PAS 16 (PROPERTY, PLANT AND EQUIPMENT)

Names: Jon Rigo Caruz

Hosea Earl Collong

Source: CPAR
1. Property, plant, and equipment are defined as
a. Tangible assets held for sale in the ordinary course of business.
b. Tangible assets held to earn rentals or for capital appreciation.
c. Tangible assets held for use in the production or supply of goods or services
or for administrative purposes.
d. Tangible assets held for use in the production or supply of goods or services,
for rental to others, or for administrative purposes and expected to be used
during more than one reporting period.
2. Which of the following is not a major characteristics of property, plant and
equipment?
a. The property, plant and equipment are tangible assets.
b. The property, plant and equipment are used in business.
c. The property, plant and equipment are expected to be used over a period of
more than one year.
d. The property, plant and equipment are subject to depreciation.
3. An item of property, plant and equipment shall be recognized as an asset when
a. It is probable that future economic benefits will flow to the entity.
b. The cost of the asset can be measured reliably.
c. The cost of the asset is material and can be measured reliably.
d. It is probable that future economic benefits will flow to the entity and the cos
of the asset can be measured reliably.
4. Major spare parts and standby equipment which are expected to be used over a
period of more than one year shall be classified as
a. Property, plant and equipment
b. Inventory
c. Noncurrent investment
d. Expense
5. If spare parts and servicing equipment can be used only in connection with an
item of property, plant and equipment, these are accounted for as property, plant
and equipment and depreciated over
a. Their useful life
b. Their useful life of the related asset
c. Their useful life or the useful life of the related asset, whichever is longer
 d. Their useful life or the useful life of the related asset, whichever is shorter
6. Under the cost model, an item of property, plant and equipment shall be carried
subsequently at
a. Cost
b. Revalued amount
c. Cost less accumulated depreciation and any accumulated impairment loss
d. Revalued amount less accumulated depreciation and any accumulated
impairment loss
7. 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 attributed in bringing the assets 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 an item was
acquired
8. Cost directly attributable to bringing the asset to the location and condition for the
intended use include all of the following, except
a. Cost of employee benefit not arising directly from the acquisition of property,
plant, and equipment
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
9. Cost that are expensed immediately include all of the following, except
a. Cost of opening a new facility
b. Cost of introducing a new product or service, including cost of advertising and
promotional activities
c. Cost of conducting business in a new location
d. Cost of testing the asset
10. Cost that are expensed immediately include all of the following, except
a. Cost incurred while an item capable of operating in a manner intended by
management has yet to be brought into use, or is operated at less than full
capacity
b. Initial operating loss
c. Cost of relocating or reorganizing part or all of an entity’s operation
d. Professional fee arising directly from the acquisition of property, plant and
equipment
11. It is the present value of the cash flows an entity expects to arise from the
continuing use of an asset and from the disposal at the end of useful life or
expects to incur when settling a liability.
a. Entity-specific value
b. Fair value
 c. Value in use
d. Discounted value
12. In an exchange with commercial substance
a. Gain or loss is recognized entirely.
b. A gain or loss is computed by comparing the fair value of the assets received
with the fair value of the asset given up.
c. Only gain should be recognized.
d. Only loss should be recognized.
13. The cost of an item of property, plant and equipment that is acquired in
exchanged for combination of monetary and nonmonetary asset is measured at
the
a. Fair value of the asset given plus cash payment.
b. Fair value of the asset received plus cash payment.
c. Carrying amount of the asset given plus cash payment.
d. Carrying amount of the asset received plus the cash payment.
14. If an entity is able to determine reliably the fair value of the asset received and
the fair value of the asset given in an exchange transaction, the cost of the asset
acquired is measured at
a. Fair value of asset given
b. Fair value of asset received
c. Either the fair value of asset received or the fair value of asset given
d. Neither the fair value of asset received or the fair value of asset given
15. Which exchange has commercial substance?
a. Exchange of assets with no difference in future cash flows.
b. Exchange by entities in the same line of business.
c. Exchange of assets with difference in future cash flows.
d. Exchange of assets that causes the entities to remain in essentially the same
economic position.
16. Which of the following statements is true concerning acquisition of an item of
property, plant and equipment by self-construction?
a. The cost of self-constructed asset is determined using the same principles as
for an acquired assets.
b. Any internal profit is eliminated in arriving at the cost of self-constructed
asset.
c. The cost of abnormal amount of wasted material is not included in the cost of
the asset.
d. All of the statements are true.
17. The carrying amount of property, plant and equipment shall be derecognized
a. On disposal
b. When no future economic benefits are expected from the use of the asset.
c. On acquisition
d. On disposal and when no future economic benefits are expected from the use
of the asset.
 18. Gain and loss arising from the derecognition property, plant and equipment shall
be determined as the difference between
a. Gross disposal proceeds and the cost of the asset
b. Gross disposal proceeds and the carrying amount
c. Net disposal proceeds and the cost of the asset
d. Net disposal proceeds and the carrying amount
19. Entities are encouraged to disclose all of the following in relation to property,
plant and equipment, except
a. The carrying amount of temporarily idle property, plant and equipment.
b. The gross carrying amount of fully depreciated property, plant and equipment
still in use.
c. The carrying amount of property, plant and equipment classified held for sale.
d. The fair value of property, plant and equipment that is not materially different
from carrying amount when the cost model is used.
20. Which of the terms best describes the removal of an asset from the statement of
financial position?
a. Derecognition
b. Impairment
c. Writeoff
d. Depreciation

Source: SMARTS
1. Major spare parts and stand-by equipment which an entity expects to use over
more than one period would qualify as?
a. Inventory
b. PPE
c. Expense
d. Deferred charge
2. Items of property, plant, and equipment acquired on a deferred installment basis
are recorded
a. At the face value of the note plus the down payment, if any
b. At the present value of the cash flows to be paid
c. At the cash price equivalent, if such is determinable
d. At the amount estimated by management
3. Items of property, plant, and equipment acquired on credit subject to a cash
discount are recorded
a. Net of discount taken
b. Net of discount, taken or not
c. Gross of discount, taken or not
 d. Gross of discount, and the discount taken is presented as other income
4. On January 1, 2016, King Company purchased machinery costing P 250,000 on
the installment basis subject to the following payment terms: P 50,000 down
payment and P 100,000 a year for 2 years to be paid every December 31.
Prevailing interest rate on acquisition date is 10%. The machinery has no cash
equivalent price. King also incurred P 6,000 in installation cost.

Cost of the machinery is (PVOA = 1.74)

a. P 230,000
b. P 224,000
c. P 250,000
d. P 256,000
50,000+ (100,000 x 1.74) +6000
5. Cost directly attributed to bringing the asset to the location and condition for its
intended use include all of the following, except
a. Costs of employee benefits arising directly from the acquisition and
construction of the PPE
b. Cost if site preparation
c. Initial delivery and handling cost
d. Costs of relocating or reorganizing part or all of an entity’s operations
6. On August 1, 2017, Witten Corporation purchased a new machine on a deferred
payment basis.
A down payment of P 6,000 was made and 4 annual installments of P 9,000 each
are to be made beginning on September 1, 2017. The cash equivalent price of
the machine was P 38, 000. Due to an employee strike, Witten could not install
the machine immediately, and thus incurred P500 of storage costs. Cost of
installation (excluding the storage costs) amounted to P 1,200.
The amount to be capitalized as the cost of the machine is
a. P 38,000
b. P39,200
c. P 39,700
d. P42, 000
7. Which of the following is not a capital expenditure?
a. Repairs that maintain an asset in operating condition
b. A betterment
c. An addition
d. A replacement
8. During 2017, King Company made the following expenditures relating to its plant
building:
Continuing and frequent repairs P 40,000
Repainted the plant building P 10,000
Major improvements to the electrical writing system P 32,000
Partial replacement of roof tiles P 14, 000
 How much should be charged to repair and maintenance expense in 2017?
a. P 64,000
b. P 54,000
c. P 82,000
d. P 96,000
9. An improvement made to a machine increased its fair market value and its
production capacity by 25% without extending the machine’s useful life. The cost
of the improvement should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account

10. Donnie Company received the following donations of land during 2017:
A. From a shareholder:
CV to donor P 5, 000; fair value P 6,000,000; registration cost paid by Donnie
P 100,000.
B. From a non-shareholder:
CV to donor P 10,000,000; fair value P 12,000,000; registration costs paid by
Donnie P 200,000.
What is the total cost of the land received?
a. P 18,000,000
b. P 16,000,000
c. P 17,000,000
d. P 15,000,000
11. Refer to the problem in # 10, what is the net increase in income in 2017?
a. Zero
b. P 11,800,000
c. P 12,000,000
d. P 11,700,000

12. Which of the following statements best describes the term “depreciation”?
a. The removal of an asset from an entity’s statement of financial position
b. The systematic allocation of an asset’s cost less residual value over its useful
life
c. The amount by which the recoverable amount of an asset exceeds its
carrying amount
d. The amount by which the carrying amount of an asset exceeds its
recoverable amount
13. Smarts Company purchased machinery on January 2, 2011, for P 1,100,000.
The straight-line method is used and useful life is estimated to be 10 years, with
 a P 100,000 salvage value. At the beginning of 2017 Smarts Company spent P
240,000 to overhaul the machinery. After the overhaul, Smarts estimated that the
useful life would be extended 4 years (14 years total), and the new salvage value
is P 50,000.
The depreciation expense for 2017 should be
a. P 70,625
b. P 86,250
c. P 100,000
d. P 92,500
14. On April 1, 2016, ABC Company bought machinery under a contract that required
a down payment of P 500,000 plus 24 monthly payments of P 300,000 for total
payments of P 7,700,000. The cash price of the machinery was P 6,500,000. The
machinery has an estimated useful life of four years and estimated residual value
of P 500,000. ABC uses SYD method of depreciation.
In its 2017 profit or loss, what amount should ABC report as depreciation for this
machinery?
a. P 1,950,000
b. P 1,800,000
c. P 2,400,000
d. P 2,275,000
15. Jimmy Corporation has a policy of using SYD depreciation for the first 4 years of
its machinery’s life and switch to 200% declining balance method for the
remaining 4 years. On January 1, 2012, Jimmy acquired machinery and recorded
P 400,000. Estimated residual value of the machinery is P 40,000.
What is the depreciation expense for 2017?
a. P 25,000
b. P 35,000
c. P 40,000
d. P 30,000
16. Turtle Co. purchased equipment on January 2, 2015, for P 50,000. The
equipment had an estimated five-year service life. Turtle’s policy for five-year
assets is to use the 200% double-declining depreciation method for the first two
years of the asset’s life, and then switch to the straight-line depreciation method.
In its December 31, 2017 statement of financial position, what amount should
Turtle report as accumulated depreciation for equipment?
a. P 30,000
b. P 38,000
c. P 39,200
d. P42,000
17. On January 2, 2014, Therese Co. purchased a machine for P 264,000 and
depreciated it by the straight-line method using an estimated useful life of eight
years with no salvage value. On January 2, 2017, Therese determined that the
machine has a useful life of six years from the date of acquisition and will have a
 salvage value of P 24, 000. An accounting change was made in 2017 to reflect
the additional data.
The accumulated depreciation for this machine should have a balance at
December 31, 2017, of
a. P 176,000
b. P 160,000
c. P 154,000
d. P 146,000
18. On January 1, year 1, an entity acquires for P 100,000 a new piece of machinery
with an estimated useful life of 10 years. The machine has a drum that must be
replaced every five years and costs P 20,000 to replace. Continued operation of
the machine requires an inspection every four years after purchase; the
inspection cost is P 8,000. The company uses the straight-line method of
depreciation.
Under PFRS, what is the depreciation expense for year 1?
a. P 10,000
b. P 10,800
c. P 12,000
d. P 13,200
19. On January 2, 2016, Gray purchased a manufacturing machine for P 864,000.
The machine has an eight-year estimated life and an estimated salvage value of
P 144,000. Gray expects to manufacture 1,800,000 units over the life of the
machine. During 2017, Gray manufactured 300,000 units.
What is the depreciation expense in 2017 using the output method?
a. P 120,000
b. P 108,000
c. P 99,000
d. P 103,500
20. On January 2, 2014, Duterte Company acquired equipment to be used in its
manufacturing operations. The equipment has an estimated useful life of 10
years and an estimated salvage value of P 24,000. The depreciation to this
equipment was P 112,000 for 2017, computed under the sum-of-the-years’ digits
methods.
What was the acquisition cost of the equipment?
a. P 856,000
b. P 904,000
c. P 880,000
d. P 866,667
((Cost-24,000) x 7/55=112,000)

Source: VSA
1. Which statements is incorrect concerning recognition of property, plant and
equipment?
a. Most spare parts and servicing equipment are usually carried as inventory
and recognized as expense when consumed.
b. If the spare parts and servicing equipment can be used only in connection
with an item of property, plant and equipment and their use is expected to be
irregular, they are accounted for as property, plant and equipment and are
depreciated over their useful life or useful life of the related asset, whichever
is longer.
c. An aircraft and its engines need to be treated a separate depreciable assets if
they have different useful lives.
d. Property, plant and equipment may be acquired for safety and environmental
reasons in order for the enterprise to obtain future economic benefits from its
other assets.
2. Using the cost model of measuring PPE’s after initial recognition
a. Property, plant and equipment are carried at any cost less any accumulated
depreciation and any accumulated impairment loss.
b. Property, plant and equipment are carried at revalued amount, being the
being the fair value at the date of revaluation less any subsequent
accumulated depreciation and subsequent accumulated impairment loss.
c. Both A and B
d. Neither A nor B
3. The cost of an item of property, plant and equipment comprises its purchase
price, including import duties and nonrefundable purchase taxes, and
a. The implied interest on the debt to finance the purchase
b. The market value of any noncash asset surrendered to acquire the asset
c. The estimated residual value of the asset
d. All directly attributable cost necessary to bring the asset to working condition
for its intended use
4. The cost of new assets acquired under this mode of acquisition includes cash
paid plus all directly attributable cost of bringing the asset to working conditions
for its intended use
a. Cash purchase
b. Credit purchase
c. Installment purchase
d. Issuance of securities
5. When payment for item of PP&E is deferred beyond normal credit terms, the
difference between the cash price equivalent and the total payments should be
recognized as
a. Interest expense for the current year
b. Component of cost of property, plant and equipment
c. Interest expense over the credit period
d. Interest expense over the life of the assets
6. An entity has purchased certain plant assets under a deferred payment contract.
The agreement was to pay P 10,000 per year for 5 years. The plant assets
should be valued at
a. P 50,000
b. P 50,000 plus imputed interest
c. Present value of P 10,000 annuity for five years at imputed interest
d. Present value of a P 10,000 for five years discounted at the bank prime
interest rate
7. If shares are issued for consideration other than actual cash the proceeds shall
be measured by the
a. Per value of the share capital issued
b. Fair value of the share capital issued
c. Book value of the consideration received
d. Fair value of the consideration received
8. If an entity is able to determine reliably the fair value for the asset received and
the fair value of the asset given up in an exchange transaction the cost of the
asset acquired is measured at
a. Fair value of asset given up
b. Fair value of asset received
c. Either the fair value of asset received or fair value of asset given up
d. Neither the fair value of asset received nor fair value of asset given up
9. PAS 16 provides that the cost of an item of PP&E acquired exchange for a
nonmonetary asset or a combination of monetary and nonmonetary asset is
measured at
a. Fair value, unless the exchange transaction lacks commercial substance
b. Fair value, if the exchange transaction lacks commercial substance
c. Sound value, unless the exchange transaction lacks commercial substance
d. Sound value, if the exchange transaction lacks commercial substance
10. An exchange transaction has commercial substance when
a. He cash flows of the asset received differ from the cash flows of the asset
transferred and the difference is significant relative to the fair value of the
asset exchanged
b. The entity specific value of the portion of the entity’s operations affected by
the transactions changes as a result of the exchanges and the change is
significant relative to the fair value of the asset required
c. Both A and B
d. Neither A nor B
11. It is the present value of the cash flows an entity expects to arise from the
continuing use of an assets and from its disposal at the end of its useful life or
expects to incur when settling a liability
a. Entity-specific value
b. Fair value
c. Value in use
 d. Discounted value
12. If a property is acquired in an exchange and there is a cash involved or monetary
considerations, the cost of the property is equal to the
a. Fair value of asset given up plus cash payment on the part of the payer
b. Fair value of the asset given plus the cash received on the part of the
recipient
c. Both A and B are correct
d. Neither A nor B is correct
13. Scott Company exchanged nonmonetary assets with Dale Company. No cash
was exchanged. The carrying amount of the asset surrendered by Scott
exceeded both the fair value of the asset received and Dale’s carrying amount of
that asset. Scott should recognize the difference between the carrying amount of
the asset it surrendered and
a. The fair value of the asset it received as a loss
b. The fair value of the asset it received as a gain
c. Dale’s carrying amount of the asset it received as a loss
d. Dale’s carrying amount of the asset it received as a gain
14. The standard on shareholders’ equity provides that contributions, including
shares of an enterprise, received from shareholders should be
a. Recorded at the fair value of items received
b. Recorded at the book value of items received
c. Expense outright
d. Debited to donated to capital
15. Which is incorrect regarding fully depreciated property?
a. A property is said to be fully depreciated when the accumulated depreciation
balance is equal to its cost.
b. A property is said to be fully depreciated when the accumulated depreciation
balance is equal to its cost, minus the residual value, or the book is equal to
the residual value.
c. The cost of fully depreciated property remaining in service and the related
accumulated depreciation ordinarily should be removed from the accounts.
d. An entity is encouraged to make the disclosure on the amount fully
depreciated asset.
16. Entities are encourage to disclose the following information, except
a. The carrying amount of temporary idle property, plant equipment.
b. The gross amount of any fully depreciated property, plant and equipment still
in use.
c. The carrying amount of property, plant and equipment retired from active use
and classified as held for sale
d. When the cost model is used the fair value of property, plant and equipment
regardless of the difference in value from the carrying amount
17. Which of the following statements is incorrect regarding the presentation of the
land account in the statement of financial position?
 a. The land in use as a plant site should be classified as property, plant and
equipment.
b. The land held for currently undetermined use is treated as an investment
property.
c. The land held for a long-term capital appreciation is treated as other
noncurrent asset.
d. Land held current sale by a real estate developer as in the case of subdivided
lots treated as current asset as part of inventory.
18. The cost of land should include the following, except
a. Commissions related to acquisition
b. Cost of survey
c. Property taxes up to date of acquisition assumed by the purchaser
d. Cost of option to buy the land though land was not acquired
19. A land was purchased to be used as the site for the construction of a plant.
Timber were cut from the building site and were subsequently sold. The proceeds
from such sale are
a. Deducted from the cost of land
b. Treated as income
c. Deducted from the cost of the plant
d. Any of the above
20. Expenditures for land improvements such as the cost of surveying, clearing and
subdividing that result in the addition of costs which are not subject to
depreciation are charged to the
a. “Land” account
b. “Expense” account
c. “Land improvement” account
d. Any of the above.

Source: PRTC
1. On April 1, 2014, the new machinery was ordered at a quoted price of P56, 000.
On July 1, 2014, it arrived at Dodik Corp.’s Plant with an actual invoice price of
P58, 000, which it paid immediately. During July 2014, a new concrete platform
was constructed at a cost of P4, 000 to properly install the machine. In August
2014 testing was performed at a cost of P7, 000 to ensure the machine was
operating properly. On August 31, 2014, the machine was entered into service.
Minor repairs and maintenance cost on the new machine amounted to 3, 000 in
September 2014. No other cost were incurred prior to December 31, 2014.
Similar machinery is depreciated on a straight-line basis over 10 years and
typically has no residual value. What should be the depreciation expense for the
year ended 31 December 2014?
 a) P 2, 300
b) P 2, 233
c) P 2,875
d) P 3,350
2. The Seoul Company purchase an office equipment with a useful life of 10 years
on 1 January 2014 for P 6,500,000.
At its year end of 31 December 2014, the amount the company would receive
from the disposal of the asset if it was already of the age and in the condition
expected at the end of its useful life was estimated at P 700,000. Inclusive of
inflation the actual amount expected to be received on disposal was estimated at
P 900,000.
What should be the depreciation charge for the year ended 31 December 2014?
a) P 580,000
b) P 560,000
c) P 650,000
d) Nil
3. On January 1, 2012, Paete Company signed a 12-year lease for a building.
Paete has an optioned to renew the lease for an additional 8-year period on or
before January 1 , 2016. During January 2014, Paete made substantial
improvements to the building. The cost of the improvement was P 3,600,000 with
an estimated of useful 15 years. At December 31, 2014, Paete intended to
exercise the renewal option. Paete has taken a full year’s amortization of this
improvement. What should be the depreciation charged for the year ended 31
December 2014?
a. P 360,000
b. P 300,000
c. P 240,000
d. P 200,000
4. Holdaway, inc., a small furniture manufacture, purchased the following assets
2014.
Asset # Cost R. V. D.A. Life
1 P 24,000 P 5,000 P 19,000 5 years
2 900 130 770 7 years
3 320 - 320 8 years
4 9000 500 8,500 5 years
The group depreciation rate is
a. 16.51%
b. 15. 61%
c. 19.76%
d. 17.96%
5. Takatak, Inc., uses the group depreciation meathod for its furniture account. The
depreciation rate used for furniture is 21%. The balnce on the furniture account
 on December 31, 2013, was P 125, 000, and the balnce in Accumulated
Depreciation- Furniture was P 61, 000. The following purchases and dispositions
of furniture occurred in 2014 (assumes that all purchases and disposals occurred
at the beginning of each year).
Assets Sold
Assets Purchased Cost Selling Price
The carrying amount of furniture at December 31, 2014 is
a. P 71,070
b. P 64,750
c. P 63,070
d. P 44,070
6. Bongabon Corporation acquired a machine at a total cost of P 5,200,000. The
estimated life of the machine is 8 years of a total of 100,000 working hours with
no salvage value. The operating hours of the machine totaled: 2013, 5,000
hours; 2014, 12,000 hours. The company follows the working hour method of
depreciation. On December 31, 2014, the carrying amount of the machine is
a. P 3,900,000
b. P 4,299,000
c. P 4,940,000
d. P 4,316,000
7. The Vientiane Company purchased a machine on 1 January 2013 for P 81, 000.
The useful life of the machine is estimated at 3 years with a residual value at the
end of this period of P 6,000. During its useful life, the expected units of
production from the machine are:
2013 12, 000 units
2014 7,000 units
2015 5,000 units
What should be depreciation expense for the year ended 31 December 2014,
using the most appropriate depreciation method permitted by PAS 16 Property,
Plant and Equipment?
a. P 27, 000
b. P 21,875
c. P 23,625
d. P 25,000
8. Blessing Corp. uses the sum-of-the-years’ digits method to depreciate equipment
purchased in January 2012 for P 20,000. The estimated residual value of the
equipment is P 2,000 and the estimated useful is four years. What should e the
depreciation charge for the year ended 31 December 2014?
a. P 6,000
b. P 5,400
c. P 4,000
 d. P 3,600
9. Cuyapo Company purchased a machine in January 2, 2013, for P 500,000. The
machine has an estimated useful life of five years and a salvage value of P
50,000. Depreciation was computed by the 200% declining-balance method.
What should be the depreciation charge for the year ended 31 December 2014?
a. P 200,000
b. P 180,000
c. P 120,000
d. P 108,000
10. Kuya Company uses hand tools in its manufacturing activities. On January 1,
2014, there are 8000 of such tools on hand at a cost of P 200 each. Acquisition
and retirement in the year 2014 are:
Estimated value
Acquisition Retirement at year end
400 @ P 300 300 @ P 500 P 200,000
Assuming that retirements are on a first-in, first-out basis, which of the following
statement is true?
a. The depreciation using the retirement method is P 60,000.
b. The depreciation using the replacement method is P 90,000.
c. The depreciation using the inventory method is P 75,000.
d. The retirement method yields the lowest amount of the depreciation
compared to replacement and inventory methods.
11. Pantabangan Company takes a full year’s depreciation in the year of an assets
acquisition, and no depreciation on the year of disposition. Data relating to one
depreciable asset acquired in 2012, with residual value of P 900,000 and the
estimated useful life of 8 years, at December 31, 2013 are:
Cost P 9,900,000
Accumulated Depreciation P 3,750,000
Using the same depreciation method in 2012 and 2013, how much depreciation
should Pantabanga record in 2014 for this asset?
a. P 1,125,000
b. P 1,250,000
c. P 1,650,000
d. P 1,500,000
12. Roxanne Co. purchased equipment for P 500,000. The equipment had an
estimated 10-year service life. Roxanne’s policy for 10-year assets is to use the
150% declining balance depreciation method for the first five years of the asset’s
life and then switch to the straight-line depreciation method. What amount should
Roxanne report as accumulated depreciation for equipment at the end of the
sixth year?
a. P 300,000
b. P 322,518
c. P 278,147
 d. P 311,425
13. Entity A acquired an asset that had a cost of P 130,000. The asset is being
depreciated over a 5-year period using the sum-of-the-years’ digit method. It has
a salvage value estimated at P 10,000. The loss/gain if the assets is sold for P
38,000 at the end of the third year is
a. P 4,000 gain
b. P 20,000 loss
c. P 68,000 loss
d. P 92,000 loss
14. On January 2, 2014, Lem Corp. bought machinery under a contract that required
a down payment of P 10,000, plus twenty-four monthly payments of P 5,000
each, for total payment of P 130,000. The cash equivalent price of the machinery
was P 110,000. The machinery has an estimated: useful life of ten years and
estimated residual value of P 5,000. Lem uses straight-line depreciation. In its
014 income statement, what amount should Lem report as depreciation for this
machinery?
a. P 10,500
b. P 11,000
c. P 12,500
d. P 13,000
15. Jaen Advertising Inc. reported the following on its December 31, 2014, balance
sheet:
Equipment P 500,000
Accumulated Depreciation- equipment P 135,000
In a footnote, Jaen indicates that it uses straight-line depreciation over 10 years
and estimates salvage value as 10% of Cost. What is the average age of the equipment
owned by Jaen?
a. 2.7 years
b. 3 years
c. 7 years
d. 7.3 years
16. Cabiao Company purchased a machine on December 2, 2014 at an invoice price
of P 4,500,000 with terms 2/10, n/30. On December 10, 2014, Cabiao paid the
required amount for the machine. On December 2, 2014, Cabiao paid P 80,000
for the delivery of the machine and on December 31, 2014, it paid P 310,000 for
installation and testing of the machine. It was estimated that the machine would
have a useful life of 5 years, and a residual value of P 800,000. What amount
should be capitalized a cost of the machine?
a. P 4,890,000
b. P 4,800,000
c. P 4,490,000
d. P 4,000,000
 17. Ivor Airlines sold a used jet aircraft to arbiter Company for P 800,000, accepting a
five-year 6% note for the entire amount. Arbiter’s incremental borrowing rate was
14%. The annual payment of the principal and interest on the note was to be P
189,930. The aircraft could have been sold at an established cash price of P 651,
640. The present value of an ordinary annuity of P 1 at 8% for five periods is
3.99. The aircraft should be capitalized on arbiter’s book at
a. P 949,650
b. P 800,000
c. P 757,820
d. P 651,460
18. Cavite Company acquired land and building by issuing 60,000, P 100 par value,
ordinary shares. On the date of acquisition, the shares had a fair value of P 150
per share and the land and building had a fair value of P 2,000,000 and P
6,000,000 respectively.
During the year, Cavite also received land from a shareholder to facilitate the
construction of a plant in the city. Cavite paid P 100,000 for the land transfer. The
land is fairly valued at P 1,500,000.
As a result of these acquisitions, Cavite Company’s equity had a net increase of
a. P 10,500,000
b. P 9,500,000
c. P 9,400,000
d. P 7,400,000
19. On March 31, 2014, Winn Company exchanged an old machine having a
carrying amount of P 16,800, and paid cash a difference of P 6,000 for a new
machine having a total cash price of 20,500. The cash flows from the new
machine are expected to be significantly different form the cash flows from the
old machine. On March 31, 2014, what amount of loss should Winn recognize on
this exchange?
a. P 0
b. P 2,300
c. P 3,700
d. P 6,000
20. On December 2, 2014, Parr Company traded in a used delivery truck with a
carrying amount of P 54,000 for a new delivery truck having a list price of P
160,000 and paid a cash difference to the dealer of P 75,000. The used truck has
a fair value of P 60,000 on the date of the exchange. At what amount should the
new truck be recorded on Parr’s books?
a. P 160,000
b. P 135,000
c. P 129,000
d. P 106,000

Source: ReSA
1. Which of the following expenditures may properly be capitalized?
a. Expenditures for massive advertising campaign.
b. Insurance on plants during constructions.
c. Research and development related to a long-term asset which is giving the
entity a competitive market advantage.
d. Title search and other legal costs related to a piece of property which was not
acquired.
2. Improvement which result to increased future economic benefits include all of the
following, except
a. Modifications of an item to extend its useful life, including an increase in its
capacity.
b. Upgrading of machine parts to achieve a substantial improvement in the
quality of output.
c. Adoption of new production process enabling a substantial reduction in
previously assessed operating cost.
d. Cost of servicing and overhauling to restore or maintain the originally
assessed standard of performance.
3. A capital expenditure is an expenditure that
a. Benefits the current period only.
b. Is reported as an asset.
c. Benefits the future periods only.
d. Is reported as outright expense.
4. If the expenditures for land improvement are depreciable (e.g. fences, sidewalks,
water system, etc.) they are charged to
a. Land Account
b. Land Improvements account and depreciated over their useful life.
c. Land Improvements account and depreciated over their useful life or the life
of the land, whichever is shorter.
d. Building Account
5. The cost of constructing a building includes the following, except
a. Building permit or license.
b. Cos of temporary safety fence around construction site and cost of
subsequent removal thereof.
c. Expenditures for service equipment and fixtures, but are not part of the
structure.
d. Safety inspection fee.
6. If the expenditures for sidewalks, pavements, parking lots and driveways are
occasionally made or incurred not in connection with the construction of a new
building , they are charged to
a. Building account
b. Building improvements account
c. Land improvements account
d. Expense account
7. If the expenditures for sidewalks, pavements, parking lots and driveways are part
of the blueprint for the construction of a new building, they are charged to the
a. Building account
b. Building improvements account
c. Land improvement account
d. Expense account
8. The single cost of acquiring land and an unusable old building is
a. Charged to the land only
b. Charged to the building only
c. Allocated between land and building based on relative fair value.
d. Allocated between land and building based on carrying amount.
9. The Knight Company imported an equipment at a peso equivalent to P 330,000.
The company has to pay additional cost of importing the asset such as P 10,000
import duties and P 15,000 non-refundable purchase taxes. Cost of bringing and
preparing the asset for its intended use include P 2,000 transportation cost, P
4,000 installation and testing and trial run costs.
How much is the initial cost of the new machine?
a. P 330,000
b. P 336,000
c. P 346,000
d. P 361,000
10. Light Company has recently purchased a computer system for its office. The
following information was gathered in relation to the acquisition of the unit:
List price P 152,000
Trade discount and rebates taken 56,000
Initial delivery and handling cost 3,200
Purchased discount 2%
What is the acquisition cost of the new computer?
a. P 94,080
b. P 103,680
c. P 015,680
d. P 160,600
11. On August 1, 2014, Bright Company purchased a new machine on a deferred
payment basis. A down payment of P 100,000 was made and 4 monthly
installment of P 250,000 each are to be made beginning on August 1, 2014. The
terms of the agreement are not considered normal. The cash equivalent price of
the machine was P 950,000. Bright incurred and paid installation cost amounting
to P 30,000.
How much should be capitalized as cost of the machine?
a. P 905,000
b. P 980,000
c. P 1,100,000
d. P 1,130,000
12. Mighty Inc. purchased a machine under a deferred payment contract on
December 31, 2014. Under the terms of the contract, Mighty is required to make
eight annual payments of P 490,000 each beginning December 31, 2015. The
applicable interest rate is 8%.
What is the purchase price of the machine?
a. P 4,862,165
b. P 3,041,150
c. P 3,920,000
d. P 2,815,834
13. On March 31, 2014, Mr. Right Enterprises traded in an old machine having a
carrying amount of P 1,600,000 and paid a cash difference of P 600,000 for a
new machine having a total cash price of P 2,000,000
On March 31, 2014, what amount of loss should Mr. Right recognize on this
exchange?
a. None
b. P 200,000
c. P 400,000
d. P 600,000
14. In June 2014, Plane Company exchanged an old packaging machine, which had
a cost of P 1,200,000 and was 50% depreciated, for a non-monetary asset. The
market value of the old packaging machine was determined to be P 700,000.
What is the cost of the new asset acquired?
a. P 600,000
b. P 660,000
c. P 700,000
d. P 860,000
15. In October 2014, Ship Company exchanged a used packaging machine having a
book value of P 240,000 for a new machine and paid a cash difference of P
33,000. The market value of the used packaging machine was determined to be
P 280,000.
In its profit or loss for the year December 31, 2014, how much gain should Ship
recognize on this exchange, assuming the exchange is considered with
commercial substance?
a. None
b. P 10,000
c. P 30,000
d. P 40,000
16. Refer to the problem in # 7, on the date of exchange, what amount should Ship
Company recognize as the cost of the asset received, assuming the exchange is
considered not lacking in commercial substance?
a. P 200,000
b. P 250,000
c. P 280,000
 d. P 310,000
17. On March 1, 2014, Extreme Company exchanged an old machine having a cost
of P 450,000 and accumulated depreciation of P 100,000 for another machine
having a fair market value of P 300,000. Extreme company has to pay P 72,000
to even-up the trade. Immediately after the exchange Extreme Company
determined that the cash flows of the machine received differ from the cash flow
of the machine transferred.
What is the cost of the new machine in the books of Extreme?
a. P 280,000
b. P 300,000
c. P 440,000
d. P 600,000
18. Refer to the problem # 9, what amount of loss should the company recognized
on the exchange?
a. None
b. P 50,000
c. P 122,000
d. P 150,000
19. On January 1, 2014, Peace Corporation bought machinery under a contract that
required a down payment of P 50,000, plus 24 monthly payment of P 25,000
each, for total cash payments of P 650,000. The cash equivalent price of the
machinery was P 550,000. The machinery has an estimated useful life of 10
years and estimated salvage value of P 25,000. Peace uses the straight-line
method of depreciation.
How much should Peace report in its 2014 profit or loss as depreciation for the
machinery?
a. P 52,500
b. P 55,000
c. P 62,500
d. P 65,000
20. On January 1, 2014, Shaw Company purchased a machine for P 504,000 that
was placed in service on March 1, 2014. Additional costs incurred to bring the
assets to its location and prepare for its intended use were: shipping, P 4,000
and installation and testing cost, P 6,000. The estimated useful life of the asset
was 10 years and has an estimated salvage value of P 34,000.
What amount of depreciation should be recognized for the year ended December
31, 2014?
a. P 40,000
b. P 42,000
c. P 44,000
d. P 48,000