Non Financial Assets

Inventories are assets (choose the incorrect one)
Held for sale in the ordinary course of business.
In the process of production for sale.
In the form of materials or supplies to be consumed in the production process or in the rendering
of services.
Held for use in the production or supply of goods and services.

Ans.
Held for use in the production or supply of goods and services.
The information below is taken from the records of Ram Company at the end of current
year.
Finished goods in store room, at cost, including overhead of P400,000 or 2,000,0
20%
Finished goods in transit, including freight charge of P20,000 FOB shipping 250,0
point
Finsihed goods held by salesmen, at selling price cost, P100,000 140,0
Goods in process, at cost of materials and direct labor 720,0
Materials 1,000,0
Materials in trnasit, FOB destiantion 50,0
Defective materials returned to suppliers 100,0
Shipping supplies 20,0
Gasoline and oil for testing finished goods 110,0
Machine lubricators 60,0
What is the correct amount of inventory?
4,000,000
4,170,000
4,270,000
4,090,000
Ans.
4,000,000
The primary objective of inventory accounting is:
to allocate the cost of goods available for sale between inventory and cost of sales.
to value inventory at the lower of cost or market.
to match appropriate costs against revenues in order there may be a proper determination
of income.
to determine the peso amount of inventory and cost of sales.
Ans.
to determine the peso amount of inventory and cost of sales.
The physical inventory of Pangasinan Company on December 31, 2019, showed

merchandise with a cost of P4,000,000 was on hand at that date. You also discovered the
following items were all excluded from the count:
a. Merchandise costing P160,000, which was held by Pangasinan on
consignment. The consignor is a subsidiary.
b. A special machine, fabricated to order for a customer costing P400,000, was
finished and specifically segregated in the back part of the shipping room on
December 31, 2019. The customer was billed on that date and the machine
excluded from inventory although it was shipped on January 4, 2020.
c. Merchandise costing P80,000, which was shipped by Pangasinan f.o.b.
destination to a customer on December 31, 2019. The customer expects to receive
the merchandise on January 3, 2020.
d. Merchandise costing P120,000 which was shipped by Pangasinan f.o.b.
shipping point to a customer on December 29, 2019.
e. Merchandise costing P50,000 shipped by a vendor f.o.b. shipping point on
December 28, 2019 and received by Pangasinan on January 10, 2020.
The corrected balance of Pangasinan’s inventory should be?
P4,530,000
P4,130,000
P4,480,000
P4,690,000
Ans.
P4,130,000
These are assets held for sale in the ordinary course of business, in the process of production for
such sale or in the form of materials or supplies to be consumed in the production process or in
the rendering of services.
current assets
marketable securities
inventories
investments
Ans.
Inventories
Which of the following items is not includible in the inventory?
goods in transit and sold FOB destination

goods held by customers on approval or on trial
goods out on consignment
goods in transit and purchase FOB destination
Ans.
goods in transit and purchase FOB destination
The goods costing P125,000 are properly included in the December 31,2019 physical
count because they are shipped FOB shipping point only on January 7, 2020(picked up by
the common carrier).
· Hero Company inventory at December 31,2019 was P7,500,000 based on physical
count priced at cost any necessary adjustment for the following:
· Merchandise Costing P450,000, shipped point from a vendor on December
30,2019, was received and recorded on January 5, 2020.
· Goods in the shipping area were excluded from inventory although shipment was
not made until january 4, 2020. The goods, billed to the customer FOB shipping point on
December 30, 2019, had a cost of P600,000.
What amount should Hero report as inventory on December 31, 2019?
7,500,000
7,950,000
8,100,000
8,550,000
Ans.
8,550,000
The Alcala Company counted its ending inventory on December 31. None of the
following items were included when the total amount of the company’s ending inventory
was computed:
· P150,000 in goods located in Alcala’s warehouse that are on consignment from
another company.
· P200,000 in goods that were sold by Alcala and shipped on December 30 and were
in transit on December 31; the goods were received by the customer on January 2. Terms
were FOB Destination.
· P300,000 in goods were purchased by Alcala and shipped on December 30 and
were in transit on December 31; the goods were received by Alcala on January 2. Terms
were FOB shipping point.
· P400,000 in goods were sold by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by the customer on January 2. Terms
were FOB shipping point.
The company’s reported inventory (before any corrections) was P2,000,000. What is the correct
amount of the company’s inventory on December 31?
P2,550,000
P1,950,000
P2,500,000
P2,700,000
Ans.
P2,500,000
Seller Co. is a calendar-year retailer. Its year-end physical count of inventory on hand
did not consider the effects of the following transactions:
· Goods with a cost of P50,000 were shipped by Seller FOB shipping point
on December 30 and were tendered to and accepted by the buyer on January 4.
· Goods with a cost of P40,000 were shipped FOB destination by a vendor
on December 30 and were tendered to and accepted by Seller on January 4.
· Goods were sold on the installment basis by Seller. Installment receivables
representing sales of goods with a cost of P30,000 were reported at year-end.
Seller retains title to such goods until full payment is made.
· Goods with a cost of P20,000 were held on consignment for a vendor.
These goods were excluded from the count although they were sold in January.
If inventory based solely on the physical count of items on hand equaled P1 million.
Seller should report inventory at year-end of?
P1,000,000
P1,070,000
P1,040,000
P1,020,000
Ans.
P1,000,000
Aman Company provides the following data with respect to its inventory
Items counted in the bodega 4,000
Items included in the count specifically segregated per sale contract 100
Items in receiving department, returned by customer, in good conditon 50
Items ordered and in receiving department, invoice not recevied 400
Items ordered, invoice received but goods not received. Freight is on account 300
of seller.
Items shipped today, invoice mailed, Fob shipping point 250
Items shipped today, invoice mailed, FOB destination 150
Items currently being used for window display 200
Items on counter for sale 800
Items in receiving department refused by Aman Company because of damage 180
Items included in count,damaged and unsalable 50
Items in shipping department 250
What is the correct amount of inventory
5,700,000
6,000,000
5,800,000
5,150,00
Ans.
5,700,000
Dell Company’s inventory at December 31, 2011 was 6,000,000 based on a physical
count of goods priced at cost, and before many necessary year=end adjustments relating
to the following
· Included in the physical count were goods billed to a customer FOB shipping point
on December 30,2011. These goods had a cost of P125,000 and were picked up by the
carrier on January 7, 2011.
· Goods shipped FOB shipping point on December 28,2019, from a vendor to Dell
were received on January 4,2020. The invoice cost was P300,000.
What is the amount should Dell report as inventory on December 31, 2019?
5,875,000
6,000,000
6,175,000
6,300,000
Ans.
6,300,000
Lunar Company included the following items under inventory.

Materials 1,400,000
Advance for materials ordered 200,000
Goods on process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 250,000
Finished goods in entity-owned retail store, including 50% profit on 750,000
sales
Finished goods in hands of consignees including 40% profit on sales 400,000
Finished goods in transit to customers, shipped FOB destination at 250,000
cost
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point, excluding freight 330,000
of P30,000
Goods held on consignment, at sales price, cost P150,000 200,000
What is the correct inventory?
5,375,000
5,500,000
5,540,000
5,250,000
Ans.
5,500,000
Which of the following is not an inventory?
merchandise purchased by a retailer and held for resale

goods produced awaiting for sale
land held for resale
supplies awaiting use in production process
Ans.
land held for resale
At the beginning of the year, Jose Realty embarked on a real estate development
project involving single family dwellings. On July 1, 2013, Jose realty purchased a
track of land for P60,000,000. Jose incurred additional cost of P10,000,000 during
the remainder of 2013 in preparing the land for sale as follows.
Subdivision Number of Sales price per
Phase lots lot
1 100 400,000
2 200 300,000
3 400 250,000
What amount of cost should be allocated Phase 1 lots?
P12,000,000
P40,000,000
P14,000,000
P21,000,000
Ans.
P14,000,000
A retailer importer goods at a cost of P260,000, including P40,000 import duties and
P20,000 non-refundable purchase taxes. The risks and rewards of ownership of the
imported goods were transferred to the retailer upon collection of the goods from the
harbour warehouse. The retailer was required to pay for the goods upon collection.
The retailer incurred P10,000 to transport the goods to its retail outlet and a further
P4,000 in delivering the goods to its customer. Further selling costs of P6,000 were
incurred in selling the goods. What amount should the inventory be valued?
P240,000
P250,000
P260,000
P270,000
Ans.
P270,000
The Josephine Ventura Company included the following in its unadjusted trial balance
as of December 31, 2013:
Inventory,
12/31/12 P 19,450,000
Purchases 127,850,000
Additional Information:
· The inventory at December 31, 2013 was counted at a cost of P8.5 million.
This includes P500,000 of slow moving inventory that is expected to be sold for a net
amount of P300,000.
· Sales include P8 million for goods sold in December 2013 for cash to Omar
Company. The cost of these goods was P6 million. Omar Company has the option to
require Josephine Ventura to repurchase these goods within the month of year-end at
their original selling price plus a facilitating fee of P250,000.
The cost of sales for the year ended December 31,2013 is:
P138,800,000
P133,000,000
P132,800,000
P139,000,000
Ans.
P133,000,000
What is meant by the term “FOB destination” but shipped “freight collect”?
the ownership of goods purchased is vested in the buyer upon receipt and the freight charge is
paid by the seller.
paid by the buyer
the ownership of goods purchased is vested in the buyer upon shipment and the freight charge is
paid by the seller.
the ownership of goods purchased is vested in the buyer upon shipment and the freight charge is
paid by the buyer.
Ans.
paid by the buyer
On December 15, 2015, Obama purchased goods costing P100,000. The terms were
FOB shipping point. Costs incurred by Obama in connection with the purchase and
delivery of the goods were as follows:
Normal freight charges P3,000
Handling costs 2,000
Insurance on shipment 500
Abnormal freight charges for express 1,200
shipping
The goods were received on December 17, 2015. What is the amount that Obama should
charge to inventory and to current period expense? Inventory, Current period expense
P3,000, P3,700
P5,000, P1,700
P5,500, P1,200
P6,700, P0
Ans.
P5,500, P1,200
When allocating costs to inventory produced for the period, fixed overhead should be based
upon?
The actual amounts of goods produced during the period.

The normal capacity of production facilities
The highest production levels in the last three periods
The lowest production level in the last three periods
Ans.
The normal capacity of production facilities
Which statement is incorrect regarding cost formulas?
Specific identification of cost means that specific costs are attributed to identified
inventory.
The FIFO formula assumes that the items of inventory that were purchased or produced
last are sold first, and consequently the items remaining in inventory at the end of the
period are those earlier purchased or produced
Under the weighted average cost formula, the cost of each item is determined from
weighted average of the cost of similar items at the beginning of a period and the cost of
similar items purchased or produced during the period.
The average cost formula may be calculated on a periodic basis, or as each additional
shipment is received, depending upon the circumstances of the entity.
Ans.
The FIFO formula assumes that the items of inventory that were purchased or produced last are
sold first, and consequently the items remaining in inventory at the end of the period are those
earlier purchased or produced
The following information for Bagulin Industries was taken from the company's financial
statements (amounts in thousands):
2009 2008
Sales P24,000 P18,000
Cost of goods sold 19,600 13,900
Inventory 1,400 1,200
Accounts
receivable 3,900 3,600
Net income 560 320
What is the inventory turnover for the year 2009?
15 times
3 times
14 times
18 times
Ans.
15 times
Net realizable value of inventories may fall below cost for a number of reasons including:
I. Product obsolescence.
II. Physical deterioration of inventories.
III. An increase in the expected replacement costs of the inventory,
IV. An increase in the estimated costs of completion.
I, II and IV only
II, III and IV only
I, III and IV only
I and II only
Ans.
I, II and IV only
Yontabal Company started operations in 2007. The following data are abstracted from
the company’s production and sales records:
2007 2008 2009
Number of units 240,000 232,500 202,500
produced
Number of units 150,000 217,500 195,000
sold
Unit production 4.50 5.20 5.80
cost
Sales revenue 1,200,000 1,800,000 1,950,000
Using the FIFO cost flow assumption, the gross profit for the year ended December 31, 2009 is?
P819,000
P882,000
P1,068,000
P1,072,500
Ans.
P882,000
The following are costs excluded from the cost of inventories, except
abnormal amounts of wasted materials, labor or other production costs;
storage costs, unless those costs are necessary in the production process before a further
production stage;
administrative overheads that do not contribute to bringing inventories to their present

location and condition; and
Import duties
Ans.
Import duties
An inventory determined by observation and evidenced by a listing of the actual count, weight, or
measure is called:
continuous inventory.
perpetual inventory.
physical inventory
spot check inventory
Ans.
physical inventory
Parrot Company is a manufacturing entity. The cost of an inventory is shown on its

card as follows:
Materials 300,000
Production labor costs 330,000
Production overheads 120,000
General administration costs 100,000
Marketing costs 50,000
What is the value of the inventory in Parrot’s statement financial position?
630,000
850,000
750,000
900,000
Ans.
750,000
An example of an inventory accounting policy that should be disclosed is the?
effect of inventory profits caused by inflation.

classification of inventory into raw materials, work in process, and finished goods.
identification of major suppliers
method used for inventory costing.
Ans.
method used for inventory costing.
Brilliant Company purchases motorcycles from various countries and exports them to
Europe. Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on vendors invoices 5,0
Trade discounts on purchases already deducted from vendors invices 5
Import duties 4
Freight and insurance on purchase 1,0
Other handling costs relating to imports 1
Salaries of accounting department 6
Brokerage commission paid to agents for arranging imports 2
Sales commission paid to sales agents 3
After-sales warranty costs 2
What is the total cost of the purchases?
5,700,000
6,100,000
6,700,000
6,500,000
Ans.
6,700,000
Which of the following represents the best justification for valuing the inventories at the
lower of cost and net realizable value?
It is easier to keep track of market value that it is to keep track of cost as market value is
available from any supplier.
Cost loses its relevance for the determination of cost of goods sold if the cost of
inventory has been incurred in an earlier accounting period.
The balance sheet valuation of inventory is the most important consideration in the
preparation of financial statements.
The practice of writing inventories below cost to net realizable value is consistent with
the view that assets should not be carried in excess of amount expected to be realized
from their sale or use.
Ans.
The practice of writing inventories below cost to net realizable value is consistent with the view
that assets should not be carried in excess of amount expected to be realized from their sale or
use.
The moving average inventory cost flow method is applicable to which of the following
inventory systems?
Periodic Perpetual
No No
No Yes
Ans.
No Yes
How should unallocated fixed overhead costs be treated?
Allocated to finished goods and cost of goods sold based on ending balances in the accounts.
Allocated to raw materials, work in process, and finished goods, based on the ending balances in the
Recognized as an expense in the period in which they are incurred.
Allocated to work in process, finished goods, and cost of goods sold based on ending balances in the
accounts
Ans.
Recognized as an expense in the period in which they are incurred.
In a periodic inventory system which uses the FIFO inventory cost flow method, the cost of goods for sale
is net purchases:
plus the ending inventory

minus the ending inventory
plus the beginning inventory
minus the beginning inventory
Ans.
plus the beginning inventory
Reporting inventory at the lower of cost or market is a departure from the accounting principle of?
Historical cost
Consistency.
Conservatism.
Full disclosure
Ans.
Historical cost
Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators
during August is shown below:
Balance/
Date Transaction Units Cost
Aug. 1 Inventory 2,000 P36.00
7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
If Miller Inc. uses a FIFO perpetual inventory system, the ending inventory of Model III calculators at
August 31 is reported as
P152,288
P152,960
P150,080
P150,160
Ans.
P152,960
The costs of purchase of inventories comprise the purchase price, import duties and
other taxes (other than those subsequently recoverable by the entity from the taxing
authorities), and transport, handling and other costs directly attributable to the
acquisition of finished goods, materials and services. Trade discounts, rebates and
other similar items are deducted in determining the costs of purchase.
The costs of conversion of inventories include costs directly related to the units of
production, such as direct labor. They also include a systematic allocation of fixed
and variable production overheads that are incurred in converting materials into
finished goods.
True, False
False, True
True, True
False, False
Ans.
True, True
Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators
Balance/
Aug. 1 Inventory 2,000 P36.00
7 Purchase 3,000 37.20
Balance/
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
If Miller Inc. uses a weighted average cost periodic inventory system, the ending inventory of Model
III calculators at August 31 is reported as
P150,080
P152,960
P150,160
P146,400
Ans.
P150,080
The following information has been extracted from the records of Changeling
Company about one of its products. Changeling Company uses the perpetual system.
Units Unit cost Total
cost
Jan. 1 Beginning balance 8,000 70.00 560,000
6 Purchase 3,000 70.50 211,500
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 12 Purchase return 800 73.50 58,800
Apr. 8 Sale 7,000
Apr. 14 Sale return 300
Assuming the FIFO cost flow method is used, what is the cost of the inventory on April
30?
315,000
P329,360
P330,750
P433,876
Ans.
P330,750
The best method of inventory valuation for a dealer in jewelries is:
specific identification
last invoice price
base stock
weighted average
Ans.
specific identification
Which of the following represents the best justification for valuing the inventories at the lower of cost and
net realizable value?
Choice 1
Choice 2
Choice 3
Choice 4
Ans.
Choice 1
A company determined the following values for its inventory as of the end of its fiscal
year:
Historical cost P100,000
Current replacement cost 70,000
Net realizable value 90,000
Net realizable value less a normal profit margin 85,000
Fair value 95,000
What amount should the company report as inventory on its statement of financial position?
P70,000
P85,000
P90,000
P95,000
Ans.
P90,000
The following costs were among those incurred by Wendel Corporation during 2015:
Merchandise purchased for resale P500,000
Salesmen’s commissions 40,000
Interest on notes payable to vendors 5,000
How much should be charged to the cost of merchandise purchases?
P500,000
P505,000
P540,000
P545,000
Ans.
P500,000
Which of the following inventory methods developed from consideration of the flow of
goods rather than the flow of costs?
FIFO
LIFO
Specific identification
Weighted average cost
Ans.
Specific identification
Balungao Company changed its accounting policy in 2008 with respect to the valuation of
inventories. Up to 2008, inventories were valued using weighted-average cost (WAC)
method. In 2009 the method was changed to first-in, first-out (FIFO), as it was
considered to more accurately reflect the usage and flow of inventories in the
economic cycle. The impact on inventory valuation was determined to be
At December 31, An increase of P100,000
2007:
2008:
2009:
The change in accounting policy increased net profit for 2009 by?
P200,000
P150,000
P450,000
P 50,000
Ans.
P 50,000
Transactions for the month of June were:

Purchases Sales
June 1 (balance) 400 @ June 2 300 @
P3.20 P5.50
3 1,100 800 @
@ 6 5.50
3.10
7 600 500 @
@ 9 5.50
3.30
15 900 200 @
@ 10 6.00
3.40
22 250 700 @
@ 3.50 18 6.00
150 @
25 6.00
Assuming that perpetual inventory records are kept in pesos, the ending inventory on a FIFO basis is?
P1,900
P1,920
P2,065
P2,100
Ans.
P2,065
The following information was taken from Cody Co.’s accounting records for the year
ended December 31, 2015:
Decrease in raw materials P 15,000
inventory
Increase in finished goods 35,000
inventory
Raw material purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
Freight-out 45,000
There was no work in process inventory at the beginning or end of the year. Cody’s 2015 cost of goods
sold is
P895,000
P910,000
P950,000
P955,000
Ans.
P910,000
Eagle Company produces a certain product. The following costs have been incurred:
Direct materials and labor 180,000
Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000
What is the correct inventory value of the product?
205,000
225,000
295,000
240,000
Ans.
240,000
Alapag, Inc is a wholesaler of office supplies. The activity for Model III calculators
Dat Balance/ Unit Cost
e Transaction s
Au Inventory 2,00 P36.0
g. 1 0 0
e Transaction s
7 Purchase 3,00 37.2
0 0
12 Sales 3,60
0
21 Purchase 4,80 38.0
0 0
22 Sales 3,80
0
29 Purchase 1,60 38.6
0 0
If Alapag, Inc. uses a FIFO perpetual inventory system, the ending inventory of
Model III calculators at August 31 is reported as
P152,288
P152,960
P150,080
P150,160
Ans.
P152,960
When a portion of the inventories has been pledged to secure the payment of indebtedness:
The fact of a portion having been pledge should be disclosed in the notes to financial statements
The value of the portion pledged should be deducted from the value of the inventories shown in
the current assets section of the balance sheet
The value of the portion pledged should be transferred from current assets to noncurrent assets.
The value of the inventories shown in the current assets section of the balance sheet remains the
same but the fact of having been pledged a portion of the inventories should be disclosed in the
financial statements or notes
Ans.
The value of the inventories shown in the current assets section of the balance sheet remains the
same but the fact of having been pledged a portion of the inventories should be disclosed in the
financial statements or notes
Lower of cost or net realizable value
is most conservative if applied to the total inventory

is most conservative if applied to major categories of inventory
is most conservative if applied to individual items of inventory
must be applied to major categories for taxes
Ans.
is most conservative if applied to individual items of inventory
In a periodic inventory system which uses the FIFO inventory cost flow method, the cost of goods for sale
is net purchases:
Choice 1
Choice 2
Choice 3
Choice 4
Ans.
Choice 1
The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing
inventory is required when:
the general price level has changed materially.
there is evidence that the utility of the goods, in their disposal in the ordinary course of business, will be
less than cost.
there is evidence that the replacement cost of the goods when they are sold will be less than their cost.
there is evidence that the goods will not be sold at a profit.

Ans.
there is evidence that the utility of the goods, in their disposal in the ordinary course of business, will be
less than cost.
An inventory determined by observation and evidenced by a listing of the actual count, weight, or
measure is called:
continuous inventory.
perpetual inventory.
physical inventory
spot check inventory
Ans.
physical inventory
The following items were included in Opal Co.’s inventory account at December 31,
2015:
Merchandise out on consignment, at sales price, including
40% markup on selling price P40,000
Goods purchased, in transit, shipped FOB shipping point 36,000
Goods held on consignment by Opal 27,000
By what amount should Opal’s inventory account at December 31, 2015, be reduced?
P103,000
P 67,000
P 51,000
P 43,000
Ans.
P 43,000
On July 1, the Oriental Company recorded purchases of inventory of P408,000 and P510,000
under credit terms of 2/15, net 30. The payment due on the P408,000 purchases were remitted on
July 14. The payment due on the P510,000 purchases was remitted on July 25. Under the net
method and the gross method, these purchases would be included at what respective net amounts
in the determination of cost of goods available for sale? Net Method, Gross Method
P918,000, P918,000
P899,640, P909,840
P909,840, P899,640
P899,640, P899,640
Ans.
P899,640, P909,840
Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and 10%
from the list price. Buyer purchased shirts from Vendor on May 27, 2009 and received an invoice with a
list price of P100,000 and payment terms 2/10, n/30. If Buyer uses the net method of recording
purchases, the journal entry to record the payment on June 8, 2009 will include?
A debit to Accounts payable of P72,000.

A debit to Purchase Discounts Lost of P1,440
A credit to Purchase Discounts of P1,440
A credit to Cash of P70,560.
Ans.
A debit to Purchase Discounts Lost of P1,440
Transactions for the month of June were:

Purchases Sales
P3.20 P5.50
3 1,100 800 @
@ 6 5.50
3.10
7 600 500 @
@ 9 5.50
3.30
15 900 200 @
@ 10 6.00
3.40
22 250 700 @
@ 3.50 18 6.00
150 @
25 6.00
Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost
basis is?P1,980P1,956P1,970P1,995 Transactions for the month of June were:
Purchases Sales
P3.20 P5.50
3 1,100 800 @
@ 6 5.50
3.10
7 600 500 @
@ 9 5.50
3.30
15 900 200 @
@ 10 6.00
3.40
22 250 700 @
@ 3.50 18 6.00
150 @
25 6.00
Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost
basis is?
P1,980
P1,956
P1,970
P1,995
Ans.
P1,956
Alapag, Inc is a wholesaler of office supplies. The activity for Model III calculators
e Transaction s
Au Inventory 2,00 P36.0
g. 1 0 0
7 Purchase 3,00 37.2
0 0
12 Sales 3,60
0
21 Purchase 4,80 38.0
0 0
22 Sales 3,80
0
29 Purchase 1,60 38.6
0 0
If Alapag, Inc. uses a weighted average cost periodic inventory system, the ending
inventory of Model III calculators at August 31 is reported as
P150,080
P152,960
P150,160
P146,400
Ans.
P150,080
The following information pertained to Asus Co. for the year:

Purchases P102,800
Purchase discounts 10,280
Freight in 15,420
Freight out 5,140
Beginning inventory 30,840
Ending inventory 20,560
What amount should Asus report as cost of goods sold for the year?
P102,800
P118,220
P123,360
P128,500
Ans.
P118,220
On January 1, 2015, Card Corp. signed a three-year noncancelable purchase contract, which allows Card
to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at P.10 per unit and
guarantees a minimum annual purchase of 100,000 units. During 2015, the part unexpectedly became
obsolete. Card had 250,000 units of this inventory at December 31, 2015, and believes these parts can be
sold as scrap for P.02 per unit. What amount of probable loss from the purchase commitment should Card
report in its 2015 income statement?
P24,000
P20,000
P16,000
P 8,000
Ans.
P16,000
The retail inventory is based on the assumption that:
the final inventory and the total of goods available for sale contain the same proportion of high-cost and
low-cost goods.
the ratio of gross margin to sales is approximately the same each period.
the ratio of cost to retail price changes at a constant rate.

the proportions of markups and markdowns to selling price are the same.
Ans.
the final inventory and the total of goods available for sale contain the same proportion of high-cost and
low-cost goods.
Based on a physical inventory taken on December 31, 20CY, Gem Co. determined its
chocolate inventory on a FIFO basis at P26,000 with a replacement cost of P20,000. Gem
estimated that, after further processing costs of P12,000, the chocolate could be sold as
finished candy bars for P40,000. Gem’s normal profit margin is 10% of sales. Under the
lower of cost or net realizable value rule, what amount should Gem report as chocolate
inventory in its December 31, 20CY statement of financial position?
Select one:
P24,000
P28,000
P20,000
P26,000
Ans.
P26,000
The retail inventory method is characterized by
the recording of sales at cost.

the recording of purchases at selling price.
the reporting of year-end inventory at retail in the financial statements.
the recording of markups at retail and markdowns at cost
Ans.
the recording of purchases at selling price.
The records of CSI’s Department Store report the following data for the month of
January 2013:
Sales P7,100,000
Sales allowance 100,000
Sales returns 500,000
Employee discounts 200,000
Theft and other losses 100,000
Initial markup on purchases 2,900,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
Freight on purchases 100,000
Purchases at cost 4,500,000
Purchase returns at cost 240,000
Purchase returns at sales 350,000
price
Beginning inventory at cost 440,000
Beginning inventory at sales 800,000
price
Using the average retail inventory method, CSI’s ending inventory is

P360,000
P384,000
P420,000
P448,000
Ans.
P384,000
An analysis of the ending inventory accounts of Rica Company on December 31, 20CY
disclosed the inclusion on the following items:
Merchandise in transit purchased on terms:
CIF 30, 000
Ex-ship 20, 000
Merchandise out on consignment at sales price
(including markup of 30% on cost) 39, 000
Merchandise sent to customers for approval (cost of
goods, P6,400) 8,400
Merchandise held on consignment 7, 000
What is the reduction on the inventory account on December 31, 20CY?

Select one:
71, 000
40,700
44,400
38, 000
Ans.
38, 000
When using the moving average method of inventory valuation, a new unit cost must be
computed after each
Purchase
issuance from inventory
purchase and issuance from inventory
month-end
Ans.
Purchase
The gross profit method of estimating ending inventory may be used for all of the following,
except
Internal as well as external interim reports

Internal as well as external year-end reports
Estimate of inventory destroyed by fire or other casualty
Rough test of validity of an inventory cost determined under the periodic or perpetual system
Ans.
Internal as well as external year-end reports
On December 24, 2019, a fire destroyed totally the raw materials bodega of Bautista
Manufacturing Co. There was no purchase of raw materials from the time of the fire
until December 31, 2019.
Inventories 01/01/09 12/31/09

Raw materials P 90,000 ?
Factory supplies 6,000 P 5,000
Goods in process 185,000 210,000
Finished goods 220,000 225,000
The accounting records show the following data:
Sales P1,200,000
Purchases of raw materials 400,000
Purchases of factory supplies 30,000
Freight-in, raw materials 15,000
Direct labor 220,000
Manufacturing overhead 75% of direct labo
Gross profit rate 35% of sales
The cost of the raw materials destroyed by the fire was?
P140,000
P 75,000
P 80,000
P176,000
Ans.
P 80,000
Pugo uses the retail inventory method. The following information is available for the
current year:
Cost Retail
Beginning inventory P 1,300,000 P 2,600,000
Purchases 18,000,000 29,200,000
Freight in 400,000
Purchase returns 600,000 1,000,000
Purchase allowances 300,000
Departmental transfer 400,000 600,000
in
Net markups 600,000
Net markdowns 2,000,000
Sales 24,700,000
Sales discounts 200,000
Loss from breakage 50,000
The estimated cost of inventory at the end of the current year using the FIFO retail inventory method is
P3,200,000
P3,000,000
P3,250,000
P3,658,480
Ans.
P3,250,000
current year:
Cost Retail
Purchases 18,000,000 29,200,000
Freight in 400,000
in
Net markups 600,000
Sales 24,700,000
The estimated cost of inventory at the end of the current year using the average retail inventory method
is?
P3,200,000
P3,000,000
P3,250,000
P3,584,000
Ans.
P3,200,000
A store uses the gross profit method to estimate inventory and cost of goods sold for
interim reporting purposes. Past experience indicates that the average gross profit rate is
25% of sales. The following data relate to the month of October:
Inventory cost, October 1 P255,000
Purchases during the month at cost
683,400
Sales
856,800
Sales returns
30,600
Using the data above, what is the estimated ending inventory at October 31?
P206,550
P214,200
P295,800
P318,750
Ans.
P318,750
On June 30, 2019, a flash flood damaged the warehouse and factory of Naguilian
Corporation, completely destroying the work in process inventory. There was no
damage to either the raw materials or finished goods inventories. A physical
inventory taken after the flood revealed the following valuations:
Finished Goods P112,000

Work-in-process 0
Raw Materials 52,000
The inventory on January 1, 2019, consisted of the following.
Finished Goods P120,000

Work-in-process 115,000
Raw Materials 42,500
P277,500
A review of the books and records disclosed that the gross profit margin historically
approximated 34% of sales. The sales for the first 6 months of 2019 were P428,000.
Raw materials purchases were P96,000. Direct labor costs for this period were
P130,000, and manufacturing overhead has historically been applied at 60% of direct
labor.
Compute the value of the work in process inventory lost on June 30, 2019.
P135,020
P119,020
P271,980
P 92,220
Ans.
P135,020
The retail inventory method would include which of the following in the calculation of the goods
available for sale at both cost and retail?
freight-in
purchase returns
markups
markdowns
Ans.
purchase returns
Dart Company’s accounting records indicated the following information:

Inventory, 1/1/1CY P 500,000
Purchases during 20CY 2,500,000
Sales during 20CY 3,200,000
A physical inventory taken on December 31, 20CY, resulted in an ending inventory of

P575,000. Dart’s gross profit on sales has remained constant at 25% in recent years. Dart
suspects some inventory may have been taken by a new employee. At December 31,
20CY, what is the estimated cost of missing inventory?
P 25,000
P100,000
P175,000
P225,000
Ans.
P 25,000
Professor X Company lost most of its inventory in a fire in December 2011 just
before the year-end physical inventory was taken. The company’s books disclosed
the following:
Purchases for the year P 390,000 Sales P650,000

Purchase returns 30,000 Sales returns 24,000
Merchandise with a selling price of P21,000 remain undamaged after the fire.
Damaged merchandise with an original selling price of P15,000 had a net realizable
value of P5,300. Partial comparative income statements for 2010 and 2009 also
disclosed the following:
2010 2009
Sales 500,000 560,000
Cost of goods sold
Inventory, Jan. 1 94,500 110,000
Purchases (net) 378,000 318,000
Available for sale 472,500 428,000
Inventory, Dec. 31 (170,000) (94,500)
Cost of goods sold
302,500 333,500
Gross profit 197,500
226,500
Using the average profit rate for the past two years, Professor X Company’s loss as a
result of the fire is
P136,500
P132,800
P61,000
P57,300
Ans.
P136,500
Tom Company pricing structure had been established to yield a gross margin of 30%
based on cost. The entity provided the following data for the year ended December 31,
20CY:
Sales 500,000
Sales Discounts 6,500
Sales Return and Allowance 12,500
Inventory, January 1 250,000
Purchases 200,000
Inventory, per actual count on December
31 40,000
The entity is satisfied that all sales and purchases have been fully and properly recorded.
What amount should be reported as reasonable estimate of a shortage in inventory on
December 31?
Select one:
40,000
68,750
75,000
35,000
Ans.
35,000
Cyclops Company uses the average retail inventory method to estimate ending
inventory for its monthly financial statements. In the past, Cyclops Company has had
a stable cost-to-retail relationship for its inventory due to buying only from one
supplier and marking up the goods by a fixed percentage. Because of lack of
competition, Cyclops Company has not previously needed to mark down any of its
goods. During 2012, however, two department store chains have opened which
provided intense competition and Cyclops Company has found itself buying products
from a variety of manufacturers with lower costs, reducing markup on many of its
goods and marking down various items of inventory. The following data pertain to a
single department of Cyclops Company for March 2012: Inventory, March 1: at cost
– P200,000, at retail – P300,000; purchases: at cost – P1,001,510, at retail –
P1,464,950; freight-in – P45,400; purchase returns: at cost – P21,000, at retail –
P28,000; additional markups – P25,000; markup cancellations – P2,650; net
markdowns – P8,000; normal spoilage and breakage – P36,000; sales – P1,347,300.
The cost of the March 31 inventory is
289,380
282,800
265,055
257,600
Ans.
257,600
On December 24, 2019, a fire destroyed totally the raw materials bodega of Bautista
Manufacturing Co. There was no purchase of raw materials from the time of the fire
until December 31, 2019.
Inventories 01/01/09 12/31/09

Raw materials P 90,000 ?
Factory supplies 6,000 P 5,000
Goods in 185,000 210,000
process
Finished goods 220,000 225,000
The accounting records show the following data:
Sales P1,200,000
Purchases of raw 400,000
materials
Purchases of factory 30,000
supplies
Freight-in, raw materials 15,000
Direct labor 220,000
Manufacturing overhead 75% of direct
labor
Gross profit rate 35% of sales
The cost of the raw materials destroyed by the fire was?
Choice 1
Choice 2
Choice 3
Choice 4
Ans.
Choice 1
current year:
Cost Retail
Purchases 18,000,000 29,200,000
Freight in 400,000
in
Net markups 600,000
Sales 24,700,000
The estimated cost of inventory at the end of the current year using the conventional (lower of cost or
market) retail inventory method is?
P3,200,000
P3,000,000
P3,250,000
P3,360,000
Ans.
P3,000,000
The use of the gross profit method assumes?
the amount of gross profit is the same as in prior years

sales and cost of goods sold have not changed from previous years
inventory values have not increased from previous years
the relationship between selling price and cost of goods sold is similar to prior years.
Ans.
the relationship between selling price and cost of goods sold is similar to prior years.
Which of the following is not a basic assumption of the gross profit method?
The beginning inventory plus the purchases equal the total goods available for sale
Goods not sold must be on hand.
The total amount of purchases and the total amount of sales remain relatively unchanged
from the comparable previous period.
Ans.
The total amount of purchases and the total amount of sales remain relatively unchanged from
the comparable previous period.
Compute for the cost of inventory lost in fire using the data below:
Inventory, July 1, 2018 P 51,600

Purchases, July 1, 2018 to Jan. 19, 368,000
2019
Sales, July 1, 2018 to Jan. 19, 2019 583,000
Purchase returns 11,200
Purchase discounts taken 5,800
Freight in 3,800
Sales returns 8,600
A fire destroyed the entire inventory except for purchases in transit, FOB shipping point, of
P2,000 and goods having selling price of P4,900 that were salvaged from the fire. The average
gross profit rate on net sales is 40%.
P59,760
P56,940
P62,660
P56,820
Ans.
P56,820
To determine an inventory valuation that using the retail method under the average method, the
computation of the cost to retail percentage should
include markups but not markdowns

include markups and markdowns
include markdowns but not markups
exclude markups and markdowns
Ans.
include markups and markdowns
The Bayambang Corporation was organized on January 1, 20Y1. On December 31, 20Y2,
the corporation lost most of its inventory in a warehouse fire just before the year-end
count of inventory was to take place. Data from the records disclosed the following:
20Y1 20Y2
Beginning inventory, P 0 P1,020,000
January 1
Purchases 4,300,000 3,460,000
Purchases returns and 230,600 323,000
allowances
Sales 3,940,000 4,180,000
Sales returns and 80,000 100,000
allowances
On January 1, 20Y2, the Corporation’s pricing policy was changed so that the gross profit
rate would be three percentage points higher than the one earned in 20Y1.
Salvaged undamaged merchandise was marked to sell at P120,000 while damaged

merchandise was marked to sell at P80,000 had an estimated realizable value of P18,000.
How much is the inventory loss due to fire?
P918,200
P947,000
P856,200
P824,600
Ans.
P947,000
Luna Manufacturing began operations 5 years ago. On August 13, 2019, a fire broke out
in the warehouse destroying all inventory and many accounting records relating to the
inventory. The information available is presented below. All sales and purchases are
on account.
January
1, 2019 August 13, 2019
Inventory P143,850
Accounts Receivable 130,590 P128,890
January
1, 2019 August 13, 2019
Accounts Payable 88,140 122,850
Collection on accounts
rec., Jan. 1- Aug. 13 753,800
Payments to suppliers,
Jan. 1- Aug. 13 487,500
Goods out on
consignment at Aug.
13, at cost 52,900
Summary on previous years’ sales:

2016 2017 2018
Sales P626,000 P705,000 P680,000
Gross
Profit 187,800 183,300 231,200
Determine the inventory loss suffered as a result of the fire.
P139,590
P102,560
P86,690
P86,310
Ans.
P86,690
How should sales staff commission be dealt with when valuing inventories at the lower of
cost and net realizable value (NRV), according to PAS2 Inventories?
Select one:
Ignored
Added to cost
Deducted from cost
Deducted in arriving at NRV
Ans.
Deducted in arriving at NRV
The records of Binmaley’s Department Store report the following data for the month of
January 2019:
Sales P7,100,000
Sales allowance 100,000
Theft and other losses 100,000
Initial markup on purchases 2,900,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
Freight on purchases 100,000
Purchases at cost 4,500,000
Purchase returns at cost 240,000
Purchase returns at sales price 350,000
Beginning inventory at cost 440,000
Beginning inventory at sales 800,000
price
Using the average retail inventory method, Binmaley’s ending inventory is?
P360,000
P384,000
P420,000
P448,000
Ans.
P384,000
On August 15, 2019, a typhoon damaged a warehouse of Caba Merchandise Company.

The entire inventory and many accounting records stored in the warehouse were
completely destroyed. Although the inventory was not insured, a portion could be
sold for scrap. Through the use of the remaining records, the following data are
assembled:
Inventory, January 1 P 375,000

Purchases, January 1-August 15 1,385,000
Cash sales, January 1-August 15 225,000
Collection of accounts, Jan. 1-
August 15 2,115,000
Accounts Receivable, January 1 175,000
Accounts Receivable, August 15 265,000
Salvage value of inventory 5,000
Gross profit percentage on sales 32%
Compute the inventory loss as a result of the typhoon.
P107,600
P104,200
P102,600
P255,600
Ans.
P102,600
Londinium Corp. values its inventory by using the retail method (FIFO basis, lower of
cost or NRV). The following information is available for the year just ended:
Cost Retail
Beginning inventory P 80,000 P140,000
Purchases 297,000 420,000
Freight-in 4,000 -
Breakage 8,000
Markups (net) 10,000
Markdowns (net) 2,000
Sales 400,000
At what amount would Londinium report its ending inventory?
P112,000
P113,400
P117,600
P119,000
Ans.
P112,000
A physical inventory taken on December 31, 2019 resulted in an ending inventory of

P1,440,000. Banak Company suspects some inventory may have been taken by
employees. To estimate the cost of missing inventory, the following were gathered:
Inventory, Dec. 31, 2018 P1,280,000
Purchases during 2019 5,640,000
Cash sales during 2019 1,400,000
Shipment received on December
26, 2019, included in physical
inventory, but not recorded as 40,000
purchases
Deposits made with suppliers,
entered as purchases. Goods
were not received in 2019 80,000
Collections on accounts
receivable, 2019 7,200,000
Accounts receivable, January 1, 1,000,000
2019
Accounts receivable, Dec. 31, 1,200,000
2019
Gross profit percentage on sales 40%
At December 31, 2019 what is the estimated cost of missing inventory?
P200,000
P160,000
P240,000
P320,000
Ans.
P160,000
The cost of building shall include all of the following except:
Any renovating or remodeling cost incurred to put the building purchased in a condition for its
intended used.
Cost of excavation.
Expenditures for service equipment and fixture made a permanent part of the structure.
Cost incurred to have existing building removed to make room for construction of new building.
Ans.
Cost incurred to have existing building removed to make room for construction of new building.
The cost of land shall include all of the following except:
Commission related to acquisition.

Property taxes after date of acquisition assumed by the purchaser.
Property taxes to date of acquisition assumed by the purchaser.
Cost of survery.
Ans.
Property taxes after date of acquisition assumed by the purchaser.
Which of the following relating to noncurrent assets shall not be capitalized?
Replacement of a building roof everyn15 years.

Cost of site preparation.
Installation and assembly cost.
Replacement of small spare parts annually.
Ans
Replacement of small spare parts annually.
The term ‘’ betterment ‘’ refers to
An expenditures made for new facilities which increase ‘’ capacity’’

An expenditure made to restore ‘’ capacity after abandonment of retirement
An expenditure made to improve existing facilities by increasing ‘’ capacity’’
An expenditure made to help insure continuity of service capacity
Ans.
An expenditure made to improve existing facilities by increasing ‘’ capacity’’
Which statement is incorrect regarding recognition of PPE?
Items of PPE should be recognized as assets when it is probable that the future economic benefits
associated with the asset will flow to the enterprise and the cost of the asset can be measured
reliably.
Recognition principle is applied to all property, plant, and equipment costs at the time they are
incurred.
PPE costs include costs incurred initially to acquire or construct an item of property, plant and
equipment and costs incurred subsequently to add to, replace part of, or service it.
All of the following are correct

Ans.
All of the following are correct
An item of property, plant and equipment should be recognized as an asset when:
I. It is probable that future economic benefits associated with the asset will flow to
the enterprise.
II. The cost of the asset to the enterprise can be measured reliably.
I only
II only
both I and II
neither I nor II
Ans.
both I and II
Which of the following expenditures subsequent to acquisition cannot be added to the carrying
amount of the asset?
Costs of modification of an item of property that will extend its useful life or increase its
capacity
Cost of upgrading machine parts to achieve substantial improvements in quality of output
Cost of material repairs that did not increase the life of the asset nor productive capacity
Costs of adopting new production processes that enabled substantial reduction in operating costs
Ans.
Cost of material repairs that did not increase the life of the asset nor productive capacity
Which of the following expenditures may properly be capitalized?
Expenditure for massive advertising campaign.
Insurance on plant during construction.
Research and development related to a long term assets which is giving the entity a
competitive market advantage.
Title search and other legal cost related to a piece of property which was not acquired.
Ans.
Insurance on plant during construction.
A building suffered uninsured fire damage. The damage portion of the building was refurbishing
with higher quality materials, The cost and related accumulated depreciation of the damage
portion are identifiable . To account for these events , the owner shall
Capitalized the cost of refurbishing and record a loss in the current period equal to the carrying
amount of the damage portion of the building.
Capitalized the cost of refurbishing by adding the cost to the carrying amount of the building.
Record a loss in the current period equal to the cost of refurbishing and continue to depreciate
the original cost of the building.
Record a loss in the current period equal to the sum of the cost refurbishing and the carrying
Ans.
Capitalized the cost of refurbishing and record a loss in the current period equal to the carrying
An improvement made to a machine increased its fair market value and its production
capacity by 25 percent without extending the machine useful life . The cost of the
improvement shall be?
Expensed
Debited to accumulated depreciation
Capitalized in the machine account
Allocated between accumulated depreciation and the machine account
Ans.
Capitalized in the machine account
According to PAS 16, Property, plant and equipment includes all of the following except
Property used in production or supply of goods and services

Property used for extraction of minerals, oil or natural gas
Biological assets related to agricultural activity and mineral rights
Property for rental purposes and administrative purposes
Ans.
Biological assets related to agricultural activity and mineral rights
Chucky Company purchased land for P1,100,000. The entity paid P70,000 to tear
down a building on the land. Salvage was sold for P10,500. Legal fees of P6,500
were paid for title investigation and making the purchase. Architect fees were
P40,500. Title insurance was P4,500, and liability insurance during construction
amounted to P13,500. Excavation cost was P12,000. The contractor was paid
P1,357,000. A one-time assessment made by the city for sidewalks was P7,500.
Chucky installed lighting and signage at a cost of P11,000. What is the total cost of
the land?
1,195,000
1,178,000
1,103,500
1,006,500
Ans.
1,178,000
In relation to the financial statements, PAS 16 Property, Plant and Equipment, requires
that the following disclosures be made for each class of asset:
I. The carrying amount at the beginning and end of the reporting period.
II. Accumulated depreciation.
III. Total additions and disposals.
IV. The total of impairment losses.
V. Fair value at reporting date.
I, III and IV only

I, II III and IV only
I, II, IV and V only
II, III, IV and V only
Ans.
I, II III and IV only
Which type of expenditure occurs when an entity install a higher capacity boiler to heat
its plant?
Rearrangement
Ordinary repair and maintenance
Addition
Betterment
Ans.
Betterment
An entity incurred cost to modify its building and to rearrange its production line. As a result ,
an overall reduction in production cost is expected . However the modification did not increase
the building market value and the rearrangement did not extend the production line’s life. Should
the building modification cost and the production line rearrangement cost be capitalized?
Only the building modification cost should be capitalized.
Only the production line rearrangement cost should be capitalized.
Both the building modification cost and production line rearrangement cost should be
capitalized.
The building modification cost and production line rearrangement cost should be expensed.
Ans.
Both the building modification cost and production line rearrangement cost should be
capitalized.
Which of the following would ordinarily be treated as a revenue expenditures rather than
a capital expenditures?
Cost of servicing and overhaul to restore or maintain the originally assessed standard of
performance.
The replacement of a major component of building.
An additional to an existing building.
Rearrangement cost that is expected to provide discernible future benefit.

Ans.
Cost of servicing and overhaul to restore or maintain the originally assessed standard of
performance.
Toshiba Company purchased a machine for P 4,500,000 on January 1, 2011. The machine
has an estimated useful life of four years and a residual value of P 500,000. The machine
is being depreciation using the sum-of-the-years’ digits method.
The December 31, 2012 asset balance net of depreciation is?
2,900,000
2,700,000
1,700,000
1,350,000
Ans.
1,700,000
On January 1, 2007, Famy Company signed an eight-year lease for office space. Famy
has the option to renew the lease for an additional six-year period on or before January 1,
2013. During January 2009, Famy incurred the following costs.
General improvements to the leased premises with useful life P5,400,000

of 10 years
Office furniture and equipment with useful life of 8 years 2,400,000
Moveable assembly line equipment with useful life of 5 years 1,800,000
At December 31, 2009, Famy’s intention as to the exercise of the renewal option is
uncertain. A full year depreciation of leasehold improvement is taken for year 2009.
In Famy’s December 31, 2009 balance sheet, accumulated depreciation of leasehold
improvement should be
P1,200,000
P 540,000
P1,300,000
P 900,000
Ans
P 900,000
On April 1, 2012, Kelly Company purchased new machinery for P3,000,000. The
machinery has an estimated useful life of five years, and depreciation is computed by the
sum of the years’ digits method.
The accumulated depreciation of the machinery on December 31, 2013?
1,600,000
1,800,000
1,200,000
1,000,000
Ans.
1,600,000
On January 1, 2007, Lance Company acquired equipment for P 1,000,000 with an

estimated 10-year useful life. Lance estimated a P 100,000 residual value and used the
straight-line method of depreciation. During 2011, after its 2010 financial statements had
been issued, Lance determined that, due to obsolescence, this equipment’s remaining
useful life was only four more years and its residual value would be P 40,000.
In the December 31, 2011 balance sheet, the carrying amount is?
515,000
490,000
415,000
390,000
Ans.
490,000
On May 1, 2011, Norman Company purchased a new machinery for P 2,700,000.

The machinery has an estimated useful life of 7 years and depreciation is computed using
the sum-of-years-digit method. Estimated salvage value of the machine is P 180,000.
The total accumulated depreciation on December 31, 2012 is?
P 900,000
P 960,000
P 990,000
P 1,170,000
Ans.
P 990,000
On January 1, 2010 Glen Company started construction of its own warehouse. Glen
Company specifically borrowed P1,000,000 to finance the construction of the
warehouse. Interest incurred during the construction amounted to P120,000 while the
income derived from its temporary investment amounted to P30,000. Total
construction cost was P1,400,000.
The warehouse expected useful life was 10 years with no expected residual value.
Glen Company depreciates similar assets using the straight-line method
On January 1, 2012 Glen Company adopted the revalued model. The sound value of
the warehouse was P1,510,000.
The revaluation surplus recognized on January 1, 2012, assuming that Glen Company
for reporting purposes was classified as an SME
0
390,000
318,000
294,000
Ans.
0
Victoria Company had purchased equipment for P10,000,000 on January 1, 2007. The equipment
had a 5-year life and a residual value of 1,000,000. Victoria Company depreciated the equipment
using the straight-line method. On December 31, 2009, Victoria questioned the recoverability of
the carrying amount of this equipment. On December 31, 2009, the undiscounted expected net
future cash flows related to the continued use and eventual disposal of the equipment totaled
P4,800,000. The equipment’s fair value on December 31, 2009 is P4,000,000, while the
discounted cash flows related to the equipment is P4,200,000. After any loss on impairment has
been recognized, what is the carrying amount of the equipment?
P4,200,000
P4,000,000
P4,600,000
P4,800,000
Ans.
P4,200,000
Glenn Company determined that, due to obsolescence, equipment with an original cost of
P 9,000,000 and accumulated depreciation on January 1, 2012, of P 4,200,000 had
suffered permanent impairment and as a result should have a carrying amount of only P
3,000,000 as of the beginning of the year. In addition, the remaining useful life of the
equipment was reduced from a years to 3.
In its December 31, 2012 statement of financial position, what amount should Glenn
report as accumulated depreciation?
1,000,000
5,200,000
6,000,000
7,000,000
Ans.
7,000,000
Kurt Company acquired a machine on January 1, 2011 for P 8,000,000. The machine has
a 10-year useful life, a P 500,000 residual value, and is to be depreciated using the
straight line method.
By the end of 2012, the machine was damaged by a major accident occuring in the plant.
The entity’s engineers and technicians could not repair this damage and therefore the
machine’s performance was expected to decline in the future and unlikely to be sold at
the end of its useful life. Thus, the machine has a zero residual value.
On December 31, 2012, a test for recoverability revealed that the expected net future
undiscounted cash flows related to the continued use and eventual disposal of the
machine totaled P7,000,000. The machine’s fair value on December 31, 2012 is
P6,600,000 while the discounted net future cash flows amount to P6,300,000.
The depreciation expense for the year ended December 31, 2013?
825,000
812,500
750,000
787,500
Ans.
825,000
Jaen Advertising Inc. reported the following on its December 31, 2009, balance sheet:
Equipment P500,000
Accumulated depreciation—equipment P135,000
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?
2.7 years
3 years
7 years
7.3 years
Ans.
3 years
On December 31, 2008, the balance sheet of Pink Company showed the following
property and equipment after charging depreciation:
The company has adopted the revaluation model for the valuation of property and
equipment. This has resulted in the recognition in prior periods of an asset revaluation
surplus for the building of P140,000. On December 31, 2008, an independent valuer
assessed the fair value of the building to be P1,600,000 and the equipment to be
P900,000.
The building and equipment had remaining useful lives of 25 years and 4 years,
respectively, as of December 31, 2008.
Amount to be recognized in 2008 profit or loss related to the revaluation of property and
equipment
P160,000
P260,000
P300,000
P400,000
Ans.
P260,000
On July 1, 2010, Richmond purchased computer equipment at a cost of P 3,600,000.

This equipment was estimated to have a six-year life with no residual value and was
depreciated by the straight line method. On January 1, 2013, Richmond determined that
this equipment could no longer process data efficiently, that its value had been
permanently impaired, and that P 700,000 could be recovered over the remaining useful
life of the equipment.
What is the carrying amount of the equipment on December 31, 2013?
1,500,000
500,000
700,000
0
Ans.
500,000
Cuyapo Company purchased a machine in January 2, 2008, for P500,000. The machine
has an estimated useful life of five years and a salvage value of P50,000. Depreciation
was computed by the 150% declining-balance method. The accumulated depreciation
balance at December 31, 2009, should be
P180,000
P229,500
P245,000
P255,000
Ans.
P255,000
CK Company purchased a machine on December 1, 2012 at an invoice price of

P4,500,000 with terms 2/10, n/30. On December 10, 2012, CK paid the required amount
for the machine. On December 1, 2012, CK paid P80,000 for delivery of the machine and
on December 31, 2012, it paid P 310,000 for installation and testing of the machine. The
machine was ready for use on January 1, 2013. It was estimated that the machine would
have a useful life of 5 years, and a residual value of P 800,000.
Engineering estimate indicated that the useful life in productive units was 200,000. Units
actually produced during the first two years were 30,000 in 2013 and 48,000 in 2014. CK
Company decided to use the output method of depreciation.
The accumulated depreciation of the machine on the December 31, 2014 is?
1,560,000
1,600,000
960,000
600,000
Ans.
1,560,000
On January 1, 2007, Paete Company signed a 12-year lease for a building. Paete has an option to
renew the lease for an additional 8-year period on or before January 1, 2011. During January
2009, Paete made substantial improvements to the building. The cost of the improvements was
P3,600,000, with an estimated useful life of 15 years. At December 31, 2009, Paete intended to
exercise the renewal option. Paete has taken a full year’s amortization on this improvement. In
the December 31, 2009, balance sheet, the carrying amount of this leasehold improvement should
be
P3,240,000
P3,400,000
P3,360,000
P3,300,000
Ans.
P3,360,000
VF Company purchased equipment on January 2, 2010 for P4,000,000. The equipment

had an estimated useful life of 5 years. The company’s policy is to depreciate the asset
using the 200%-declining balance in the first two years of the asset’s life and then switch
to the straight-line method for the remaining useful life of the asset.
The total accumulated depreciation as of December 31, 2012 is?
2,400,000
2,880,000
3,040,000
3,136,000
Ans.
3,040,000
In the June 30, 2013 annual report of Penong Ltd, the equipment was reported as
follows:
Equipment (at cost) P5,000,000
Accumulated depreciation 1,500,000
P3,500,000
The equipment consisted of two machines, Machine A and Machine B. Machine A had
cost P3,000,000 and had a carrying amount of P1,800,000 at June 30, 2013, while
Machine B had cost P2,000,000 and was carried at P1,700,000. Both machines are
measured using the cost model, and depreciated on a straight-line basis over a ten-
year period.
On December 31, 2013, the directors of Penong Ltd decided to change the basis of
measuring the equipment from the cost model to the revaluation model. Machine A
was revalue to P1,800,000 with an expected useful life of six years, and Machine B
was revalue to P1,550,000 with an expected useful life of five years.
The amount to be recognized in profit or loss as a result of the revaluation of assets on
December 31, 2013 is:
P150,000
P100,000
(P150,000)
(P50,000)
In the June 30, 2013 annual report of Penong Ltd, the equipment was reported as
follows:
P3,500,000
The equipment consisted of two machines, Machine A and Machine B. Machine A had
cost P3,000,000 and had a carrying amount of P1,800,000 at June 30, 2013, while
Machine B had cost P2,000,000 and was carried at P1,700,000. Both machines are
year period.
On December 31, 2013, the directors of Penong Ltd decided to change the basis of
was revalue to P1,800,000 with an expected useful life of six years, and Machine B
was revalue to P1,550,000 with an expected useful life of five years.
The amount to be recognized in profit or loss as a result of the revaluation of assets on
December 31, 2013 is:
P150,000
P100,000
(P150,000)
(P50,000)
Ans.
(P50,000)
Bongabon Corporation acquired a machine in the first week of July 2008 and paid the
following bills:
Invoice price P5,000,000

Freight in 50,000
Installation cost 150,000
Cost of removing the old machine 100,000
The estimated life of the machine is 8 years or a total of 100,000 working hours with no
salvage value. The operating hours of the machine totaled: 2008, 5,000 hours; 2009,
12,000 hours. The company follows the working hours method of depreciation. On
December 31, 2009, the carrying amount of the machine is
P3,900,000
P4,299,000
P4,940,000
P4,316,000
Ans.
P4,316,000
MLS Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry
and thus has significant other property, plant, and equipment that it carries in its books. It
decided to revalue its property, plant, and equipment. The company’s accountant has suggested
the alternatives that follow. Which one of the options should MLS Inc. select in order to be in
line with the provisions of PAS 16?
Revalue only one-half of each class of property, plant, and equipment, as that method is less
cumbersome and easy compared to revaluing all assets together.
Revalue an entire class of property, plant, and equipment.
Revalue one ship at a time, as it is easier than revaluing all ships together.
Since assets are revalued regularly, there is no need to depreciate.

Ans.
Revalue an entire class of property, plant, and equipment.
Green Company acquired a building on January 1, 2012 at a cost of P50,000,000. The building
has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on
January 1, 2016 and the revaluation revealed replacement cost of P80,000,000, residual value of
P2,000,000 and revised life of 12 years. What is the revaluation surplus on December 31, 2016?
30,000,00026,250,00016,800,00014,700,000Green Company acquired a building on January 1,
2012 at a cost of P50,000,000. The building has an estimated life of 10 years and residual value
of P5,000,000. The building was revalued on January 1, 2016 and the revaluation revealed
replacement cost of P80,000,000, residual value of P2,000,000 and revised life of 12 years.
What is the revaluation surplus on December 31, 2016?
30,000,000
26,250,000
16,800,000
14,700,000
Ans.
14,700,000
In January 2012, Wilbert Company purchased equipment at a cost of P 5,000,000.

The equipment had an estimated residual value of P 1,000,000, an estimated 8-year useful
life, and was being depreciated by the straight line method. Two years later, it became
apparent to Wilbert that this equipment suffered a permanent impairment of value. In
January 2012, management determined the carrying amount should be only P1,750,000
with a 2-year remaining useful life, and the residual value should be reduced to P
250,000.
In Wilbert’s December 31, 2012 statement of financial position, what should be reported
as carrying amount of the equipment?
3,500,000
1,750,000
1,500,000
1,000,000
Ans.
1,000,000
Gracia Company is in the tin-mining extraction business. The cash-generating unit is the
cash business as a whole, which is now considered as a “sun net” business. The assets of
the cash-generating unit consist of the following: Property, P30,000,000; plant,
machinery and equipment, P40,000,000 and extraction rights, P30,000,000. The value in
use of the cash generating unit is estimated at P20,000,000. There is no fair value less
cost to sell of the cash generating unit, except for the property which could be sold for a
net cash proceeds of P30,000,000. The other assets have no resale value. The extraction
rights have an unrecognized lease obligation of P10,000,000 payable to the state
government and this could not be avoided. What amount of impairment loss that must be
allocated to the extraction rights?
P 6,000,000
P24,000,000
P30,000,000
P40,000,000
Ans.
P40,000,000
Value in use of an asset is equal to the:
undiscounted future net cash flows from the use of the asset.
undiscounted future net cash flows from the use and eventual disposition of the asset.
discounted future net cash flows from the use of the asset.
discounted future net cash flows from the use and eventual disposition of the asset.
Ans.
discounted future net cash flows from the use and eventual disposition of the asset.
The revaluation surplus recognized on January 1, 2012
0
390,000
318,000
294,000
Ans.
318,000
Vincent Inc. reported an impairment loss of P150,000 on its income statement for the
year ended December 31, 2008. This loss was related to an item of equipment which
Vincent intended to use in its operations. On the company's December 31, 2008 balance
sheet, Vincent reported this equipment at P920,000 and, as of December 31, 2008,
Vincent estimated that this equipment would be used for another five years. On
December 31, 2009, Vincent determined that the recoverable amount of its impaired
equipment had increased by P25,000 over its recoverable amount at December 31, 2008.
The increase in recoverable amount is due to the unwinding of discount. On the
company's December 31, 2009 balance sheet, what amount should be reported as the
carrying amount for this equipment?
P761,000
P736,000
P945,000
P856,000
Ans.
P736,000
Guimba Co. purchased equipment on January 2, 2007 for P50,000. The equipment had an
estimated 5-year service life. Guimba’s policy for 5-year assets is to use the 200%
double-declining balance 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, 2009
balance sheet, what amount should Guimba report as accumulated depreciation for
equipment?
P30,000
P38,000
P39,200
P42,000
Ans.
P38,000
On January 1, 2012, HANSON Company borrowed P 6,000,000 at an annual interest rate

of 10% to finance specifically the cost of building an electricity generating plant.
Construction commenced on January 1, 2012 with a cost P6,000,000. Not all the cash
borrowed was used immediately, so interest income of P 80,000 was generated by
temporarily investing some of the borrowed funds prior to use. The project was
completed on November 30, 2012.
The carrying amount of the plant on November 30, 2012
6,000,000
6,470,000
6,520,000
6,550,000
Ans.
6,470,000
What is the recoverable amount of an asset?
net selling price

value in use
net selling price or value in use, whichever is higher
net selling price or value in use, whichever is lower
Ans.
net selling price or value in use, whichever is higher
A machine with a five-year estimated useful life and an estimated 10% salvage value was
acquired on January 1, 2007. On December 31, 2010, accumulated depreciation, using the
sum-of-the-years’ digits method, would be?
(Original cost less salvage value) multiplied by 1/15.

Original cost multiplied by 14/15.
Original cost multiplied by 1/15.
Ans.
Spawn Company had purchased equipment for P2,800,000 on January 1, 2009. The
equipment had an 8-year life and residual value of P400,000. Spawn depreciated the
equipment using the straight line method. In August 2010, Spawn questioned the
recoverability of the carrying amount of this equipment. On August 31, 2012, the
undiscontinued expected net future cash inflows related to the continued use and eventual
disposal of the equipment amounted to P1,600,000. The equipment’s fair value on
August 31, 2012 is P1,500,000.
After any loss on impairment has been recognized, what is the carrying amount of the
equipment?
1,600,000
1,700,000
1,500,000
1,300,000
Ans.
1,500,000
Worn Company had purchased equipment for P10,000,000, on January 1, 2007. The
equipment had a 5-year life and a salvage value of 10%. Worn Company depreciated the
equipment using the straight line method. On December 31, 2009, Worn had doubts on
the recoverability of the carrying amount of this equipment. On December 31, 2009, the
discounted expected net future cash inflows related to the continued use and eventual
disposal of the equipment totaled P4,300,000. The equipment’s fair value less costs to
sell on December 31, 2009 is P4,500,000. After any loss on impairment has been
recognized, what is the carrying amount of the equipment?
P4,000,000
P4,300,000
P4,500,000
P4,600,000
Ans.
P4,500,000
Which is incorrect concerning residual value of PPE?
The residual value of an asset is the estimated amount an entity would currently obtain from
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of
the age and in the condition expected at the end of its useful life.
The residual value and the useful life of an asset should be reviewed at least at each financial
year-end and, if expectations differ from previous estimates, any change is accounted for
prospectively as a change in estimate.
Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even if
the asset’s residual value does not exceed its carrying amount.
The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount.
Ans.
Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even if
the asset’s residual value does not exceed its carrying amount.
On September 30, 2011, J Company acquired a smelting machine for P270,000 paying a
down payment of P90,000 and the balance to be paid in two equal annual installments on
September 30, 2012 and September 30, 2013. There was no stated interest provided in
the note, however, an 8% interest rate is considered to be appropriate for a note of this
type. The PVF for an ordinary annuity of P1 @ 8% for 2 periods is 1.78. Additional costs
for freight P5,000; installation and testing for P10,000. J Company uses the straight-line
method of depreciation. The smelting machine’s expected useful life is 5 years with a
salvage value of P20,000.
The depreciation expense included in J Company’s 2011 income statement is?
12,260
13,260
49,040
53,040
Ans.
12,260
D Company acquired a drilling machine on October 1, 2010 at a cost of P2,500,000 and

depreciated it at 25% per annum on a straight line basis. On October 1, 2012, the entity
spent P 500,000 on upgrade to the machine in order to improve its efficiency and increase
the inflow of economic benefits over the machine’s remaining life.
The depreciation expense for the year ended September 30, 2013
1,125,000
625,000
850,000
875,000
Ans.
875,000
If there is a change from double declining balance to straight line method:
The accumulated depreciation is adjusted to its appropriate balance through retained earnings
based on the straight line method.
The accumulated depreciation is adjusted to its appropriate balance through net income based on
the straight line method.
The accumulated depreciation is not adjusted but the remaining book value is allocated over the
remaining life using the straight line method.
original life using the straight line method.
Ans.
remaining life using the straight line method.
Miller Company acquired a machine for P420,000 on June 30, 2012. The machine has a seven-
year life, no salvage value, and was depreciated using the straight-line method. On August 31,
2015, a test for recoverability reveals that the expected net future undiscounted cash inflows
related to the continued use and eventual disposal of the machine total P275,000. The machine’s
actual fair value on August 31, 2015, is P261,000. Assuming a loss on impairment is recognized
August 31, 2015, what is Miller’s depreciation expense for September 2015?
P4,000
P4,350
P4,500
P5,000
Ans.
P5,000
Jangoy Co. purchased equipment on January 2, 2011 for P100,000. The equipment had an
estimated life of 5 year with salvage value of P6,000. The Company will use 200%
declining balance depreciation method for the first two years of the assets life and then
switch to the straight-line depreciation method. In its December 31, 2013 statement of
financial position, what amount should Jangoy report as accumulated depreciation for
equipment?
P60,000
P74,000
P76,000
P71,440
Ans.
P74,000
Bugis Corp. acquired a machine on January 1, 2001. Details of the machine at December
31, 2008 are given below:
Component Cost Depreciation basis

Engine P170,000,000 Useful life of
Outer casings 510,000,000 25 year
Other components 255,000,000 12 year
P765,000,000
During the year 2009, the following events took place:

a) Engine, which had run for 30,000 hours till date developed serious snags. It
was replaced by a better engine with a cost of P238 million and estimated life of
50,000 hours. The new engine was used for 5,000 hours during the year.
b) Polishing and painting was done to the outer casings at a cost of P1.3 million.
c) Other components were upgraded at a cost of P102 million. The remaining
life of the other components is 5 years.
Compute the total depreciation for the year 2009, assume that all the work mentioned
above was completed at the beginning of
P85,850,000
P81,676,470
P90,950,000
P81,600,000
Ans.
P81,600,000
The sum of units method of depreciation results in:
Constant charger over the life of the asset.

Decreasing charge over the life of the asset.
Increasing charge over the life of the asset.
Charge based on the expected use or output of the asset.
Ans.
Charge based on the expected use or output of the asset.
Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2003 at a cost of P10
million. The estimated useful life is 10 years. On January 1, 2009, the power train
requires replacement, as further maintenance is uneconomical due to the off-road time
required. The remainder of the vehicle is perfectly roadworthy and is expected to last for
the next four years. The cost of the new power train is P4.5 million.
Assuming that the original cost of the power train is not separately identifiable and the
appropriate discount rate is 5%, the total depreciation expense in 2009 is
P1,000,000
P2,500,000
P2,934,362
P1,789,210
Ans.
P1,789,210
The depreciation expense for 2010

140,000149,000152,000240,000 On January 1, 2010 Glen Company started construction
of its own warehouse. Glen Company specifically borrowed P1,000,000 to finance
the construction of the warehouse. Interest incurred during the construction amounted
to P120,000 while the income derived from its temporary investment amounted to
P30,000. Total construction cost was P1,400,000.
The depreciation expense for 2010
140,000
149,000
152,000
240,000
Ans.
149,000
The depreciable amount of an item of property, plant and equipment is the?
Cost of the asset, or other amount substituted for cost in the financial statements, less its
residual value.
Net amount which the enterprise expects to obtain for an asset at the end of its useful life
after deducting the expected costs of disposal.
Amount of cash or cash equivalent paid or the fair value of other consideration given to
acquire an asset at the time of its acquisition or construction.
Amount at which an asset is recognized in the balance sheet after deducting any
accumulated depreciation and accumulated impairment losses thereon.
Ans.
Cost of the asset, or other amount substituted for cost in the financial statements, less its
residual value.
The depreciation expense in 2010, assuming that Glen Company for reporting
purposes was considered an SME
140,000
149,000
152,000
240,000
Ans.
140,000
Which ONE of the following statements best describes 'residual value'?
The estimated net amount currently obtainable if the asset were at the end of its useful
life
The present value of estimated future cash flows expected to arise from the continuing
use of the asset and from its ultimate disposal
The amount at which the asset could be exchanged between knowledgeable, willing
parties in an arm's length transaction
The amount of cash or cash equivalents that could currently be obtained by selling the
asset in an orderly disposal
Ans.
The estimated net amount currently obtainable if the asset were at the end of its useful
life
Pantabangan Company takes a full year’s depreciation in the year of an assets acquisition,
and no depreciation in the year of disposition. Data relating to one depreciable asset
acquired in 2007, with residual value of P900,000 and estimated useful life of 8 years, at
December 31, 2008 are:
Cost P9,900,000
Using the same depreciation method in 2007 and 2008, how much depreciation should
Pantabangan record in 2009 for this asset?
P1,125,000
P1,250,000
P1,650,000
P1,500,000
Ans.
P1,500,000
On January 1, 2011 Led Company bought machinery that required a down payment of
P100,000, plus 24 monthly payments of P50,000 each. The cash equivalent price of the
machinery was P1,100,000. The machinery has an estimated useful life of 10 years and
estimated residual value of P50,000. Led uses straight line depreciation.
In its 2011 income statement the depreciation for this machinery is
105,000
110,000
125,000
130,000
Ans.
105,000
On January 1, 2006, Crater, Inc. purchased equipment having an estimated salvage value
equal to 20% of its original cost at the end of a ten-year life. The equipment was sold
December 31, 2010, for 50% of its original cost. If the equipment’s disposition resulted
in a reported loss, which of the following depreciation methods did Crater use?
Double-declining balance.
Sum-of-the-years’ digits.
Straight-line
Composite.
Ans.
Straight-line
Tinio Company purchased a machine for P100,000 on January 1, 2006, with the following
additional items paid or incurred
Separation pay for laborer laid off

upon acquisition of new machine P1,200
Loss on sale of machine replaced 1,300
Transportation in 1,000
Installation cost 4,000
The new machine is estimated to have a useful life of 10 years and a residual value of
P4,000. On January 1, 2009, new parts which cost P12,600 were added to the
machine so as to reduce its fuel consumption, but with no change in its estimated life
or residual value. The annual depreciation charge on the machine for 2009 was
P12,150
P12,000
P11,360
P11,900
Ans.
P11,900
April Company purchased factory equipment which was installed and put into service
July 1, 2015 at a total cost of P9,000,000. Residual value was estimated at P1,000,000.
The equipment is being depreciated over 10 years by the double declining balance
method. For the year 2016 how much depreciation expense should April record on this
equipment?
1,620,000
1,440,000
2,220,000
1,280,000
Ans.
1,620,000
Laur Company uses the composite method of depreciation and has a composite rate of
25%. During 2009, it sold assets with an original cost of P100,000 and residual value of
P20,000 for P80,000 and acquired P60,000 worth of new assets with residual value of
P10,000. The original group of assets had the following characteristics:
Total cost P250,000

Total residual value 30,000
The above original group includes the assets sold in 2009 but not the assets purchased in
2009. What was the depreciation in 2009?
P62,500
P52,500
P47,500
P46,500
Ans.
P52,500
Accumulated depreciation at December 31, 2012 and December 31, 2011 were
P390,000 and P245,000 respectively. During the year, Polaris Company acquired
machineries costing P200,000 to replace the retired machines costing P120,000. In
disposing the retired machines Polaris Company generated cash inflows of P80,000
recognizing a gain of P15,000. At yearend, there was no indication of any
impairment on the machineries of Polaris Company as the carrying amounts of the
machinery accounts were less than the net recoverable amounts of the said items.
In Polaris Company’s 2012 income statement, the amount of depreciation expense

reported is
P100,000
P170,000
P200,000
P290,000
Ans.
P200,000
Car Inc. bought a private jet for the use of its top-ranking officials. The cost of the private jet is
P15 million and can be depreciated either using a composite useful life or useful lives of its
major components. It is expected to be used over a period of 7 years. The engine of the jet has a
useful life of 5 years. The private jet’s tires are replaced every 2 years. The private jet will be
depreciated using the straight line method over
7 years composite useful life
5 years useful life of the engine, 2 years useful life of the tires, and 7 years useful life applied to
the balance of the cost of the jet
2 years useful life based on conservatism (the lowest useful life of all the parts of the jet)
5 years useful life based on a simple average of the useful lives of all major components of the
jet.
Ans.
5 years useful life of the engine, 2 years useful life of the tires, and 7 years useful life applied to
the balance of the cost of the jet
Ikea Company takes a full year’s depreciation expense in the year of an asset’s
acquisition and no depreciation expense in the year of disposal. Data relating to one of
Ikea Company’s depreciable assets on December 31, 2012 are as follows: Acquisition
year 2010; cost P1,100,000; residual value P200,000; accumulated depreciation
P720,000; estimated useful life 5 years.
Using the same depreciation method in 2010, 2011 and 2012, the depreciation expense to
be recognized in 2013 for the asset is?
120,000
140,000
160,000
180,000
Ans.
120,000
Natividad Company purchased a tooling machine in 1999 for P3,000,000. The machine was
being depreciated on the straight-line method over an estimated useful life of twenty years, with
no salvage value. At the beginning of 2009, when the machine had been in use for ten years, the
company paid P600,000 to overhaul the machine. As a result of this improvement, the company
estimated that the useful life of the machine would be extended an additional five years. What
should be the depreciation expense recorded for the machine in 2009?
P150,000
P140,000
P210,000
P340,000
Ans.
P140,000
Macy Company uses the inventory method to account for numerous small tools. The balance of
the tools account on January 1, 2012 was P 364,000.The following transactions occurred related
to the small tools during 2012:Purchases during the year, P 156,000; sale of used tools in
December, P10,400; Inventory of small tools on December 31, 2012, P390,000. What is the
amount of tools depreciation for the year 2012”?
P 119,600
P 130,000
P 156,000
P 166,400
Ans.
P 119,600
In which of the following situations is the units-of production method of depreciation most
appropriate?
An asset’s service potential declines with use.

An asset’s service potential declines with the passage of time.
An asset is subject to rapid obsolescence.
An asset incurs increasing repairs and maintenance with use.
Ans.
An asset’s service potential declines with use.
On the first day of its current fiscal year, Lupao Corporation purchased equipment costing
P400,000 with a salvage value of P80,000. Depreciation expense for the year was P160,000. If
Lupao uses the double-declining-balance method of depreciation, what is the estimated useful
life of the asset?
5 years
4 years
2.5 years
2 years
Ans.
5 years
A factory equipment with an estimated useful life of 10 years was purchased by Carranglan Co.
on December 30, 2005. The equipment was expected to have a residual value of P5,000 at the
end of its service life. The sum of the years’ digit method was used in computing depreciation.
For the year ended December 31, 2009, the depreciation applicable to this equipment was
P42,000. The cost of the factory equipment purchased on December 30, 2005 was?
P325,000
P293,750
P335,000
P330,000
Ans.
P335,000
Cabiao Company purchased a machine on December 2, 2008 at an invoice price of P4,500,000
with terms 2/10, n/30. On December 10, 2008, Cabiao paid the required amount for the
machine. On December 2, 2008, Cabiao paid P80,000 for delivery of the machine and on
December 31, 2008, it paid P310,000 for installation and testing of the machine. The machine
was ready for use on January 1, 2009. It was estimated that the machine would have a useful life
of 5 years, and a residual value of P800,000. Engineering estimates indicated that the useful life
in productive units was 200,000. Units actually produced during the first two years were 30,000
in 2009 and 48,000 in 2010. Cabiao Company decided to use the productive output method of
depreciation. What is the depreciation of the machine for 2009?
P1,560,000
P 720,000
P960,000
P600,000
Ans.
P600,000
Which is correct concerning depreciation of PPE?
The depreciation method used should not reflect the pattern in which the asset's economic
benefits are consumed by the enterprise.
The depreciation method should be reviewed at least annually and, if the pattern of
consumption of benefits has changed, the depreciation method should be changed
retrospectively as a change in policy.
Depreciation should be charged to the income statement, unless it is included in the

carrying amount of another asset.
Depreciation begins when the asset is available for use and continues until the asset is
derecognized and became idle.
Ans.
Depreciation should be charged to the income statement, unless it is included in the

carrying amount of another asset.
On January 1, 2012, LEX Company bought machinery under a contact that required a
down payment of P 100,000, plus 24 monthly payments of P 50,000 each, for total cash
payments of P 1,300,000. The cash equivalent price of the machinery was P 1,100,000.
The machinery has an estimated useful life of 10 years and estimated residual value of P
50,000. LEX uses straight line depreciation.
In its 2012 income statement, what amount should LEX report as depreciation for the
machinery?
105,000
110,000
125,000
130,000
Ans.
105,000
Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2003 at a cost of P10
million. The estimated useful life is 10 years. On January 1, 2009, the power train
requires replacement, as further maintenance is uneconomical due to the off-road time
required. The remainder of the vehicle is perfectly roadworthy and is expected to last for
the next four years. The cost of the new power train is P4.5 million.
Assuming that the original cost of the power train is P3 million, the total depreciation
expense in 2009 is
P2,200,000
P1,825,000
P1,150,000
P1,450,000
Ans.
P1,825,000
M Company purchased a noncurrent asset with a useful life of 10 years on January 1,

2012 for P 6,500,000. On December 31, 2012, the amount the entity 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.
The depreciation charge for the year ended December 31, 2012 is
580,000
650,000
560,000
0
Ans.
580,000
Gains and losses arising from the retirement or disposal of an item of property, plant and
equipment should be determined as the difference between:
gross disposal proceeds and the cost of the asset

gross disposal proceeds and the carrying amount of the asset
net disposal proceeds and the cost of the asset
net disposal proceeds and the carrying amount of the asset
Ans.
net disposal proceeds and the carrying amount of the asset
At the beginning of the current year, Winn Company traded in an old machine having a
carrying amount of P1,680,000 and paid a cash difference of P600,000 for a new machine
having a cash price of P2,050,000. What amount of loss should Winn recognize on this
exchange?
600,000
370,000
230,000
0
Ans.
230,000
Sony Company purchased machinery for 160,000 on January 1, 2012. Straight-line

depreciation has been recorded based on a 10,000 salvage value and a 5-year useful life.
The machinery was sold on May 1, 2016 at a gain of 3,000. How much cash did Sony
receive from the sale of the machinery?
23,000
27,000
33,000
43,000
Ans.
33,000
A machine has a cost of P60,000, has an annual depreciation of P12,000, and has
accumulated depreciation of P30,000 on December 31, 2015. On April 1, 2016, when the
machine has a fair value of P24,000, it is exchanged for a similar machine with a fair
value of P72,000 and the proper amount of cash is paid. The loss to be recognized on
exchange is
P6,000
P3,000
P21,000
P0
Ans.
P3,000
The sale of a depreciable asset resulting in a gain indicates that the proceeds from the sale were
less than current market value

greater than cost
greater than book value
less than book value
Ans.
greater than book value
Weir Company uses straight line depreciation for its property, plant and equipment,
which, stated at cost, consisted of the following:
2012 2011
Land 250,000 250,000
Buildings 1,950,000 1,950,000
Machinery and equipment 6,950,000 6,500,000
Total 9,150,000 8,700,000
Less: Accumulated depreciation 4,000,000 3,700,000
5,150,000 5,000,000
Depreciation expense for 2012 and 2011 was P550,000 and P500,000 respectively.
The amount debited to accumulated depreciation during 2012 because of
property, plant, and equipment retirements is?
400,000
250,000
200,000
100,000
Ans.
250,000
Philip Company’s depreciation policy on machinery and equipment:
· A full year’s depreciation is taken in the asset’s acquisition year

· No depreciation is taken in the year of an asset’s disposition.
· The estimated useful life is five years.
· The straight-line method is used.
On June 30, 2011, Philip sold for P 2,300,000 a machine acquired in 2009 for
P4,200,000. The estimated residual value was P 600,000.
The gain on the disposal that Philip Company should record in 2011 is?
140,000
260,000
460,000
620,000
Ans.
460,000
The records of Teal Corporation for the year 2013 disclosed the following property
dispositions:
Cost Acc. Proceeds Fair Mode

Dep. value
Land P3,200,00 - 2,480,000 2,480,000 Condemnation
0
Building 1,200,000 - 288,000 - Demolition
Warehouse 5,600,000 880,000 5,920,000 5,920,000 Destruction
by fire
Machine 640,000 256,000 72,000 576,000 Exchange
Delivery 800,000 380,000 376,000 376,000 Sale
truck
Land
On January 15, a condemnation award was received as consideration for the forced
sale of the company’s land and building, which stood in the path of a new highway.
Building
On March 12, land and building were purchased at a total cost of P4,000,000, of
which 30% was allocated to the building on the corporate books. The real estate was
acquired with the intention of demolishing the building, and this was accomplished
during the month of August. Cash proceeds received in September represent the net
proceeds from demolition of building.
Warehouse
On July 4, the warehouse was destroyed by fire. On December 12, the insurance
proceeds and other funds were used to purchase a replacement warehouse at a cost of
P4,800,000.
Machine
On December 15, the machine was exchanged for a similar machine having a fair
value of P504,000 and cash of P72,000 was received.
Delivery Truck
On November 13, the delivery truck was sold to a used car
How much is the gain or loss on Machine?
720,000
200,000
120,000
None
Ans.
120,000
Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying
amounts. In addition, Bensol paid Sable to compensate for the difference in truck values. As a
consequence of the exchange, Sable recognizes
A gain equal to the difference between the fair value and carrying amount of the truck given up.
A gain determined by the proportion of cash received to the total consideration.
A loss determined by the proportion of cash received to the total consideration.
Neither a gain nor a loss.

Ans.
A gain equal to the difference between the fair value and carrying amount of the truck given up.
An item of property, plant and equipment that is retired from active use and held for disposal
is carried at its:
carrying amount
net realizable value
carrying amount or net realizable value, whichever is lower
carrying amount or net realizable value, whichever is higher
Ans.
carrying amount or net realizable value, whichever is lower
SEASON’S INC. acquired an asset that had a cost of P130,000. 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 P10,000. The loss/gain if the asset is sold for P38,000 at the end of the third year is?
P4,000 gain
P20,000 loss
P68,000 loss
P92,000 loss
Ans.
P4,000 gain
dispositions:

Dep. value
0
by fire
Dep. value
Delivery 800,000 380,000 376,000 376,000 Sale
truck
Land
Building
Warehouse
P4,800,000.
Machine
Delivery Truck
On November 13, the delivery truck was sold to a used car dealer.
How much is the gain or loss on Delivery Truck
720,000
200,000
44,000
None
Ans.
44,000
dispositions:]

Dep. value
0
by fire
Delivery 800,000 380,000 376,000 376,000 Sale
truck
Land
Building
Warehouse
P4,800,000.
Machine
Delivery Truck
Compute the gain or loss to be recognized for Land:
1,200,000
720,000
200,000
None
Ans.
720,000
dispositions:

Dep. value
0
by fire
Delivery 800,000 380,000 376,000 376,000 Sale
truck
Land
Building
Warehouse
P4,800,000.
Machine
Delivery Truck
Compute the gain or loss to be recognized for Warehouse:
1,200,000
720,000
200,000
None
Ans.
1,200,000
On July 1, 2016, Rudd Company reported that a delivery van was destroyed in an
accident. On that date, the carrying amount was P2, 500,000. On July 15, 2016, Rudd
received and recorded a P700, 000 invoice for a new engine installed in the van in May
2016, and another P500, 000 invoice for various repairs. In August, Rudd received P3,
500,000 under an insurance policy on the van, which it plans to use to replace the van.
What, amount should be reported as gain or loss on disposal of the van?
200,000 loss
300,000 gain
1,000,000 gain
0
Ans.
300,000 gain
Revaluation of plant asset should be made

Annually
every two years
every three year
sat sufficient regula rity
Ans.
at sufficient regula rity
Goo-Goo Company owns a building on January 1, 2012 with historical cost of

P40,000,000. The property is depreciated over 40 years on a straight line basis with no
residual value. The entity adopts a policy of revaluation of property. The building has so
far been revalued twice at fair value as follows:
January 1, 2013 46,800,000

January 1, 2015 55,500,000
The increase in revaluation surplus recognized as a component of other

comprehensive income on January 1, 2015
15,500,
11,100,000
8,700,000
9,900,000
Ans.
11,100,000

January 1, 2013 46,800,000

January 1, 2015 55,500,000
The revaluation surplus on January 1, 2013
7,800,000
6,800,000
5,800,000
4,800,000
Ans.
7,800,000
The following account balances relating to property, plant and equipment of Clark
Company appear on the books on January 1, 2012:
Land 2,000,000
Power Station 15,000,000
Dock Installation 3,000,000
Assets have been carried at cost since their acquisition. All assets were acquired on
January 1, 2002. The straight line method is used.
On January 1, 2012, Clark Company revalued the property, plant and equipment. On
such date the following were identified:
Replacement Cost
Land 5,000,000
Power station 25,000,000
Dock installation 5,000,000
The revaluation surplus on January 1, 2012
15,000,000
11,500,000
30,000,000
8,500,000
Ans.
11,500,000
In the 30 June 2009 annual report of Bamban Ltd, the equipment was reported as follows:

Accumulated 1,500,000
depreciation
P3,500,000
The equipment consisted of two machines, machine A and machine B. Machine A

had cost P3,000,000 and had a carrying amount of P1,800,000 at 30 June 2009, while
machine B had cost P2,000,000 and was carried at P1,700,000. Both machines are
year period.
On 31 December 2009, the directors of Bamban Ltd decided to change the basis of
was revalued to P1,800,000 with an expected useful life of six years, and machine B
was revalued to P1,550,000 with an expected useful life of five years.
P150,000
P100,000
P200,000
P 0
Ans.
P150,000
On January 1, 2009, the historical balances of the land and building of Floridablanca
Company are:
Cost Accumulated de
Land P 50,000,000
Building 300,000,000
The land and building were appraised on same date and the revaluation revealed the
following:
Fair value
Land P 80,000,000
Building 350,000,000
There were no additions or disposals during 2009. Depreciation is computed on the

straight line. The estimated life of the building is 20 years. The depreciation of the
building for the year ended December 31, 2009 should be
P25,000,000
P15,000,000
P10,000,000
P17,500,000
Ans.
P25,000,000
On January 1, 2008, Richard Company acquired a building at cost of P 5,000,000. The

building has been depreciated on the basis of a 20-year life. On January 1, 2013, an
appraisal of the building showed its replacement cost at P 8,000,000 with no change in
useful life.
Ignoring income tax, what amount should be credited to revaluation surplus on January 1,
2013?
3,000,000
2,250,000
4,250,000
6,000,000
Ans.
2,250,000
On June 30, 2012, the statement of financial position of Love Company reported the following:
Equipment at cost 5,000,000

The equipment was measured using the cost model and depreciated on a straight line
basis over 10-years. On December 31, 2012, Love Company decided to change the
basis of measuring the equipment from the cost model to the revaluation model. The
equipment was revalued to its fair value of P 4,550,000 with an expected remaining
useful life of 5 years.
The annual depreciation for 2013
910,000
500,000
455,000
650,000
Ans.
910,000
A revaluation increase is credited to
Revaluation surplus only
Income to the extent that it reverses a revaluation decrease of another asset previously
recognized as an expense
Additional paid in capital

Income to the extent that it reverses a revaluation decrease of the same asset previously
Ans.
Income to the extent that it reverses a revaluation decrease of the same asset previously
On December 31, 2008, the balance sheet of Pink Company showed the following property and
equipment after charging depreciation:
Building P3,000,000
Accumulated (1,000,000) P2,000,000
depreciation
Equipment 1,200,000
Accumulated (400,000) 800,000
depreciation
equipment. This has resulted in the recognition in prior periods of an asset
revaluation surplus for the building of P140,000. On December 31, 2008, an
independent valuer assessed the fair value of the building to be P1,600,000 and the
equipment to be P900,000.
Amount to be recognized in 2008 profit or loss related to the revaluation of property and
equipment
P160,000
P260,000
P300,000
P400,000
Ans.
P260,000
On January 1, 2007, Avril Company purchased a new building at a cost of P6,000,000

with a useful life of 10 years. Depreciation was computed using the double declining
balance method.
On January 1, 2012, the building was revalued at a fair value of P5,000,000. Ignoring
income tax, the revaluation surplus on January 1, 2012 is
3,636,363
3,033,920
2,000,000
1,000,000
Ans.
3,033,920
Building P3,000,000
Accumulated (1,000,000) P2,000,000
depreciation
Equipment 1,200,000
Accumulated (400,000) 800,000
depreciation
The building and equipment had remaining useful lives of 25 years and 4 years, respectively, as
of December 31, 2008.
Revaluation surplus as of December 31, 2009
P140,000
P100,000
P75,000
P 0
Ans.
P75,000

useful life.
What is the depreciation for 2013?
250,000
150,000
400,000
300,000
Ans.
400,000
A revaluation decrease
is always debited to impairment loss.
is debited to retained earnings.
is always debited to revaluation surplus.
is debited to revaluation surplus to the extent that the decrease does not exceed the amount
held in the revaluation surplus in respect of that same asset.
Ans.
is debited to revaluation surplus to the extent that the decrease does not exceed the amount
held in the revaluation surplus in respect of that same asset.
Revaluation surplus account is reported as
a separate component of income from continuing operations

a separate component of stockholders’ equity
a liability
a contra-asset account
Ans.
a separate component of stockholders’ equity
Building P3,000,000
Accumulated (1,000,000) P2,000,000
depreciation
Equipment 1,200,000
Accumulated (400,000) 800,000
depreciation
Carrying amount of property and equipment as of December 31, 2009

P2,500,000
P2,400,000
P2,080,000
P2,211,000
Ans.
P2,211,000
In June 30, 2013, the statement of financial position of Love Company reported the
following:
Equipment at cost P 5,000,000

basis over a 10-year period. On December 31, 2013, the management decided to
change the basis of measuring the equipment from the cost model to the revaluation
model. The equipment was revalued to its fair value of P 4,550,000 with remaining
Ignoring income tax, what amount should Love report as revaluation surplus on
December 31, 2013?
1,050,000
1,300,000
1,500,000
2,000,000
Ans.
1,300,000
On June 30, 2012, the statement of financial position of Love Company reported the following:
Equipment at cost 5,000,000

basis over 10-years. On December 31, 2012, Love Company decided to change the
basis of measuring the equipment from the cost model to the revaluation model. The
equipment was revalued to its fair value of P 4,550,000 with an expected remaining
Ignoring income tax, the revaluation surplus on December 31, 2012
1,050,000
1,300,000
1,500,000
2,000,000
Ans.
1,300,000
The following account balances relating to property, plant and equipment of Guagua
Company appear on the books on December 31, 2008:
Land P 6,000,000
Building 45,000,000
Accumulated 11,250,000
depreciation
Plant, property and equipment have been carried at cost since their acquisition. The
land was acquired 15 years ago while the building was acquired on January 1, 1999.
The straight line method for depreciation is used. On January 1, 2009, the company
revalued property plant and equipment and on the same date, competent appraisers
submitted the following:
Replacement
cost
Land P 8,000,000
Building 60,000,000

P12,875,000
P10,875,000
P53,000,000
P13,250,000
Ans.
P12,875,000
Land 2,000,00
Replacement Cost
Land 5,000,000
The revaluation surplus on December 31, 2012
11,075,000
11,150,000
11,050,000
10,850,000
Ans.
11,150,000
useful life.
Ignoring income tax, what amount should be credited to revaluation surplus on January 1,
2013?
3,000,000
2,250,000
4,250,000
6,000,000
Ans.
2,250,000
Land 2,000,000
Replacement Cost
Land 5,000,000
The depreciation for 2012
531,250
875,000
525,000
625,000
Ans.
875,000
Realized revaluation surplus is transferred to retained earnings
only upon disposal or retirement of plant asset

only during the period of use of the asset
upon disposal or retirement of the asset or during the period of use of the asset
at no instance
Ans.
upon disposal or retirement of the asset or during the period of use of the asset

January 1, 2013 46,800,000

January 1, 2015 55,500,000
The revaluation surplus reported in the statement of changes in equity for the year
ended December 31 2015
18,200,000
18,000,000
18,900,000
18,500,000
Ans.
18,000,000

useful life.
What is the revaluation surplus that should be reported in the December 31, 2013,
statement of financial position?
2,100,000
2,250,000
1,850,000
2,800,000
Ans.
2,100,000
In the case of grant related to an assets , which of the following accounting treatment is prescribe
by PAS 20?
Record the grand at a nominal value in the first year and write it off the in the subsequent year.
Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
assets.
Record the grant at fair value in the first year and take it to income in the subsequent year.
Take it to the income statement and disclose it as an extra ordinary gain.

Ans.
Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
assets.
In the case of grant related to income . which of the following accounting treatment is prescribe
by PAS 20?
Credit the grant to ‘’ general reserved’’ under shareholder ‘s equity.
Present the grant in the income statement as order income ‘’ or as a separate line item , or deduct
it from the related expense.
Credit the grant to ‘’ retained earnings’’ on the balance sheets.
Credit the grant to sales or other revenue from operation in the income statement.
Ans.
Present the grant in the income statement as order income ‘’ or as a separate line item , or deduct
In the case of grants related to income, which of these accounting treatments is prescribed by
PAS 20?
Credit the grant to “general reserve” under shareholders’ equity
Present the grant in the income statement as “other income” or as a separate line item, or deduct
Credit the grant t “retained earnings” on the balance sheet
Credit the grant to sale or other revenue from operations in the income statement
Ans.
Present the grant in the income statement as “other income” or as a separate line item, or deduct
Padre Company purchased equipment for P15,000,000 on January 1, 20Y1. Padre received a
government grant of P1,500,000 in respect of this asset on the condition that Padre will hire
personnel from the depressed area to operate the machine and provide them livelihood. Padre
treated the grant as a deduction from the cost of the asset. The equipment has a useful life of 5
years and will use SYD in depreciating the asset. On January 1, 20Y4, Padre violated the
condition and thus returned the grant. What is the depreciation for 20Y4?
1,800,000
3,200,000
2,800,000
2,700,000
Ans.
3,200,000
A grant that becomes repayable shall be accounted for as a
Change in policy
Change in accounting estimate
Prior period error
Either a r b
Ans.
Change in accounting estimate
Intangible assets denote:
Properties without physical characteristics that have long-term effects on a business entity
Current or noncurrent property items without physical substance.
Assets with lesser economic significance because of the nature of such assets.
None of these.
Ans.
Properties without physical characteristics that have long-term effects on a business entity
Paragraph 63 of IAS 38 Intangibles, prohibits the recognition of the following internally

generated identifiable intangibles:
I II III IV
Brands No No No Yes
Mastheads No Yes Yes Yes
Publishing titles No No Yes Yes
Customer lists No Yes No Yes
I;
II;
III;
IV.
Ans.
IV.
Trade secret and patents are an example of which general category of intangible assets?
Market related
Customer related
Artistic related
Technology based
Ans.
Technology based
Goodwill shall be recorded only when
It is purchased from another entity
It can be established that a definite benefit or advantage has resulted to an entity from
some items such as a good name capable staff or good refutation
It is acquired through the purchase of another entity
An entity report above normal earnings for five or more consecutive years
Ans.
An entity report above normal earnings for five or more consecutive years
Intangible assets denote:
Properties without physical characteristics that have long-term effects on a business

entity.
Current or noncurrent property items without physical substance.
Assets with lesser economic significance because of the nature of such assets.
None of these.
Ans.
Properties without physical characteristics that have long-term effects on a business entity.
Which amount these criteria are required for the recognition of development costs of
an internal project?
I. Technical feasibility of completing and the intention to complete the intangible
asset, and the ability to use or sell the intangible asset.
II. The ability of the intangible asset to generate probable future economic benefit,
the existence of a market for the output of the intangible asset, or its usefulness, if to be
used internally.
III. The availability of adequate, technical, financial and other resources to complete,
use or sell the intangible asset.
IV. The ability to measure reliably the expenditure attributable to the intangible asset
during its development.
I & IV are correct

I, II & III are correct
I, II & IV are incorrecta
ll are correct
Ans.
all are correct
A copy right is an example of which general category of intangible assets
Market related
Customer related
Artistic related
Contract based
Ans.
Artistic related
Broadcast right and franchises are an example of which general category of intangible
assets?
Market related
Customer related
Artistic related
Contract base
Ans.
Contract base
A trademark is an example of which general category of intangible assets
Market related
Customer related
Artistic related
Contract based
Ans.
Market related
Which is incorrect concerning the recognition and measurement of an intangible asset?
If an intangible asset is acquired separately, the cost comprises its purchase price, including
import duties and taxes and any directly attributable expenditure of preparing the asset for its
intended use.
If an intangible asset is acquired in a business combination that is an acquisition, the cost is
based on its fair value at the date of acquisition.
If an intangible asset is acquired free of charge or by way of government grant, the cost is equal
to its fair value.
If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the
total payments over the credit period.
Ans.
If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the
total payments over the credit period.
Which is not a characteristic of an intangible asset?
the asset lacks physical substance
the asset is used in production or supply of goods and services, for rental to others or for
administrative purposes
the asset provides future economic benefits
the asset has indeterminate useful life

Ans.
the asset has indeterminate useful life
When an internally generated asset meets the recognition criteria, the appropriate treatment for
costs previously expensed is:
reinstatement;
no adjustment as these amounts may not be reinstated;
include in the cost of the development of the asset;
capitalise into the cost of the asset and adjust the opening balance of retained earnings.
Ans.
no adjustment as these amounts may not be reinstated;
The term intangible asset is applied to competitive rights, privileges or advantages belonging to a
business enterprise. Which of the following statements is correct about intangible asset?
the recognition of such an asset requires that it be purchased
a firm builds up goodwill through successful operations and integrity would be justified to record
goodwill in its books
it has a limited term of existence and must be written off
it has an unlimited term of existence and may be amortized by periodic prorate charges to
expenses
Ans.
the recognition of such an asset requires that it be purchased
Order backlogs and customer list are an example of which general category of intangible
assets
Market related
Customer related
Artistic related
Contract based
Ans.
Customer related
Marc Inc. incurred the following costs during the year ended December 31, 2016:
Laboratory research aimed at discovery of new knowledge 180,000
Costs of testing prototype and design modifications (economic viability not achieved)
45,000
Quality control during commercial production, including routine testing of products
270,000
Construction of research facilities having an estimated useful life of 6 years but no
alternative future use 360,000
The total amount to be classified and expensed as research and development in 2016 is
555,000
855,000
585,000
285,000
Ans.
285,000
Cubs Company reported the following expenditures in relation to Patent “Hugs”

which it has created during 2018.
Research Phase
January 1, 2018 – May 30, 2018
P 250,000
§ Costs incurred in obtaining new knowledge in relation to new hydraulics
process
§ Costs incurred in searching alternative devices and processes related to the 240,000
new hydraulics process
§ Formulation, design and final selections of possible alternatives for improved 150,000
hydraulics
§ Salary costs (and other employee benefits) of personnel involved in project 450,000
“Hugs”
Development Phase
June 1, 2018 – August 31, 2018
210,000
§ Costs for designing and constructing pre-use prototypes
§ Costs for construction and testing of chosen alternative 330,000
“Hugs”
September 1 : Technical feasibility in relation to project “Hugs” was achieved

§ Costs for the construction of jigs, molds and dies applying the new “Hugs” 360,000
technology
“Hugs”
December 15, 2018: Completion of Project Hugs

§ Fees paid to register patent “Hugs” (initial legal life 20 years) 120,000
§ Cost of staff training in relation to operating Patent “Hugs” 240,000
Cubs Company expects that the useful life of Patent “Hugs” would be for 12 years
with no
residual value. Amortization commenced in 2019
The total amount of expenditures to be recognized immediately as an expense in 2018

is
1,330,000
1,975,000
2,215,000
2,335,000
Ans.
2,215,000
On January 1, 2009, Boracay Company bought a trademark from Lamitan Company for
P3,000,000. Boracay retained independent consultant who estimated the trademark’s life to be
indefinite. Its carrying’s amount in Lamitan’s accounting records was P1,500,000. In Boracay’s
December 31, 2009 statement of financial position, what amount should be reported as
trademark?
3,000,000
1,500,000
2,850,000
0
Ans.
3,000,000
The proper accounting for the cost incurred in creating computer software product is
To capitalized all cost until the software is sold
To charged research and development expense when incurred until technological feasibility has
been established for the product
To charged research and development expensed only if the computer software has alternative
future use.
To capitalized all cost as incurred until a detailed program design or working model is created.
Ans.
To charged research and development expense when incurred until technological feasibility has
been established for the product
CRC Company reported the following expenditures in relation to Patent Q which it

created during the year.
Research Phase
January 1, 2010 – April 30, 2010
§ Costs incurred in obtaining new knowledge in relation to new hydraulics P 250,000

process
§ Costs incurred in searching alternative materials, devices and processes
related to the new hydraulics process 240,000
§ Formulation, design and final selections of possible alternatives for 150,000
improved hydraulics
“Q”
Development Phase
May 1, 2010 – June 30, 2010
210,000
“Q”
July 1 : Technical feasibility in relation to project “Q” was achieved

§ Costs for the construction of jigs, molds and dies applying the new “Q” 360,000
technology
“Q”
CRC Company expects that the useful life of Patent Q would be for 10 years with no
residual value. Amortization commences in 2011.
The amount reported as expense in CRC Company’s 2010 financial statements in

relation to the internally generated intangible asset is
1,975,000
2,335,000
2,595,000
1,090,000
Ans.
1,975,000
Research and development costs, under prevailing practice, may be accounted for as follows:
R and D costs related to successful projects should be capitalized; others expensed

R and D costs related to unsuccessful projects should be capitalized; others expensed
R and D costs should be expensed as incurred
R and D costs should be allocated between successful and unsuccessful projects
Ans.
R and D costs should be expensed as incurred
Cubs Company reported the following expenditures in relation to Patent “Hugs”

which it has created during 2018.
Research Phase
January 1, 2018 – May 30, 2018
P 250,000
§ Costs incurred in obtaining new knowledge in relation to new hydraulics
process
§ Costs incurred in searching alternative devices and processes related to the 240,000
new hydraulics process
§ Formulation, design and final selections of possible alternatives for improved 150,000
hydraulics
“Hugs”
Development Phase
June 1, 2018 – August 31, 2018
210,000
“Hugs”
September 1 : Technical feasibility in relation to project “Hugs” was achieved
§ Costs for the construction of jigs, molds and dies applying the new “Hugs” 360,000
technology
“Hugs”
December 15, 2018: Completion of Project Hugs

§ Fees paid to register patent “Hugs” (initial legal life 20 years) 120,000
§ Cost of staff training in relation to operating Patent “Hugs” 240,000
Cubs Company expects that the useful life of Patent “Hugs” would be for 12 years
with no
residual value. Amortization commenced in 2019
Amortization expense in 2019 is
37,000
61,667
81,250
125,417
Ans.
61,667
Which is not considered a research and development activity?
Routine on going effort to refined , enrich or improved quality of existing product

Laboratory research aimed at discovery of new knowledge
Conceptual formulation and designed of possible product or process
Design, construction and operation of a pilot plant
Ans.
Routine on going effort to refined , enrich or improved quality of existing product
Cavinti Company provided the following information relevant to the research and
development expenditures for the year 2009:
Current period depreciation on the building housing R and D P1,500,000
activities
Cost of market research study 1,000,000
Current period depreciation on a machine used in R and D 500,000
activities
Salary of R and D director 1,200,000
Salary of Vice-President who spends ¼ of his time overseeing R 2,400,000
and D activities
Pension costs for salary of R and D director 50,000
Pension costs for salary of Vice-President 100,000
The R and D expense for the current period should be
P3,875,000
P5,750,000
Ans.
P3,875,000

Research Phase
January 1, 2010 – April 30, 2010

process
improved hydraulics
“Q”
Development Phase
May 1, 2010 – June 30, 2010
210,000
“Q”

technology
“Q”
Amortization expense to be reported in CRC Company’s 2011 financial statement is
62,000
0
36,000
26,000
Ans.
62,000

Research Phase
January 1, 2010 – April 30, 2010

process
improved hydraulics
“Q”
Development Phase
May 1, 2010 – June 30, 2010
210,000
“Q”

technology
“Q”
The amount reported as expense in CRC Company’s 2010 financial statements in

relation to the internally generated intangible asset, assuming that CRC Company
does not have public accountability and applied the IFRS for SMEs for reporting
purposes
2,595,000
1,975,000
2,335,000
1,090,000
Ans.
2,595,000
If an entity construct a laboratory building to be used as a research and development facilities ,

the cost of the laboratory building is match against earning as
Research and development expense in the period of construction.

Depreciation deducted as part of research and development cost
Depreciation of immediate write off depending on company policy
An expensed at such time as productive research has been obtained from the facility
Ans.
Depreciation deducted as part of research and development cost
The following statement relate to development ‘’ Which statement is true ?

I. The product being developed should have already been put into commercial
production or use.
Development involves the application of research findings .
I only
II only
Both I and II
Neither I nor II
Ans.
II only
Betterword Company is engaged in developing computer software. The following

costs were incurred during 2009:
Salaries of programmers doing research P235,000
Expenses related to projects prior to establishment of technological
feasibility 78,400
Expenses related to projects after technological feasibility has been
established but before software is available for production 49,500
Amortization of capitalized software development costs 26,750
Costs to produce and prepare software for sale 56,300
Additional data for 2009:
Sales of products for the year P515,000
Beginning inventory 142,000
Portion of goods available for sale sold during the year 60%
Determine the company’s profit for 2009. Income tax rate is 35%.
P43,270
P72,527
P36,315
P49,927
Ans.
P43,270
During 2009, Pagsanjan Company incurred costs to develop and produce a routine,
low-risk computer software product as follows:
Completion of detail program design P1,500,000
Cost incurred for coding and testing to establish technological 500,000
feasibility
Other coding costs after establishment of technological 2,500,000
feasibility
Other testing costs after establishment of technological 2,000,000
feasibility
Costs of producing product masters for training materials 3,000,000
Duplication of computer software and training materials from 4,000,000
product master
Packaging product 1,000,000
In the December 31, 2009 balance sheet, what amount should be capitalized as software
cost subject to amortization?
P7,500,000
P9,500,000
P4,500,000
P8,000,000
Ans.
P7,500,000
The following is information related to the development of a particular software package in

the first year of product life:
Development costs prior to reaching technological P 4,000
feasibility
Development costs after reaching technological 6,000
feasibility
Costs of duplicating salable product 9,000*
Estimated revenues over 3 year total product life 300,000
Revenue in the first year of product life 150,000
*This represents the entire inventory expected to be sold over the 3-year period.
What is the total expense related to this software package to be recognized in its first-year?
P16,000
P12,000
P11,500
P 7,000
Ans.
P11,500
Which statement is incorrect regarding internal – used software?
The application and development cost of internal used software should be amortized on the
straight line basis unless another systematic and rational basis is more appropriate
Internal used software is considered to be software that is marketed as a separate product or as

part of a product or process.
The cost of testing and installing computer hardware should be capitalized as incurred
The cost of training and application maintenance should expensed as incurred

Ans.
Internal used software is considered to be software that is marketed as a separate product or as
part of a product or process.
Which of the following research and development related cost should be capitalized and
amortized over current and future periods ?
Labor and materials cost incurred in building a prototype model
Cost of testing equipment that will also be used in another separate research and
development project scheduled to begin next year?
Administrative salaries allocated to research and development
Research findings purchased from another entity to aid a particular research project
currently in process .
Ans.
Cost of testing equipment that will also be used in another separate research and development
project scheduled to begin next year?
A newly set up dot- com entity has engaged you as its financial advisor. The entity has
recently completed one of its highly publicized research and development project and seeks your
advised on the accuracy of the following statement made by one of its stakeholder . Which one is
the most accurate?
Cost incurred during the ‘’ research phase’’ can be capitalized

Cost incurred during the ‘’ development phase ‘’ can be capitalized if criteria such a technical
feasibility of the project being established are met
Training cost of technician used in research can be capitalized
Designing of jigs and tools would qualify as research activities .

Ans.
Cost incurred during the ‘’ development phase ‘’ can be capitalized if criteria such a technical
feasibility of the project being established are met
Which participle best describe the current method of accounting for research and
development cost?
Associating cause and effect

Systematic and rational allocation
Income tax minimization
Immediate recognition as an expensed
Ans.
Immediate recognition as an expensed
A computer software purchased as an operating system for the hardware or as an integral part of
a computer controlled machine tool that cannot operate without the specific software shall be
treated as
Intangible assets
Property plant and equipment
Inventory
Expensed
Ans.
Property plant and equipment
Which amount these criteria are required for the recognition of development costs of an
internal project?
I. Technical feasibility of completing and the intention to complete the intangible

asset, and the ability to use or sell the intangible asset.
II. The ability of the intangible asset to generate probable future economic benefit, the
existence of a market for the output of the intangible asset, or its usefulness, if to be used
internally.
III. The availability of adequate, technical, financial and other resources to complete,
use or sell the intangible asset.
IV. The ability to measure reliably the expenditure attributable to the intangible asset
during its development.
I & IV are correct

I, II & IV are incorrect
I, II & III are correct
all are correct
Ans.
all are correct
Nasugbu Company incurred the following costs during 2009:

Quality control during commercial production, including routine testing of P58,000
products
Laboratory research aimed at discovery of new knowledge 68,000
Testing for evaluation of new products 24,000
Modification of the formulation of a plastic product 26,000
Engineering follow-through in an early phase of commercial production 15,000
Adaptation of an existing capability to a particular requirement or customer's 13,000
need as a part of continuing commercial activity
Trouble-shooting in connection with breakdowns during commercial 29,000
production
Searching for applications of new research findings 19,000
What is the total amount Nasugbu should report as research and development expense for 2009?
P137,000
P169,000
P198,000
P213,000
Ans.
P137,000
At the beginning of the current year , an entity purchased equipment for used in developing a
new product . The entity uses the straight line depreciation method. The equipment could provide
benefits over a 10 year period. However , the new product development is expected to take five
years , and the equipment can be used only for this project . The entity’s expensed for the current
year equal
The total cost of the equipment

One fifth of the cost of the equipment
One – tenth of the cost of the equipment
Zero
Ans.
The total cost of the equipment
Are the following statement true or false ?

Statement 1 Expenditures during the research phase of a project may sometimes be
capitalized as an intangible assets
Statement 2 Expenditures during the development phase of a project may sometimes

be capitalized as an intangible assets .
Statement 1, Statement 2
False, False
False, True
True, False
True, True
Ans.
False, True
Which of the following research and development related cost should be capitalized and
amortized over current and future periods?
Research and development general laboratory building
Inventory used for specific research project
Administrative salaries allocated to research and development
Research findings purchased from another company to aid a particular research project currently
in process
Ans.
Research and development general laboratory building
At the beginning of the current year, an entity had capitalized cost for a new computer
software product with an economic life of four years. Sales for current year were ten percent of
expected total sales of the software. The pattern of future sales cannot be measured reliably. At
year end , the software had a net realizable value equal to eighty percent of the capitalized cost.
The an amortized cost reported in the year –end statement of financial position should be
Net realizable value
Ninety percent of net realizable value
Seventy five percent of capitalized cost
Ninety percent of capital cost
Ans.
Seventy five percent of capitalized cost
A research and development activity for which the cost would be expensed as incurred is
Design, construction and testing of preproduction prototypes and models

Quality control during commercial production
Periodic design changes to existing product
Adaption of an existing capability to a particular requirement or customer need
Ans.
Design, construction and testing of preproduction prototypes and models
According to IAS 38 Intangibles, in order to be able to capitalise ‘development’

outlays an entity must be able to demonstrate the following:
I. Technical feasibility and intention of completing the
asset so it will be available for use or sale.
II. Its ability to reliably measure the expenditure on the
development of the asset.
III. Ability to use or sell the asset.
How the asset will generate probable future economic benefits.
I, II and IV only;
II, and IV only;
I, II, III and IV;
II, III and IV only.
Ans.
I, II, III and IV;
Siniloan Company incurred research and development costs in 2009 as follows:

Equipment acquired for use in various R&D P6,000,000
projects
Depreciation on the above equipment 1,200,000
Materials used 3,000,000
Compensation costs of personnel 4,000,000
Outside consulting fees 1,500,000
Indirect costs appropriately allocated 1,300,000
The 2009 total research and development expense should be

P11,000,000
P 9,700,000
P15,800,000
P 9,800,000
Ans.
P11,000,000
According to the definition provided in IAS 38 Intangibles, activities undertaken in the ‘research’
phase of the generation of an asset may include:
the application of knowledge to a design for the production of new materials;

original and planned investigation with the prospect of gaining new scientific knowledge;
the use of research findings to create a substantially improved product;
using knowledge to materially improve a manufacturing device.
Ans.
original and planned investigation with the prospect of gaining new scientific knowledge;
Research is
I. Original and planned investigation undertaken with the prospect of gaining
scientific or technical knowledge
II. Application of research finding or other knowledge to a plan or design for the
production of a new product prior to commencement of commercial production.
I only
II only
Both I and II
Neither I nor II
Ans.
I only
Which of the following should be expensed as incurred by the franchisee for a franchise with an
estimated useful life of ten years?
Amount paid to the franchisor for the franchise

Payment to a company , other than the franchisor ,for that company’s franchise
Legal fees paid to the to the franchisee’s lawyer to obtain the franchise
Periodic payment to the franchisor base on the franchisee’s revenue
Ans.
Periodic payment to the franchisor base on the franchisee’s revenue
Alaminos Company acquired three patents in January 20Y1. The patents have
different lives as indicated in the following schedule:
Remaining Remaining legal
Patent Cost useful life life
A P2,000,000 10 8
B 3,000,000 5 10
C 6,000,000 Indefinite 15
Patent C is believed to be uniquely useful as long as the company retains the right to use it.
In June 2009, the company successfully defended its right to Patent B. Legal fees of
P800,000 were incurred in this action. The company’s policy is to amortize intangible assets
by the straight-line method to the nearest half year. The company reports on a calendar-year
basis. The amount of amortization that should be recognized for 20Y1 is
P1,330,000
P2,050,000
P1,250,000
P 950,000
Ans.
P1,250,000
Gooden Enterprises Inc. developed a new machine for manufacturing baseballs. Because
the machine is considered very valuable, the company had it patented. The following
expenditures were incurred in developing and patenting the machine.
Purchases of special equipment to be used solely for P1,820,000
development of the new machine
Research salaries and fringe benefits for engineers and 171,000
scientists
Cost of testing prototype 236,000
Legal costs for filing for patent 127,000
Fees paid to government patent office 25,000
Gooden elected to amortize the patent over its legal life. At the beginning of the second year,
Gooden Enterprises paid P240,000 to successfully defend the patent in an infringement suit. At
the beginning of the fourth year Gooden determined that the remaining estimated useful life of
the patent was five years.
The carrying amount of the patent at the end of fourth year is
P135,320
P131,100
P1,649,680
P39,800
Ans.
P135,320
During 20CY, Balayan Corporation developed a patent. Expenditures related to the patent were
legal fees for patent registration, P70,000; tests to perfect the use of the patent for production
processes, P60,000; research costs in the research laboratory, P210,000; and depreciation on
equipment (that has alternative future uses) used in developing the patent, P40,000. Assuming
amortization of the patent costs over the legal life of the patent, the annual patent amortization
would be
P8,500
P4,120
P6,500
P3,500
Ans.
P3,500
A purchased patent with a remaining legal life of 15 years should be
Expensed in the year of acquisition

Amortized over 15 years regardless of the useful life
Amortized over its useful life if less than 15 years
Amortized over 20 years
Ans.
Amortized over its useful life if less than 15 years
The cost of purchasing rights for a product that might otherwise have seriously competed with
one of the purchaser patented products shall be
Changed off in the current period
Amortized over the legal life of the purchased patent
Added to factory overhead and allocated to production of the purchaser product
Amortized over the remaining estimated life of the patent for the product whose market would
have been impaired by competition from the newly patented product.
Ans.
Amortized over the remaining estimated life of the patent for the product whose market would
have been impaired by competition from the newly patented product.
Which of the following is not disclosure required by PFRS 6
Information about commercial reserve quantities
Accounting policies for exploration and evaluation expenditures, including the recognition of
exploration and evaluation assets
The amounts of assets, liabilities, income and expense, and operating and investing cash flows
arising from the exploration for and evaluation of mineral resources
Information that identifies and explains the amounts recognized from in the financial statement
arising from the exploration for and evaluation of mineral resources
Ans.
Information about commercial reserve quantities
Tommy, Inc. embarked on a new venture in Northern Luzon in 2016. It expects to glean
2,000,000 ounces of a precious ore from its holdings there, over several years. Relevant
data follow:
Cost of the Mineral Rights - P 500,000

Exploration Cost, 2016 (1/3 successful) - 1,500,000
Extraction Cost, 2016 - 2,000,000
Ore extracted, 2016 - 500,000 oz.
Ore sold, 2016 - 300,000 oz.
What is the depletion for 2016, using the full cost method of accounting for exploration
costs?
P500,000
P250,000
P300,000
P150,000
Ans.
P500,000
An oil company using the successful-efforts method drilled two wells. The first, a dry hole, cost
P50,000. The second cost P100,000 and had estimated recoverable reserves of 25,000 barrels, of
which 10,000 were sold this year. What will be the total expense for the year related to the
exploration and production from these two wells?
P40,000
P60,000
P 90,000
P150,000
Ans.
P 90,000
What is an entity required to considered in developing accounting policies for exploration and
evaluation activities?
The requirements and guidance in Standards and Interpretations dealing with similar and related
issues
The definitions, recognition criteria, and measurement concepts for assets, liabilities, income,
and expenses in the Framework
Recent pronouncements of standard-setting bodies, accounting literature, and accepted industry

practices
Whether the accounting policy results in information that is relevant and reliable
Ans.
Whether the accounting policy results in information that is relevant and reliable
Yin-Yang Company is involved in the exploration for and extraction of mineral

resources. The Company’s accounting policy for recognition purpose for these types
of activities is the “successful effort” method. On January 1, 2010 Yin-
Yang Company acquired two quarrying rights. A schedule of the expenditures made
with respect to the quarrying sites is provided as follows:
Site O Site X
Quarrying rights 2,000,000 1,000,000
Topographical studies 1,200,000 400,000
Exploratory drilling 1,500,000 1,000,000
Trenching and sampling 1,200,000 800,000
Development costs (road construction to 1,000,000 700,000
access site)
Depreciation of drilling rigs used for 300,000 120,000
exploration
At the end of 2010 Yin-Yang Company had decided to continue exploration and
extraction activities in site O (technically and commercial viable). Unfortunately,
further exploratory and development plans on site X would be abandoned (not
technically feasible and viable)
On January 1, 2011 Yin-Yang started extracting the mineral reserves from site O. It
was expected that a total of 10,000,000 tons of mineral ore would be extracted from
the site and it would be totally extracted within 8 years. Yin-Yang Company acquired
an extraction equipment for P600,000. The equipment which Yin-Yang Company
intends to use in another mining site was estimated to have a useful life of 12 years
with salvage value of P5,000. Fixed installations were likewise completed at the start
of 2011. The total cost incurred was P800,000. The installations expected useful life
is 10 years with no expected salvage value. Yin-Yang Company uses the straight-line
method as its depreciation policy for its long-lived assets.
Furthermore, the quarrying rights contained a clause that at the end of the quarrying,
Yin-Yang Company shall restore the area. The expected restoration cost was
P1,000,000. The market rate throughout 2011 was 10%. The PVF of P1 @ 10% for 8
periods was 0.467
Total tons extracted in 2011 and 2012 were 1,200,000 and 1,600,000 respectively.
On March 1, 2013 Yin-Yang Company changes its total estimated number of tons at
7,000,000 as of the beginning of the year. Eventually 1,800,000 tons were extracted
for the period.
Carrying amount of the fixed installations at December 31, 2013
427,885
560,000
600,000
432,000
Ans.
427,885

Site O Site X
access site)
exploration
periods was 0.467
for the period.
The exploration and evaluation assets to be reported in the 2010 statement of financial
position is
6,200,000
7,200,000
9,520,000
11,220,000
Ans.
6,200,000
Natural, Incorporated embarked on a new venture in Northern Luzon in 2019. It

expects to glean 2,000,000 ounces of a precious ore from its holdings there, over
several years. Relevant data follow:
Cost of the Mineral Rights P 500,000

Exploration Cost, 2019
(1/3 successful) 1,500,000
Extraction Cost, 2019 2,000,000
Ore extracted, 2019 500,000 oz
Ore sold, 2019 300,000 oz
What is the depletion for 2019, using the successful efforts method of accounting for
exploration costs?
P350,000
P300,000
P250,000
P150,000
Ans.
P250,000
Does PFRS 6 require an entity to recognize exploration and evaluation expenditures as assets?
Yes, but only to the extent such expenditure is recoverable in future periods
Yes, but only to the extent the technical feasibility and commercial viability of extracting the
associated mineral resources have been demonstrated
Yes, but only to the extent required by the entity's accounting policy for recognizing exploration
and evaluation assets
No, such expenditure is always expensed in profit or loss as incurred

Ans.
Yes, but only to the extent required by the entity's accounting policy for recognizing exploration
and evaluation assets
PFRS 6 applies to expenditures incurred
When a specific are is being developed and preparations or commercial extraction are being
made
In extracting mineral resources and processing the resources to make it marketable or

transportable
When searching for an area that may warrant detailed exploration, even though the entity has not
yet obtained the legal rights to explore a specific area
When the legal rights to explore a specific area have been obtained, but the technical feasibility
and commercial viability of extracting mineral resources are not yet demonstrable
Ans.
When the legal rights to explore a specific area have been obtained, but the technical feasibility
and commercial viability of extracting mineral resources are not yet demonstrable
Which measurement model applies to exploration and evaluation assets subsequent to initial
recognition?
The cost model

The revaluation model
Either the cost model or the revaluation model
The recoverable amount model
Ans.
Either the cost model or the revaluation model
Is an entity ever required or permitted to change its accounting policy for exploration and
evaluation expenditures?
Yes, entities are required to change their accounting policy for these expenditures if the change
would result in more useful information for users of financial statements
Yes, entities are free to change accounting policy for these expenditures as long as the selected
policy results in information that is relevant and reliable
Yes, but only if the change makes the financial statements more relevant to the economic
decision-making needs of users and no less reliable, or more reliable and no less relevant to those
needs
No, entities would be permitted to change accounting policy only on adoption of a new or revised
Standard that replaces the existing requirements in PFRS 6
Ans.
Yes, but only if the change makes the financial statements more relevant to the economic
decision-making needs of users and no less reliable, or more reliable and no less relevant to those
needs
Which of the following expenditures would never qualify as an exploration and evaluation asset?
Expenditure for acquisition of rights to explore
Expenditure for exploratory drilling
Expenditures related to the development of mineral resources
Expenditure for activities in relation to evaluating the technical feasibility and commercial
viability of extracting a mineral resource
Ans.
Expenditures related to the development of mineral resources
Sweet Company is involved in the exploration for mineral resources. The accounting
policy is to recognize exploration assets and measure them initially at cost. At the end
of the current year, the following amounts were extracted from the financial
statements:
Trenching and sampling expenditure 1,000,000
Drilling rigs used for exploration, carrying
amount 2,000,000
Drilling rigs used for exploration,
depreciation expense 300,000
What amount of intangible exploration assets should be recognized in the financial

statements?
1,000,000
3,000,000
1,300,000
0
Ans.
1,300,000
Leyte Company constructed a building costing P15,000,000 on a mine property. The building
has an estimated life of 6 years with no salvage value. After all the resource is removed
expectedly over 5 years, the building will be of no use. The estimated recoverable output from
the mine is 1,000,000 tons. During the first year, Leyte produced 200,000 tons but there was shut
down and no output in the second year. In the third year, Leyte resumed operations and produced
300,000 tons. Leyte Company should record depreciation of the building in the third year at
P3,000,000
P2,500,000
P3,600,000
P4,500,000
Ans.
P3,600,000
Botolan Company quaries limestone, crushes it and sells it to be used in road building. Botolan
paid P20,000,000 for a certain quarry on January 1, 2018. The property can be sold for
P4,000,000 after production ceases. The original total estimated reserves totaled 5,000,000 tons.
Botolan quarried 500,000 tons in 2018 and 1,500,000 tons in 2019. An engineering study
performed in 2019 indicated that as of December 31, 2019, 4,500,000 tons were available.
Botolan Company should record 2019 depletion at
P3,600,000
P6,000,000
P4,800,000
P4,500,000
Ans.
P3,600,000
Waste Company has the following information pertaining to its mining operations:
Estimated cost of restoring property after mining is P400,000
completed
Number of tons mined during the current year 50,000 tons
Cost of land P6.0M
Estimated number of tons of ore to be mined 400,000
tons
Sales value of land after mining P300,000
Development costs incurred P500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion) P7.00
The company already recognized the estimated restoration cost immediately after the
resource property was acquired. How much would be the company’s cost of goods sold?
787,500822,500525,000603,700Waste Company has the following information pertaining
to its mining operations:
Estimated cost of restoring property after mining is P400,000
completed
Number of tons mined during the current year 50,000 tons
Cost of land P6.0M
Estimated number of tons of ore to be mined 400,000
tons
Sales value of land after mining P300,000
Development costs incurred P500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion) P7.00
The company already recognized the estimated restoration cost immediately after the
resource property was acquired. How much would be the company’s cost of goods sold?
787,500
822,500
525,000
603,700
Ans.
822,500
ABC Company provides the following balances at the end of 2019:
Wasting asset, at cost P8

Accumulated depletion 2
Retained earnings 1
Capital liquidated 1
Depletion based on 100,000 units extracted at P50 per unit
Inventory of resource deposit

(20,000 units)
Compute for the maximum amount of dividend that ABC can declare on December 31,
2019
P20,000,000
P14,000,000
P15,000,000
P13,000,000
Ans.
P14,000,000
Site O Site X
access site)
exploration
periods was 0.467
for the period.
Depletion for 2011

800,040
920,040
864,000
1,198,440
Ans.
800,040
On January 1, 2019, Major Company purchased a uranium mine for P800,000. On that date,
Major estimated that the mine contained 1,000 tons of ore. At the end of the productive years of
the mine, Major Company will be required to spend P4,200,000 to clean up the mine site. The
appropriate discount rate is 8%, and it is estimated that it will take approximately 14 years to
mine all of the ore. Major uses the productive-output method of depreciation. During 2019,
Major extracted 100 tons of ore from the mine. Compute the amount of depletion for 2019
P114,408
P 80,000
P223,000
P500,000
Ans.
P223,000
CERTS Exploration Co. purchased in 2014 a property that contained mineral deposit for
P4,500,000. Estimated recovery was P1,000,000 metric tons of deposits. Development costs
P150,000 were also incurred in the same year. The mining property was expected to be worth
P600,000 after the mineral deposits had all be removed. During 2015, the company extracted
and sold 100,000 metric tons of minerals. Further development costs of P75,000 were incurred
in 2016, and the estimate of total recoverable deposits (including the amount extracted in 2015)
was revised to 925,000 metric tons. During 2016, the company recovered 150,000 metric tons.
The depletion for the year 2014 is
P603,658
P676,500
P618,750
P750,000
Ans.
P676,500
Icon Company provided the following balances at the end of the current year:
Wasting asset, at cost 20,000
Accumulated depletion, beg 2,500
Share capital 50,000
Capital liquidated 1,800
Retained earnings 1,500
Depletion for the current year based on 50,000 units 1,000
extracted at P20 per unit
Inventory of resource deposit (5,000 units) 400
Entry to record the declaration of P1,500 dividend includes:
Debit to Retained earnings for 1,000

Debit to Capital liquidated for 500
Credit to Dividends payable for 1,500
Credit to Capital liquidated for 1,800
Ans.
Credit to Dividends payable for 1,500
Zambales Company acquired property in 2019 which contains mineral deposit. The
acquisition cost of the property was P20,000,000. Geological estimates indicate that
5,000,000 tons of mineral may be extracted. It is further estimated that the property
can be sold for P5,000,000 following mineral extraction. For P2,000,000, Zambales is
legally required to restore the land to a condition appropriate for resale. After
acquisition, the following costs were incurred:
Exploration cost
Development cost related to drilling of wells
Development cost related to production equipment
The company extracted 600,000 tons of the mineral in 2019 and sold 450,000 tons. In the
2019 income statement, what amount of depletion is included in cost of sales?
P4,800,000
P5,400,000
P3,600,000
P4,050,000
Ans.
P3,600,000
Current Corporation acquired a coal mine at a cost of P5,000,000. Intangible development

costs total P1,200,000. After extraction has occurred. Current must restore the property
(estimated fair value of the obligations is P600,000) after which it can be sold for
P1,700,000. Current estimates that 50,000 tons of coal can be extracted.
If 9,000 tons were extracted during the first year, which of the following would be
included in the journal entry to record depletion?
Debit to Accumulated Depletion for P918,000

Debit to Inventory for P918,000
Credit to Inventory for P900,000
Credit to Accumulated Depletion for P1,530,000
Ans.
Debit to Inventory for P918,000

Site O Site X
access site)
exploration
periods was 0.467
for the period.
Depletion for 2013

1,234,347
1,419,490
1,762,560
1,333,029
Ans.
1,234,347
Tommy Mining Company constructed a building costing P800,000 on the mine property.
Its estimated residual value will not benefit the company and will be ignored for purposes
of computing depreciation. The building has an estimated life of 6 years. The total
estimated recoverable units from the mine are 50,000 tons. The company's production of
the first four years of operations was:
First year 10,000 tons
Second year 20,000 tons
Third year Shut down, no
output
Fourth year 15,000 tons
What is the depreciation for the fourth year?
P240,000
P180,000
P133,334
P80,000
Ans.
P180,000
BAGUIO Company provides the following balances at the end of 2016:
Wasting asset, at cost - P80,000,000

Accumulated depletion - 20,000,000
Retained earnings - 10,000,000
Capital liquidated - 15,000,000
Depletion based on 100,000 units extracted at P50 per unit - 5,000,000
Inventory of resource deposit (20,000 units) - 2,000,000
Compute for the maximum amount of dividend that BAGUIO can declare on December
31, 2016.
P20,000,000
P15,000,000
P14,000,000
P13,000,000
Ans.
P14,000,000
Nestle Corporation, one of the largest mining company, paid P20, 000, 000 to the local
government for the right explore and extract mineral reserves in an area of interests. The
following costs were also incurred related to the exploration costs, P7, 000, 000 and
evaluation costs of P3, 000, 000. Results of the study revealed that the total estimated
mineral reserve is 10, 000, 000. Nestle Company started its commercial production in
year 20CY. The company produced 1, 200, 000 tons in 20CY. What is the amount of
amortization/depletion on the capitalized intangible exploration and evaluation costs for
the year 20CY?
Select one:
P2, 760, 000

P2, 000, 000
P3, 600, 000
P3, 240, 000
Ans.
P3, 600, 000
In January, 20CY, DNL Corporation purchased a mineral mine for 3,400,000 with
removable ore estimated by geological surveys at 2,000,000 tons. The property has an
estimated value of 200,000 after the ore has been extracted. The company incurred
1,000,000 of development costs preparing the mine for production. During 20CY,
500,000 tons were removed and 400,000 tons were sold. What is the amount of depletion
that DNL should expense for 20CY?
Select one:
640,000
800,000
1,120,000
840,000
Ans.
840,000
CERTS Company acquired property in 20CY which contains mineral deposit. The
acquisition cost of the property was P20,000,000. Geological estimates indicate that
5,000,000 tons of mineral may be extracted. It is further estimated that the property can
be sold for P5,000,000 following mineral extraction. For P2,000,000, Certs is legally
required to restore the land to a condition appropriate for resale. After acquisition, the
following costs were incurred:
Exploration cost 13,000,000
Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000
The company extracted 600,000 tons of the mineral in 20CY and sold 450,000 tons. In
the 20CY income statement, what amount of depletion is included in cost of sales?
Select one:
3,600,000
4,800,000
5,400,000
4,050,000
Ans.
3,600,000
On July 1, 2016 Macar Company purchased rights to a mine. The total purchase price was
P50,000,000 of which P5,000,000 was allocated to the land. Estimated reserves were 6,000,000.
Macar expects to extract and sell 100,000 tons per month. Macar Company purchased new
equipment on July 1, 2016 for P21,000,000 with estimated life of 8 years. However, after all the
resource is removed, the equipment will be of no use and will be sold for P3,000,000. What is
the depreciation of the equipment for 2016?
P1,800,000
P2,100,000
P1,125,000
P3,600,000
Ans
P1,800,000
PAS 36 applies to which of the following assets?
Inventories
Financial assets
Assets held for sale
Property, plant, and equipment
Ans.
Property, plant, and equipment
It is a fall in the market value of an asset so that its recoverable amount is now less than its
carrying amount in the balance sheet.
Impairment
Depreciation
Amortization
Decline in value
Ans
Impairment
IAS 36 Impairment of Assets contains a number of examples of internal and external
events which may indicate the impairment of an asset. In accordance with IAS 36, which
of the following would definitely NOT be an indicator of the potential impairment of an
asset (or group of assets)?
Select one:
A significant change in the technological environment in which an asset is employed

making its software effectively obsolete
The carrying amount of an entity’s net assets being below the entity’s market
capitalization
Adverse changes in the economic performance of one or more assets
An unexpected fall in the market value of one or more assets

Ans
The carrying amount of an entity’s net assets being below the entity’s market capitalization
An impairment loss occurs when:
the recoverable amount of an asset exceeds the carrying amount;

the carrying amount of an asset exceeds the recoverable amount;
the asset has a zero residual value;
the recoverable amount of an asset exceeds its initial cost.
Ans
the carrying amount of an asset exceeds the recoverable amount;
What is the recoverable amount of an asset?
Fair value less cost to sell

Value in use
Fair value less cost to sell or value in use, whichever is higher
Fair value less cost to sell or value in use, whichever is lower
Ans
Fair value less cost to sell or value in use, whichever is higher
The internal sources of information indicating possible impairment include all of the following,
except
Evidence of obsolescence or physical damage of an asset
Significant change in the manner or extent in which the asset is used with an adverse effect on
the enterprise
Evidence that the economic performance of an asset will be worse than expected
Significant decrease or decline in the market value of the asset

Ans.
Significant decrease or decline in the market value of the asset
Value in use of an asset is equal to the
Undiscounted future net cash flows from the use of the asset
Undiscounted future net cash flows from the use and eventual disposition of the asset
Discounted future net cash flows from the use of the asset
Discounted future net cash flows from the use and eventual disposition of the asset
Ans.
Discounted future net cash flows from the use and eventual disposition of the asset
If assets are to be disposed of
The recoverable amount is the fair value less costs to sell

The recoverable amount is the value-in-use
The asset is not impaired
The recoverable amount is the carrying value
Ans
The recoverable amount is the fair value less costs to sell
Value in use
Select one:
is the future cash flows expected to be derived from an asset

should be estimated using an after-tax discount rate
must always be computed when determining the recoverable amount
is the present value of the future cash flows expected to be derived from an asset
Ans
is the present value of the future cash flows expected to be derived from an asset
Which statement is incorrect concerning the estimation of future cash flows?
Future cash flows should be based on reasonable and supported assumptions.
Future cash flows should be based on the most recent budgets or financial forecasts, usually up a
maximum of 5 years.
Foreign currency future cash flows should be forecast in the currency in which they will arise
and will be discounted using a rate appropriate to the enterprise
The discount rate used in estimating future cash flows should be the current rate after tax.
Ans.
The discount rate used in estimating future cash flows should be the current rate after tax.
If the fair value less costs to sell cannot be determined
The asset is not impaired

The net realizable value is used
The carrying value of the asset remains the same
Ans
Costs of disposal are deducted in determining fair value less cost to sell. Examples of disposal
costs include all of the following, except
Legal costs
Stamps and similar transactions taxes
Costs of removing the asset
Finance costs
Ans
Finance costs
Nguyen Limited estimated that it would receive future cash flows from the use of
Equipment:
 End of Year 1 P10 00
The discount rate was determined as 8%. The ‘value in use’ of the Equipment is:
P80 000;
P73 600;
P68 000;
P63 500;
Ans
P68 000;
At reporting date, the carrying amount of a cash-generating unit was considered to be

have been impaired by P800,000. The unit included the following assets: Land
P4,000,000; Plant P3,000,000; Goodwill P1,000,000. The carrying amount of Goodwill
after the impairment loss is allocated, is:
P200,000
P900,000
P1,000,000
P0
Ans.
P200,000
A part of a cash-generating unit which had recognised goodwill, was sold for P20 000. The
recoverable amount of the remaining part of the unit is P60 000. How much of the goodwill is
included in the carrying amount of the operation that is disposed of?
33%;
30%
50%
25%
Ans
25%
Childish Company has determined that its electronics division is a cash generating unit.
The entity calculated the value in use of the division to be P8,000,000. The assets of the
cash generating unit at carrying amount are as follows:
Building 5,000,000
Equipment 3,000,000
Inventory 2,000,000
10,000,000
The entity also determined that the fair value less cost of disposal of the building is
P4,500,000. What is the impairment loss to be allocated to the equipment?
Select one:
400,000
900,000
1,000,000
600,000
Ans
900,000
On January 1, 20Y1, Rowan Company acquired all the assets and liabilities of another
entity. The acquiree has a number of operating divisions, including one whose major
industry is the manufacture of toy train. The toy train division is regarded as a cash
generating unit. On December 31, 20Y2, the carrying amounts of the assets of the toy
train division were:
Building 5,000,000
Inventory 3,000,000
Trademark 1,000,000
Goodwill 1,000,000
There is a declining interest in toy train because of the aggressive marketing of
computer-based toys. Management of Rowan Company measured the value in use of the
toy train division on December 31, 20Y2 at P7,200,000. The fair value less cost of
disposal of inventory is greater than carrying amount. What is the impairment loss to be
allocated to the building?
Select one:
1,500,000
1,000,000
2,000,000
2,800,000
Ans.
1,500,000
It is the smallest identifiable group of assets that generate cash inflows from continuing use that
are largely independent of the cash inflows from other assets or group of assets.
Cash generating unit

Goodwill
Corporate asset
The enterprise as a whole
Ans
Cash generating unit
Ernel Company has determined that its fine china division is a cash-generating unit. The
carrying amounts of the assets at December 31, 20CY are as follows:
Factory 476,000
Land 204,000
Equipment 170,000
Goodwill 50,000
Ernel Company calculated the value in use of the division to be 710,000. The fair value
less cost to sell the land is P180,000
The total amount of impairment loss absorbed by the Equipment account is
28,000
30,526
50,000
None
Ans.
30,526
Entity M has performed an impairment test for a cash-generating unit, which includes
goodwill. In recognising the impairment loss, Entity M
allocates the impairment loss to all assets (including goodwill) on a pro rata basis
first reduces the carrying amount of the non-goodwill assets and then applies the
remaining loss, if any, to goodwill allocated to the unit
first reduces the carrying amount of goodwill allocated to the cash-generating unit and
then allocates the remaining impairment loss to the other assets of the cash-generating
unit on a pro rata basis in proportion to their carrying amounts
first reduces the carrying amount of goodwill allocated to the cash-generating unit and
then allocates the remaining impairment loss to the other assets of the cash-generating
unit on a pro rata basis in proportion to their fair values
Ans.
first reduces the carrying amount of goodwill allocated to the cash-generating unit and then
allocates the remaining impairment loss to the other assets of the cash-generating unit on a pro
rata basis in proportion to their carrying amounts
Ernel Company has determined that its fine china division is a cash-generating unit. The
carrying amounts of the assets at December 31, 20CY are as follows:
Factory 476,000
Land 204,000
Equipment 170,000
Goodwill 50,000
Ernel Company calculated the value in use of the division to be 710,000. The fair value
less cost to sell the land is P180,000
The initial amount of the impairment loss initially to be allocated to the land account is
33,600
24,000
9,600
None
Ans
33,600
On January 1, 2011 Violet Company acquired a building which it classified as an

investment property. Violet Company paid 4,000,000 to the seller, as well as,
P200,000 for taxes, legal and professional fees. The fair value of the building was
3,900,000
The building has a useful life of 20 years and a residual amount of P400,000.
The fair value of the building at December 31, 2011 was P4,120,000 while the
estimated transaction cost on sale was 80,000.
The fair value of the building on December 31, 2012 was P3,750,000 while the
estimated transaction cost on sale was P110,000
On July 1, 2011 Maroon Company transferred a property classified as inventory to

investment property (commencement of an operating lease to another entity). The
carrying amount of the property before the change in use was P2,400,000.
The corresponding fair value of the property at the time of transfer was P2,900,000.
The amount included in profit or loss as a result of the transfer under the cost
model and fair value model are
Cost model Fair value model Cost model Fair value model
a. 0 0
a. 500,000 0
a. 0 500,000
a. 500,000 500,000
Ans
a.
0
500,000
Crosswind Company has a single investment property which had an original cost of
P5,800,000 on January 1,20Y1. At December 31, 20Y3, its fair value was P6,000,000 and
at December 31, 20Y4, it had a fair value of P5,900,000. On acquisition, the property had
a useful life of 40 years.
What should be the expense recognized in Crosswind's profit or loss for the year ended
December 31, 20Y4 under the fair value model and cost model?
Fair Cost model

value
model
147,500 145,000
100,000 145,000
145,000 100,000
100,000 147,500
Ans.
100,000 145,000
On July 1, 2011 Beige Company transferred a property classified as owner-occupied

to investment property (end of owner occupation). The carrying amount of the
property before the change in use was P1,200,000.
The corresponding fair value of the property at the time of transfer was P1,500,000.
The amount included in profit or loss as a result of the transfer under the cost
model and fair value model are
Cost model Fair value model Cost model Fair value model
a. 0 0
a. 300,000 0
a. 0 300,000
a. 300,000 300,000
Ans
a.
0
0
Transfer from investment property to property, plant, and equipment are appropriate
When there is change of use
Based on the equity's discretion
Based on the equity's discretion
The entity can never transfer property into another classification on the balance sheet once it is
classified as investment property
Ans
When there is change of use
On January 2, 20Y1, Havan Corporation acquired a track of land that is to be sold in the
ordinary conduct of business. The purchase price of the property of P50, 000, 000 was
paid in cash and a total transaction costs of P500, 000 related to the acquisition of the
property was also paid at a later date. The land was subdivided into 2, 000 lots (200
square meters for every lot) for an additional costs of P5, 500, 000. On December 31,
20Y1, the market value of the lot was P1, 500 per square meter.
As of December 31, 20Y2, only 20, 000 square meters are still unsold and market value
of the lot had increased to P1, 600 per square meter. On this date, Haven Corporation
decided to transfer the remaining lots into investment property that is to be carried under
the fair value models. There was no additional cost incurred on the change of intention on
the property. What amount of gain should Haven Corporation recognize as a result of the
transfer?
Select one:
29, 500, 000

29, 225, 000
29, 200, 000
29, 475, 000
Ans
29, 200, 000
Paradise Company's accounting policy with respect to investment properties is to
measure them at fair value at the end of each reporting period. One of its investment
properties was measured at P8,000,000 on December 31,20CY.
The property had been acquired on January 1, 20CY for a total of P7,600,000, made up
of P6,900,000 paid to the vendor, P300,000 paid to the local authority as a property
transfer tax and P400,000 paid to professional advisers. The useful life of the property is
40 years. The amount of gain to be recognized in profit or loss in the year ended
December 31, 20CY in respect of the investment property is
400,000
700,000
800,000
590,000
Ans
400,000
Soriano Company’s accounting policy for investment properties is the fair value model.
One of its investment properties was measured at P80,000,000 on December 31, 20CY.
The property has been acquired on January 1, 20CY for a total of P76,000,000. Made up
of P69,000,000 paid to the vendor. P3,000,000 paid to the local authority as a property
transfer tax and P4,000,000 paid to professional advisers. The useful life of the property
is 40 years. What is the amount of gain to be recognized in profit or loss for the year
ended December 31, 20CY?
Select one:
P8, 000, 000

P7, 000, 000
P5, 900, 000
P4, 000, 000
Ans.
P4, 000, 000
PAS 41 shall be applied to account for the following when they relate to agricultural
activity:
I. Biological assets
II. Agricultural produce at the point of harvest

III. Processing of agricultural produce after harvest
IV. Government grants related to biological assets
I, II, III and IV

I, II and III only
I, II and IV only
I and II only.
Ans.
I, II and IV only
Agricultural activity
is the management of the biological transformation of biological assets for sale, into agricultural
produce, or into additional biological assets.
is the harvested product from biological assets.
comprises the processes of growth, degeneration, production, and procreation that cause
qualitative or quantitative changes in a biological asset.
is the detachment of produce from biological asset or the cessation of a biological asset’s life
processes.
Ans.
is the management of the biological transformation of biological assets for sale, into agricultural
produce, or into additional biological assets.
On October 1, 2011 Simba Company acquired a biological asset and paid P450,000.
The fair value less cost to sell of the biological asset at the time of acquisition was
P445,000. On December 31, 2011 the fair value less cost to sell of the biological
asset was P475,000.
On July 1, 2012 Simba Company harvested the biological asset and eventually
reclassified it as inventory. The fair value less cost to sell at point of harvest was
P485,000. On December 31, 2011 the harvested biological asset was still on hand.
The fair value less cost to sell of a biological asset similar to the one harvested in July
1, 2011 was P481,000. The net realizable value of the harvested biological asset was
P480,000
The initial measurement of the biological asset is
0
445,000
450,000
Ans
445,000
Pumba Company has a herd of 8, 2 - year old animals as of January 1, 2013. On July
1, 2013 one animal was born and one animal (age 2.5 years) was purchased for
P18,500. No animals were sold or disposed during the year.
Per unit fair values less estimated point-of-sale costs were as follows:
January 1, December 31, 2013
2013
2 - year old P 16,500 New born animal P 8,300
animal
0.5 - year old 8,700
animal
July 1, 2013 2 - year old animal 19,500
New born animal P 8,000 2.5 - year old 21,900
animal
2.5 year old 20,500 3 - year old animal 26,700
animal
The gain from change in fair value due to physical change
72,800
70,800
64,800
62,800
Ans.
70,800
asset was P475,000.
P480,000
1. Maurice Company is engaged in raising poultry. Information regarding its

activities relating to the poultry is as follows:
Carrying amount on January 1, 2012 500,000
Increase due to purchases 200,000
Gain arising from change in fair value less cost to sell – due to 40,000
price change
Gain arising from change in fair value less cost to sell – due to 60,000
physical change
Decrease due to sales 85,000
Decrease due to harvest 20,000
The carrying amount of the biological asset on December 31 is
600,000
695,000
715,000
780,000
Ans.
695,000
asset was P475,000.
P480,000
The gain (loss) recognize in profit or loss as a result of the reclassification on July 1,
2012 is
40,000
35,000
10,000
0
Ans.
10,000
asset was P475,000.
P480,000
The carrying amount of inventory (biological asset harvested in July 1, 2012) at

December 31, 2012
450,000
480,000
481,000
485,000
Ans.
480,000
Biological assets should be measured on initial recognition and at subsequent reporting dates
sat fair value less estimated point-of-sale costs

at lower of cost and net realizable value
at estimated selling price less cost necessary to make the sale
at cost
Ans.
at fair value less estimated point-of-sale costs
asset was P475,000.
P480,000
The amount of the biological asset reported in the December 31, 2011 statement of
financial position is
0
445,000
450,000
475,000
Ans
475,000
Lumiere Company has the following balances in its financial records at December 31,
2012
Value of biological at December 31, 2011 P 600,000
Fair valuation surplus on initial recognition at fair value at 700,000
December 31, 2012
Change in fair value to December 31, 2012 due to growth and price 100,000
fluctuations
Decrease in fair value due to harvest 90,000
The carrying amount of the biological assets to be presented in the 2012 balance
sheet is
1,210,000
1,300,000
1,310,000
1,400,000
Ans
1,310,000
asset was P475,000.
P480,000
The amount reported in the profit or loss section of the 2011 comprehensive income
statement in relation to the biological asset is
0
(5,000)
25,000
30,000
Ans.
30,000
A public limited company, Lambino Dairy Products, produces milk on its farms. As of
January 1, 2013 Lambino has a stock of 1,050 cows (average age, 2 years old) and 150
heifers (average age, 1 year old). Lambino purchased 375 heifers, average age 1 year old,
on July 1, 2013. No animals were born or sold during the year. The unit values less
estimated point-of-sale costs were
1 - year old animal at December 31, 2013 - P3,200
2 - year old animal at December 31, 2013 - 4,500
1.5 - year old animal at December 31, 2013 - 3,600
3 - year old animal at December 31, 2013 - 5,000
1 - year old animal at Jan. 1, 2013 and July 1, 2013 - 3,000
2 - year old animal at January 1, 2013 - 4,000
The increase in value of biological assets in 2013 due to price changes is
P1,500,000
P630,000
P555,000
P460,000
Ans
P630,000
2013
animal
0.5 - year old 8,700
animal
animal
animal
The amount reported under biological assets in the December 31, 2013 statement of
financial position
158,500
186,200
249,000
267,000
Ans.
249,000
Timon’s Dairy Farm provided the following balances for the year ended December 31,
2012
Fair value of milk produced 300,000
Gain from change in fair value 25,000
Inventories used 70,000
Staff costs 60,000
Depreciation expense 7,500
Other operating expenses 95,000
Income tax expense 27,500
The net income of Timon’s Dairy Farm for the year ended December 31, 2012 is
40,000
65,000
135,000
110,000
Ans.
65,000
Point of sale costs do not include
Commissions to brokers and dealers

Levies by regulatory agencies and commodity exchanges
Transfer taxes
Transport and other costs necessary to get assets to a market
Ans.
Transport and other costs necessary to get assets to a market
If a government grant related to a biological asset is condition on certain events , the grant shall
be recognized as
Income when the condition attaching to the grant are met

Income when the grant has been approved
A deferred credit when the grant approved
A deferred credit when the grant is approved
Ans
Income when the condition attaching to the grant are met
An unconditional government grant related to a biological asset that has been measured at fair
value less point of sale costs should be recognized as
income when the grant becomes receivable

a deferred credit when the grant becomes receivable
income when the grant application has been submitted
deferred credit when the grant has been approved
Ans
income when the grant becomes receivable
On October 1, 2014, Jerome Co. has a building with a cost of P4,000,000 and accumulated
depreciation of P3,100,000. The Co. commits a plan to sell the building by February 1, 2015. On
October 1, 2014, the building has an estimated selling price of P800,000 and it is estimated that
selling cost associated with the disposal of the building will be P120,000. On December 31,
2014, the estimated selling price of the building has increased to P1,200,000 with estimated
selling cost remaining at P120,000. At the time of reclassification as held for sale, what amount
should the non-current asset held for sale be recognized?
680,000
780,000
800,000
900,000
Ans
680,000
In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable.
“Highly probable” means that
The future sale is likely to occur

The future sale is more likely than not to occur
The sale is certain
The probability is higher than more likely than not
Ans
On July 1, 2014, Blazers co. has a building with a cost of P4,000,000 and accumulated
depreciation of P1,600,000. On the same date, Blazers co. commits to a plan to sell the building
by February 1, 2015. The building has a fair value of P2,000,000 and it is estimated that the
selling cost of the building will be P150,000. As of July 1, 2014, the building has a remaining
life of 15 years. What is the amount to be reported as the carrying value of the building held for
sale as of December 31, 2014?
1,788,333
1,850,000
1,933,333
2,000,000
Ans.
1,850,000
Any gain on a subsequent increase in the fair value less cost to sell of a noncurrent asset
classified as held for sale should be treated as follows
The gain should be recognized in full

The gain should not be recognized
The gain should be recognized but not in excess of the cumulative impairment loss
The gain should be recognized but only in retained earnings
Ans.
depreciation of P1,600,000. On the same date, Blazers co. commits to a plan to sell the
building by February 1, 2015. The building has a fair value of P2,000,000 and it is
estimated that the selling cost of the building will be P150,000. As of July 1, 2014, the
building has a remaining life of 15 years.
What is the amount to be reported as the carrying value of the building held for sale as of
December 31, 2014?
1,788,333
1,850,000
1,933,333
2,000,000
Ans.
1,850,000
The key characteristic for the classification of an asset as ‘held for sale’ is that the carrying
amount of the asset must:
principally be recovered through a sale transaction;

principally be recovered through continuing use;
be lower than initial cost of the asset
be higher than its net realizable value
Ans
principally be recovered through a sale transaction;
An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the
criteria to be classified as held for sale. At the balance sheet date, the subsidiary has not yet been
sold, and six months have passed since its acquisition. How will the subsidiary be valued in the
balance sheet at the date of the first financial statements after acquisition?
At fair value
At the lower of its cost and fair value less cost to sell
At carrying value
In accordance with applicable PFRS
Ans
PFRS 5 states that a noncurrent asset that is to be abandoned should not be classified as held for
sale the reason for this is because
Its carrying amount will be recovered principally through continuing use

It is difficult to value
It is unlikely that the noncurrent asset will be sold within 12 months
It is unlikely that three will be an active market for the noncurrent asset
Ans.
An entity has an asset that was classified as held for sale. However, the criteria for it to remain
as held for sale no longer apply. The entity should therefore
Leave the noncurrent asset in the financial statements at its current carrying value
Remeasure the noncurrent asset at fair value
Measure the noncurrent asset at the lower of its carrying amount before the asset was classified
as held for sale (as adjusted for subsequent depreciation, amortization, or revaluations) and its
recoverable amount at the date of the decision not to sell
None of the above

Ans.
Measure the noncurrent asset at the lower of its carrying amount before the asset was classified
as held for sale (as adjusted for subsequent depreciation, amortization, or revaluations) and its
recoverable amount at the date of the decision not to sell
On December 31,2014, Charmaine co. committed to a plan to sell a manufacturing

facility in its present condition and classifies the facility as held for sale at this date.
After a firm purchase commitment is obtained, the buyer’s inspection of the property
identifies environmental damage not previously known to exist. Charmaine is required by
the buyer to make good the damage, which will extend the period required to complete
the sale beyond one year. However, the entity has initiated actions to make good the
damage, and satisfactory rectification of the damage is highly probable. On December
31,2014, the carrying value of the facility is P4,000,000 and its fair market value is
P3,600,000
In its December 31, 2014 balance sheet, Charmaine co. should properly report this
manufacturing facility as:
None
180,000
220,000
400,000
Ans
400,000
An entity classified noncurrent asset accounted for under the cost model as held for sale on
December 31, 2009.because no offers were received at an acceptable price , the entity decided
on July 1, 2010 not to sell the asset but to continue to used it. In accordance with PFRS 5, The
asset shall be measured on July 1, 2010 at
The lower of its carrying amount and its recoverable amount
The higher of its carrying amount and its recoverable amount
The lower of its carrying amounts on the basis that it had never been classified as held for sale
and its recoverable amounts
The higher of its carrying amount on the basis that it had never been classified as held for sale
and its recoverable amount
Ans.
The lower of its carrying amounts on the basis that it had never been classified as held for sale
and its recoverable amounts
In Order for a non current asset to be classified as held for sale , the sale must be highly probable
means that
The future sale is likely to occur

The future sale is more likely than not to occur
The sale is certain
Ans.
When assets are ‘held for sale’ they must be measured, under PFRS 5 Non-current Assets Held
for Sale and Discontinued Operations, using which of the following approaches?
lower of cost, and replacement cost

lower of fair value, and net present value
lower of carrying amount, and fair value less costs to sell
fair value
Ans
lower of carrying amount, and fair value less costs to sell
On April 1, 2019, Brandy Company has a machine with a cost of P1, 000,000 and
accumulated depreciation of P750, 000. On April 1, Brandy classified the machine as
“held for sale” and decided to sell the machine within 1 year. As of April 1, 2019, the
machine had an estimated selling price of P100, 000 and remaining useful life of 2 years.
IT is estimated that selling cost associated with disposal of the machine will be P10, 000.
On December 31, 2019, the estimated selling price of the machine had increased to P150,
000 with estimated selling cost of P20, 000.
How much should be recognized as gain on several of impairment on December 31,2019?
93,750
73,750
60,000
40,000
Ans.
40,000
Any gain on a subsequent increase in the fair value less cost to sell of a noncurrent asset
classified as held for sale should be treated as follows:
The gain should be recognized in full

The gain should not be recognized
The gain should be recognized but only in retained earnings
Ans.
How should the asset and liabilities of a disposal group classified as held for sale be shown in the
statement of financial positions?
The asset and liabilities shall be offset and presented as a single amount
The asset of the disposal group shall be shown separately from other asset in the statement of
financial positions , and the liabilities , of the disposal group shall be shown separately from
other liabilities in the statement of financial positions
The asset and liabilities shall be presented as a single amount and as a deductions from equity
There should be no separate disclosure of assets and liabilities that part of a disposal group
Ans.
The asset of the disposal group shall be shown separately from other asset in the statement of
financial positions , and the liabilities , of the disposal group shall be shown separately from
other liabilities in the statement of financial positions
An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the
criteria to be classified as held for sale. At the end of the reporting period , the subsidiary has not
yet been sold , and six months have passed since its acquisitions . How will the subsidiary be
valued in the statement of financial positions at the date of the first financial statement after
acquisition?
At fair value
At carrying amount
In accordance with applicable PFRS
Ans.
On January 2, 2014, X co. is committed to a plan to sell a manufacturing facility and has initiated
action to locate a buyer. Any uncompleted customers’ orders will be transferred to the buyer. The
fair value of the facility is P6,000,000 and its carrying value as of January 2, 2014 is P5,600,000.
On January 2, 2014, X co. sold classify the building as
PPE valued at P6,000,000

PPE valued at P5,600,000
Non-current asset held for sale valued at P6,000,000
Ans.
Your audit client, CHILDISH Company, plans to dispose of a group of its assets with the
following carrying amounts:
Goodwill 1,500,000
Property and equipment 1,050,000
Intangible assets other than 2,450,000
goodwill
Inventory 2,340,000
Available for sale financial assets 1,210,000
Childish Company estimates that fair value of the disposal group amounts to P6,500,000
while cost to sell is estimated to be P150,000. Assuming that the group of assets meets
the criteria to be classified as held for sale under PFRS 5. What is the carrying value of
the property and equipment immediately after the reclassification?
P 1,050,000
P 798,000
P 525,000
P 840,000
Ans.
P 840,000
On July 2014, Vince Carter is committed to a plan to sell a disposal group that represents a
significant portion of its regulated operations. The sale requires regulatory approval, which could
extend the period required to complete the sale beyond one year. Actions necessary to obtain that
approval cannot be initiated until after a buyer is known and a firm purchase commitment is
obtained. However, a firm purchase commitment is highly probable within one year. The non-
current assets of disposal group have a carrying value of P5,000,000 and liabilities of
P1,000,000. The assets total fair value as of December 31,2014 of the disposal group is
P4,800,000. If the sale is completed within one year, the estimated cost to sell is P200,000, but if
the sale will exited beyond one year, the present value of the estimated cost to sell is P180,000.
If the sale will extend beyond one year, what amount of non-current asset should Vince Carter
report its held for sale property at December 31, 2014?
3,600,000
3,620,000
4,000,000
4,620,000
Ans.
4,620,000
depreciation of P1,600,000. On the same date, Blazers co. commits to a plan to sell the
building by February 1, 2015. The building has a fair value of P2,000,000 and it is
estimated that the selling cost of the building will be P150,000. As of July 1, 2014, the
building has a remaining life of 15 years.
What is the amount of loss to be recognized by Blazers co. in its income statement as a
result of reclassification?
None
150,000
400,000
550,000
Ans.
550,000
Goodwill 1,500,000
goodwill
Inventory 2,340,000
the criteria to be classified as held for sale under PFRS 5. What is the carrying value of
the intangible assets immediately after the reclassification?
P2,450,000
P1,960,000
P1,372,000
P1,078,000
Ans.
P1,960,000
Dana Company accounts for noncurrent assets using the cost model. On October 1, 2019,
Dana classified a noncurrent asset as held for sale. At that date, the asset’s carrying
amount was P3, 200,000, its fair value was estimated at P2, 200,000 and the cost to sell at
P200,000. ON December 15, 2019, the asset was sold for net proceeds of P1, 850,000.
What amount should be included as an impairment loss in Dana’s statement of
comprehensive income for the year ended December 31, 2019?
1,000,000
1,200,000
1,350,000
0
Ans
1,200,000
Lynx Company is planning to dispose of a collection of assets. The entity designated these assets
as a disposal group. The carrying amount of these assets immediately before classification as
held for sale was P2, 000,000. Upon being classified as held for sale, the assets were revalued to
P1, 800,000. The entity feels that would cost P100, 000 to sell the disposal group.
What should be reported as the carrying amount of the disposal group in the entity's accounts
after its classification as held for sale?
2,000,000
1,800,000
1,700,000
1,900,000
Ans
1,700,000
Goodwill 1,500,000
goodwill
Inventory 2,340,000
the criteria to be classified as held for sale under PFRS 5. What is the total impairment
loss that should be recognized by CHILDISH at the time of reclassification of the group
of assets to held for sale category?
P 2,350,000
P 2,200,000
P 2,150,000
P0
Ans.
P 2,200,000
An entity has an asset that was classified as held for sale. However , the criteria for it to remain
as held for sale no longer apply . The entity shall
Leave the non current asset in the financial statements at its currents carrying amount
Remeasure the non current asset at fair value
Measure the non current asset at the lower of its carrying amounts before the assets was
classified as held for sale (adjusted for subsequent depreciations , amortizations or revaluations)
and its recoverable amount at the date of the decisions not to sell
Recognized the non current asset at its carrying amount prior to its classifications as held for
sales adjusted for subsequent depreciations , amortizations or revaluations
Ans.
Measure the non current asset at the lower of its carrying amounts before the assets was
classified as held for sale (adjusted for subsequent depreciations , amortizations or revaluations)
and its recoverable amount at the date of the decisions not to sell

P3,600,000
None
100,000
120,000
220,000
Ans.
220,000

P3,600,000
should no longer be included in the December 31,2014 balance sheet

should be included among the property, plant and equipment at P4,000,000
should be included among the property, plant and equipment a P3,600,000
should be reported separately as non-current asset held for disposal and valued at
P3,600,000
Ans.
should be reported separately as non-current asset held for disposal and valued at P3,600,000
Where assets are removed from the classification of ‘held for sale’, PFRS 5 Non-current Assets
Held for Sale and Discontinued Operations, requires disclosure of the effects of the decision on
the results of operations for the period, in the:
Statement of Comprehensive Income
cash flow statement
statement of changes in equity
notes
Ans.
Notes
Under PFRS 5 Non-current Assets Held for Sale and Discontinued Operations, when an asset is
acquired in a business combination and is ‘held for sale’, it is initially recorded at:
initial cost
fair value less costs to sell
fair value
net present value
Ans
fair value less costs to sell
The following criteria are used to determine whether an asset should be categorized as
‘held for sale’:
I. The asset should be available for immediate sale.
II. The asset should be available for sale at a future date yet to be determined.
III. The sale of the asset should be highly probable.
IV. The sale of the asset is a possibility.
V. There should be an active program to locate a buyer.
VI. There need not be an active marketing program for the asset
I and III only

I, III and V only
II, IV and VI only
IV and VI only
Ans.
I, III and V only
An entity is planning to dispose of a collections of assets. The entity designates these assets as a
disposal group, and the carrying amount of these asset immediately before classifications as held
for sale was P 5,000,000 . Upon being classified as held for sale , the asset were revalued to P
4,000,000 . The Fair value less cost to sell of the disposal group is P 3,500,000 at current year –
end. How would the reductions in the value of the assets on classifications as held for sale be
treated in the financial statements?
The entity recognized a loss of P 1,000,000 Immediately before classification as held for sale and
then recognized an impairment loss P 500,000
The entity recognized an impairment loss of P 1,500,000

The entity recognized an impairment loss of P 1,000,000
The entity recognized a loss of P 1,500,000 immediately before classifying the disposal group as
held for sale
Ans
The entity recognized a loss of P 1,000,000 Immediately before classification as held for sale and
then recognized an impairment loss P 500,000
An entity is planning to dispose of a collections of assets. The entity designate these

assets as a disposal group . The carrying amount of these asset immediately before
classifications as held for sale was P 20 million . Upon being classified as held for sale ,
the asset were revalued to P 18 million . The entity feels that it would cost P 1 million to
sell the disposal group.
What would be the carrying amount of the disposal group in the entity's accounts after its
classification as held for sale?
20 million
18 million
17 million
19 million
Ans.
17 million
Arlene Company accounts for noncurrent assets using the cost model. On October 30, 2019,
Arlene classified a noncurrent asset as held for sale. At the date, the asset’s carrying amount was
P1, 500,000; its fair value was estimated at P1, 100,000 and the cost to sell at P150, 000. On
November 20, 2019, the asset was sold for net proceeds of P800, 000. What amount should be
included as loss on disposal in Arlene’s statement of comprehensive income for the year ended
December 31, 2019?
550,000
700,000
150,000
0
Ans.
150,000
PFRS 5 state that a non current asset that is to be abandoned shall not be classified as held for
sale . The reason for this is because

It is difficult to value
It is unlikely that the non current asset will be sold within 12 months
It is unlikely that there will be an active market for the non current asset
Ans.
How should the assets and liabilities of a disposal group classified as held for sale be shown in
the balance sheet?
The assets and liabilities should be offset and presented as a single amount
The assets of the disposal group should be shown separately from other assets in the balance
sheet, and the liabilities of the disposal group should be shown separately from other liabilities in
the balance sheet
The assets and liabilities should be presented as a single amount and as a deduction from equity
There should be no separate disclosure of assets and liabilities that form part of a disposal group
Ans.
The assets of the disposal group should be shown separately from other assets in the balance
sheet, and the liabilities of the disposal group should be shown separately from other liabilities in
the balance sheet
Are the following statements about the requirements of PFRS 5 true or false?
Statement 1: An asset that meets the criteria for classifications as held for sale after the
end of the reporting period but before the authorizations of the financial statements shall
be measured in the statement of financial positions at the lower of carrying amount and
fair value less cost to sell.
Statement 2: To be classified as an asset held for sale , the sale must be expected to be
completed within 12 months from the end of the financial year
Statement 1, Statement 2
False , False
False , True
True , False
True, True
Ans.
False , False
To which type of asset do the measurement provisions of PFRS 5 apply?
Financial assets
Intangible development asset
Investment property accounted for at fair value
Deferred tax assets
Ans.
Intangible development asset
Coral Company accounts for noncurrent assets using the cost model. On July 31, 2019, Coral
classified a noncurrent asset as held for sale. At that date , the asset’s carrying amount was
P1,450,000, its fair value was estimated at P2,150,000 and the cost to sell at P150,000. The asset
was sold on January 31, 2020 for P2, 120,000. At what amount should the asset be measured in
Coral’s statement of financial position at December 31, 2019?
2,000,000
2,150,000
2,120,000
1,450,000
Ans.
1,450,000
Biñan Company incurred the following costs during 2009:

Design of tools, jigs, molds and dies involving new P2,500,000
technology
Modification of the formulation of a process 3,200,000
Trouble shooting in connection of breakdowns during 2,000,000
commercial production
Adaptation of an existing capability to a particular 2,200,000
customer’s need as part of a continuing commercial
activity
In its 2009 income statement, Biñan should report research and development expense of
P2,500,000
P4,700,000
P3,200,000
P5,700,000
Ans.
P5,700,000
When agricultural produce is harvested , the harvest shall be accounted for by using Pas 2
Inventories , or another applicable PFRS . for the purposed of that standard , cost at the
date of harvest is deemed to be
The fair value less cost to sell at the point of harvest

The historical cost of the harvest
The historical cost less accumulated impairment losses
Market value
Ans.
The fair value less cost to sell at the point of harvest
The following are examples of agricultural produce, except
Logs
Cotton
Milk
Wine
Ans.
Wine
The following are agricultural produce harvested from biological assets, excep
Grapes
Cotton
Wool
Lumber
Ans.
Lumber
2013
animal
0.5 - year old 8,700
animal
animal
animal
The total effect to net income included in the 2013 income statement as a result of the
above-mentioned transactions
88,500
90,500
96,500
98,500
Ans.
98,500
Colombia Company is a producer of coffee. The entity is considering the valuation of its
harvested coffee beans. Industry practice is to value the coffee beans at market value and
uses as reference a local publication "Accounting for Successful Farms".
On December 31, 2015, the entity has harvested coffee beans costing P3,000,000 and
with fair value less cost to sell of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans
were still on hand on December 31,2016. On such date, the fair value less cost to sell is
P3,900,000 and the net realizable value is P3,200,000.
The coffee beans inventory shall be measured at
3,000,000
3,500,000
3,200,000
3,900,000
Ans.
3,200,000
Inventories comprising agricultural produce that an entity has harvested from its
biological assets are measured on initial recognition at
Fair value.
Net realizable value.
Fair value less estimated point-of-sale costs at the point of harvest.
Cost.
Ans.
Fair value less estimated point-of-sale costs at the point of harvest.

Non Financial Assets

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Non Financial Assets

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Inventories are assets (choose the incorrect one)

Held for sale in the ordinary course of business.

In the process of production for sale.

Held for use in the production or supply of goods and services.

What is the correct amount of inventory?

The primary objective of inventory accounting is:

to value inventory at the lower of cost or market.

The physical inventory of Pangasinan Company on December 31, 2019, showed

The corrected balance of Pangasinan’s inventory should be?

Which of the following items is not includible in the inventory?

goods in transit and sold FOB destination

What is the correct amount of inventory

Lunar Company included the following items under inventory.

What is the correct inventory?

Which of the following is not an inventory?

merchandise purchased by a retailer and held for resale

The actual amounts of goods produced during the period.

Which statement is incorrect regarding cost formulas?

abnormal amounts of wasted materials, labor or other production costs;

administrative overheads that do not contribute to bringing inventories to their present

Parrot Company is a manufacturing entity. The cost of an inventory is shown on its

What is the value of the inventory in Parrot’s statement financial position?

An example of an inventory accounting policy that should be disclosed is the?

effect of inventory profits caused by inflation.

What is the total cost of the purchases?

How should unallocated fixed overhead costs be treated?

Recognized as an expense in the period in which they are incurred.

plus the ending inventory

The best method of inventory valuation for a dealer in jewelries is:

Transactions for the month of June were:

What is the correct inventory value of the product?

Lower of cost or net realizable value

is most conservative if applied to the total inventory

the general price level has changed materially.

there is evidence that the goods will not be sold at a profit.

A debit to Accounts payable of P72,000.

Transactions for the month of June were:

The following information pertained to Asus Co. for the year:

The retail inventory is based on the assumption that:

the ratio of cost to retail price changes at a constant rate.

The retail inventory method is characterized by

the recording of sales at cost.

Using the average retail inventory method, CSI’s ending inventory is

What is the reduction on the inventory account on December 31, 20CY?

Internal as well as external interim reports

Inventories 01/01/09 12/31/09

The accounting records show the following data:

The cost of the raw materials destroyed by the fire was?

Finished Goods P112,000

The inventory on January 1, 2019, consisted of the following.

Finished Goods P120,000

Dart Company’s accounting records indicated the following information:

A physical inventory taken on December 31, 20CY, resulted in an ending inventory of

Purchases for the year P 390,000 Sales P650,000

The cost of the March 31 inventory is

Inventories 01/01/09 12/31/09

The accounting records show the following data:

The cost of the raw materials destroyed by the fire was?

The use of the gross profit method assumes?

the amount of gross profit is the same as in prior years

Goods not sold must be on hand.

Inventory, July 1, 2018 P 51,600

include markups but not markdowns