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WorksheetsIntermediate Accounting 2 Midterm Examination
Total questions: 55
Worksheet time: 2hrs 25mins
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
Actual borrowing cost incurred up to completion of the asset less any investment income from temporary investment of the borrowing.
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.
Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is lower.
Choose the correct statement.
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.
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.
Purchased PPE acquired on a long-term payment plan should be recorded at full cost (including interest and financing charges).
When property is acquired in exchange for another asset, its cost is usually determined by reference to the fair value of the asset received.
A donated plant asset for which the fair value has been determined and for which directly attributable costs have been incurred is reported at
Zero or nominal amount
Directly attributable costs incurred
Fair value
Fair value plus directly attributable costs incurred.
The following items are chargeable to the Land account, except?
Landscaping costs (non-permanent)
Cost of survey by a geodetic engineer
Broker’s commission and fees for registration and transfer title
Attorney’s fee and any other expenditure for establishing clean title
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
Interest expense over the credit period
Interest expense of the current year
Interest expense over the life of the asset
The single cost of acquiring land and usable old building is
Charged to the land only
Charged to the building only
Allocated between the land and the building based on carrying amount
Allocated between the land and the building based on relative fair value
In the case of grant related to asset, which of the following accounting treatment is prescribed?
Record the grant at a nominal value in the first year and write it off in the subsequent year.
Record the grant at fair value in the first year and take it to income in the subsequent year.
Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset.
Present the grant income in the income statement as other income or as a separate line item or deduct it from the related expense.
Depreciation is a variable (as opposed to fixed) expense if the depreciation method used for reporting purposes is:
sum-of-the-years’-digits
units-of-production
declining-balance
straight-line
A depreciable asset has an estimated 10% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under each of the following methods?
option A
option B
option C
option D
Which of the following is not considered as exploration and evaluation expenditures?
Cost of acquiring the legal rights to explore a specific area
Exploratory drilling, trenching and sampling
Expenditures on commercial production
Expenditures on examining the technical feasibility and economic viability of extracting mineral resources.
Property used in mining activities which has no alternative use is depreciated using the
Straight-line method
Straight-line if the useful life of the property is longer than the mining period.
Output method
Output method if the mining period is shorter than the useful life of the property
When there is no evidence of fair value due to the specialized nature of the property, the revalued amount shall be based on the
Replacement cost
Depreciated replacement cost
Present value of future cash inflows derived from the use of the asset
Any of the foregoing
If the assets carrying amount is increased as a result of revaluation, the increase shall be
Credited to retained earnings
recognized in profit or loss
Credited to revaluation surplus
ignored
Impairment occurs when the asset’s
Carrying amount exceeds fair value.
Carrying amount exceeds recoverable amount.
Recoverable amount exceeds its carrying amount.
Fair value exceeds carrying amount.
Which of the following best describes the recoverable amount of an asset?
net selling price (fair value less cost of disposal)
value in use
The greater of its net selling price or its value in use
The lesser of its net selling price or its value in use
Which of the following statements is false?
Leasehold improvements should be amortized over the longer of the lease term or the useful life of the improvement.
If a franchise becomes worthless prior to the end of its estimated useful life, the unamortized balance in the franchise account should be immediately written off as an impairment loss.
A lease bonus payment made in advance should be debited to a leasehold account, which is an asset account.
A loss caused by an impairment in the value of an intangible asset should be classified as a component of comprehensive income.
Which of the following assets typically are amortized?
option A
option B
option C
option D
Which of the following cost related to computer software is capitalized to an intangible asset account?
Coding and testing costs incurred after technological feasibility but before completing the product master
Development costs preceding technological feasibility
Cost of duplicate disc and manuals for sale
Cost of customer service
What amount should be recorded as cost of the new machine?
188,000
194,000
197,000
204,000
What is the total cost of the trucks purchased on July 1, 20x1?
P2,524,000
P2,484,000
P2,458,545
P2,418,545
How much is the allocated cost of drill press, lathe machine and air compressor, respectively?
P40,000; P110,000; P50,000
P42,000; P120,000; P52,500
P39,161; P111,888; P48,951
P66,667; P 66,667; P 66,667
What is the total cost of the machinery?
6,331,350
6,531,250
6,956,250
10.393,750
Blue Co. acquired land with fair value of P450,000 by issuing P5,000 shares with par value of P18 per share and quoted price of P81 per share. On the date of exchange, the carrying amount of the land was P500,000 and its assessed value was P550,000. What is the initial cost of the land?
90,000
550,000
405,000
450,000
On January 2, 20x2, Black Co. acquired a building with fair value of P3,800,000 by issuing a 3-year, 12% bonds with face amount of P4,000,000. Interest is due annually at the end of each year starting December 31, 20x2. The bonds are quoted at 101 on the same date. To record the acquisition, the building should be debited for?
3,800,000
4,000,000
4,040,000
3,838,000
Assuming that the exchange has commercial substance, the journal entries of Silver would include all of the following, except
Debit to Plant Assets – new for P400,000
Debit to Accumulated depreciation for P150,000
Credit to Plant Assets – old for P450,000
Credit to Gain on exchange for P50,000
Assuming the exchange has no commercial substance, the journal entries of Gold would not include all of the following, except
Debit to Accumulated depreciation for P100,000
Debit to Plant Assets – new for P400,000
Credit to Plant Assets -old for P600,000
Loss on exchange for P50,000
What is the cost of the new asset acquired?
99,000
70,000
66,000
60,000
As a result of the transaction, what is the effect on Emerald’s profit or loss?
54,000
49,000
1,000
0
A grant of P15 million was given to an entity by the Australian government to help offset safety and environmental costs in the area where the business is located. P2 million, P4 million, P6 million, and P8 million in safety and environmental expenditures are estimated to be incurred over four years.
How much should be the grant income for first year?
500,000
1,000,000
1,500,000
2,500,000
Carla Company purchased a machine for P3,000,000 on January 1, 20x0. The entity received a government grant of P500,000 in respect of this asset. The policy is to depreciate the asset over 5 years on a straight-line basis and to treat the grant as deferred income. The estimated residual value of the machine is 200,000.
What amount of depreciation expense and grant income is to be recognized for 20x1?
P560,000 and P100,000
P600,000 and P300,000
P460,000 and P200,000
P500,000 and P500,000
How much should be capitalized as the cost of land?
1,365,000
1,370,000
1,380,000
1,750,000
How much should be capitalized as cost of land improvements
52,000
62,000
63,000
700,000
How much should be capitalized as cost of the building?
1,394,000
1,423,000
1,459,000
1,604,000
How much should be capitalized as cost of the machine?
692,500
743,500
719,500
716,500
What is the average accumulated expenditure for the self-constructed asset?
1,560,000
990,000
870,000
780,000
Assuming that in addition to the specific borrowing, Yellow company had a general borrowing amounting to P600,000 with interest of 20% with a five-year term that is used in part in the construction, what is the cost of the self-constructed asset?
1,770,000
1,748,000
1,650,000
1,560,000
Using the straight-line method, how much is the carrying value of the equipment as of December 31, 20x5?
50,000
90,000
140,000
450,000
How much is the Accumulated Depreciation balance as of December 31, 20x5 using SYD method of depreciation?
450,000
420,000
390,000
360,000
If the double declining balance is applied, how much is the depreciation expense on 20x4?
72,000
115,200
120,000
130,000
Purple Corporation acquired a machine in the first week of July 20x1 and paid the following bills: Invoice price - 500,000; Freight - 5,000; Installation cost - 15,000. The estimated life of machine is 8 years or a total of 100,000 working hours with no salvage value. The operating hours of the machine totaled: 20x1, 5,000 hours; 20x2, 12,000 hours. The company follows the working-hours method of depreciation.
On December 31, 20x2, the carrying amount of the machine is
390,000
431,600
439,900
494,000
According to PAS 16, how much depreciation expense should be recognized in profit or loss for the year ended September 30, 20x4?
62,500
75,000
87,500
112,500
What is the depletion for 20x2?
1,200,000
1,320,000
2,400,000
2,640,000
What is the depreciation for 20x2?
1,800,000
1,125,000
900,000
562,500
What amount should be reported as revaluation surplus on December 31, 20x1?
262,500
325,000
375,000
500,000
What is the depreciation of the equipment for 20x2?
125,000
113,750
162,500
227,500
If the purchase price is P1,260,000, the amount of goodwill to be charged in recording the acquisition is
P460,000
P240,000
P220,000
P0
WW should report an impairment loss on 20x3 of?
P100,000
P50,000
P260,000
P225,000
Assuming that the machinery has an estimated useful life of 10 years at the time of acquisition, how much is the depreciation for the year ended December 31, 20x4?
P187,500
P181,667
P225,000
P112,500
A company purchased at the beginning of 20x7 a patent for P700,000 that had originally been filed in January 20x1. The acquisition was made to protect another patent that the company had filed for in January 20x3 and subsequently received. The company also paid to attorneys for the services to successfully defend the patent acquired. The carrying value of the patent at the end of 20x7:
P910,000
P656,250
P650,000
P630,000
A
On July 1, 20x1 BL Company acquired a fast-food franchise for an initial franchise fee of P1,200,000. BL paid P400,000 cash down payment and in addition gave a non-interest-bearing note payable in four equal annual payments of P200,000 beginning July 1, 20x2. The implicit interest rate is 14 percent (PV of 1 for 4 periods, 0.59; Future amount of 1 for 4 periods, 1.69; PV of an ordinary annuity of 1 for 4 periods, 2.91).
BL should record the franchise as (use 2-decimal place PV factor)
P1,200,000
P982,000
P872,000
P582,000
