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PAS 16 PPE and PAS 40

QUIZ:

1. According to PAS 16, the selection of an appropriate depreciation method rests upon the entity’s
a. management.
b. accountant.
c. regulator.
d. all of these

2. Which of the following is not one of the essential characteristics of a PPE?

a. tangible asset
b. used in business
c. primarily held for sale
d. long-term in nature

3. PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these

4. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.

5. Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no
production during the period.
c. The asset is classified as held for sale under PFRS 5.
d. The asset becomes idle or is taken out of active use.

Use the following information for the next five questions:

Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

Purchase price, gross of trade discount 1,000,000

Trade discount available 10,000
Freight costs 20,000
Testing costs 30,000
Net disposal proceeds of samples generated
during testing 5,000
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Present value of estimated costs of dismantling the

equipment at the end of its useful life 6,209

6. How much is the initial cost of the equipment?

a. 1,061,209
b. 1,051,209
c. 1,041,209
d. 1,031,209

7. The equipment has an estimated useful life of 10 years and a residual value of ₱200,000. Entity A
uses the straight line method of depreciation. How much is the carrying amount of the
equipment on December 31, 20x3?
a. 788,846
b. 802,846
c. 795,846
d. 764,846

8. On December 31, 20x3, Entity A revalues the equipment at a fair value of ₱820,000. There is no
change in the residual value and the remaining useful life of the asset. How much is the
revaluation surplus on December 31, 20x3?
a. 17,154
b. 24,154
c. 55,154
d. 31,154

9. How much is the depreciation expense in 20x4?

a. 102,500
b. 117,143
c. 136,667
d. 88,571

10. Entity A sells the equipment for ₱870,000 on January 1, 20x5. Entity A incurs selling costs of
₱20,000 on the sale. How much is the gain (loss) on the sale?
a. 118,571
b. 132,500
c. 147,143
d. 152,673

11. Which of the following qualifies for classification as an investment property?

a. Property that is currently being developed for future use as investment property
b. Investment property that is currently being developed for future use as owner-occupied
property
c. Property that is leased out to another entity under a finance lease
d. Building being rented from another entity and leased out under various operating sub-leases

12. The distinguishing characteristic that identifies an investment property from the other assets of
an entity is
a. changes in fair value of the asset is recognized in profit or loss.
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b. the property does not derive cash flows separate from the other assets of the entity.
c. it generates separately identifiable cash flows from the other assets of the entity.
d. it earns rental as part of the ordinary operations of the entity.

13. Under this model, an investment property is measured at cost less accumulated depreciation
and accumulated impairment losses.
a. Impairment loss model c. Fair value model
b. Cost model d. Gorgeous model

14. Which of the following statements best describes entity-specific value?

a. The cost or an amount substituted for cost of the asset less residual value.
b. The amount at which the asset is recognized after deducting any accumulated depreciation
and impairment losses.
c. The present value of the cash flows and entity expects to arise from the continuing uses of an
asset and from the disposal at the end of useful life or an entity expects to incur when
settling a liability.
d. The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.
15. The cost of an item of property, plant and equipment comprises all of the following except
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Any cost directly attributable in bringing the asset to the location and condition for the
intended use
d. Initial estimate of the cost of dismantling and removing the item and restoring the site, the
obligation for which the entity does not incur when the item was acquired.

16. Which of the following cost should be included in the carrying amount of property, plant and
equipment?
a. Cost incurred while an item capable of operating in the manner intended by management
has yet to be brought into use or is operated as less than full capacity.
b. Initial operating loss
c. Cost of relocating or reorganizing part or all of an entity’s operations
d. None of these should be included in the carrying amount or property, plant and equipment,

17. The cost of nonmonetary asset acquired in exchange for another nonmonetary asset and the
exchange has commercial substance is usually recorded at:
a. The fair value of an asset given up and a gain or loss is recognized.
b. The fair value of an asset given up and a gain but not a loss may be recognized.
c. The fair value of the asset received if it is equally reliable as the fair value of the asset given
up.
d. Either the fair value of the asset given up or the asset received, whichever one results in the
largest gain or smallest loss.

18. Which of the following nonmonetary exchange transactions has commercial substance?
a. Exchange of assets with no difference in the future cash flows.
b. Exchange of assets by entities in the same line of business.
c. Exchange of assets with difference in future cash flows.
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d. Exchange of an equivalent interest in similar productive assets that causes entities involved
to remain essentially the same economic position.

19. If payment for an asset is deferred beyond normal credit terms, the difference between the total
payment and cash price equivalent should be
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized interest expense over the life of the asset
d. Amortized as an interest expense over the credit period

20. When a plant asset is acquired by issuance of ordinary shares, the cost is properly measured at
a. Par value of the shares
b. Stated value of the shares
c. Book value of the shares
d. Fair value of the shares

21. Which of the following statements is incorrect with respects to depreciation?

a. The depreciation method shall reflect the pattern in which the asset’s economic benefits are
consumed by the entity.
b. Depreciation of an asset begins when it is available for use or when it is in the location and
condition necessary for the intended use.
c. Depreciation ceases at the earlier between the date of the asset is classified as held for sale
and the date the asset is derecognized.
d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount.

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

Use the following information for the next two questions:

Entity A acquires an investment property for ₱1,000,000 cash. Additional costs incurred are as
follows:
 Repairs and remodelling before occupancy, ₱50,000.
 Legal costs of transferring title to the property, ₱20,000.
 Repairs after occupancy, ₱15,000.

The investment property is estimated to have a remaining useful life of 10 years and a residual
value equal to 5% of initial cost.

23. Entity A uses the straight line method of depreciation. How much is the carrying amount of the
investment property under the cost model after one year?
a. 914,850 c. 968,350
b. 923,100 d. 872,100
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24. Entity A uses the straight line method of depreciation. The investment property has a fair value
of ₱980,000 at the end of Year 1. How much is the carrying amount of the investment property
under the fair value model after one year?
a. 980,000 c. 986,350
b. 973,200 d. 837,900

Use the following information for the next two questions:

Odette Company and its subsidiaries provided the following properties owned by the group:
Land held for undetermined future use 1,000,000
Vacant building to be leased out under an operating lease 2,000,000
Property held for use in production 4,000,000
Property held for a subsidiary, a real estate firm, in the ordinary course
of business 3,000,000
Building owned by a subsidiary in which the subsidiary provides security
and maintenance services to the lessees 2,500,000
Land leased to a subsidiary under an operating lease 500,000
Building under construction for use as investment property 3,500,000

25. In the consolidated FS, what total amount should be reported as investment property?
a. 6,500,000
b. 5,500,000
c. 8,000,000
d. 9,000,000

26. What total amount of property, plant and equipment shall be reported?
a. 9,500,000
b. 4,000,000
c. 6,000,000
d. 4,500,000

27. On January 1, 2020, Lloyd Company acquired three investment properties:

Initial Cost Fair Value Dec 31, 2020 Fair Value Dec
31, 2021
Property 1 2,700,000 3,200,000 3,500,000
Property 2 3,450,000 3,000,000 2,800,000
Property 3 3,300,000 3,900,000 3,400,000

Each property has an estimated useful life of 50 years. The accounting policy is to use the fair value
model for investment property. What is the gain or loss to be recognized for the year ended,
December 31, 2021?

a. 250,000 loss
b. 400,000 loss
c. 300,000 gain
d. 700,000 loss

“Call upon me in the day of trouble; I will deliver you, and you shall glorify me.”
(Psalms 50:15)
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