CA51016 Departmentals Quiz 1, 2, 3 - 4 and Preliminary Examination V2.

CA51016
DEPARTMENTAL EXAMINATIONS
QUIZ 1: Depreciation and Borrowing Cost

THEORETICAL QUESTIONS
MULTIPLE CHOICE PROBLEM SOLVING
SUPPLY THE ANSWER
QUIZ 2: Wasting Assets, Investment Property and Intangible Assets
SUPPLY THE ANSWER
PRELIMINARY EXAMINATION
QUIZ 3: Biological Assets and NCAHFS
SUPPLY THE ANSWER
QUIZ 4: Provisions, Contingent and Other Liabilities
SUPPLY THE ANSWER
CA51016 - INTERMEDIATE ACCOUNTING 3
QUIZ 1: Depreciation and Borrowing Cost
Denise-Greg Partnership has purchased a budget airline and is discussing the way in
which it should depreciate the aircraft as aircraft have a lifespan of 10 years, engines
have a lifespan of seven years and tires have a lifespan of 18 months. The aircraft should
be depreciated on a straight-line basis over
a. 10 years composite useful life
b. 1.5 years useful life
c. 7 years useful life
d. 7 years useful life of the engine, 1.5 years useful life of the tires, and 10 years
useful life applied to the balance
The effect of change in accounting estimate shall be recognized prospectively by

including it in profit or loss of
a. Future period
b. Current and future periods if the change affects both
c. Current period
d. Prior periods
Rachelle and Jeremiah Company applies IAS 16 which requires a revaluation surplus
resulting from initial revaluation of PPE, which is to be treated in one of the following
ways
a. Released to the income statement over the life of the PPE
b. Credited to retained earnings as an unrealised gain
c. Credited to long-term provisions and added to the PPE
d. Debited to the class of PPE that is being revalued and credited to equity
The fair value of an item of property, plant and equipment at the date of revaluation less
any subsequent accumulated depreciation and subsequent accumulated impairment
losses, is called
a. Book value
b. Recoverable amount
c. Revalued amount
d. Value in use
Ar-jay and Thea Corp. constructed a machine for its own use. Construction started on
January 1, 2021 and was completed on March 1, 2021. The machine was installed on 1
April 1, 2021 and the entity does not begin using the machine until May 1, 2021. The
entity should begin charging depreciation on
a. January 1, 2021
b. April 1, 2021
c. May 1, 2021
d. March 1, 2021
In which of the following situations is the units of production method of depreciation

most appropriate?
a. An asset incurs increasing repairs and maintenance with use
b. An asset is subject to rapid obsolescence
c. An asset’s service potential declines with use
d. An asset’s service potential declines with passage of time
Which if the following information is an indicator of impairment?

a. Significant decline in the asset’s market value during the period
b. Excess of the carrying amount of the net assets of the reporting entity over its market
capitalization
c. Significant changes in the extent or manner in which an asset is used or is expected to
be used with adverse effect on the enterprise.
d. All of the above
A capitalizable subsequent expenditure is treated as a

a. change in accounting estimate treated prospectively
b. change in accounting estimate treated retrospectively
c. change in accounting policy treated retrospectively
d. change in accounting policy treated prospectively
Mark loves Emily Partnership measures its’ property, plant and equipment using the
revaluation model. When an item is revalued, any accumulated depreciation at the date of
the revaluation is treated in which of the following ways:
a. Eliminated against the gross carrying amount of the asset and the net amount restated
to the revalued amount of the asset.
b. Either restated proportionally or eliminated
c. Neither restated proportionally nor eliminated
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 amount.
1. A qualifying asset is an asset that the entity routinely produces or manufactures.

2. Borrowing costs that are directly attributable to the acquisition of a qualifying asset
must be capitalized as part of the cost of the asset.
a. Neither statements are true
b. Statement 2 is true
c. Statement 1 is true
d. Both statements are true
Which is true regarding impairment loss?
a. Impairment loss is incurred when the recoverable amount is higher than the carrying
value of the asset.
b. Fair value less cost to sell is the present value of the future cash flows expected to arise
from the continuing use of the asset and from its disposal.
c. Recoverable amount is the lower between the fair value less cost to sell and value in
use.
d. Impairment loss is incurred when the recoverable amount is lower than the
carrying value of the asset.
On January 1, 2017, Jasmine-Thea Milk Tea, purchased an equipment having an

estimated salvage value equal to 20% of its original cost at the end of a ten year life. The
equipment was sold on December 31, 2021 for 50% of its original cost. If the equipment’s
disposition resulted to a loss, which of the following depreciation method did Jasmine-
Thea Milk Tea used?
a. Sum of the years digit
b. Double declining
c. Composite
d. Straight line
Change in depreciation method from straight line to double declining balance method is
a..
a. None of the above
b. Change in accounting estimate
c. Change in accounting policy
d. Correction of accounting error
Leiana and Karl Ltd. owns a fleet of company cars and executive vehicles, and has other
property and equipment in order to service the fleet. It decided to revalue some of its
property, plant and equipment. Which one of the following options complies with IAS 16?
a. Revalue an entire class of property, plant and equipment
b. Revalue only one-half of each class of property, plant and equipment
c. Revalue only the cars and not the executive vehicles
d. Revalue only those parts of the fleet that have increased in value
When testing for impairment and fair value of the asset is not reliably determinable, the
recoverable amount is
a. The discounted cash flow after tax from the use and sale of the asset
b. The discounted cash flow from the use and sale of the asset
c. The undiscounted cash flow from the use and sale of the asset
d. Not computed and the asset is not considered impaired
Which of the following statements is true regarding Natasha and Denise Company’s
capitalization of interest?
a. When borrowed funds not immediately needed for construction are temporarily invested,
any interest earned should not be offset against interest cost incurred when determining
the amount of interest cost to be capitalized
b. The amount of interest to be capitalized should only be during the period of
construction of the building.
c. The amount of interest to be capitalized is determined by multiplying a weighted average
interest rate by the total accumulated expenditures on qualifying assets during the
period.
d. Interest capitalized in connection with the purchase of land to be used as a building site
should be debited to land account and not to building account
Which of the following cannot be a qualifying asset?

a. Investment properties
b. Power generation facilities
c. Manufacturing plants
d. Routinely manufactured inventories
Which is false regarding recovery of impairment loss?

a. Using cost model, the carrying amount of the asset should be increased to its new
recoverable amount or the carrying value had there been no prior impairment loss,
whichever is lower.
b. None of the statements is false
c. Using cost model, the reversal should be recognized immediately as income to profit or
loss
d. An impairment loss recognized in prior years maybe be recovered, if and only if, there
has been a change in the estimates used to determine the recoverable amount since the
last impairment loss was recognized.
If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall

be recognized in profit or loss. However, if there is a revaluation surplus account balance
as a result of prior revaluation, the decrease shall be
a. Debited directly to revaluation surplus to the extent of its balance and any remainder of
the decrease is debited to retained earnings
b. Debited directly to equity to the extent of the balance of revaluation surplus and
any remainder of the decrease is recognized in profit or loss
c. Debited directly to equity for the entire amount of the decrease
d. Ignored
Joy-Dine has a depreciable asset that has an estimated 15% salvage value. At the end of
its estimated useful life, the accumulated depreciation would equal the original cost of
the asset under which of the following depreciation methods?
Straight line Productive Output

a. No Yes
b. Yes Yes
c. Yes No
d. No No
On January 1, 2021 Atasha Company had a P10 million, 12% loan to finance the
construction of a customized machine inventory that took substantial amount of time to
be ready for sale. The following dates pertain to this project:
January 1: loan interest relating to the project starts to be incurred

February 1: technical site planning commences
March 1: start of incurring expenditures on the project
April 1: construction work commences
November 1:substantially all of the activites necessary to prepare the asset for intended use
are complete
December 1:building brought into use
How much interest should Atasha Company capitalized during the year for this project?
a. 0
b. 1,000,000
c. 700,000
d. 800,000
3/1 - Nagstart na mag expense and planning

11/1 - Natapos na yung project 1
8 Months
10,000,000 * 12% * 8/12 = 800,000
During 2020, an entity constructed a building costing P10,000,000. The weighted average
accumulated expenditures on the asset during the year totaled P6,000,000. The following
loans were available and outstanding throughout the year:
- P4,500,000 at 10% specifically to finance the construction of the building. The funds not
yet needed for the construction were invested which yield interest income of P100,000
- P1,000,000 at 8% specifically for the manufacture of the entity’s inventories
- P8,000,000 10 year 9% notes payable for general needs by the entity
This problem has 3 questions:
Determine the capitalizable interest in 2020

a. 565,000
b. 485,000
c. 450,000
d. 540,000
Determine the total cost of the qualifying asset as of December 31, 2020
a. 10,485,000
b. 10,450,000
c. 10,540,000
d. 10,565,000
Determine the total interest expense in 2020

a. 720,000
b. 665,000
c. 585,000
d. 315,000
Specific Borrowings:
4,500,000 * 10% 450,000
Interest Income:
(100,000)
General Borrowings:
8,000,000 * 9% 720,000
(6,000,000 - 4,500,000) * 9% 135,000 - lower 1 135,000 1
CAPITALIZABLE INTEREST 485,000
Qualifying Asset 1 10,000,000 1
Cost of the Qualifying Asset 12/31/2020 10,485,000
Borrowed for inventories:

1,000,000 * 8% 80,000
General Borrowings:
8,000,000 * 9% 720,000
(6,000,000 - 4,500,000) * 9% (135,000) excess 1 585,000 1
INTEREST EXPENSE 665,000
An entity owned a machine that was bought on January 1, 2018 for P6,000,000. The
machine was estimated to have a useful life of twenty years and a residual value of 10%
of cost. The entity used the straight line method to depreciate the machine. On January
1, 2020 the entity determined that the total useful life should have been twelve years and
the residual value at P800,000.
Determine the depreciation for 2020.

a. 466,000
b. 388,333
c. 540,000
d. 405,000
6,000,000 - (6M*10%)
20 years Annual depreciation = 270,000 x 2 years = 540,000
Carrying Value January 1, 2020: 6,000,000 - 540,000 = 5,460,000
New depreciation: 5,460,000 - 800,000 = 466,000

10 years ----> 12 years less 2 years
Calista Company purchased a machinery on January 1, 2020 for P7,200,000. The

machinery had a useful life of 10 years with no residual value and was depreciated using
the straight line method.
In 2023, the depreciation method was changed to sum-of-years method with the useful
life and residual value remain unchanged
This problem has two questions:
Determine the carrying amount of the machine on January 1, 2023 prior to change in
estimate
a. 5,760,000
b. 6,480,000
c. 7,200,000
d. 5,040,000
Determine the depreciation expense in 2023.

a. 916,360
b. 720,000
c. 1,260,000
d. 1,440,000
7,200,000
10 years Annual depreciation = 720,000 x 3 years = 2,160,000
Carrying amount January 1, 2023: 7,200,000 - 2,160,000 = 5,040,000
Remaining life: 7 years ----> SYD: 5,040,000 x 7/28 = 1,260,000

*Denominator = (7*(7+1))/2= 28
A building was acquired on January 1, 2011 at P3,600,000 having a useful life of 25 years
with no residual value. The company depreciates the building using the straight line
method. On December 31, 2020 the building was initially appraised at a fair market value
of P2,916,000.
This problem has 2 questions.
Determine the amount presented in equity as of December 31, 2020

a. 0
b. 756,000
c. 1,260,000
d. 2,700,000
Determine the depreciation expense in 2021.

a. 194,400
b. 244,800
c. 324,000
d. 144,000
3,600,000/25 = 144,000 Depreciation Expense per year

1/1/11 - 12/31/20 = 10 years
3,600,000 - (144,000 * 10) = 2,160,000 Carrying Value before revaluation
2,916,000 - 2,160,000 = 756,000 Revaluation Surplus ---> Equity
2,916,000/ 15years = 194,400 ---> New Depreciation Expense per year/ DE 2021
On January 1, 2020 Cohleene Company purchased a machine for P8,100,000 with a
residual value of P600,000 at the end of its 3 years useful life. It is estimated to produce
12,000 units in 2020, 7,000 units in 2021 and 6,000 units in 2022.
Using the units of output to depreciate the machine, how much is the depreciation
expense in 2021?
a. 2,268,000
b. 3,600,000
c. 1,800,000
d. 2,100,000
Estimated Units Capacity = 12,000 + 7,000 + 6,0000 = 25,000
8,100,000 - 600,000 = 7,500,000 Depreciable Amount = 300 x 7,000 units = 2,100,000

25,000 units
On January 1, 2021 an entity purchased an equipment worth P1,400 with residual value of
P500 and remaining life of 5 years. The entity uses 150% declining balance in
depreciating this machine.
Determine the depreciation on December 31, 2024.

a. 0
b. 166
c. 206
d. 144
Depreciation Rate = 1.5/ 5 = 30%
Year Carrying Rate Depreciation

Value Expense
(Beginning)
2021 1,400 30% 420
2022 980 30% 294
2023 686 30% 186***
2024 500 0
2025 500 0
*** Hindi Pwede bumaba yung carrying value sa residual value
2023: 686 * 30% = 205.8
686 - 205.8 = 480.20 < 500
Kaya 2023 pa lang nabawasan na yung depreciation expense tapos sa succeeding years
hindi na mag depreciation
On January 1, 2021 an entity purchased an equipment worth P2,000 with residual value of
P500 and remaining life of 5 years. The entity uses double declining in depreciating this
machine.
Determine the depreciation on December 31, 2023.

a. 220
b. 0
c. 288
d. 500
Depreciation Rate = 2/ 5 = 40%

Year Carrying Rate Depreciation
Value Expense
2021 2,000 40% 800
2022 1,200 40% 480
2023 720 40% 220***
2024 500 0
2025 500 0
*** Hindi Pwede bumaba yung carrying value sa residual value
2023: 720 * 40% = 288
720 - 288 = 432 < 500
Kaya sa 2023 220 (720 - 500) na lang yung depre expense
The following pertains to an entity using the revaluation model for its land belonging to
the same class:
LAND A: acquired in 2017. Revalued at the end of 2020 resulting in revaluation increase
of P3,000,000.
LAND B: acquired in 2014. Revalued at the end of 2020 resulting in revaluation increase
of P2,000,000. The entity previously recognized revaluation decrease of P1,500,000 in the
profit/loss at the end of 2017.
Determine the revaluation surplus at the end of 2020

a. 3,000,000
b. 4,500,000
c. 5,000,000
d. 3,500,000
+3,000,000 +2,000,000 -1,500,000 = 3,500,000

On June 30, 2018 Washing Company purchased at P144,000 a brand new washing
machine with no residual value. The washing machine is to be depreciated using the
straight line method over its useful life of six years.
On December 31, 2020, a flood occurred in the company’s premises which impaired the
washing machine. Based on the company’s best estimate, only P28,000 could be
recovered over the remaining life of the washing machine.
Determine the impairment loss in 2020, if any:

a. 28,000
b. 8,000
c. 56,000
d. 20,000
Determine the asset’s carrying value as of December 31, 2021

a. 20,000
b. 56,000
c. 28,000
d. 84,000
144,000 Annual Depreciation: 24,000 x 2.5 years = 60,000

6 years
Carrying Value: 144,000 - 60,000 = 84,000

Less: Revalued Amount 28,000
Impairment Loss 56,000
28,000 New Depreciation: 8,000

3.5 years
Carrying Value, December 31, 2021: 28,000 - 8,000 = 20,000

SUPPLY THE ANSWER
Aileen Corporation currently uses a machine in its operations to produce tapioca pearls. The
machine was originally acquired on January 3, 2018 for P4,400,000 and has a useful life of 8
years with P100,000 residual value at the end of its useful life. Aileen is a calendar year
company and uses the straight line method of depreciation. Depreciation is computed to the
nearest month.
A law was made effective December 28, 2020, restricting the use of tapioca pearls which the
machine produces. Consequently, Aileen reviewed the machine for possible impairment. As of
December 31, 2020, the cash flow is P550,000 to be received at the end of each year for the
remaining period. The residual value at the end of its useful life remains at P100,000. Prevailing
interest rate is 10%. Based on quoted prices and the condition of the machine, Aileen estimates
that the fair value of the machine is P1,000,000 while its cost to sell amounts to P500,000 which
includes P200,000 interest expense and P100,000 commission paid to agents.
On December 31, 2022, the machine was again tested for impairment and found to have a
recoverable amount of P1,800,000. Aileen uses the cost model in measuring the machine
subsequently. (PV of ordinary annuity for 5 periods: 3.7908 / PV of P1 for 5 periods: 0.6209)
Determine the recoverable amount on December 31,2020:

2147030
Determine the impairment loss on December 31,2020:

640470
Determine the recovery of previous impairment loss on December 31,2022:

384282
December 31, 2020 - Whichever is higher sa Value in use at Fair Value of Machine - Cost to
Sell
Value In Use:
550,000 * 3.7908 = 2,084,940
100,000 * 0.6209 = 62,090 2,147,030- Higher = Recoverable Amount
Fair Value Less Cost to Sell:
FV 1,000,000
CtS (500,000 - 200k**) 700,000
**note 200k is a financed cost, thus not included as Cost to Sell

(4,400,000 - 100,000)/8 = 537,500 Depreciation Expense per year
1/3/18 - 12/31/20 = 3 Years
Carrying Value at December 31, 2020

4,400,000 - (537,500*3) = (2,787,500)
Recoverable Amount 1 2,147,030 1
Depreciation per year

2,147,030/5 429,406
Impairment Recovery per year

640,470/5 128,094
December 31, 2022

Carrying Value (2,147,030 - (429,406*2)) (1,288,218)
Recoverable Amount 12/31/22 1,800,000
Amount that can be recovered 511,782
640,470 - (128,094*2) = 384,282 Impairment recovery

*Nabawasan na yung marerecover mo ng 12/31/22 dahil bumaba yung depreciation expense
mo from 12/31/20 - 12/31/22
Since 511,782 > 384,282 then the company can recover the full amount and record as recovery
from previous impairment.
Fat-JC Company acquire a machine on January 1, 2018 at a cost of P120,000. It was expected
to have an economic life of 10 years. Fat-JC uses the straight line method in depreciating its
machinery and equipment and reports on a calendar year basis. On December 31, 2020, the
machine was appraised as having a depreciated replacement cost of P98,000 . Fat-JC applies
the revaluation model (elimination method) in valuing this class of property, plant and equipment
subsequently and transfers part of the revaluation surplus as the asset is being used.
On December 31, 2022, Fat-JC undergo a second revaluation and estimated that the sound
value of the machine amounted to P80,000.
Determine the balance of revaluation surplus as of December 31, 2021

12000
On December 31, 2022 the revaluation surplus should be net credited by how much?
8000
120,000 Annual depreciation: 12,000 x 3 years = 36,000

10 years
Carrying Value: 120,000 - 36,000 = 84,000

Compared to: Replacement Cost = 98,000
Revaluation Surplus, 2020 14,000
*Allocation for remaining 7 years: 14,000/7yrs = 2,000
Revaluation Surplus, 2021: 14,000 - 2,000 = 12,000
98,000 Annual Depreciation: 14,000 x 2 years = 28,000

7 years
Carrying Value: 98,000 - 28,000 = 70,000

Compared to: Replacement Cost = 80,000
Revaluation Surplus, 2022 10,000
*Allocation (2,000)
Net Credit 8,000
Entries for 2022
Depreciation Expense 28,000

Accumulated Depreciation 28,000
Revaluation Surplus 2,000

Retained Earnings 2,000
Elimination Method:
Accumulated Depreciation 28,000
Machinery 18,000
Since the question is “revaluation surplus should be net credited by how much?” and you have
debited 2,000 and credited 12,000 in effect the net credit is 8,000
QUIZ 2: Wasting Assets, Investment Property and Intangible Assets
PFRS 6 applies to expenditures incurred

a. When searching for an area that may want detailed exploration, even though the entity
has not yet obtained the legal rights to explore a specific area.
b. In extracting mineral resources and processing the resource to make it marketable or
transportable.
c. When the legal rights to explore a specific area have been obtained, but the
technical feasibility and commercial viability of extracting a mineral resource are
not yet demonstrable.
d. When a specific area is being developed and preparations for commercial extraction are
being made.
A purchased patent has a remaining legal life of 8 years. It should be

a. Expensed in the year of acquisition.
b. Amortized over a period of 10 or 20 years.
c. Amortized over its useful life, if less than 8 years.
d. Amortized over 8 years regardless of the useful life.
In accounting for investment property accounted for using the fair value model, an
equipment such as air-conditioning unit which is an integral part of a building held as
investment property is reported
a. As part of the investment property
b. Separately as building improvement
c. Separately as building equipment
d. As an expense
An entity acquired an investment property in exchange for another non-monetary asset.

The exchange lacks commercial substance, but the fair values of both assets are reliably
measurable. In this case, how should the investment property be measured?
a. Carrying value of the non-monetary asset
b. Carrying value of the investment property
c. Fair value of the non-monetary asset
d. Fair value of the investment property
In the output method of computing for depletion, the credit to accumulated depletion
from period to period during the life of the firm will
a. Vary with unit product cost
b. Be constant
c. Vary with production/extracted mineral resources
d. Vary with unit sales
Which of the following additional disclosures must be made when an entity chooses the
cost model as its accounting policy for investment property?
a. Value in use of the property.
b. Fair value of the property.
c. Present value of the property.
d. Net realizable value of the property.
An owner of a building provides security and maintenance services to the lessees who
occupy its building. What is the proper classification of the building?
a. Asset held for sale
b. Investment property
c. Owner-occupied property
d. Inventory
Note: The provision of a space in the building for security and maintenance is administrative
and necessary to the use of the building.
The following statements are based on PAS 38 (Intangible Assets)

Statement I. Internally generated goodwill shall not be recognized as an asset.
Statement II. No intangible asset arising from research or research phase of an internal
project shall be recognized.
Statement III. Internally generated brands, mastheads, publishing titles, customer lists and
items similar in substance shall be recognized as intangible assets.
a. Statement I: TRUE, Statement II: FALSE, Statement II: TRUE
b. Statement I: TRUE, Statement II: TRUE, Statement II: FALSE
c. Statement I: TRUE, Statement II: FALSE, Statement II: FALSE
d. Statement I: TRUE, Statement II: TRUE, Statement II: TRUE
A computer software purchased as an operating system for the hardware or as integral

part of a computer controlled machine tool that cannot operate without the specific
software shall be treated as
a. An expense.
b. Property, plant and equipment.
c. An inventory.
d. An intangible assets.
A gain arising from a change in the fair value of an investment property under the fair
value model is recognized in
a. Valuation reserve in the shareholder’s equity.
b. Profit or loss for the year.
c. Directly credited to Retained Earnings.
d. General reserve in the shareholder’s equity.
Derecognition of investment property will not be required when

a. It is leased out under an operating lease.
b. It is sold.
c. It is leased out under a finance lease.
d. It is permanently withdrawn from use and no future economic benefits are expected from
its disposal
Note: Under operating lease, the lessor still maintains the accounting records for the property
and the asset qualifies as investment property based on its definition.
Which of the following expenditures would never qualify as an exploration and

evaluation asset?
a. Expenditures for activities in relation to evaluating the technical feasibility and
commercial viability of extracting mineral resources.
b. Expenditure for exploratory drilling.
c. Expenditures related to the development of mineral resources.
d. Expenditure for acquisition of rights to explore.
When an owner-occupied property is transferred to investment property at fair value, a

decrease in the carrying amount of the property to its fair value at the date of transfer is
a. Absorbed by retained earnings.
b. Is charged against the revaluation surplus to the extent of its credit balance, and
the rest is taken to profit or loss.
c. Carried directly to equity.
d. Recognized in profit and loss at all times.
For a transfer from investment property carried at fair value to owner-occupied property
or inventories, the property’s deemed cost for subsequent accounting shall be the
a. Book value at the date of change in use
b. Fair value at the date of change in use
c. Depreciated replacement cost at the date of change in use
d. Cost
Transfers from investment property to property, plant and equipment are appropriate
a. Only when the entity adopts the fair value model under IAS 38.
b. When there is change of use.
c. The entity can never transfer property into another classification on the balance sheet
Once it is classified as investment property.
d. Based on the entity’s discretion.
The proper accounting treatment for the costs incurred in creating computer software
product is
a. To capitalize all costs until the software is sold.
b. To capitalize all costs as incurred until a detailed program design or working model is
created.
c. To charge research and development expense when incurred until technological
feasibility has been established for the product.
d. To charge research and development expense only if the computer software has
alternative future use.
An intangible asset with an indefinite life is accounted for as follows:

a. Amortized and no impairment test.
b. Amortized and impairment tests annually.
c. No amortization but tested for impairment annually.
d. Amortized and tested for impairment if there is a ‘triggering event’
Yoda Mining Corporation purchased for P16,640,000 mining property estimated to

contain 12,800,000 tons of ore on January 1, 2020. The residual value of the property is
P1,280,000.
Building used in mine operations costs P1,280,000 and have estimated life of fifteen
years with no residual value. Mine machinery costs P2,560,000 with an estimated residual
value P512,000 after its physical life of 4 years.
Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be

allocated
as follows: 20% to operating expenses, 80% to production. Depreciation on machinery is
chargeable all to production.
There are 2 questions in this Problem:
1.How much is the depletion for 2020?

a. P1,228,800
b. P1,664,000
c. P1,536,000
d. P 307,200
Cost of mining property P16,640,000
Residual value (1,280,000)
Cost subject to depletion P15,360,000
Divide by: Total units 12,800,000
Depletion per ton P 1.20
x Total production during 2020 1,280,000
2020 Depletion P 1,536,000
2.How much is the total inventoriable depreciation for 2020?

a. P580,267
b. P640,000
c. P614,400
d. P0
BUILDING MACHINERY
Useful life 15 years 4 years
Projected mining period 10 years 10 years

12,800,000/1,280,000
SHORTER 10 years mining period 4 years useful life
Depreciation Method Unit of Output Straight-line
Depreciation Computation P1,280,000 x 2,560,000-512,000

1, 280/12,800** 4 years
Total depreciation for 2020 P128,000 P512,000
Allocated to production 80% 100%
Inventoriable Depreciation P102,400 P512,000

**1,280,000 - Cost of the Building,
12,800,000 - Estimated Resources to be extracted (1,280,000/yr * 10yrs)
Raisins Corporation incurred the following costs in 2020:
3. What amount should Raisins record as research & development expense in 2020?
a. P1,140,000
b. P740,000
c. P550,000
d. P1,000,000
*Solution: 600,000/4 + 400,000 = P550,000
In 2019, Hope Co. developed a new machine that reduces the time required to insert the
fortunes into its fortune cookies. Because the process is considered very valuable to the
fortune cookie industry, Hope patented the machine. The following expenses were
incurred in developing and patenting the machine:
During 2020, Hope paid P225,000 in legal fees to successfully defend the patent against
an infringement suit by Mona Corporation. It is the company’s policy to take full year
amortization in the year of acquisition.
4. How much is the cost of the machine?

a. 1,752,000
b. 2,472,000
c. 0
d. 3,252,000
MACHINE PATENT
Materials 480,000
Blueprints 192,000
Legal expenses for patent 720,000
Wages 60%*1,800,000 1,080,000
Drawing expenses for patent application 102,000
Processing fee for patents 150,000
Total costs 1,752,000 972,000
5. How much is the carrying amount of the patent on December 31, 2020?
a. 879,840
b. 957,600
c. 777,600
d. 874,800
Capitalized cost of patent P972,000
Amortization for 2 yrs 972,000/10 * 2years 194,400
Carrying amount, 12/31/2021 P777,600
On December 31, 2017, Beauty Corporation acquired a trademark for P300,000. As of that
date, the trademark has 7 years remaining legal life. And is anticipated that the trademark
will be renewed in the future, indefinitely, without any problem.
On December 31, 2018, before any adjusting entries for the year were made, the following
information was assembled:
Because of a decline in the economy, the trademark is now expected to generate
cash flows of just P10,000 per year. The useful life of trademark still extends
beyond the foreseeable horizon.
The appropriate discount rate for all items is 6%.
6. How much is the Impairment loss for the year 2018?

a. 133,333
b. 20,000
c. 0
d. 250,827
Carrying amount before impairment (not amortized, indefinite life) P300,000
Recoverable amount 10,000/6% 166,667
Impairment Loss P133,333
Park Corporation acquired a patent right on July 1, 2015 for P250,000. The remaining
legal life on the date of purchase is 15 years. However, due to rapidly changing
technology, management estimates that the remaining useful life on July 1, 2015 is only 5
years.
At January 1, 2016, management is uncertain that the process can actually be made
economically feasible and decides to write down the patent to an estimated recoverable
amount of P75,000. Amortization will be taken over 3 years from that point.
7. How much is the impairment loss on January 1, 2016?

a. 225,000
b. 0
c. 125,000
d. 150,000
Remaining CV 01/01/2016 250,000 * 4.5/5 P225,000
Recoverable amount 75,000
Impairment Loss P150,000
Park Corporation additional questions not included in the actual exam:

On January 1, 2018, having perfected the related production process, the entity adopts the
revaluation model to measure the patent. The patent now has a fair value of P300,000.
Furthermore, the estimated remaining useful life is now believed to be 5 years.
How much is the recovery from previous impairment loss in 2018?

50,000
How much is the balance of Revaluation Surplus as on December 31, 2018?
180,000
Carrying Amount 01/01/2018 75,000 * ⅓ remaining life 25,000
Fair Value 01/01/2018 300,000
Increase in Value 275,000
Recovery in profit or loss = unrecovered impairment 150,000 * ⅓ 50,000
Taken to revaluation surplus 225,000
Realized Revaluation Surplus in 2018. 175,000/5 45,000
Balance of Revaluation Surplus 12/31/2018 180,000
On January 2, 2019, Brilliant Company had an investment property acquired at cost of

P2,900,000. Directly attributable cost of P100,000 was incurred in relation to the
purchase. The estimated useful life of the property was 20 years using a straight-line
method. On December 31, 2019, the fair value of the property was P3,200,000 and the
estimated cost to sell was P50,000.
8. What should be the carrying value of the investment at the end of 2019 using the cost
model?
a. P2,850,000
b. P3,200,000
c. P2,755,000
d. P3,150,000
CV using the cost model, 12/31/2019 (2,900,00 + 100,000) * 19/20 = 2,850,000

19 years remaining life
On January 2, 2019, Clover Company had a building that was leased out under operating
lease, costing P2,000,000. The lessee paid a semi-annual rent of P150,000. Estimated
useful life of the building was 10 years. On December 31, 2019, the fair value of the
property was P1,750,000.

9. How much is the net amount that should be taken to 2019 profit or loss under the cost
model?
a. P400,000
b. P300,000
c. P50,000
d. P100,000 *considered kasi wala din naman sinabi na impaired tlga
Cost Model - Test for impairment first

Carrying Amount 12/31/2019 2,000,000 * 9/10 = 1,800,000
Fair Value given 1,750,000
Annual rent revenue (150,000*2) P300,000
Less: Depreciation Expense for the year (2,000,000/10) (200,000)
Net amount in profit or loss P50,000
10. How much is the net amount of income that should be taken to 2019 profit or loss
using the fair value model?
a. P300,000
b. P700,000
c. P400,000
d. P50,000
Fair Value Model

Carrying Amount 12/31/2019 2,000,000 * 9/10 = 1,800,000
Fair Value given 1,750,000
Fair Value Loss 50,000
Annual rent revenue (150,000*2) P300,000
Less: Depreciation Expense for the year (2,000,000/10) (200,000)
Fair Value Loss on Investment Property 50,000
Net amount in profit or loss P50,000

On January 2, 2019, Solliven Company converted its owner- occupied property to
investment property that was to be carried at fair value. The carrying value of the
property in the company’s books was P4,500,000.
11. Assuming the fair value of the property on the date of transfer or conversion was
P3,900,000, what should the company recognize?
a. Loss of 600,000 in Retained earnings
b. Revaluation surplus of P 600,000
c. Loss of 600,000 in profit or loss
d. Loss of 600,000 in OCI
Fair Value 3,900,000
(Carrying Value) (4,500,000)
Loss (P600,000)
12. Assuming the fair value of the property on the date of transfer or conversion was
P5,100,000, what should the company recognize?
a. Revaluation surplus of 600,000
b. Gain of 600,000 in OCI
c. Gain of 600,000 in profit or loss
d. Gain of 600,000 in retained earnings
Fair Value 5,100,000
(Carrying Value) (4,500,000)
Nicole Corp. conducts research and develops products and processes which it patents.
The following presents the summary of the company’s activities in relation to its patent:
13. How much is the amortization of the patent for the year 2018?
a. 68,000
b. 70,000
c. 75,000
d. 72,000
1/1/2018
1 2
Cost 660,000 220,000
Accumulated Amortization 44,000*5years = 220,000 20,000
Carrying Amount 1/1/2018 440,000 200,000
Patent 3 335,000
Cash 335,000
Remaining Life of Patent 1 and 2 is 10years due to the acquisition of patent 3 it is extended by 3
yrs
12/31/2018
Amortization of Patent1 (440,000/13) 33,846
Acccu Amort Patent1 33,846
Amortization of Patent2 (200,000/13)15,385
Amortization of Patent3 (335,000/13)25,769
33,846 + 15,385 + 25,769 = 75,000 Amortization for 2018

On January 3, 2019, Norway Company acquired an investment property worth
P5,000,000. The estimated useful life of the property was 25 years and depreciated using
straight-line method. On the date of acquisition, Magnesium Company decided to
account this investment under the fair value model.
On December 31, 2019, the property had a fair value of P5,400,000. On December 31,
2020, the investment was reclassified to owner-occupied property when the fair value of
the investment property was P5,250,000.
14. How much should be taken to OCI on transfer date?

a. P250,000
b. P650,000
c. P0
d. P150,000
Nothing is taken to OCI the difference between FV (and CA) is taken to profit or loss
upon reclassification
Drone Co. ceased using Building No.1 in its operations on January 1, 2020 and had the
building leased out to a third party on the same date under an operating lease
agreement. The adjusted carrying amount of the building on this date was P4,500,000.
The building was acquired 4 years ago at a total cost of P8,200,000 and had a total useful
life of 10 years at date of acquisition. There were no subsequent costs that were
capitalized and there were no changes in total useful life of the building. Prior to
reclassification to investment property, the building was previously measured using the
revaluation model. The fair value of this asset on January 1, 2020 was P5,000,000. Drone
uses the fair value model to account for its investment property.

15. How much is credited to Revaluation Surplus upon transfer of asset to investment
property?
a. 80,000
b. 0
c. 500,000
d. 420,000
16. How much is credited to recovery from previous impairment upon the transfer of the
asset to investment property?
a. 80,000
b. 0
c. 500,000
d. 420,000
Test first if there was previous impairment

Adjusted Carrying amount as of 1/1/2020 (books) 4,500,000
Carrying Amount w/o adjustment (8,200,000 * 6/10) (4,920,000)
Entries:
Building IP 5,000,000
AD - PPE(8.2M - 4.5M) 3,700,000
Recovery 420,000
Rev. Surplus (Bal Fgr.) 80,000
Building - PPE 8,200,000
Eagle Corp. uses the fair value model to account for its building held as investment
property. On December 31, 2020, before the transfer of its building from property, plant
and equipment to investment property, the following information was obtained:
Building Held as Property, plant and equipment P2,500,000
The fair value of the property on December 31, 2020 was P2,050,000.
17. How much is taken to profit or loss due to the decrease in the asset’s fair value on
December 31, 2020?
a. 0
b. 300,000
c. 450,000
d. 150,000
FV as of date of reclassification P2,050,000
Carrying amount, previous FV 2,500,000
Decrease in value of the asset 450,000
Balance of revaluation surplus (300,000)
Amount taken to profit or loss P150,000

SUPPLY THE ANSWER
Nicole Corp. conducts research and develops products and processes which it patents.
The following presents the summary of the company’s activities in relation to its patent:
18. How much is the total amount to be taken in the profit or loss for the year 2020?
1075000
As of January 1, 2018 on original cost (660,000 x 10/15) P440,000
2018 and 2019 amortization on 660,000 (440,000 x 2/13*) ( 67,692)
On January 1, 2017 cost as of Jan. 1 2018 (220,000 x 10/11) 200,000
2018 and 2019 amortization on 220,000 (200,000 x 2/13) (30,769)
2018 cost, CA as of January 1, 2020 (335,000 x 11/13) 283,461
Carrying amount as of January 1, 2020 825,000
Legal fees 250,000
Total amount in profit or loss P1,075,000
The demand for the products produced by one of ABC’s cash generating units
substantially declined, thus this cash generating unit was considered for possible
impairment at the end of 2020. The following data pertinent to the cash generating unit
were gathered before impairment test was made:
The expected annual net cash flows from the CGU is P1,252,282 over its remaining useful
life of 5 years. The fair value less cost to sell of the CGU is at P5,250,000. Assume a
prevailing rate of interest at 8%. The PV of ordinary annuity for 5 periods is 3.9927and the
PF of P1 for 5 periods is 0.6806 )
19. How much is the impairment loss on the CGU?

1200000
HIGHER BETWEEN
a) FV less cost to sell P5,250,000
b) Value in use (1,253,133 x 3.99) 5,000,000
-> Recoverable amount 5,250,000

CV of CGU (1,750,000 + 1,475,000 + 2,725,000 + 500,000) 6,450,000
IMPAIRMENT LOSS P1,200,000
20.What is the carrying amount of the Building after impairment loss recognition?
2404412
Total impairment loss P1,200,000
CV of goodwill (500,000)
Impairment Loss allocated to other assets in the group *P700,000
Allocated to Building *(700,000 x 2,725,000/5,950,000) P320,588
CA of Building after impairment (2,725,000 - 320,588) P2,404,412
On January 2, 2016, Dax Company purchased land for P450,000 from which it is
estimated that 400,000 tons of ore could be extracted. It estimates that it will cost P80,000
to restore the land, after which it could be sold for P30,000.
During 2016, the company mined 80,000 tons and sold 50,000 tons.
During 2017, the company mined 100,000 tons and sold 120,000 tons.
At the beginning of 2018 the company spent an additional P100,000, which
increased the reserves by 60,000 tons.
In 2018, the company mined 140,000 tons and sold 130,000 tons.
The company uses a FIFO cost flow assumption. (Round depletion rate to two decimal
places)
21. Depletion expense for 2017

125000
2016:
Cost of Land P 450,000
Cost to Restore Land 80,000
Less: Could be sold for: (30,000)
Cost subject to depletion 500,000
Divide by: Tons estimated to be extracted 400,000 tons
Depletion Rate P 1.25/ton
2017:
Company Mined: P 100,000
Multiply by: Depletion Rate 1.25
Depletion Expense for 2017 P 125,000
22. Depletion included in 2018 cost of sales

173300
2018:
Inventory Table
2016 2017 2018
Beginning Balance 0 30,000 10,000
Ore Extracted/ Mined 80,000 100,000 140,000
Ore Available 80,000 130,000 150,000
Ending Balance 30,000 10,000 20,000
Ore Used or Sold 50,000 120,000 130,000

Computation of New Rate:
Revised Cost Subject to Depletion
Cost of Land P450,000
Cost to restore Land 80,000
Less: Could be Sold for: (50,000)
2016 Depletion(80k*1.25) (100,000)
2017 Depletion(100k*1,25) (125,000)
Capitalizable Expenditures to increase reserves 100,000
Revised Cost Subject to Depletion P375,000
Divide By: Revised Available Resources
Original Avail. Res. 400,000 tons
Less: 2016 Mined (80,000)
2017 Mined (100,000)
Increase Reserves 60,000 280,000 tons
Revised Depletion Rate 2018: P 1.34/ ton
Applying FIFO Method base on the table above

130,000 tons of ore Sold Composed of:
10,000 tons Subject to old depletion rate (1.25) 12,500
120,000 tons Subject to new depletion rate (1.34) 160,800
Depletion Included in 2018 Cost of Sales 173,300
PRELIMINARY EXAMINATION
Capitalizable borrowing cost from general borrowing is the

a. actual interest incurred during the period of construction
b. weighted average accumulated expenditure multiplied by the weighted average interest
rate
c. lower of a and b
d. higher of a and b
Which of the following depreciation methods does not consider the residual value in the
computation of depreciation charges?
a. sum-of-the-year’s digits method
b. composite method
c. double-declining balance method
d. productive output method
When an asset’s carrying amount is increased as a result of revaluation, the increase

shall be credited to
a. revaluation surplus, a component of profit or loss.
b. revaluation surplus, a component of other comprehensive income.
c. retained earnings
d. investment income
When an asset’s carrying amount is decreased as a result of revaluation, the decrease

shall be debited to
a. impairment loss if the decrease is a reversal of previous revaluation, the balance to
revaluation surplus
b. revaluation surplus if the decrease is a reversal of previous revaluation, the
balance to impairment loss
c. impairment loss, whether or not the decrease is a reversal of previous revaluation
d. revaluation surplus, whether or not the decrease is a reversal of previous revaluation
An owner-managed hotel is an example of

a. Investment property
b. Owner-occupied property
c. Asset held for sale
d. Inventory
For a transfer from investment property carried at fair value to owner-occupied property
or inventories, the property’s deemed cost for subsequent accounting shall be
a. the fair value at the date of change in use
b. the cost
c. the book value at the date of change in use
d. the depreciated replacement cost at the date of change in use
In accounting for investment property accounted for using the fair value model, an
equipment such as air-conditioning unit which is an integral part of a building
(investment property), is reported
a. as part of the investment property
b. separately as building equipment
c. separately as building improvement
d. none of these
An entity has two investment properties: a self-constructed condominium building, and a

vacant lot held as a right-of-use asset. Which of the following statements is true in
relation to the subsequent measurement of these investment properties?
a. An entity may choose to measure the building using the fair value model while the
vacant lot using the cost model.
b. If the entity will choose the fair value model, both the building and lot should be
measured using the fair value model.
c. If the entity will choose the cost model, both the building and lot should be measured
applying the provisions of IAS 16 for the cost model.
d. None of these
According to IASB, bearer plants, such as grape vines, rubber trees and oil palms which
are used solely to grow produce over several periods should be accounted for as
a. Biological assets with disclosure
b. Biological assets without disclosure
c. Property, plant and equipment
d. Noncurrent investments
The costs to sell of biological assets and agricultural produce include all of the following,
except
a. Commissions to brokers and dealers
b. Levies by regulatory agencies
c. Transfer taxes and duties
d. Transport costs
When agricultural produce is harvested and the harvest was accounted for as inventory,
the initial cost of the inventory is
a. Fair value less cost of disposal at the point of harvest
b. Historical cost of the harvest
c. Historical cost less impairment
d. Market value
Processing of grapes into wine by a vintner who has grown the grapes, is a logical and
natural extension of agricultural activity. The costs incurred in the said process shall be
accounted for using
a. IAS 41 Agriculture
b. IAS 2 Inventory
c. IAS 16 Property, Plant and Equipment
d. IAS 10 Events After Reporting Period
Which of the following is an agricultural produce?

a. Thread
b. Palm oil
c. Felled trees
d. Fruit trees
Which is not within the definition of an intangible asset?

a. Held for use in the production or supply of goods or services, for rental to others,
or for administrative purposes
b. Identifiable nonmonetary asset without physical substance
c. A resource controlled by an enterprise as a result of past events
d. A resource from which future economic benefits are expected to flow to the enterprise
Which is incorrect concerning the recognition and measurement of an intangible asset?

a. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of preparing
the asset for its intended use.
b. If an intangible asset is acquired in a business combination that is an acquisition, the
cost is based on its fair value at the date of acquisition.
c. If an intangible asset is acquired free of charge or by way of government grant, the cost
is equal to its fair value.
d. If payment for an intangible asset is deferred beyond normal credit terms, its cost
is equal to the total payments over the credit period.
An example of research and development activity for which the cost should be expensed
as incurred is
a. engineering follow-through in early phase of commercial production
b. design, construction, and testing of preproduction prototypes and models
c. trouble shooting in connection with breakdowns during commercial production
d. periodic design changes to existing products
The appropriate method of amortizing intangible asset is best described by which of the
following?
a. The straight-line method, unless the pattern in which the asset’s economic
benefits are consumed by the enterprise can be determined reliably
b. The double declining balance in all circumstances
c. Management can make a subjective amount of periodic amortization without regard to
any particular method
d. The straight-line method in all circumstances
Exploration and evaluation expenditures are incurred

a. When preparations for commercial extraction are being made.
b. In extracting mineral resource and processing the resource to make it marketable.
c. When searching for an area that may warrant detailed exploration even though the entity
has not yet obtained the legal rights to explore a specific area.
d. When the legal rights to explore an area have been obtained but the technical
feasibility and commercial viability of extracting a mineral resource are not yet
demonstrable.
Which of the following is not part of the depletable amount?

a. Exploration cost
b. Acquisition cost of the mineral resource deposit
c. Intangible development cost such as drilling, tunnel and shaft.
d. Tangible equipment cost associated with machinery used to extract the mineral
resources
Exploration and evaluation asset shall be classified as either tangible or intangible and
measured initially at cost and subsequently at
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Neither cost model nor revaluation model
On January 1, 2017, a company purchased for P132,000 a machine to be depreciated by

the straight-line method over an estimated useful life of eight years, without salvage
value. On January 1, 2020, the company determined that the machine has a useful life of
six years from the date of acquisition, still without salvage value. What is the balance of
the accumulated depreciation on December 31, 2020?
a. P27,500
b. P49,500
c. P77,000
d. P73,000
01/01/17 - 01/01/20 = 3 years
January 1, 2020
Cost 132,000
Less:Accu.Dep. (132,000/8 * 3yrs) 49,500
Carrying Value 01/01/2020 82,500
*Since the new estimated useful life is 6 years from the date of acquisition, and the equipment
have been with the company for 3 years, then the remaining useful life is 3 years (6 - 3yrs)
Therefore the new depreciation expense:

Carrying amount 01/01/2020 divide by 3yrs remaining useful life
82,500 / 3 years = 27,500, new depreciation per year
December 31, 2020

Entries:
Accumulated depreciation 27,500
Accu. Dep 01/01/2020 Balance 49,500

Add:Depreciation Expense (2020) 27,500
Accu. Dep. 12/31/2020 Balance 77,000
On January 1, 2018, a Company acquired an equipment with useful life of 8 years and
P390,000 residual value. Using the double-declining balance method, the 2019
depreciation expense on this equipment was P1,170,000. What was the book value of this
this equipment on December 31, 2020?
a. P3,412,500
b. P2,730,000
c. P2,632,500
d. P2,242,500
R = 2/n = 2/8years = 0.25 or 25%
Since the formula for Depreciation Expense is = Beg. Bal of PPE * R

Therefore: 1,170,000 = Beg. Bal 2019 * 25%
Beg. Bal 2019 = 1,170,000/ 25* (transposition)
Beg Bal 2019 = 4,680,000
Year (BB*R) Beginning Balance Depreciation Ending Balance

2019 (4,680,000*25%) 4,680,000 1,170,000 3,510,000
2020 (3,510,000*25%) 3,510,000 877,500 2,632,500
There are 2 questions for this problem:

A company purchased an equipment on January 1, 2018 for P13,000,000. This equipment
had 10 years estimated useful life. In 2019, due to obsolescence, the company
recognized an impairment loss of P2,600,000. On December 31, 2020, the company
determined that the fair value of the equipment had increased to P9,750,000.
What amount of gain on reversal of impairment shall SunWest Homes recognize in 2020?
a. P2,925,000
b. P2,275,000
c. P1,950,000
d. P650,000
Assuming the company was using revaluation model in accounting for its property, plant
and equipment, how much was the revaluation surplus resulting from the revaluation in
2020?
a. P2,250,000
b. P2,275,000
c. P650,000
d. P325,000
Recoverable amount 12/31/2020 P9,750,000
CV before recovery
Cost 13,000,000
2018 and 2019 depreciation (13M/10 *2 years) (2,600,000)
CV before impairment 10,400,000
Impairment in 2019 (2,600,000)
CV before impairment 7,800,000
2020 depreciation (7,800,000/8yrs rem. life) (975,000) 6,825,000**
Increase in value 2,925,000
Unrecovered impairment 2,600,000 x 7/8 2,275,000
Revaluation surplus, only using the revaluation model 650,000
**Carrying amount 12/31/2020 before reclassification
Six situations are given below concerning a plant asset currently used in operations:
Case Carrying Value in Use FV less Cost

amount to Sell
1 P120,000 P180,000 P135,000
2 235,000 195,000 120,000
3 150,000 180,000 255,000
4 180,000 120,000 90,000
5 210,000 165,000 195,000
6 225,000 195,000 255,000
Which among the cases, if any, require impairment loss recognition?

a. 4 and 5 only
b. 4, 5 and 6 only
c. 2, 4 and 5 only
d. 1, 2, 3 and 6 only
A company has the following property items on December 31, 2020:
How much should be classified as investment properties on December 31, 2020?

a. 25,500,000
b. 15,000,000
c. 18,500,000
d. 23,000,000
On January 2, 2020, A company had an investment property acquired at cost of

P2,900,000. Directly attributable cost of P100,000 was incurred in relation to the
purchase. The estimated useful life of the property was 20 years using a straight-line
method.
On December 31, 2020, the fair value of the property was P3,200,000 and the estimated
cost to sell was P50,000. What is the carrying value of the investment property at the end
of 2020 using the cost model?
a. P2,755,000
b. P2,850,000
c. P3,150,000
d. P3,200,000
Cost (2,900,000+100,000 DACS) 3,000,000

Dep. Exp. (3,000,000/ 20) (150,000)
Carrying Value 2,850,000
*Since it is cost model and 3,200,000 > CV@year then it is not impaired and the carrying value
is computed as Cost - Depre
On January 2, 2020, a company converted its owner-occupied property with P4,500,000
carrying amount, to investment property that was carried at fair value.
Assuming the fair value of the property on the date of conversion was P3,900,000, the
company should recognize a
a. loss of 600,000 in profit or loss
b. loss of 600,000 in other comprehensive income
c. loss of 600,000 in Retained earnings
d. revaluation surplus of P 600,000 in other comprehensive income
Assuming the fair value of the property on the date of conversion was P5,100,000, the
company should recognize a
a. gain of 600,000 in profit or loss
b. gain of 600,000 in OCI
c. gain of 600,000 in retained earnings
d. revaluation surplus of 600,000 in other comprehensive income

A mining company bought exploration rights on June 30, 2020 for P4,860,000 which had
an expected ore reserves estimated at 1,620,000 tons. The company expects to extract
15,000 tons of ore per month with an estimated selling price of P4.5 per ton. Production
started immediately after some new machines costing P540,000 was bought on June 30,
2020. These new machines had an estimated useful life of 15 years with a zero scrap
value. After the ores have been extracted from the property, at which time the machines
will already be useless.
Among the operating expenses of the company on December 31, 2020 were:
Depletion expense - P405,000
Depreciation expense - P40,000
The recorded depletion expense was

a. Overstated by Php90,000
b. Understated by Php90,000
c. Overstated by Php135,000
d. Understated by Php135,000
The recorded depreciation expense was

a. Overstated by Php4,000
b. Overstated by Php10,000
c. Understated by Php20,000
d. Understated by Php32,000
Cost subject to depletion P 4,860,000
Divide by: Total units 1,620,000
Depletion per ton P 3.00
x Total production during 2020 (15k*6mos) 90,000
2020 Depletion 270,000
Compare to recorded Depletion 405,000
Recorded > Actual = Overstated 135,000
15,000 tons per month are extracted multiplied by 12 then:

180,000 tons per year are extracted
1,620,000 tons / 180,000 tons = 9 years of mining
Therefore for the depreciation of machine, units of output method will be used as depreciation
method because Mining years is less than the Estimated useful life and the machine will be
useless after mining
Cost P 540,000
Divide by:Tons to be extracted 1,620,000
Rate of depreciation per ton P0.33/ton
Multiplied by: Total production 90,000
Compare to recorded Depre. 40,000
Recorded > Actual = Overstated 10,000
A company acquired property in 2020 which contains mineral deposit. The acquisition
cost of the property was P20,000,000. Geological estimates indicate that 5,000,000 tons
of mineral may be extracted. It is further estimated that the property can be sold for
P5,000,000 following mineral extraction. For P2,000,000, the company is legally required
to restore the land to a condition appropriate for resale. After acquisition, the following
costs were incurred:
The company extracted 600,000 tons of the mineral in 2020 and sold 450,000 tons. What
amount of depletion should be included in cost of sales in 2018?
a. P2,340,000
b. P2,700,000
c. P3,210,000
d. P3,600,000
Acquisition Cost 20,000,000

Can be sold for after extracted (5,000,000)
Restoration Cost 2,000,000
Exploration Cost 3,000,000
Dev. Cost (drilling of wells) 6,000,000
Depletable Cost 26,000,000
Divide by: Mineral to be extracted 5,000,000 tons
Depletion per ton P 5.2 /ton
x Sold extracted tons 450,000
Depletion to Cost of Sales 2,340,000
At the beginning of the current year, a company incurred P1,500,000 of research and
development costs to develop a product for which a patent was granted. Legal fees and
other costs associated with registration of the patent totaled P500,000. At yearend, the
company paid P350,000 for legal fees in a successful defense of the patent. What amount
should be capitalized as cost of the patent?
a. P500,000
b. P1,850,000
c. P2,000,000
d. P2,350,000

On January 1, 2018, A company incurred P100,000 of research and development costs to
develop a product for which a patent was granted. Legal fees and other costs associated
with registration of the patent totaled P300,000. The patent is being amortized over 20
years. On July 1, 2020, the company won and paid legal fees of P80,000 for the
successful defense of the patent against an infringement lawsuit filed by another
company.
How much is the total expenses for the year 2020?

a. P15,000
b. P95,000
c. P80,000
d. P87,500
Expenses:
Amortization (300,000/20) 15,000
Successful Defense (expense) 80,000
TOTAL EXPENSES 95,000
What amount is reported 2020 profit or loss assuming the company did not win the
lawsuit?
a. P80,000
b. P87,500
c. P342,500
d. P350,000
01/01/2018 - 07/1/2020 = 2.5 years therefore: 17.5 years remaining life
Expenses:
Amortization (300,000/20 * ½ year) 7,500
Derecognition of patent (300,000 * 17.5/20) 262,500
Legal fees 80,000
TOTAL EXPENSES 350,000
A company provided the following information regarding its Research Covax21 included
in the company’s Intangible Assets account as of December 31, 2020:
The equipment and patents have been found to be useful for approximately five years.
You have further discovered both patents and the equipment were acquired at the
beginning of 2020. How much should be recognized as research and development
expense for the year 2020?
a. P18,000
b. P35,200
c. P56,000
d. P0
Research and development expense:

Salaries of research staff 18,000
Patent acquired (for project only) 12,000
Special equipment used for others also (10,000/5) 2,000
Patent used for others also (16,000/5) 3,200
EXPENSES 35,200
The following information pertains to a company’s biological assets on December 31,

2020:
At what amount should the biological assets be presented on the statement of financial
position?
a. P5,050,000
b. P5,000,000
c. P4,950,000
d. P4,910,000
Since we are talking about biological assets, the amount to be recorded is always FV less CTS
Binding agreement is ignored and also the transport cost is not included in the cost to sell
Fair Value 12/31/2020 5,000,000
Less: Cost to sell (50,000)
Bio Asset value 12/31/2020 4,950,000

A group of twenty 2-year old cattle was held at January 1, 2020. On this date, five 2-year
old cattle were purchased for P12,000 each and 5 calves were born. No cows or calves
were disposed of during the period.
Per unit fair values less cost to sell were as follows:
The company records separately the increase in fair value less cost to sell due to physical
change and fair value less cost to sell due to price change.
How much shall be taken to profit or loss as a gain arising from change in fair value due
to physical change?
a. P30,000
b. P60,000
c. P80,000
d. P110,000
Description QTY Solution(Qty * (+1yr old price - yr old price) Change

2yr Cattle 25 25 * (15,000 - 13,000) 50,000
Newborn 5 5 * (7,000 - 5,000) 10,000
Newborn of cattle is considered Physical Change (5 * 4,000) 20,000
Gain arising from change in fair value due to physical change 80,000
How much shall be taken to profit or loss as a gain arising from change in fair value due
to price change?
a. P30,000
b. P60,000
c. P80,000
d. P110,000
Description QTY Solution(Qty * (New price - old price) Change

2yr Cattle 25 25 * (13,000 - 12,000) 25,000
Newborn 5 5 * (5,000 - 4,000) 5,000
Gain arising from change in fair value due to price change 30,000
What amount shall be presented in the December 31, 2020 statement of financial position
as biological assets?
a. P320,000
b. P350,000
c. P390,000
d. P410,000
On hand:
Description QTY * Price TOTAL
3 y.o cattle (previously 2yr) 25 * 15,000 375,000
1 y.o cattle (prev. newborn) 5 * 7,000 35,000
TOTAL BIOLOGICAL ASSETS 410,000
Reconciliation:
Beginning Balance (20 * 12,000) 240,000
Purchases (5*12,000) 60,000
Change in FVLCTS due to Price change(sol. above) 30,000
Change in FVLCTS due to Physical change (sol. above) 80,000
Sale -
Ending Balance 12/31/2020 410,000
QUIZ 3: Biological Assets and NCAHFS
A noncurrent asset is classified as held for sale if such sale is highly probable. Highly
probable means that
a. the sale is certain
b. the future sale is likely to occur
c. the future sale is more likely than not to occur
d. the probability of future sale is higher than “more likely than not”
The key characteristic for the classification of an asset as “held for sale” is that the
carrying amount of the asset must
a. be lower than initial cost of the asset
b. be higher than its net realizable value
c. principally be recovered through continuing use
d. principally be recovered through a sale transaction
The classification , presentation and measurement requirements of PFRS 5 applicable to

assets or disposal groups classified as held for sale also apply to assets to be
a. abandoned
b. closed rather than sold
c. used to the end of economic life
d. held for distribution to owners acting in their capacity as owners
An entity shall measure a non-current asset or disposal group classified as held for sale at
a. Carrying amount
b. Fair value less cost to sell
c. Carrying amount or fair value less cost to sell whichever is lower
d. Carrying amount or fair value less cost to sell whichever is higher
While an asset is classified as held for sale, PFRS 5 prohibits

a. The asset from being depreciated
b. Any further costs to be capitalized as part of the cost of the asset
c. The recognition of any cash flows from the asset as “operating cash flows”
d. The recognition of any maintenance costs for the asset in profit or loss of the period
If an asset that is classified as held for sale does not anymore qualify to be classified as
such, the entity should
a. Re-measure the non-current asset at fair value
b. Leave the non-current asset in the financial statements at its carrying value
c. Recognize the non-current asset in its carrying amount prior to its classification
d. Measure the non-current asset at the lower of its carrying amount before the asset
was classified as held for sale (as adjusted for subsequent depreciation,
amortization or revaluation) and its recoverable amount at the date of the decision
not to sell
Which of the following statements about non-current asset held for sale (PFRS 5) is false
a. An asset held for sale shall not be depreciated
b. Assets classified as non-current assets held for sale are carried at lower of carrying
amount and fair value less costs to sell
c. An asset classified as held for sale must be available for immediate sale in its present
condition and the sale must be highly probable
d. An entity shall classify a non-current asset as held for sale if its carrying amount
will be recovered principally through a sale or through continuing use
If the “fair value less cost to sell” is lower than the carrying amount of a non-current
asset classified as held for sale, the difference is treated as a(n)
a. Depreciation expense
b. Impairment loss
c. Note disclosure
d. Prior period adjustment
When the carrying amount of a non-current asset classified as held for sale under PFRS
5 is lower than its fair value less costs to sell, then
a. No impairment loss occurs
b. Impairment loss shall be recognized in profit or loss
c. Impairment loss shall be recognized in other comprehensive income
d. Impairment gain shall be disclosed in the notes to the financial statements
The following statements are based on PFRS 5:

Statement I. An entity shall classify a non-current asset or disposal group as held for
sale if its carrying amount will be recovered principally through a sale
transaction rather than through continuing use
Statement II. An extension of the period required to complete a sale does not preclude
an asset or disposal group from being classified as held for sale if the
delay is caused by events or circumstances beyond the entity’s control
and there is sufficient evidence that the entity remains committed to its
plan to sell the asset or disposal group
Statement III. An entity shall measure a non-current asset or disposal group classified
as held for sale at the lower of its carrying amount and fair value less
costs to sell
a. Statement I: TRUE, Statement II: TRUE, Statement III: TRUE

b. Statement I: TRUE, Statement II: FALSE, Statement III: TRUE
c. Statement I: FALSE, Statement II: TRUE, Statement III: TRUE
d. Statement I: FALSE, Statement II: FALSE, Statement III: TRUE
Which one of the following is included in the scope of PAS 2 but excluded from the
measurement rule?
a. Finished goods produced
b. Biological assets held for regular sale
c. Damaged merchandise inventory of a retailer
d. Land held for resale by subdivision company or real estate developer
Which of the following is not dealt with by PAS 41, Agriculture?

a. The accounting for biological assets
b. The processing of agricultural produce after harvesting
c. The accounting treatment of government grants in respect to biological assets
d. The initial measurement of agricultural produce harvested from the entity’s biological
assets
Where there is a long aging or maturation process after harvest, the accounting for such
products is dealt with by
a. PAS 41
b. PAS 2
c. PAS 16
d. PAS 40
Agricultural activity includes all of the following, except

a. Annual perennial cropping
b. Floriculture and aquaculture
c. Ocean fishing
d. Raising livestock
Agricultural activity results in which of the following types of assets?

a. Biological assets only
b. Agricultural produce only
c. Both biological assets and agricultural produce
d. Financial assets, contingent assets and agricultural produce
According to PAS 41, which of the following criteria must be satisfied before a biological
asset can be recognized in an entity’s financial statements?
I The entity controls the asset as a result of past events
II. It is probable that economic benefits relating to the asset will flow to the entity
III. An active market for the asset exists
IV. The asset comes from a homogeneous biological group
a. I and II only
b. II and III only
c. I, II and III only
d. I, II and IV only
The “costs to sell” in PFRS 5 and PAS 41’s “fair value less costs to sell” normally does
not include
a. Financial costs
b. Income tax expense
c. Income tax expense and finance costs
d. Finance costs, income tax expense and transfer taxes
Which of the following costs are not included in “costs to sell”?

a. Transfer taxes and duties
b. Levies by regulatory agencies
c. Commissions to brokers and dealers
d. Transport and other costs necessary to get the assets to the market
An entity has a plantation forest that is likely to be harvested and sold in 30 years. The
income should be accounted for in which of the following?
a. No income should be reported annually until first harvest and sale in 30years
b. The eventual sales proceeds should be estimated and matched to the profit and loss
account over the 30-year period
c. Income should be measured annually and reported using a fair value approach
that recognizes and measures biological growth
d. The plantation forest should be valued every 5 years and the increase in vale should be
shown in the statement of recognized gains and losses
Where there is a production cycle of more than one year, PAS 41 encourages
a. Physical change only
b. Price change only
c. Physical change and price change
d. Total change in value

ABC Company is in business of deer farming. A herd of 100 2-year old and 50 3-year old
deer are held throughout the financial year of 2020. The only change during the year is
the increase in their physical attributes due to aging. The relevant data are as follows:
How much is the increase in the fair value of the biological asset due to physical
change?
a. P55,000
b. P120,000
c. P185,000
d. P240,000
Description QTY Solution(Qty * (+1yr old price - yr old price) Change

2yr deer 100 100 * (4,500 - 3,300) 120,000
3yr deer 50 50 * (5,800 - 4,500) 65,000
Change in FV due to Physical Change 185,000
How much is the increase in the fair value of the biological asset due to price change?
a. P55,000
b. P120,000
c. P 85,000
d. P240,000
Description QTY Solution(Qty * (New price - old price) Change

2yr deer 100 100 * (3,300 - 3,000) 30,000
3yr deer 50 50 * (4,500 - 4,000) 25,000
Change in FV due to Price Change 55,000
*if Asked what is the amount of Biological Assets to be presented at SFP

On hand:
Description QTY * Price TOTAL
3 y.o deer (previously 2yr) 100 * 4,500 450,000
4 y.o deer (previously 3yr) 50 * 5,800 290,000
TOTAL BIOLOGICAL ASSETS 740,000

Crust Dairy produces milk for a local cheese factory. The entity began operations at the
beginning of the current year by purchasing milking cows for P2,000,000. The entity
provided the following information at year-end relating to these cows:
What amount of net gain on biological asset should be reported in the current year?
a. P350,000
b. P550,000
c. P400,000
d. P600,000
What amount of gain on agricultural produce should be recognized in the current year?
a. P100,000
b. P350,000
c. P150,000
d. P400,000
Entries:
Biological Assets 400,000
Change in FV due to change 400,000
Change in FV due to change/ Loss 50,000

Biological Assets 50,000
*Ang question dito ay very specific na ano ang net gain mo from biological assets kaya:
Gain due to Change 400,000
Decrease due to harvest (50,000)
Net Gain on Biological Assets 350,000
*Dito den sa susunod na tanong ay specific about agri produce kaya 150,000 ang sagot
Agricultural Produce 150,000
Gain on Harvest 150,000
*However kapag tinanong sa exam ay “how much net gain for the year” or similar
Change in FV due to growth and price change 400,000
Gain on Harvest 100,000**
Net Gain for the year 500,000
**Note that this is another solution, tapos yung decrease due to harvest eh mapupunta sa agri
produce yon then 100,000 ang gain tlga sa harvest
Everlasting Company purchased cattle at an auction for P 500,000 on July 1, 2021. Cost
of transporting the cattle back to the company’s farm was P 10,000 and the company
would have to incur the same transportation cost if it is to sell the cattle in an auction. In
addition an auctioneer’s fee of 7%% of sales price is to be incurred.
What amount should the biological assets be initially recognized?

a. P455,000
b. P454,000
c. P450,000
d. P465,000
*Note:
1. Ang pagrecord ng Biological Assets ay laging Fair Value less cost to sell
2. Transportation Cost ay hindi included sa cost to sell
3. Transportation Cost papunta sa company farm ay pwedeng kasama sa purchase price
pero loss den sya on initial recog gawa ng laging “Fair Value less cost to sell” ang pag
record
Fair Value (auction price since silent) 500,000

Less: CTS (500,000*7%) 35,000
Biological Asset Value 465,000
The following items and their fair values less cost to sell are presented on December 31, 2019:
How much is the total amount to be reported as biological assets as at year end?
a. P17,900,000
b. P18,900,000
c. P20,900,000
d. P25,900,000
Do not include:
1. Bearer Plants - since PPE ito
2. Wool from sheep - Inventory toh
*Fruits growing on bearer plants ay Bio assets parin dahil di pa ito napipitas
Grand Dairy produces milk and sells them to local ice cream producers. Grand Dairy
began operations on January 1, 2019 by purchasing 840 milk cows for P1,176,000. The
company controller had the following information available at year end relating to the
cows:
How much should the milking cows be valued on Grand Dairy’s statement of financial
position on December 31, 2019?
a. P1,176,000
b. P1,541,000
c. P1,134,000
d. P1,499,000
Beginning Balance 01/01/2019 1,176,000

Change in FV due to growth and price 365,000
Change in FV due to harvest (42,000)
SFP Value 1,499,000
What is the amount of unrealized gain on biological assets be reported on Grand’s

statement of comprehensive income for the year ended December 31, 2019?
a. P377,000
b. P365,000
c. P323,000
d. No gain is reported until the milk is sold.
*Specific ulit yung tanong sa Bio asset kaya 365,000 - 42,000 = 323,000 Gain on Bio Asset
What is the amount of unrealized gain on harvested milk be reported on Grand’s

statement of comprehensive income for the year ended December 31, 2019?
a. P12,000
b. P54,000
c. P311,000
d. No gain is reported until the milk is sold.
*Specific din yung tanong kaya 54,000 ang sagot

Harp Company decided to sell one of its building. The sale was highly probable and was
expected to be consummated within six months. Details of building and the sale were as
follows:
The building was sold after the end of the reporting period at P9.2 million, after incurring
P1.3 million disposal cost.
At what amount should the asset be measured on the company’s statement of financial
position at the end of the reporting period?
a. P10 million
b. P9 million
c. P8 million
d. P7.5 million
Value is lower between CV and FVLCTS:

Frozen Carrying Value base on books (20M - 12M) 8,000,000
Fair Value less Cost to Sell (9M - 1.5M) 7,500,000 (lower)
How much is the effect of the transaction on the company’s profit before income tax
during the year of sale?
a. No effect
b. Decrease of P100,000
c. Increase of P200,000
d. Increase of P400,000
Sale (9.2M - 1.3M) 7,900,000

Book Value 7,500,000
Net Effect 400,000 - Gain or Increase to income
On June 30, 2019, Charity, Inc. classified a non-current asset as held for sale. The
carrying value of the asset was P5 million (depreciation of P1 million per year). Charity
expected to sell the asset at P4.5 million with expected cost to sell of P300,000.
On December 31, 2019, the asset had not yet been sold. However, Charity was still
committed to sell it and the sale was still considered to be highly probable. On that date,
Charity expected the selling price at P5.5 million with related cost to sell of P300,000.
What is the gain to be recognized for the year ended December 31, 2019?
a. P0
b. P700,000
c. P800,000
d. P1,000,000
June 30, 2019

Value will be lower between CV and FVLCTS:
CV 06/30/19 5,000,000
FVLCTS 06/30/19 (4.5M - 300k) 4,200,000 (lower)
December 31, 2019

Adjust/ Test if FVLCTS is still lower than CV:
CV 06/30/19 - Frozen 5,000,000 (lower na sya this time so ibalik na dito yung value)
FVLCTS 12/31/19 - (5.5M -300k) 5,200,000
Ibabalik mo na ngayon sa 5M yung value from 4.2M, so may gain na 800,000
HOWEVER!
Ang tanong is “gain to be recognized for the YEAR ENDED December 31, 2019
So kung may loss na 800k nung June 30, 2019 tapos may gain ng December 31, 2019 edi
magnenegate toh so 0 ang best answer
Entries:
June 30,2019
NCA - Held For Sale 4,200,000
NCA -PPE 5,000,000
December 31, 2019

NCA - Held For Sale 800,000
Impairment Loss/ Recovery** 800,000
**Kaya din walang gain dahil pwedeng nireverse entry mo yung 800k sa unang entry kaya
technically walang gain talaga
Dax Company is engaged in raising dairy livestock. Information regarding activities

relating to the dairy livestock during the current year are as follows:
What is the carrying amount of the biological asset on December 31?
a. P7,850,000
b. P7,950,000
c. P7,150,000
d. P7,750,000
Beginning Balance, January 7,500,000

Purchases 1,000,000
Change in FV (price change) 200,000
Change in FV (physical change) 300,000
Decrease due to harvest (250,000)
Sales (900,000)
Ending Balance/ Carrying Amount 7,850,000

On January 1, 2019, Friendship Company classified a hotel property as non-current asset
held for sale. Immediately before the classification as held for sale, the carrying amount
of the property was P400,000,000 (cost of P500,000,000 and accumulated depreciation of
P100,000,000). The hotel was depreciated on the straight-line method with a useful life of
50 years. The estimated fair value less cost to sell on this date was P350,000,000.
On January 1, 2020, no buyer could be identified. On this date, management concluded

that the criteria for classification could not be met. The estimated fair value less cost to
sell was revised to P340,000,000 while the value in use at that time was estimated at
380,000,000.
What amount of impairment loss should Friendship Company recognize at the date the
asset was classified as held for sale?
a. P50,000,000
b. P100,000,000
c. P150,000,000
d. P0
How much should be taken to profit or loss on the date the asset was reclassified back to
property plant and equipment?
a. P30,000,000
b. P50,000,000
c. P100,000,000
d. P0
Entries:
*Record NCA - HFS lower between CV and FVLCTS at time of reclassification
January 1, 2019
NCA - Held for Sale 350,000,000
Impairment loss 50,000,000
Accumulated Depreciation 100,000,000
NCA - PPE 500,000,000
*when reclassfying NCA - HFS back to PPE, choose lower between CV and the (higher
between FVLCTS and Value in use):
CV - had there been no reclassification (400,000 - (500,000/50)) 390,000,000
Higher Between:
Value in use 380,000,000 - higher
FVLCTS 340,000,000 380,000,000 (lower)
January 1, 2020
NCA - PPE @ cost 500,000,000
NCA - HFS 350,000,000
Accu. Dep. 120,000,000
Recovery*** 30,000,000
***Recovery is base from NCA - HFS Book value less the CV that will be recognized at the time
of reclassification
Book Value 12/31/2019 350,000,000
PPE - Carrying Value after comparing 380,000,000
Recovery 30,000,000
SUPPLY THE ANSWER
On January 1, 2019, Friendship Company classified a hotel property as non-current asset

held for sale. Immediately before the classification as held for sale, the carrying amount
of the property was P400,000,000 (cost of P500,000,000 and accumulated depreciation of
P100,000,000). The hotel was depreciated on the straight-line method with a useful life of
50 years. The estimated fair value less cost to sell on this date was P350,000,000.
On January 1, 2020, no buyer could be identified. On this date, management concluded

that the criteria for classification could not be met. The estimated fair value less cost to
sell was revised to P340,000,000 while the value in use at that time was estimated at
380,000,000.
How much is the depreciation expense for 2020 after the asset was reclassified back to
property, plant and equipment? (No decimal point or comma)
ANS: 9743590
Continuation of the last problem from Multiple Choice:

*Note:
1. Since the Carrying Value of the Asset now is 380,000,000 which is the value in use, this
will be the new basis for depreciation
2. As of January 1, 2019 the hotel property has been used for 10 years because 500M/ 50
years = 10M of depre. Per year then 100M Accu. Depre. Divide by 10M = 10years.
3. As of January 1, 2020, after 1 year the hotel property has remaining useful life of 39
years because 1 year have past from 2019 (50 years - 10 years - 1year)
Now since the new carrying amount of the PPE is 380,000,000 we will adjust the depreciation
expense base from this and the remaining useful life as of January 1, 2020:
PPE Value 01/01/2020 380,000,000

Divide by: Remaining useful life 39 years
Depreciation per year 9,743,590
Wise Company purchased an equipment for P5,000,000 on January 1, 2020. The
equipment had a useful life of 5 years with no residual value. On December 31, 2020, the
entity classified the asset as held for sale. On such date, the fair value less cost of
disposal of the equipment was P3,500,000. On December 31, 2021, the entity believed
that the criteria for classification as held for sale can no longer be met. Accordingly, the
entity decided not to sell the asset but to continue to use it. On December 31, 2021, the
fair value less cost of disposal of the equipment was P2,700,000.
What amount of impairment loss should be recognized in 2020? (No decimal point or
comma)
ANS: 500000
2020:
Cost 5,000,000
Depreciation (5M * 1yr/5yr) 1,000,000
Carrying Amount - 2020 4,000,000
FVLCTS 3,500,000 (Lower)
Entries:
NCA - HFS 3,500,000
Accu. Depre. 1,000,000
NCA - PPE 5,000,000

On June 30, 2020, Landlite Co. decided to dispose of its building and undertook all the
necessary actions to be able to classify the assets as held for sale. On that date, the
building’s fair value less cost to sell was P2,300,000. The building was carried at cost of
P5,000,000 with accumulated depreciation of P2,000,000 at December 31, 2019.
Depreciation on the building was consistently provided at P400,000 annually and the
depreciation for 2020 had not yet been provided. On December 31, 2020, the building’s
fair value less cost to sell was P2,500,000. On June 30, 2021, Landlite’s management
changed its plan and decided to use again the building in its operation. On that date, the
building’s value in use was P2,080,000 while its fair value less cost to sell was
P2,150,000.
What amount was reported in profit or loss on June 30, 2021 as a result of the
reclassification from held for sale to held for use? (Format: amount descriptio. I.e. 10000
loss OR 10000 recovery
ANS: 350000 loss
What amount was credited to building held for sale on June 30, 2021? (No decimal point
or comma)
ANS: 2500000
What amount of depreciation shall be recorded for the building on December 31, 2021?
(No decimal point or comma)
ANS: 179167
*take note that the cost is 5,000,000 and with the depre. Per year of 400k, so 5M/400k = 12.5
years of estimated useful life
June 30, 2020

Cost 5,000,000
Accu. Dep. 12/31/19 2,000,000
Depre. 06/30/20 (5M/12.5 * 6/12) (200,000)
Carrying Value 06/30/20 2,800,000
FVLCTS 06/30/20 2,300,000 (lower)
December 31, 2020

Frozen Carrying Value 2,800,000
FVLCTS 2,500,000 2,500,000 (lower)
Compare to prev. Record 2,300,000
Impairment recovery 200,000
June 30, 2021

*since ibabalik na sa PPE ang icocompare na is lower between CV had it not been reclassified
and (higher between Value in Use and FVLCTS)
Carrying Value Had it not been Reclassified
06/30/20 CV 2,800,000
Depre for 1 yr (400,000) 2,400,000
Higher Between
Value in Use 2,080,000
FVLCTS 2,150,000 (higher) 2,150,000 (Lower)
Impairment Loss due to reclassification 350,000
Entries:
NCA - PPE 5,000,000
Accu. Depre.** 2,850,000
NCA - HFS *** 2,500,000
** (5,000,000 cost - 2,150,000) = 2,850,000

*** 2,500,000 is the value based on 12/31/20
December 31, 2021

Depreciation = 2,150,000/ 6years * 6/12 = 179,167
note that on 06/30/21, remaining useful life of the building is 6 years (2.4M/400k)
QUIZ 4: Provisions, Contingent and Other Liabilities
Companies use premiums to increase the sales of their products. It is a company's offer
to exchange items such as toys and small appliances for a proof-of-purchasefrom one or
more products. In accordance with IFRS 15, the expenses associated with premiums
must be recognized as expenses in the period the associated sales are made.
a. True
b. False
Deposits and advances consists of cash or property received but which are returnable to
the depositor. If such deposit or advance is part of the company’s operating activities,
the liability is generally reported as a current liability
a. True
b. False
A law that requires an entity to pay compensation if its products cause harm or damage
gives rise to a separate performance obligation. Such obligation should be accounted
using IFRS 15.
a. True
b. False
A bonus, if unpaid at year-end, should be accrued by debiting compensation expense

and crediting cash
a. True
b. False
Magazine subscriptions and airline ticket sales both result in unearned revenues.
a. True
b. False
If a customer does not have the option to purchase a warranty separately, the warranty
still includes a separate performance obligation if it provides the customer with a service
in addition to the entity’s assurance that the goods or services transferred will function
as intended
a. True
b. False
In a customer loyalty program, the consideration received for the sale of goods or
services is allocated between: the goods or services delivered and the points that will be
redeemed in the future.
a. True
b. False
The transaction price at the balance sheet date is recorded partly as sales of the goods
sold outright to the customer and partly as liability for the promised premium
a. True
b. False
The best estimate of the expenditure required to settle the present obligation is the
amount that an entity would rationally pay to settle the obligation at the end of the
reporting period or to transfer it to a third party at that time
a. True
b. False
Contingent assets are not recognised in financial statements since this may result in the
recognition of income that may never be realised. When the realisation of income is
probable, then the related asset is not a contingent asset and its recognition is
appropriate.
a. True
b. False
A customer loyalty programme has the following characteristics:

I. Entities use loyalty programmes to incentivise customers to buy additional goods or
services.
II. Entities grant credits (in the form of points) to customers with each purchase of goods
or services.
III. Customers may redeem the points to receive free or discounted goods or services in
the future.
a. I and II
b. I, II and III
c. II and III
d. I and III
The accountant for Consumption Company is preparing the financial report for the
period ended 31 December 2020. The accountant notes that an electricity invoice for the
last six months' usage has not been received.
Which of the following is most correct for recognising the liability?

a. A present obligation exists and Consumption Company should recognise a
liability based on a reliable estimate.
b. As the invoice has not yet been received, no present obligation exists so Consumption
Company cannot recognise a liability.
c. None of the above
d. A present obligation exists, however as the amount of usage cannot be reliably
measured, the estimated costs can only be disclosed as a contingent liability.
Which of the following factors are considered in determining if an entity provides a

service-type warranty?
I. If the warranty is required by law
II. The length of the warranty coverage period
III. Nature of task that the entity promises to perform.
a. II and III
b. I and II
c. I and III
d. I, II and III
Which of the following statements about the requirements of IAS 37 Provisions,

contingent liabilities and contingent assets are correct?
1. A contingent asset should be disclosed by note if an inflow of economic benefits is

probable.
2. No disclosure of a contingent liability is required if the possibility of a transfer of
economic benefits arising is remote.
3. Contingent assets must not be recognised in financial statements unless an inflow of
economic benefit mos is virtually certain to arise.
a. Statement 1 and 3
b. Statements 1, 2 and 3
c. Statements 3
d. Statements 1 and 2
Which of the following situations may give rise to unearned revenue?
a. Selling magazine subscriptions.
b. Providing manufacturer
c. Providing trade credit to customers.
d. Selling inventory
When a deposit on returnable containers is forfeited, the firm holding the deposit will
experience:
a. An increase in current liabilities.
b. An increase in accounts receivable.
c. An increase in revenue.
d. A decrease in cost of goods sold.
A contingent loss should be reported in a footnote to the financial statements rather than
being accrued if:
a. The incurrence of a loss is probable.
b. The likelihood of a loss is eighty percent.
c. The likelihood of a loss is remote.
d. The incurrence of a loss is reasonably possible.
Information available prior to the issuance of the financial statements indicates that it is
probable that, at the date of the financial statements, a liability has been incurred for
obligations related to product warranties. The amount of the loss involved can be
reasonably estimated. Based on the above facts, an estimated loss contingency should
be
a. Accrued.
b. Neither accrued nor disclosed.
c. Disclosed but not accrued.
d. Classified as an appropriation of retained earnings.
Deeco Electronics sells equipment that includes a three-year warranty. Deeco

Electronics repairs under the warranty are performed by an independent service
company under a contract with Deeco Electronics. Based on prior experience, warranty
costs are estimated to be P250 per item sold. Deeco Electronics should recognize these
warranty costs:
a. When the equipment is sold.
b. When payments are made to the service firm.
c. Evenly over the life of the warranty.
d. When the repairs are performed
What is a contingency?
a. An existing situation where uncertainty exists as to possible gain or loss that will not be
resolved in the foreseeable future.
b. An existing situation where certainty exists as to a gain or loss that will be resolved when
one or more future events occur or fail to occur.
c. An existing situation where uncertainty exists as to possible gain or loss that will
be resolved when one or more future events occur or fail to occur.
d. An existing situation where uncertainty exists as to possible loss that will be resolved
when one or more future events occur.
Tabloid newspapers sold 4,000 of annual subscriptions at P125 each on September 1.

How much unearned revenue will exist as of December 31?
a. P333,333
b. P0
c. P166,667
d. P500,000
September 1 - December 31 = 4 months earned, 8 months unearned
4,000 subscriptions * P125 * 8/12 = 333,333 unearned revenue
Talyer Company sells contracts to service equipment for a three year period. The
following information are available for the year:
Cash receipts from service contracts sold P2,400,000

Service contract revenue recognized 1,950,000
Unearned service contract revenue, beg 1,350,000
How much is the unearned revenue at year end?

a. 975,000
b. 1,800,000
c. 1,475,000
d. 600,000
Unearned Service Contract Revenue, Beginning 1,350,000

Cash Receipts from Service contracts sold 2,400,000
Less: Service Contract revenue Recognized (1,950,000)
Unearned Service Contract Revenue, Ending 1,800,000
Spartan Co. had a warranty liability of P350,000 at the beginning of 2020. Warranty
expense is based on 4% of sales, which were P50 million for the year. The actual repairs
made in 2020 is P2,040,000. How much is the balance of warranty liability as of December
31, 2020?
a. 310,000
b. 390,000
c. 300,000
d. 350,000
Warranty Liability, Beginning 350,000

Warranty Expense (4%x50M) 2,000,000
Less: Actual Repairs (2,040,000)
Warranty Liability, End 310,000
Victory Mall grants loyalty awards to its customers. During 2020, it made sales
aggregating to P5,000,000 of which P100,000 is allocated to the customer loyalty awards.
During the year, 25,000 points were redeemed and at December 31, 2020 it expects that
90,000 points would be redeemed relating to 2020 sales.
During 2021, an additional 35,000 points awarded in 2019 were redeemed and the
company revised its estimate of total points redemption for points granted in 2020 to
95,000 points
This problem has two questions

How much is the unearned liability for customer loyaty awards on December 31, 2020
a. 0
b. 72,222
c. 27,778
d. 100,000
Allocated Sales Revenue (5,000,000 - 100,000) 4,900,000

Allocated Liability for Customer Loyalty Awards 100,000
Revenue in 2020 as a result of redemption

100,000 * 25,000/90,000 27,778
Unearned Liability (100,000 - 27,778) 72,222
How much is the revenue to be recognized in 2021 relating to the customer loyaty awards
a. 35,380
b. 63,158
c. 27,779
d. 36,842
Revenue in 2021 as a result of redemption
*since magbabago ng estimate kunin muna ntin yung total redemption tapos divide sa new
estimate
2020 Redemption 25,000 points
2021 Redemption 35,000 points
Total Redemption as of 2021 60,000 points
Accumulated Revenue as of 2021

100,000 * 60,000/95,000 63,158
Less 2021 Revenue (prev item) (27,778)
2021 Revenue as a result of redemption 35,380
Alexan Company is facing a claim for P500,000 from a customer, in respect of a fire the
cause of which has been traced to defective electric circuit in a refrigerator sold by
Alexan Company. The legal opinion is that the claim will succeed; but Alexan Company
will be able to re-claim 75% of the amount from its insurance. How should Alexan
Company report this on its Statement of financial position?
a. P125,000 as a net liability
b. P500,000 as a liability
c. P500,000 as a liability and P375,000 as asset
d. P125,000 as liability and P375,000 as asset
*Recognize reimbursement as separate asset (does not affect the amount reported as liability)
Willie Company distributes annual bonuses to his talent manager and two personal
assistants. The company’s net income for the year amounted to P636,364. Income tax
rate is 30%
Under the incentive compensation plan, the talent manager gets 6% while the two
personal assistants equally receives a total of 4% on profit after bonus but before tax.

How much is the bonus to each personal assistant?
a. 23,140
b. 36,364
c. 18,182
d. 11,570
How much is the bonus of his talent manager?

a. 18,182
b. 34,711
c. 54,545
d. 36,364
(Base from the given answer) The given is net income after tax and bonus, we can get the profit
after bonus but before tax by dividing 70% to net income given
Profit before bonus = 636,364/70%
= 909,091
Bonus Distribution
Talent Manager 6% * 909,091 = 54,545
Personal Assistant 1 (4%/2) 2% * 909,091 = 18,182
Personal Assistant 2 (4%/2) 2% * 909,091 = 18,182
In the current year, Havianas Company reported warranty expense of P190,000 and the
warranty liability account increased by P20,000. How much is the actual repairs during
the year?
a. 170,000.
b. 0.
c. 210,000.
d. 190,000.
Formula for Ending Liability = Beg. Bal + Addt. Liab - Paid Liab. = End. Bal
Warrant Expense is the debit account while its credit account is warranty liability
Warrant Expense 190,000
Warranty Liability 190,000
Let’s Say that the beginning balance is 0 and the ending balance is 20,000 since it is stated in
the problem that the warrant liability increased by 20,000 (from 0 it became 20,000)
By transposition from prev. formula to get the Actual Repairs or Paid Liab = Beg Bal. + addtl
Liab - End Liab.
Beg. Bal 0
Warranty Liab recorded 190,000
Less: Ending Balance (20,000)
Actual Repairs or Liabilities earned 170,000
*Take note na pwede 0 sagot dahil vague sagot and pwedeng lumipas na yung year at naearn
mo na tong 170k dahil nag expire na at wala naman binanggit na actual repairs
Sari-Sari Store received customer deposits on returnable bottle containers in the amount
of P300,000 during 2020. Fifteen percent of the containers were not returned. The
deposits are based on the container cost marked up 20%. How much profit did Sari-Sari
Store realized on the forfeited deposits?
a. 9,000
b. 45,000
c. 7,500
d. 0
300,000 x 15% = 45,000 containers not returned
45,000 / 120% = 37,500 cost of containers
7,500 Gain on forfeited deposits
In May of 2020, Tax Vader became involved in a tax dispute with the BIR. At December 31,
2020, the tax attorney for Tax Vader indicated that an unfavorable outcome to the dispute
was probable. The additional taxes were estimated to be P770,000 but could be as high
as P1,170,000. After the year-end, but before the 2020 financial statements were issued,
Tax Vader accepted a BIR settlement offer of P900,000. Tax Vader should have reported
an accrued liability on its December 31, 2020, balance sheet of:
a. 1,170,000
b. 900,000
c. 970,000
d. 770,000
*Actual amount should be reported if settlement occurred BEFORE issuance of FS
Chemical Co. is being sued for illness caused to local residents as a result of negligence
on the company's part in permitting the local residents to be exposed to highly toxic
chemicals from its plant. Chemical Co.'s lawyer states that it is probable that Chemical
Co. will lose the suit and be found liable for a judgment costing Chemical Co. anywhere
from P1,200,000 to P6,000,000. However, the lawyer states that the most probable cost is
P3,600,000.
As a result of the above facts, Chemical Co. should accrue

a. No loss contingency but disclose a contingency of P1,200,000 to P6,000,000.
b. A loss contingency of P3,600,000 but not disclose any additional contingency.
c. A loss contingency of P1,200,000 and disclose an additional contingency of up to
P4,800,000.
d. A loss contingency of P3,600,000 and disclose an additional contingency of up to
P2,400,000.
Most probable cost: 3,600,000

Highest possible cost: 6,000,000
Disclosure (Addtl Contingency): 2,400,000
SUPPLY THE ANSWER
Toyoka Motors manufactures and sells a model of luxury sports cars. Included in
the car’s price is a five-year warranty that is two years longer than warranties
provided by other car manufacturers; in addition, the law only requires Toyoka
Motors to provide a three-year warranty.
On January 1, 2021, Toyoka Motors sells a car to a customer for P2,000,000. The
car’s estimated standalone selling price is P1,800,000, and the extra two years of
warranty is P200,000. Toyoka Motors delivers the car on January 1, 2021 and the
customer pays P2,000,000 on that same date. Based on past experience, Toyoka
Motors expects to incur P250,000 of warranty expense each year during the first
three years of the car’s life and provide repairs evenly during the 4th and 5th year
of the warranty period. Actual repairs during the first, second and third years
were P80,000, P120,000 and P180,000 respectively.
This problem has three questions

Determine the amount of warranty liability on December 31, 2021
870,000
Determine the amount of warranty liability as of December 31, 2022
750,000
Determine the amount of revenue that Toyoka Motors should recognize in 2024
100,000
Total Warrant Liability

2021 250,000
2022 250,000
2023 250,000
2024-2025 200,000
Total Liability 950,000
Less: 2021 Actual Repairs (80,000)
Warranty Liability as of 2021 870,000
*But, since the the it is Year 3 and in the year 4 the warranty liability will change and
200,000 should be the remaining balance (570,000 - 200,000) 370,000 will now be earned at
2023
2024 Liability Earned and take note that there is no mentioned actual repairs and it is mentioned
that repairs are provided evenly = 100,000 (200,000/2years)
LOYAL Corp. operates a customer loyalty programme. For every P100 worth of
purchases, a customer receives 5 loyalty points. These points can be spent on
purchases from LOYAL Corp. and each point equals P1 worth of purchases.
During year 2021, LOYAL Corp. had product sales for P100 million. By the end of the
year, 45% of the points have been redeemed and LOYAL Corp. estimates that 90% of
points will be redeemed by customers.
During year 2022, LOYAL Corp. had product sales for P120 million and 50% of the points
earned in 2022 were redeemed by the customers. Meanwhile, 1.5 million points earned in
2021 were redeemed by customers in 2022. As of the end of 2022, LOYAL Corp. now
believes that 95% of points earned in 2021 will be redeemed while it expects that 90% of
points earned in 2022 will be redeemed by customers.

- Determine the liability on customer loyalty program on December 31,2021. 2,380,853
- Determine the total revenue for the year ended December 31,2022. 118,838,763
2021:
Values to be used for Allocation
2021 Sales 100,000,000
Premium (100,000,000/100*5) 5,000,000
Total 105,000,000
Allocation
Sales: 100,000,000 (100,000,000/105,000,000) 95,238,095
Premium: 100,000,000 (5,000,000/105,000,000) 4,761,905
Total for Checking 100,000,000
Identify how many points will be redeemed and can be redeemed this year 2021:
2021 Redemptions (5,000,000 * 45%) 2,250,000 points
Can be redeemed from 2021 sales(5,000,000 * 90%) 4,500,000 points
2021 redemption:
4,761,905 * (2,250,000/4,500,000) = 2,380,953
Unearned Revenue/ liability (4,761,905 - 2,380,953) 2,380,852**
**however other way of computing this is same as above kaya magiiba sa decimal
2022:
Values to be used for Allocation:
2022 Sales 120,000,000
Premium (120M/100 * 5) 6,000,000
Total 126,000,000
Allocation:
Sales: 120,000,000 (120M / 126M) 114,285,714
Premium: 120,000,000 (6M / 126M) 5,714,286
Total (for checking) 120,000,000
Identify how many points will be redeemed and can be redeemed this year 2022:
2021 points redeemed this year as stated 1,500,000 points
2022 Redemptions (6,000,000 * 50%) 3,000,000 points
Can be Redeemed from 2021 sales (as adjusted)
5,000,000 * 95% 4,750,000 points
Aggregated redemption from 2021 sales:
2021 redemptions 2,250,000
2022 redemptions 1,500,000 3,750,000 points
Can be Redeemed from 2022 sales
6,000,000 * 90% 5,400,000 points
Revenue from redemptions of points 2022:

From 2021 Sales:
Aggregate revenue (4,761,905 * 3,750/4,750) 3,759,399
Less: Claimed Revenue Last year (2,380,953) 1,378,446
From 2022 Sales:
5,714,286 * (3,000/5,400) 3,174,603
Total Revenue from redemptions of points 4,553,049
Sales this year 114,285,714
Total Revenue 118,838,763
Wig Co. includes one coupon in each piece of wig it sells. In return for eight coupons,
customers receive a cap. Wig Co. maintains a gross profit rate of 50% above cost for its
wigs while the caps cost Wig Co. P20.00 each. Wig Co. estimates that 40 percent of the
coupons will be redeemed. Data for 2020 and 2021 are as follows:
The company uses the perpetual inventory method and the first-in-first-out inventory
costing system.

- The net income in 2020 877645
- The estimated liability for premiums at December 31, 2020 19355
- The total revenue in December 31, 2021 1775806
2020:
Values to be used for Allocation
2020 Sales (5,000*300) 1,500,000
Selling price premium (5,000/8 * 40% * 200) 50,000
Total 1,550,000
Allocation
Sales: 1,500,000 * (1,500,000/ 1,550,000) 1,451,613
Premium: 1.500,000 * (50,000/ 1,550,000) 48,387
Before identifying 2020 revenue, identify first how many caps will be redeemed and can be
redeemed:
2020 Caps can be redeemed (5,000/8 * 40%) 250 Caps
2020 Caps redemption (1,200/8) 150 Caps
2020 Redemption:
48,387 * 150/250 29,032 - Earned
2020 Remaining liability:

48,387 - 29,032 19,355 - Not yet earned as of 2020
It is stated in the problem that the gross profit rate is 50% above cost therefore:
Sales 250% **from work back
Cost of goods sold (100%)
Gross Profit 150%
2020 Net Income:

Sales
Sales 1,451,613
Premium Earned 29,032 1,480,645
COGS
Pertaining to sale(1,500/250%) 600,000
Caps (150*20) 3,000 (603,000)
Net Income (Since walang stated na ibang expenses) 877,645
2021:
Values to be used for Allocation:
2021 Sales (6,000*300) 1,800,000
Selling price premium (6,000/8 * 40% * 200) 60,000
Total 1,860,000
Allocation:
Sales: 1,800,000 * (1,800,000/1,860,000) 1,741,935
Premium: 1,800,000 * (60,000/1,860,000) 58,065
Caps to be redeemed and can be redeemed:

Remaining from 2020 100 Caps
2021 Caps can be redeemed (6,000/8 * 40%) 300 Caps
2021 Caps redemption (1,400 - 800/8) 75 Caps
Redemptions:
From 2020 19,355
2021 (58,065*75/300) 14,516
Total 33,871
Total Earnings for 2021:

Sales 1,741,395
Premiums 33,871
2021 Revenue 1,775,806

CA51016 Departmentals Quiz 1, 2, 3 - 4 and Preliminary Examination V2.

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CA51016

QUIZ 1: Depreciation and Borrowing Cost

The effect of change in accounting estimate shall be recognized prospectively by

In which of the following situations is the units of production method of depreciation

Which if the following information is an indicator of impairment?

A capitalizable subsequent expenditure is treated as a

1. A qualifying asset is an asset that the entity routinely produces or manufactures.

On January 1, 2017, Jasmine-Thea Milk Tea, purchased an equipment having an

Which of the following cannot be a qualifying asset?

Which is false regarding recovery of impairment loss?

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall

Straight line Productive Output

MULTIPLE CHOICE PROBLEM SOLVING

January 1: loan interest relating to the project starts to be incurred

3/1 - Nagstart na mag expense and planning

This problem has 3 questions:

Determine the capitalizable interest in 2020

Determine the total interest expense in 2020

Borrowed for inventories:

Determine the depreciation for 2020.

Carrying Value January 1, 2020: 6,000,000 - 540,000 = 5,460,000

New depreciation: 5,460,000 - 800,000 = 466,000

Calista Company purchased a machinery on January 1, 2020 for P7,200,000. The

This problem has two questions:

Determine the depreciation expense in 2023.

Carrying amount January 1, 2023: 7,200,000 - 2,160,000 = 5,040,000

Remaining life: 7 years ----> SYD: 5,040,000 x 7/28 = 1,260,000

This problem has 2 questions.

Determine the amount presented in equity as of December 31, 2020

Determine the depreciation expense in 2021.

3,600,000/25 = 144,000 Depreciation Expense per year

3,600,000 - (144,000 * 10) = 2,160,000 Carrying Value before revaluation

2,916,000 - 2,160,000 = 756,000 Revaluation Surplus ---> Equity

Estimated Units Capacity = 12,000 + 7,000 + 6,0000 = 25,000

8,100,000 - 600,000 = 7,500,000 Depreciable Amount = 300 x 7,000 units = 2,100,000

Determine the depreciation on December 31, 2024.

Depreciation Rate = 1.5/ 5 = 30%

Year Carrying Rate Depreciation

2021 1,400 30% 420

2022 980 30% 294

2023 686 30% 186***

Determine the depreciation on December 31, 2023.

Depreciation Rate = 2/ 5 = 40%

2021 2,000 40% 800

2022 1,200 40% 480

2023 720 40% 220***

Determine the revaluation surplus at the end of 2020

+3,000,000 +2,000,000 -1,500,000 = 3,500,000

This problem has 2 questions:

Determine the impairment loss in 2020, if any:

Determine the asset’s carrying value as of December 31, 2021

144,000 Annual Depreciation: 24,000 x 2.5 years = 60,000

Carrying Value: 144,000 - 60,000 = 84,000

28,000 New Depreciation: 8,000

Carrying Value, December 31, 2021: 28,000 - 8,000 = 20,000

This problem has 3 questions:

Determine the recoverable amount on December 31,2020:

Determine the impairment loss on December 31,2020:

Determine the recovery of previous impairment loss on December 31,2022:

**note 200k is a financed cost, thus not included as Cost to Sell

Carrying Value at December 31, 2020

Depreciation per year