation date 10
Replacement cost 144,000,000
Effective life 12
Remaining economic life 20
Income tax rate 30%

The estimate of residual value remained unchanged.

53. How much are the (1) revaluation surplus, net of tax, on December 31, 2021 and (2)
revised annual depreciation in periods subsequent to December 31, 2021?
a. 25,900,000; 4,650,000
b. 37,000,000; 895,000
c. 37,000,000; 4,650,000
d. 25,900,000; 4,250,000

54. On December 31, 2021, the building of Borong Co. with a historical cost of 320,000,000,
accumulated depreciation of 160,000,000, and an estimated useful life of 20 years was
determined to have a fair value of 200,000,000. Borong Co. is subject to an income tax
rate of 30%. Under the elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for 160,000,000.
b. a debit to accumulated depreciation for 40,000,000.
c. a debit to building for 120,000,000.
d. a credit to building for 160,000,000.

55. On December 31, 2021, the land of CONJUNCTION UNION Co. with an original cost of
40,000,000 was revalued to a fair value of 28,000,000. This was the first revaluation made
on the land since it was purchased 2 years ago. On December 2024, the building was
appraised at a fair value of 48,000,000. How much is the gain on impairment reversal in
2024?
a. 8,000,000
b. 20,000,000
c. 12,000,000
d. 0

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