PROPERTY, PLANT

AND EQUIPMENT
FT. INVENTORIES

ASSESSMENT

ELISHA SEBASTIEN Y. MAGPANTAY

 ANSWERS
1. Which of the following is the most common and simplest acquisition of PPE?
A. Acquisition on account with available cash discounts
B. Acquisition on a cash basis
C. Acquisition via a lump-sum purchase
D. Issuance of shares

2. The initial operating loss should be:

A. Expensed and charged to the income statement
B. Charged to retained earnings
C. Deferred and amortized over a reasonable period
D. Capitalized as part of the cost property, plant and equipment
 ANSWERS
3. In the absence of the cash price equivalent of the PPE, what is used to determine
the cost of the asset under the installment basis?
A. Market Value
B. Book Value
C. Current Value
D. Present Value

4. The excess between the installment price and the cash price is treated as a/an:
A. Profit
B. Share Premium
C. Interest Expense
D. Discount
 ANSWERS
5. What is to not a directly attributable cost to the Property, Plant and Equipment?
A. Installation Costs
B. Site Preparation Costs
C. Value Added Tax (the company is non-VAT registered)
D. Costs of Opening a New Facility

6. If both the cash price and installment price are given, what is to be recorded as
cost of the Property, Plant and Equipment?
A. Cash Price
B. Installment Price
C. Cash Price plus any directly attributable costs
D. Cash price less any cash discounts
 ANSWERS
7. Which item part of the Property, Plant and Equipment is not tangible in nature?
A. Leasehold Improvements
B. Furniture and Fixtures
C. Land
D. Land Improvements

8. Since PAS 16 is Property, Plant and Equipment, what are the preceding and
succeeding standards?
A. Statement of Cash Flows (preceding), Employee Benefits (succeeding)
B. Events after the Reporting Date (preceding), Employee Benefits (succeeding)
C. Income Taxes (succeeding), Employee Benefits (preceding)
D. Employee Benefits (succeeding), Income Taxes (preceding)
 ANSWERS
9. If payment is made after the discount period:
A. A discount lost account is debited
B. A discount lost account is credited
C. A cash discount account is debited
D. A cash discount account is credited

10. Following the order of priority under acquisition of issuance of shares, what is
measured as the cost of PPE if the fair value of property received is given?
A. Fair value of property received
B. Fair value of shares issued
C. Par value of shares issued
D. Any of the values given above can be used to measure the cost of the PPE
 ANSWERS
11. Generally, the cost of property, plant and equipment is its:
A. Cash price equivalent at the date of acquisition
B. Present value at the date of acquisition
C. Fair value at the date of acquisition
D. Carrying value at the date of acquisition

12. Which of these methods is not a way to acquire property, plant and equipment?
A. Deferred/Installment Basis
B. Issuance of shares
C. Issuance of bonds
D. All of these are acquisition methods
 ANSWERS
13. McLaren Racing Limited acquired a 2 sports car for a lump-sum purchase of
$16,000,000. The corporation decided to have the vehicles appraised, and revealed
that the value of these were $9,000,000 and $11,000,000 respectively. What amount
will be assigned to the 2 sports car?
A. $7,200,000 and $8,800,000 ($9,000,000/$20,000,000 x $16,000,000), ($11,000,000/$20,000,000 x $16,000,000)

B. $7,200,000 and $8,000,000

C. $9,000,000 and $11,000,000
D. Both are valued at $8,000,000
 ANSWERS
14. Which instance of the item of Property, Plant and Equipment is not to be initially
recognized as an asset?
A. If it is probable that future economic benefits associated with the item will flow to
the entity
B. If the cost of the item can be measured reliably
C. If the property, plant and equipment can be depreciated
D. Only A and B

15. Which acquisition method is not accounted for in the discussion?

A. Issuance of shares
B. Issuance of bonds
C. Lump-sum purchase
D. Deferred basis
 ANSWERS
16. Under the acquisition of cash basis, what is under its initial cost?
A. Cash price equivalent
B. Cash price equivalent plus any directly attributable costs
C. Invoice price
D. Invoice price less any cash discounts

17. The cost of opening a new facility should be:

A. Accounted for in the cost of the property, plant and equipment
B. Included as directly attributable costs
C. Expensed outright
D. Regarded as an asset
 ANSWERS
18. McLaren Racing Limited has decided to purchase a sports car costing
$7,000,000. It incurred expenses which includes; Import Duties ($500,000),
Handling Costs ($240,000), Site Preparation Costs ($400,000), Promotional and
Advertisement Expenses ($170,000), General Overhead Costs ($900,000) and
Installation Costs ($390,000). What is the cash price equivalent of the sports car?
A. $7,000,000 (given)
B. $7,400,000
C. $8,530,000
D. $9,600,000
 ANSWERS
19. McLaren Racing Limited purchased an aircraft for $4,000,000. It was subject to a
30% discount if they were able to pay within 10 days. However, they failed to comply
and therefore were unable to get the discount. What amount will be assigned to
the Discount Lost Account?
A. $1,000,000
B. $1,100,000
C. $1,200,000 ($4,000,000 X 30%)
D. $2,800,000
 ANSWERS
20. What is to be credited under the issuance of shares based on the par value of
shares issued?
A. Ordinary Share Capital
B. Share Premium
C. Cash
D. Accounts Payable

21. What is the correct journal entry to record payment made after the discount
period?
A. DR - Accounts Payable, CR - Cash
B. DR - Property, Plant and Equipment, CR - Accounts Payable
C. DR - Discount Lost, CR - Accounts Payable and CR - Cash
D. DR - Accounts Payable and DR - Discount Lost, CR - Cash
 ANSWERS
22. What of the following is not part of the amortization table?
A. Nominal Rate
B. Effective Rate
C. Prevailing Rate
D. All of these are part of the amortization table

23. What are the reasons for inventory estimation?

A. To account for missing inventories
B. For interim report purposes
C. For internal report purposes
D. All of these are reasons for inventory estimation
 ANSWERS
24. McLaren Racing Limited acquired a sports car for an invoice price of $4,000,000.
The asset was subject to a 15% discount, which can be permitted if the company is
able to pay within 7 days. The company also incurred an amount of $270,000, in
which two-fifths is related to installation costs and the remaining were related to
training costs.

(i) What is the initial cost of the asset?

(ii) Record the necessary journal entry pertaining to the transaction.
(iii) Record the necessary journal entry if the payment is paid within the discount
period.
(iv) Record the necessary journal entry if the payment is paid after the discount
period.
 ANSWERS
24.
(i) ($4,000,000 x 85% = $3,400,000) + ($270,000 x 2/5 = $108,000) = $3,508,000

(ii) Property, Plant and Equipment $3,508,000

Accounts Payable $3,400,000
Cash $108,000

(iii) Accounts Payable $3,400,000

Cash $3,400,000

(iv) Accounts Payable $3,400,000 ($4,000,000 x 85%)

Discount Lost $600,000 ($4,000,000 x 15%)

Cash $4,000,000 ($3,400,000 + $600,000 )

 ANSWERS
25. If the estimated value of inventory is beyond the actual value of inventory, it is
considered as a/an:
A. Profit
B. Loss
C. Shortage
D. Overage

26. What is considered as a cost ratio under the Retail Inventory Method?
A. Average Cost Ratio
B. Liquidity Cost Ratio
C. Profitability Cost Ratio
D. All of these are considered as cost ratio under the Retail Inventory Method
 ANSWERS
27. McLaren Racing Limited purchased a yacht by issuing 80,000 shares with a par
value of $27. The company decided to appraise the yacht, and found out that its fair
value was said to be $4,200,000. The fair value of shares issued amounted to $33.

(i) Record the journal entry for the fair value of property received.
(ii) Record the journal entry for the fair value of shares issued.
(iii) Record the journal entry for the par (or stated) value of shares issued.
 ANSWERS
27.
(i) Property, Plant and Equipment $4,200,000
Ordinary Share Capital $2,160,000 ($27 x 80,000)

Share Premium $2,040,000 ($4,200,000 - $2,160,000)

(ii) Property, Plant and Equipment $2,640,000 ($33 x 80,000)

Ordinary Share Capital $2,160,000 ($27 x 80,000)

Share Premium $480,000 ($2,640,000 - $2,160,000)

(iii) Property, Plant and Equipment $2,160,000 ($27 x 80,000)

Ordinary Share Capital $2,160,000 ($27 x 80,000)

 ANSWERS
28. McLaren Racing Limited purchased a machine by installment dated August 18,
2021. The company already made a down payment of $5,000 and will be making 4
quarterly payments of $5,000, with the first payment to be made on the same date,
the following month. That same machine was available at a cash price of $22,500.

(i) What is the initial cost of the machine?

(ii) Record the journal entry for the transaction.

(i) $22,500 (given)

(ii) Property, Plant and Equipment $22,500
Discounts on Notes Payable $2,500
Notes Payable $20,000
Cash $5,000
 ANSWERS
29. Under the Retail Inventory Method, what is part of the computation of Sales?
A. Abnormal Loss
B. Net Markups
C. Departmental Transfer-In
D. Normal Loss

30. FOB Destination, Freight Collect is interpreted as:

A. The buyer should shoulder the freight, but the seller actually pays for the freight
B. The seller should shoulder the freight, but the buyer actually pays for the
freight
C. The seller should shoulder the freight and the seller actually pays for the freight
D. The buyer should shoulder the freight and the buyer actually pays for the freight
 ANSWERS
31. On December 31, 2022, McLaren Racing Limited had an inventory balance of
$240,000 based on its recently conducted annual inventory count on its warehouse
and other storage within the premises. The following items are under consideration
whether possible adjustments should be made. The gross profit rate for McLaren
Racing Limited constantly applied throughout 2022 is 30%. Compute for the adjusted
inventory balance as of December 31, 2022.
Inventory Balance $240,000
Bill and Hold Arrangement ($20,000)
Consignment Arrangement $50,000
Sale on Trial Agreement ($40,000 x 70%) $28,000
Goods in Transit (FOB Shipping Point) $30,000
Adjusted Inventory Balance $328,000
 ANSWERS
Goods costing $20,000 were sold under a bill and hold arrangement included in
the stock of inventory in the warehouse.
Goods costing $50,000 were not included on the count since these are located
to another entity's warehouse and was sent under a consignment arrangement.
The company sold goods with an invoice price of $40,000 to a customer under
a sale on trial agreement. The goods were not included in the inventory balance
since it was shipped before the inventory count.
The company purchased inventories from a foreign supplier at a cost of
$30,000. The goods are in transit as of year-end and was shipped FOB Shipping
Point.