Intermediate Accounting 2 Midterm Examination

Under the principles of PAS 16 Property, Plant & Equipment, which of the following should be included in the cost of an item of property, plant and equipment?

• 1, 2 and 3

• 1, 2 and 4

• 1 and 2

• 3 and 4

Which of the following can be classified as property, plant and equipment?

• I, III, IV and V

• II, IV, and V

• I, IV and V

• II and V

Which of the following items is capitalized as part of the cost of property, plant and equipment?

• Cost directly attributable in bringing the asset to the intended location and condition.

• Cost of introducing a new product or conducting business in a new location.

• Cost of relocating or organizing an entity’s operation.

• Cost of opening a new facility.’

Choose the incorrect statement.

• A property purchased on credit for P2,000, terms 2/20, n/30, should be recorded at P1,960 even though payment is made after the discount period.

• Land and an unusable old building thereon are purchased with the intent to build a new and better structure. Upon demolition of the old structure, the purchase price of the land plus demolition cost should be included as land.

• When an operational asset (such as land or buildings) is purchased, any unpaid property taxes (for the period prior to the purchase date) that are paid by the purchaser should be recorded as part of the cost of the asset.

• Property acquired in exchange for bonds, issued by the buyer, the assets should be capitalized at the fair value of the bonds or the fair value of the assets whichever is more clearly evident.

Under PAS 23, if the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal to

• 1. Actual borrowing cost incurred up to completion of the asset less any investment income from temporary investment of the borrowing.

• 1. Total expenditures multiplied by a capitalization rate.

• Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is higher.

• 1. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is lower.

1. Choose the correct statement.

• 1. A PPE received in exchange for ordinary equity shares should be recorded at market value of the securities issued even if the cash price or fair value of the asset is known.

• 1. When a group of assets is acquired for a lumpsum price, the total cost should be allocated to the individual assets based on their carrying amounts.

• 1. Purchased PPE acquired on a long-term payment plan should be recorded at full cost (including interest and financing charges).

• 1. When property is acquired in exchange for another asset, its cost is usually determined by reference to the fair value of the asset received.

1. A donated plant asset for which the fair value has been determined and for which directly attributable costs have been incurred is reported at

• 1. Zero or nominal amount               

• 1. Directly attributable costs incurred

• 1. Fair value                                         

• 1. Fair value plus directly attributable costs incurred.

1. The following items are chargeable to the Land account, except?

• 1. Landscaping costs (non-permanent)

• 1. Cost of survey by a geodetic engineer

• 1. Broker’s commission and fees for registration and transfer title

• 1. Attorney’s fee and any other expenditure for establishing clean title

1. Plant, plant and equipment properly include the following, except

• idle equipment awaiting sale

• self-constructed asset currently in use

• breeding animals

• timber tracts and mineral oils

When payment for property, plant and equipment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payments is recognized as

• Component of Property, Plant and Equipment

• 1. Interest expense over the credit period

• 1. Interest expense of the current year

• 1. Interest expense over the life of the asset