PHINMA UNIVERSITY OF PANGASINAN d.
If funds come from general borrowings, the amount to
GEN009 INTERMEDIATE ACCOUNTING 1
P2 - QUIZ 2 (ENHANCEMENNT SUBJECT)
SET A
NAME: _______________________________________
SECTION: _____________________________________
Encircle the letter of your answer. ERASURES are considered
wrong. Any form of cheating is PROHIBITED and will be dealt in
accordance with the University Student Manual.
1. Under PAS 23, borrowing costs can be capitalized as part of the
asset when
a. The asset is a qualifying asset
b. The asset is a qualifying asset and it is not probable that the
borrowing costs will result in future economic benefits to the
entity
c. The asset is a qualifying asset and it is probable that the
borrowing costs will result in future economic benefits to the
entity and the costs can be measured reliably
d. The asset is a qualifying asset and it is probable that the
borrowing costs will result in future economic benefits to the
entity, but the costs cannot be measured reliably
2. Which of the following may not be considered a “qualifying
asset”?
a. A toll bridge that usually takes more than a year to build
b. A ship that normally takes one or two years to accomplish
c. An expensive private jet can be purchased from a local
vendor
d. A power generation plant that normally takes two years to
construct
3. When computing capitalizable interest cost, what is the concept
of “avoidable interest”?
a. A cost of capital charge for equity
b. The total interest cost actually incurred
c. That portion of average accumulated expenditures on which no
interest cost was incurred
d. That portion of total interest cost which would not have
been incurred if expenditures for asset construction had not
been made
4. Interest cost that is capitalized should
a. Be written off over the remaining term of the debt
b. Not be written off until the related asset is fully depreciated or
disposed of
c. Be accumulated in a deferred charge account and written off
equally over a 40-year period
d. None of these
5. Which of the following statements is true regarding
capitalization of interest?
a. Interest cost capitalized in connection with the purchase of land
to be used as a building site should be debited to the land account
and not the building account
b. The amount of interest cost capitalized during the period
should not exceed the actual interest cost incurred
c. When excess borrowed funds not immediately needed for
construction are temporarily invested, any interest earned should
be recorded as interest revenue
d. The minimum amount of interest to be capitalized is determined
by multiplying a weighted-average interest rate by the amount of
average accumulated expenditures on qualifying asset during the
period
6. Which of the following statements about the capitalization of
borrowing costs as part of the costs of qualifying asset is true?
a. Capitalization always continues until the asset is brought into
use
b. Capitalization always commences as soon as expenditure of the
asset is incurred
c. Capitalization always commences as soon as interest on
relevant borrowings is being incurred
be capitalized is based on the weighted average cost of
borrowing
7. The period of time during which capitalization of interest
begins and when capitalization of interest ends is
a. From the time funds are borrowed until the asset is
substantially complete and ready for its intended use
b. From the time the first expenditures are incurred until
the asset is substantially complete and ready for its
intended use
c. From the time the first expenditures are incurred until no
further interest cost is being incurred
d. From the time the first expenditures are incurred until
activities necessary to get the asset for its intended use have
begun
8. An entity commences a new construction project which is
to be financed by borrowing. The key dates for the current
year are as follows:
March 15 Loan interest relating to the project starts to be
incurred
June 15 Technical site planning commences
June 30 Expenditures on the project start to be incurred
July 15 Construction work commences
From what date can the entity commence the capitalization of
borrowing costs?
a. March 15
b. June 15
c. June 30
d. July 15
9. Capitalization of borrowing costs shall be suspended
a. Only during temporary periods of delay
b. At no instance at all as capitalization has already
commenced
c. Only upon agreement by management and the construction
company
d. Only during extended periods of delay in which active
development is delayed
10. A company constructed machinery for its own use. A bank
loan specifically financed this property both during and after
the construction. How much of the interests incurred should
be reported as interest expense?
a. All interests incurred
b. Interests incurred after completion
c. Interests incurred before completion
d. Zero
11. Which of the following is not a disclosure requirement
under PAS 23?
a. Accounting policy adopted for borrowing costs
b. Amount of borrowing costs capitalized during the period
c. Capitalization rate used to determine the amount of
borrowing costs eligible for capitalization
d. Segregation of assets that are “qualifying assets” on the
balance sheet as a disclosure in the financial statement
notes
12. Which of the following statements is true about biological
assets?
a. Biological assets must be valued at cost
b. Biological assets are only found in Biotech entities
c. Biological assets do not generally have future economic
benefits
d. Biological assets are living animals or plants and must
be reported as a separate item in the statement of financial
position
13. According to PAS 41, Agriculture, 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
14. The cost of agricultural produce harvested from biological
assets is
a. Cost
b. Fair value
c. Lower of cost or net realizable value
d. Fair value less estimated point of sale costs at the point of
harvest
15. Which of the following is not dealt with by PAS 41?
a. The accounting for biological assets
b. The processing of agricultural produce after harvesting
c. The initial measurement of agricultural produce harvested
from biological assets
d. The accounting treatment of government grant received in
respect of biological assets
16. Agricultural activity
a. Is the harvested product of the entity’s biological asset
b. Is the detachment of agricultural produce from a biological
asset or the cessation of a biological asset’s life processes
c. Is the management by an entity of the biological
transformation of biological assets for sale, into agricultural
produce, or into another biological asset
d. Relates to the processes of growth, degeneration, production
and procreation that can cause changes of quantitative or
qualitative nature in a biological asset
c. Not be recognized although note disclosure is required
d. Be deferred and amortized over the life of the biological
asset
23. Which of the following is unlikely to be used in fair value
measurement of biological asset?
a. Quoted market price
b. External independent valuation
c. The most recent market transactions price
d. The present value of the expected net cash flows from the
asset
24. Land that is related to agricultural activity is valued
a. At fair value
b. At fair value in combination with the biological asset that is
being grown on the land
c. At the resale value separate from the biological asset that
has been grown on the land
d. In accordance with PAS 16, Property, Plant and
Equipment, or PAS 40, Investment Property
25. Where there is a production cycle of more than one year,
PAS 41 encourages separate disclosure of the
a. Physical change only
b. Price change only
c. Physical change and price change
d. Total change in value

17. 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

18. Where there is a long aging or maturation process after

harvest, the accounting for such products is dealt with by
a. PAS 41, Agriculture
b. PAS 2, Inventory
c. PAS 16, Property, Plant and Equipment
d. PAS 40, Investment Property

19. Which of the following items would be classified as

agricultural produce, according to PAS 41, Agriculture?
a. Apple
b. Butter
c. Bush
d. Tree

20. Under PAS 41, which of the following would be classified as a

product that is the result of processing after harvest?
a. Bananas PROBLEM SOLVING (2 POINTS EACH)
b. Cheese
c. Cotton 1. During 2022, Erick Company constructed a new
d. Wool hydroelectric power plant at a cost of P25, 000,000. The
expenditures for this facility, which was finished late in 2022,
21. Biological assets are measured at were incurred evenly during the year. The entity had the
a. Cost following loans among its liabilities outstanding on December
b. Fair value less costs to sell 31, 2022:
c. Lower of cost or net realizable value • 12% note to finance construction of the hydro-electric power
d. Net realizable value plant, dated January 1, 2022, P10, 000,000 that was unpaid as
of December 31, 2022. Investments were made on the excess
22. Under PAS 41, any gain arising from the initial recognition of borrowings from this loan and income of P50, 000 was
biological assets (e.g., when a calf is born) shall realized from deposits and other investments during 2022.
a. Be recognized in the profit or loss • 8%, 20-year bonds payable issued at face value on January
b. Be recognized in the other comprehensive income 1, 2014, P40, 000,000.
• 15%, 5-year mortgage note payable dated March 1, 2019, Compute for the capitalizable borrowing cost using
P10, 000,000. Traditional Method.
800,000
Answer5.
What is the amount of interest that was capitalized as cost of new __________________________________________
building? 1,385,000

Answer1._____________________________________________ -NOTHING FOLLOWS-

_

2. On March 1, 2022, XYZ Corporation began construction of an

office building. The following expenditures were incurred for
construction: March 1, P750,000; April 1, P840,000; May 1,
P1,800,000; June 1, P3,000,000; July 1, P1,000,000. The building
was completed and occupied on July 1. To help pay for
construction P600,000 was borrowed on March 1 on a 12%, three-
year note payable. The only other debt outstanding during the year
was a P5,000,000, 10% note issued two years ago.

Question:
The weighted-average accumulated expenditure is

1,010,000

Answer 2.

Question:
The avoidable interest cost is

113,000
Answer3._____________________________________________
_

3. During 2021, an TXT Company constructed an asset costing

P10, 000,000. The weighted average accumulated expenditures on
the asset during the year totaled P6,000,000.

To help pay for construction, P4, 400,000 was borrowed at 10%

on January 1, 2021, and funds not needed for construction were
temporarily invested in short-term securities, yielding P90, 000 in
interest revenue. Other than the construction funds borrowed, the
only other debt outstanding during the year was a P5, 000,000, 10-
year, 9% note payable dated January 1, 2018.

What is the amount of interest that should be capitalized during

2021?

494,000

Answer4______________________________________________

PHINMA UNIVERSITY OF PANGASINAN

Problem4. X Construction Company, Inc. is constructing an office ACC106 INTERMEDIATE ACCOUNTING 1
building for its own use. The following expenditures relating to
P2- SPECIAL QUIZ 1
the construction of the office building were made during 2002.
NAME: _______________________________________
Total Construction
Expenditures SECTION: _____________________________________
Jan 2, 2002 P500,000 SET: __________________________________________
May 1, 2002 500,000
November 1, 2002 400,000

Outstanding company debt:

 Bond issue directly related to the new office building;
interest rate, 12%; term, 5 years from beginning of
construction
General Borrowings:
 10%, 10 year bonds issued Jan 1, 2002 P400,000
 8%, 8 year bonds issued Jan 1, 2002 900,000
 Estimated cost of equity capital 13%
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