FINAL EXAMINATION (INTERMEDIATE ACCOUNTING 2)

PAS16 – PROPERTY, PLANT AND EQUIPMENT

1. Which statement is incorrect regarding recognition of PPE?
a. 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.
b. Recognition principle is applied to all property, plant, and equipment costs at the time they are
incurred.
c. 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.
d. All of the following are correct

2. Costs directly attributable to bringing the asset to the location and condition for its intended use
include all of the following, except
a. Costs of employee benefits not arising directly from the construction and acquisition of property,
plant and equipment
b. Costs of site preparation
c. Initial delivery and handling costs
d. Installation, assembly and testing costs

3. An entity installed a new production facility and incurred a number of expenses at the point of
installation. The entity's accountant is arguing that most expenses do not quality for capitalization.
Included in those expenses are initial operating losses. These should be
a. Deferred and amortized over a reasonable period of time
b. Expensed and charged to the income statement
c. Capitalized as part of the cost of the plant as a directly attributable cost
d. Taken to retained earnings since it is unreasonable to present it is part of the current year's
income statement

4. Which statement is incorrect regarding initial measurement of PPE?

a. PPE should be initially recorded at cost, which includes all costs necessary to bring the asset to
working condition for its intended use.
b. If payment for an item of property, plant, and equipment is deferred, interest at a market rate
must be recognized or imputed.
c. If an asset is acquired in exchange for another asset, the cost will be measured at its carrying
amount.
d. If an asset acquired in exchange for another asset is not measured at fair value, its cost is
measured at the carrying amount of the asset given up.

5. 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. A gain equal to the difference between the fair value and carrying amount of the truck given up.
b. A gain determined by the proportion of cash received to the total consideration.
c. A loss determined by the proportion of cash received to the total consideration.
d. Neither a gain nor a loss.

6. The depreciable amount of an item of property, plant and equipment is the

a. Cost of the asset, or other amount substituted for cost in the financial statements, less its
residual value.
b. 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.
c. 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.
d. Amount at which an asset is recognized in the balance sheet after deducting any accumulated
depreciation and accumulated impairment losses thereon.

7. Which is correct concerning depreciation of PPE?

 a. The depreciation method used should not reflect the pattern in which the asset's economic
benefits are consumed by the enterprise.
b. 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.
c. Depreciation should be charged to the income statement, unless it is included in the carrying
amount of another asset.
d. Depreciation begins when the asset is available for use and continues until the asset is
derecognized and becomes idle.

8. Which is incorrect concerning residual value of PPE?

a. 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.
b. 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.
c. 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.
d. The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount.

9. Revaluation of plant assets should be made

a. annually
b. every two years
c. every three years
d. at sufficient regularity

10. Revaluation surplus account is reported as

a. a separate component of income from continuing operations
b. a separate component of stockholders’ equity
c. a liability
d. a contra-asset account

11. A revaluation increase is credited to

a. Revaluation surplus only
b. Income to the extent that it reverses a revaluation decrease of another asset previously
recognized as an expense
c. Additional paid in capital
d. Income to the extent that it reverses a revaluation decrease of the same asset previously
recognized as an expense

12. A revaluation decrease

a. is always debited to impairment loss
b. is debited to retained earnings
c. is always debited to revaluation surplus
d. 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

13. Realized revaluation surplus is transferred to retained earnings

a. only upon disposal or retirement of plant asset
b. only during the period of use of the asset
c. upon disposal or retirement of the asset or during the period of use of the asset
d. at no instance

14. The sale of a depreciable asset resulting in a gain indicates that the proceeds from the sale were
a. less than current market value
b. greater than cost
c. greater than book value
 d. less than book value

PAS 20 – GOVERNMENT GRANTS

15. These represent assistance by government in the form of transfer of resources to an enterprise in
return for past or future compliance with certain conditions relating to the operating activities of the
enterprise
a. Government grants
b. Government assistance
c. Government donation
d. Government aid

16. Government grants should be recognized when there is reasonable assurance that

I. The enterprise will comply with the conditions attaching to them

II. The grants will be received

a. I only
b. II only
c. Both I and II
d. Neither I and II

17. Non-monetary grants, such as land or other resources, are usually accounted for at
a. Fair value
b. Nominal amount
c. Cost
d. Both a and b

18. These are government grants whose primary condition is that an enterprise qualifying for them
should purchase, construct, or otherwise acquire long-term assets.
a. Grants related to assets
b. Grants related to income
c. Government grants
d. Government appropriation

19. Which of the following methods are acceptable in presenting grants related to assets?
a. Reported as deferred income
b. Deducted in arriving at the carrying amount of the asset
c. Either a or b
d. Neither a nor b

20. In the case of grants related to income, which of these accounting treatments is prescribed by PAS
20?
a. Credit the grant to "general reserve" under shareholders' equity
b. Present the grant in the income statement as "other income" or as a separate line item, or
deduct it from the related expense
c. Credit the grant to "retained earnings" on the balance sheet
d. Credit the grant to sale or other revenue from operations in the income statement

21. Government assistance includes all of the following, except

a. Free technical and marketing advice
b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the entity’s sales
d. Improved irrigation water system or infrastructure for the benefit of an entire local community

22. A government grant that becomes repayable shall be accounted for as

a. Change in accounting estimate
b. Change in accounting policy
c. Both change in accounting estimate and change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy
23. Which disclosure is not required in relation to government grant?
a. The accounting policy adopted for government grant
b. Unfulfilled conditions and other contingencies attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized and indication of other form of
government assistance from which the entity has directly benefited

PAS 23 – BORROWING COSTS

24. Borrowing costs are defined as
a. Interest expense computed using the effective interest method
b. Finance charges in respect of finance leases
c. Exchange differences arising from foreign borrowings to the extent that they are regarded as
an adjustment to interest costs
d. Interest and other costs that an entity incurs in connection with borrowing of funds

25. Assets that qualify for interest capitalization include

a. Assets under construction for an entity’s own use
b. Assets that are ready for their intended use
c. Assets that are not currently being used because of excess capacity
d. All of these assets qualify for interest capitalization.

26. Which of the following is not a condition that must be satisfied before interest capitalization can
begin on a qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been made.
c. The interest rate is equal to or greater than the entity’s cost of capital.
d. Activities that are necessary to get the asset ready for the intended use are in progress.

27. Capitalization of borrowing costs

a. Shall be suspended during temporary period of delay
b. May be suspended only during extended period of delay in which active development is
delayed
c. Should never be suspended once capitalization commences
d. Shall be suspended only during extended period of delay in which active development is
delayed

28. The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for the intended use
b. No further interest is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset for the intended use have begun.

29. When computing capitalizable interest cost, what is the concept of “avoidable interest”?
a. The total interest cost actually incurred
b. A cost of capital charged for equity
c. The portion of the total interest which would not have been incurred if expenditures for asset
construction had not been made
d. The portion of average accumulated expenditures on which no interest cost was incurred

30. Which of the following is the recommended approach to handling interest incurred in financing the
construction of property, plant and equipment?
a. Capitalize only the actual interest cost incurred during construction
b. Charge construction with all costs of funds employed, whether identifiable or not
c. Capitalize no interest during construction
d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset
being constructed

PAS 36 – IMPAIRMENT OF ASSETS

31. 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.
a. Impairment
b. Depreciation
c. Amortization
d. Decline in value

32. What is the recoverable amount of an asset?

a. Fair value less cost to sell
b. Value in use
c. Fair value less cost to sell or value in use, whichever is higher
d. Fair value less cost to sell or value in use, whichever is lower

33. Carrying amount is the

I. Amount at which an asset is recognized in the balance sheet after deducting any accumulated
depreciation and accumulated impairment loss
II. Cost of an asset or other amount substituted for cost in the financial statements less its residual
value.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

34. The internal sources of information indicating possible impairment include all of the following, except
a. Evidence of obsolescence or physical damage of an asset
b. Significant change in the manner or extent in which the asset is used with an adverse effect on
the enterprise
c. Evidence that the economic performance of an asset will be worse than expected
d. Significant decrease or decline in the market value of the asset

35. Fair value less cost to sell is the

I. Amount obtainable from the sale of an asset in an arm’s length transaction between
knowledgeable, willing parties, less cost of disposal.
II. Present value of estimated future cash flows expected to arise from the continuing use of an
asset and from its disposal at the end of its useful life.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

36. What is the best evidence of fair value less cost to sell?
a. Sales price in a binding sale agreement in an arm’s length transaction
b. Market value or fair value in an active market
c. Best estimate of knowledgeable, willing parties in an arm’s length transaction
d. Sales price in a binding sale agreement in an arm’s length transaction or fair value in an active
market, whichever is higher

37. An active market is a market where the following conditions exist:

I. The items traded within the market are homogeneous.
II. Willing buyers and sellers can normally be found at any time
III. Prices are available to the public
a. I, II and III
b. I and II only
c. II and III only
d. I and III only

38. If the fair value less costs to sell cannot be determined

a. The asset is not impaired
b. The recoverable amount is the value-in-use
 c. The net realizable value is used
d. The carrying value of the asset remains the same

39. If assets are to be disposed of

a. The recoverable amount is the fair value less costs to sell
b. The recoverable amount is the value-in-use
c. The asset is not impaired
d. The recoverable amount is the carrying value

40. Costs of disposal are deducted in determining fair value less cost to sell. Examples of disposal costs
include all of the following, except
a. Legal costs
b. Stamps and similar transactions taxes
c. Costs of removing the asset
d. Finance costs

41. Value in use of an asset is equal to the

a. Undiscounted future net cash flows from the use of the asset
b. Undiscounted future net cash flows from the use and eventual disposition of the asset
c. Discounted future net cash flows from the use of the asset
d. Discounted future net cash flows from the use and eventual disposition of the asset

42. The estimates of future cash flows in calculating value in use should include all of the following,
except
a. Cash inflows from the continuing use of the asset
b. Cash outflows incurred to generate the cash inflows from the continuing use of the asset
c. Net cash flows from the disposal of the asset at the end of its useful life
d. Future costs of improving or enhancing the asset’s performance

43. Which statement is incorrect concerning the estimation of future cash flows?
a. Future cash flows should be based on reasonable and supported assumptions.
b. Future cash flows should be based on the most recent budgets or financial forecasts, usually
up to a maximum of 5 years.
c. 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.
d. The discount rate used in estimating future cash flows should be the current rate after tax.

44. Which statement is incorrect concerning the recognition and measurement of an impairment loss?
a. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of
the asset should be reduced to its recoverable amount.
b. Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable
amount.
c. An impairment loss should be recognized as expense in the income statement immediately.
d. After the recognition of an impairment loss, depreciation charge for the future periods should
be adjusted to allocate the revised carrying amount, less its residual value, on a systematic
basis over its original useful life.

45. 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.
a. Cash generating unit
b. Goodwill
c. Corporate asset
d. The enterprise as a whole

46. Which statement is incorrect concerning corporate assets?

a. Corporate assets are group or divisional assets such as head office building, EDP equipment or
a research center.
b. Essentially, corporate assets generate cash inflows independently from other assets.
 c. The recoverable amount of an individual corporate asset cannot be determined unless
management has decided to dispose of the asset.
d. If there is an indication that a corporate asset may be impaired, the recoverable amount of the
cash generating unit to which the corporate asset belongs is determined and compared with the
carrying amount of the cash generating unit.

47. Goodwill should be tested for impairment

a. If there is an indication of impairment
b. Annually
c. Every five years
d. On the acquisition of a subsidiary

48. Which is incorrect concerning the reversal of an impairment loss?

a. The reversal of the impairment loss should be recognized immediately as an adjustment of the
opening balance of retained earnings.
b. The carrying amount of the asset should be increased to its new recoverable amount.
c. The increased carrying amount of the asset due to a reversal of an impairment loss should not
exceed the carrying amount that would have been determined had no impairment loss been
recognized in the prior years.
d. Any reversal of an impairment loss on a revalued asset should be treated as a revaluation
increase.

PFRS 6 – EXPLORATION AND EVALUATION OF MINERAL RESOURCES

49. PFRS 6 applies to expenditures incurred
a. 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
b. When the legal rights to explore a specific area have been obtained, but the technical feasibility
and commercial viability of extracting a mineral resource are not yet demonstrable
c. When a specific area is being developed and preparations for commercial extraction are being
made
d. In extracting mineral resources and processing the resources to make it marketable or
transportable

50. Does PFRS 6 require an entity to recognize exploration and evaluation expenditures as assets?
a. Yes, but only to the extent that such expenditure is recoverable in future periods
b. Yes, but only to the extent that the technical feasibility and commercial viability of extracting
the associated mineral resources have been demonstrated
c. Yes, but only to the extent required by the entity's accounting policy for recognizing exploration
and evaluation assets
d. No, such expenditure is always expensed in profit or loss as incurred

51. What is an entity required to consider in developing accounting policies for exploration and
evaluation activities?
a. The requirements and guidance in Standards and Interpretations dealing with similar and related
issues
b. The definitions, recognition criteria, and measurement concepts for assets, liabilities, income,
and expenses in the Framework
c. Recent pronouncements of standard-setting bodies, accounting literature, and accepted industry
practices
d. Whether the accounting policy results in information that is relevant and reliable

52. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation
expenditures?
a. 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
b. 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
 c. 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
d. 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

53. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral resources
d. Expenditure for activities in relation to evaluating the technical feasibility and commercial
viability of extracting a mineral resource

54. Which measurement model applies to exploration and evaluation assets subsequent to initial
recognition?
a. The cost model
b. The revaluation model
c. Either the cost model or the revaluation model
d. The recoverable amount model

55. Which of the following disclosures is not required by PFRS 6?

a. Information about commercial reserve quantities
b. Accounting policies for exploration and evaluation expenditures, including the recognition of
exploration and evaluation assets
c. The amounts of assets, liabilities, income and expense, and operating and investing cash flows
arising from the exploration for and evaluation of mineral resources
d. Information that identifies and explains the amounts recognized in the financial statements
arising from the exploration for and evaluation of mineral resources

56. On January 1, 2018, ESTONIA CORP. (NON-VAT registered) acquired a machine for an invoice
price of P112,000 to be rented out under operating lease. Purchase price is gross of 12% VAT. Freight
and other handling costs related to such machinery amounted to P18,000. On March 30, 2018, other
necessary costs incurred to bring the machine to a leasable condition is P20,000. The machine was
rented out on July 1, 2018 to ESTES CORP. If the machine is to be depreciated under straight-line
basis with 10% residual value for 5 years, how much is the depreciation expense for the year 2018?
A. 13,500 C. 18,630
B. 27,000 D. 20,250
SOLUTION:
Acquisition cost P112,000
Freight and other handling cost 18,000
Other DACs 20,000
Cost of PPE 150,000
Residual value (10%) (15,000)
Depreciable Amount 135,000
Useful life ÷ 5 years
Annual depreciation P27,000
Depreciation 2018 (P27,000 x 9/12) P20,250

57. On January 2, 2012, DENMARK CORP. acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated salvage value
of P50,000. The depreciation applicable to this equipment was P240,000 for 2014 computed under
the sum-of-years'-digit method. What was the acquisition cost of the equipment?
A. P1,650,000 C. P2,400,000
B. P1,700,000 D. P2,450,000
SOLUTION:
(240,000 ÷ (8/55) = P1,650,000 + P50,000 = P1,700,000
SYD = [(10 + 1)/2] x 10 = 55
58. On January 1, 2014, SWITZERLAND INC. acquired an equipment with useful life of 8 years and
residual value of P300,000. The depreciation applicable to this equipment was P900,000 for 2015
using the double declining balance method. What is the acquisition cost of the equipment?
A. 3,600,000 C. 4,800,000
B. 4,500,000 D. 5,100,000
SOLUTION:
(P900,000 ÷ 25% ÷ 75%) = P4,800,000

59. MOLDOVA INC. acquired a machinery on January 1, 2018 for P2,400,000. The machine is to be
depreciated using sum-of-the-years digit method for 15 years with a residual value of P400,000.
During 2022, a decision was made to change the depreciation method to straight-line method to
reflect more properly the pattern of consumption accommodated with a change in total life to 12
years. How much is the depreciation expense in 2022?
A. 125,000 C. 165,000
B. 187,500 D. 137,500
SOLUTION:
Cost P2,400,000
Accumulated depreciation (P2,000,000 x 54/120) 900,000
Carrying amount (12/31/2021) P1,500,000
Depreciation 2022 [(P1,500,000 – P400,000) ÷ 8 years] P137,500

60. On January 1, 2014, BELGIUM CORP. purchased a large quantity of personal computers. The
cost of these computers was P6,000,000. On the date of purchase, the management estimated that
the computers would last approximately 4 years and would have a residual value at that time of
P600,000. The entity used the double declining balance method. During January 2015, the
management realized that technological advancements had made the computers virtually obsolete
and that they would have to be replaced. Management proposed changing the remaining useful life
of the computers to 2 years. What is the depreciation expense for 2015?
A. 1,200,000 C. 2,400,000
B. 1,500,000 D. 3,000,000
SOLUTION:
Fixed rate (100% / 4 x 2) 50%
Cost 6,000,000
Depreciation for 2014 (50% x 6,000,000) 3,000,000
Carrying amount - January 1, 2015 3,000,000
Residual value ( 600,000)
Maximum depreciation in 2015 2,400,000
Fixed rate in 2015 (100% / 2 x 2) 100%
This means that the computers should be fully depreciated in 2015. Since there is a residual
value of P600,000, the maximum depreciation for 2015 is equal to the carrying amount of
P3,000,000 minus the residual value of P600,000 or P2,400,000.

61. On January 1, 2017, ALBANIA CORP. purchased a delivery truck for P1,900,000 to be depreciated
under straight-line method for 10 years with a residual value of P100,000. On January 1, 2024, the
company’s management assessed that the useful life of the delivery truck should have been 9 years.
The new depreciation method is the double declining balance method.
How much is the depreciation expense in 2024?
A. 540,000 C. 640,000
B. 570,000 D. 320,000
SOLUTION:
Cost P1,900,000
Accumulated depreciation (P1,800,000 ÷ 10 years x 7) (1,260,000)
Carrying amount (12/31/2023) 640,000
Residual value (100,000)
Depreciation 2024 P540,000
Under the double declining balance method, the declining rate for 2024 is 100% (1/2 x 200%)

62. MACEDONIA INC. purchased a machine on December 1, 2013 at an invoice price of P4,500,000
with terms 2/10, n/30. On December 10, 2013, the entity paid the required amount for the machine.
On December 1, 2013, the entity paid P80,000 for delivery of the machine and on December
31,2013, it paid P310,000 for installation and testing of the machine. The machine was ready for
use on January 1, 2014. It was estimated that the machine would have a useful life of 5 years and
a residual value of P800,000. 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 2014 and 48,000 in
2015. The entity decided to use the output method of depreciation. What is the accumulated
depreciation of the machine on December 31, 2015?
A. 600,000 C. 1,560,000
B. 960,000 D. 1,600,000
SOLUTION:
Invoice price 4,500,000
Cash discount (2% x 4,500,000) (90,000)
Delivery cost 80,000
Installation and testing 310,000
Total cost 4,800,000
Residual value (800,000)
Depreciable amount 4,000,000

Rate per unit (4,000,000/200,000) 20

Depreciation for 2014 (30,000 x 20) 600,000
Depreciation for 2015 (48,000 x 20) 960,000
Accumulated depreciation – December 31, 2015 1,560,000

63. On March 1, 2012, TURKEY CO. bought an equipment costing P1,200,000. TURKEY’s depreciation
policy is to depreciate long-lived assets using the double-declining balance method. The equipment
has an estimated useful life of 10 years with a minimum amount of salvage value at the end of its
useful life. What is the carrying value of the asset as of December 31, 2014?
A. P480,000 C. P640,000
B. P614,000 D. P768,000
SOLUTION:
Double-declining rate = 100% ÷ 10 x 2 = 20%

Depreciation in-
2012 (P1,200,000 x 20% x 10/12) P200,000
2013 (P1,200,000 - P200,000 x 20%) 200,000
2014 (P1,200,000 - P400,000 x 20%) 160,000
Total accumulated depreciation P560,000
Acquisition cost P1,200,000
Less: Accumulated depreciation 560,000
Carrying value as of December 31, 2014 P 640,000

64. SLOVENIA INC. purchased an equipment on January 2, 2012 for P3,000,000. 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. What is the total accumulated depreciation as of
December 31, 2014?
A. P1,800,000 C. P2,352,000
B. P2,280,000 D. P2,520,000
SOLUTION:
Straight line rate = 100% ÷ 5 years = 20%
200%-declining rate = 20% x 200%= 40%

Depreciation in 2012 (P3,000,000 x 40%) P1,200,000

Depreciation in 2013 (P3,000,000 – P1,200,000 x 40%) 720,000
Total accumulated depreciation as of December 31, 2013 P1,920,000
Add: Depreciation in 2014 using straight-line method:
Cost P3,000,000
Less: Accumulated depreciation
(as of December 31, 2013) 1,920,000
 Book value P1,080,000
÷ Remaining useful life 3 years 360,000
Total accumulated depreciation as of December 31, 2014 P2,280,000

65. On the first day of its current fiscal year, MONTENEGRO CORP. purchased equipment costing
P400,000 with a salvage value of P80,000. Depreciation expense for the year was P160,000. If
MONTENEGRO uses the double-declining-balance method of depreciation, what is the estimated
useful life of the asset?
A. 5 years C. 2.5 years
B. 4 years D. 2 years
SOLUTION:
Depreciation for the year 160,000
Cost ÷ 400,000
Declining rate 40%
Useful life [1 ÷ (40% ÷ 200%)] 5 years

Use the following information in answering the next item(s):

KOSOVO CORP. has the following information regarding its land and building accounts as of
January 1, 2018:
Land P50,000,000
Building 150,000,000
Accumulated Depreciation – Building 55,000,000
There were no movements during the year for the above-mentioned accounts. Depreciation for
building is computed using the straight-line method over 15 years. On July 1, 2018, KOSOVO
revalued the land and building as follows:
Replacement Cost
Land P80,000,000
Building P300,000,000

66. The depreciation expense for 2018 is

A. 25,000,000 C. 20,000,000
B. 15,000,000 D. 10,000,000
SOLUTION:
Depreciation expense (Jan. 1 – Jun. 30) (P150,000,000 ÷ 15 x 6/12) P5,000,000
Depreciation expense (Jul. 1 – Dec. 31) (P180,000,000 ÷ 9 x 6/12) 10,000,000
Depreciation expense 2018 P15,000,000
NOTE: P180,000,000 is the revalued amount of the building (depreciated replacement cost).
It is computed as (P300,000,000 x 60%).

67. The balance of revaluation surplus as of December 31, 2018 is

A. 110,000,000 C. 120,000,000
B. 113,333,000 D. 115,000,000
SOLUTION:
Land (P80,000,000 – P50,000,000) P30,000,000
Building [(P180,000,000 – P90,000,000) x 8.5/9] 85,000,000
Total revaluation surplues (end of 2018) P115,000,000

Use the following information in answering the next item(s):

On December 31, 2018, CYPRUS INC. building was revalued. Information about the revaluation
was as follows:
Historical Cost Replacement Cost
Building P18,000,000 36,000,000
Accumulated Depreciation 4,000,000
Residual Value 2,000,000 2,000,000
The total economic life of the building is 25 years while its remaining economic life is 12 years.
Income tax rate is 30%. CYPRUS depreciates its building under straight line method of
depreciation.
68. What is the revaluation increment balance on December 31, 2020?
A. P9,450,000 C. P2,520,000
 B. P7,875,000 D. P3,600,000
SOLUTION:
Replacement cost P36,000,000
Accumulated depreciation (P34,000,000 ÷ 25 years x 6.25) (8,500,000)
Depreciated replacement cost (revalued amount) 27,500,000
Carrying amount (P18,000,000 – P4,000,000) (14,000,000)
Revaluation surplus before tax 13,500,000
After-tax rate 70%
Revaluation surplus after tax 12/31/2018 9,450,000
Revaluation surplus after tax 12/31/2020 (P9,450,000 x 10/12) 7,875,000

69. What is the depreciation expense for the year ended December 31, 2019?
A. P2,291,667 C. P2,600,000
B. P1,526,667 D. P1,950,000
SOLUTION:
Depreciation expense (2019) (P27,500,000 ÷ 12 years) 2,291,667

Use the following information in answering the next item(s):

LUXEMBURG CORP. acquired a building on January 1, 2011 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, 2015 and the revaluation revealed replacement cost of P80,000,000, the residual value
of P2,000,000 and revised total life of 12 years.

70. The carrying amount of the building as of December 31, 2015 is

A. P28,250,000 C. P48,800,000
B. P42,700,000 D. P42,950,000
SOLUTION:
Replacement cost P80,000,000
Accumulated depreciation (P78,000,000 ÷ 10 years x 4) (31,200,000)
Revalued amount 48,800,000
Subsequent accumulated depreciation (P46,800,000 ÷ 8 years) (5,850,000)
Carrying amount 12/31/2015 P42,950,000

71. The revaluation surplus as of December 31, 2015 is

A. P14.0 million C. P14.7 million
B. P15.4 million D. P16.8 million
SOLUTION:
Revalued amount P48,800,000
Carrying amount (P50,000,000 – 18,000,000) (32,000,000)
Revaluation surplus 1/1/2015 16,800,000
Subsequent transfer to R.E. (P16,800,000 ÷ 8 years) (2,100,000)
Revaluation surplus 12/31/2015 14,700,000

Use the following information in answering the next item(s):

ANDORRA CORP. provided the following information on January 1, 2014 relating to property, plant
and equipment.

Land 30,000,000
Building 300,000,000
Accumulated depreciation - building ( 37,500,000)
Machinery 400,000,000
Accumulated depreciation - machinery (100,000,000)
Carrying amount 592,500,000

There were no additions or disposals during 2014. Depreciation is computed using straight line
over 20 years for building and 10 years for machinery. On June 30, 2014, all of the property, plant
and equipment were revalued as follows:

Replacement cost Sound value

 Land 40,000,000 40,000,000
Building 500,000,000 425,000,000
Machinery 650,000,000 455,000,000

72. Ignoring income tax, what is the revaluation surplus on June 30, 2014?
A. 327,500,000 C. 355,000,000
B. 345,000,000 D. 920,000,000
SOLUTION:
Depreciation on cost from January 1 to June 30, 2014:
Building (300,000,000/20x6/12) 7,500,000
Machinery (400,000,000 / 10 x 6/12) 20,000,000
Sound Carrying Revaluation
value amount surplus
Land 40,000,000 30,000,000 10,000,000
Building 425,000,000 255,000,000 170,000,000
Machinery 455,000,000 280,000,000 175,000,000
Total - 6/30/2014 920,000,000 565,000,000 355,000,000

73. What is the total depreciation for 2014?

A. 55,000,000 C. 72,500,000
B. 66,750,000 D. 90,000,000\
SOLUTION:
Percentage of accumulated depreciation - 6/30/2014:
Building (37,500,000 + 7,500,000 / 300,000,000) 15%
Machinery (100,000,000 + 20,000,000/400,000,000) 30%
Remaining useful life:
Building(20 years x 85%) 17 years
Machinery (10 years x 70%) 7 years
Building:
January to June 30, 2014 7,500,000
July 1 to Dec, 31, 2014 (425,000,000 / 17 x 6/12) 12,500,000 20,000,000
Machinery:
January 1 to June 30, 2014 20,000,000
July 1 to Dec. 31, 2014 (455,000,000/7 x 6/12) 32,500,000 52,500,000
Total depreciation for 2014 72,500,000

74. What is the revaluation surplus on December 31, 2014?

A. 327,500,000 C. 345,000,000
B. 337,500,000 D. 355,000,000
SOLUTION:
Revaluation surplus - June 30, 2014 355,000,000
Piecemeal realization from July 1 to December 31,2014:
Building (170,000,000 / 17 x 6/12) (5,000,000)
Machinery (175,000,000/ 7 x 6/12) (12,500,000)
Revaluation surplus - December 31, 2014 337,500,000

75. MALTA CORP. owned an equipment costing P5,200,000 with original residual value of P400,000.
The life of the asset is 10 years and was depreciated using the straight-line method. The equipment
has a replacement cost of P8,000,000 with residual value of P200,000. The age of the asset is 4
years. The appraisal of the equipment showed a total revised useful life of 12 years and the entity
decided to carry the equipment at revalued amount.
Ignoring income tax, what amount should be initially reported as revaluation surplus?
A. 1,600,000 C. 2,600,000
B. 1,680,000 D. 6,680,000
SOLUTION:
Replacement
Cost cost Appreciation
Equipment 5,200,000 8,000,000 2,800,000
Residual value (400,000) (200,000) 200,000
 Depreciable amount 4,800,000 7,800,000 3,000,000
Accumulated depreciation
(40% x 4,800,000) 1,920,000
(40% x 7,800,000) . 3,120,000 1,200,000
Balance 3,280,000 4,880,000 1,600,000

Percentage of accumulated depreciation

(4 years expired / 10 years original life) 40%
Subsequent annual depreciation (4,680,000 / 8 years) 585,000
Revised useful life 12 years
Age of asset 4
Remaining revised life 8 years

76. SAN MARINO CORP. acquired an asset that had a cost of P390,000. The asset is being
depreciated over a 5-year period using the sum-of-years' digit method. It has a salvage value
estimated at P30,000.

If the asset is sold for P114,000 at the end of the third year, how much would be the loss/gain on
sale?
A. P12,000 gain C. P204,000 loss
B. P60,000 loss D. P276,000 loss
SOLUTION:
Selling price P114,000
Book value:
Cost P390,000
Accum. Depreciation (P360,000 x 12/15) 288,000 102,000
Gain P 12,000

77. On December 31, 2018, the building of MONACO CORP. with a historical cost of P28,000,000
and accumulated depreciation of P6,000,000 is determined to have a replacement cost of
P40,000,000. Additional information follows:
Actual life 5 years
Effective life 8 years
Remaining economic life 24 years
Income tax rate 30%
What is revaluation surplus on December 31, 2021?
A. P4,900,000 C. 8,000,000
B. P5,600,000 D. 7,000,000
SOLUTION:
Revalued amount (P40,000,000 x [24/(24 + 8)] P30,000,000
Carrying amount (P28,000,000 – P6,000,000) (22,000,000)
Revaluation surplus 12/31/2018 (before tax) 8,000,000
After-tax rate 70%
Revaluation surplus 12/31/2018 (after tax) 5,600,000
Piecemeal transfer (P5,600,000 ÷ 24 years x 3) (700,000)
Revaluation surplus 12/31/2021 P4,900,000

78. On December 31, 2018, the building of VATICAN INC. with a historical cost of P20,000,000
purchased 5 years ago with an estimated useful life of 20 years has been estimated to have a
replacement cost of P35,000,000. Depreciation is computed using the straight-line method. Income
tax rate is 30%.

Additional Information:
Original estimate of residual value P1,000,000
Revised estimate of residual value on revaluation date 2,000,000
Actual life 5 years
Remaining historical life 15 years
Remaining economic life 22 years
Effective life 3 years
 What is the revaluation surplus on the December 31, 2018 statement of financial position?
A. P15,790,000 C. P16,000,000
B. P11,053,000 D. P14,278,900
SOLUTION:
Replacement cost P35,000,000
Accumulated depreciation (P33,000,000 ÷ 25 years x 3) (3,960,000)
Revalued amount 31,040,000
Carrying amount (P20,000,000 – 4,750,000) (15,250,000)
Revaluation surplus 12/31/2018 (before tax) 15,790,000
After-tax rate 70%
Revaluation surplus 12/31/2018 (after tax) 11,053,000

79. UKRAINE CORP.’s depreciation policy on machinery and equipment is as follows:

□ A full year's depreciation is taken in the year of an asset's acquisition.
□ 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, 2014, UKRAINE sold for P230,000 a machine acquired in 2011 for P420,000. The
accumulated depreciation for this machine was P216,000 at December 31, 2013, and the original
estimated salvage value was P60,000.

How much gain or (loss) on the disposal should UKRAINE record in 2014?
A. P14,000 gain C. P26,000 gain
B. P26,000 loss D. P34,000 loss
SOLUTION:
Selling Price P230,000
Book value:
Cost P420,000
Accumulated depreciation as of 12/31/13 216,000 204,000
Gain P 26,000

80. FRANCE CORP. completed the rearrangement of group of factory machines to secure greater
efficiency in production. The entity estimated that benefits from the rearrangement would extend
over the remaining five-year useful life of the machines. The following costs were incurred:
Moving 350,000
Reinstallation 750,000
Annual maintenance 100,000
What total amount of the costs incurred should be capitalized?
A. 0 C. 1,100,000
B. 750,000 D. 1,200,000
SOLUTION:
Moving P350,000
Reinstallation 750,000
Total capitalizable subsequent costs

81. What is the impairment loss to be allocated on the building on December 31, 2018?
A. 656,250 C. 425,532
B. 638,298 D. None, the CGU is not impaired
SOLUTION:
Carrying Amount Impairment Loss Recoverable
Amount
Patent P1,200,000 P393,750 P806,250
Building 2,000,000 656,250 1,343,750
Trademark 1,500,000 450,000 1,050,000
Goodwill 500,000 500,000 -
Cash 400,000 - 400,000
Trade Receivables 600,000 - 600,000
Trade Payables (500,000) - (500,000)
 Total P5,700,000 P2,000,000 P3,700,000

82. What is the amortization of the patent on December 31, 2019?

A. 81,702 C. 80,625
B. 94,468 D. 120,000
SOLUTION:
Amortization of patent (2019) (P806,250 ÷ 10 years)

P80,625

83. GREEN COMPANY purchased a building on January 1, 2011 for P10,000,000. The building has
been depreciated using the straight-line method with a 25-year useful life and no residual value. On
December 31, 2014, the entity is evaluating the building for possible impairment.
The building has a remaining useful life of 15 years and is expected to generate cash inflows of
P700,000 per year. The applicable discount rate is 8%. Round off present value factor to two
decimal places. The fair value of the building on December 31, 2014 is P5,300,000.
What amount should be recognized as impairment loss for 2014?
A. 0 C. 3,100,000
B. 2,408,000 D. 4,700,000
SOLUTION:
Value in use (P700,000 x 8.5595) P5,992,000
Fair value less cost to sell 5,300,000

Recoverable amount P5,992,000

Carrying amount (P10,000,000 x 21/25) 8,400,000
Impairment loss P2,408,000

Use the following information in answering the next item(s):

On September 30, 2016, DARK BLUE INC. purchased a machinery with a list price of P600,000
and trade discounts of P50,000. The machinery was acquired with a credit term of 2/10 n/30. The
installation cost of the new machinery is P60,000, while the testing cost is P1,000. The insurance
cost for the machine is P100,000, 40% of which was incurred while the machinery is in transit.
The machine is depreciated on a straight-line basis with a useful life 10 years and residual value
of P40,000.

On December 31, 2018, impairment indicators exist, causing the machine to be tested for
impairment. DARK BLUE determined that the fair value less cost to sell is P400,000. The company
also determined an annual cash flow of P90,000 for 5 years. However, the cash flow projection
should be extended up to 7 years since this is the remaining useful life of the asset on December
31, 2018. The long-term growth rates on the 6th and 7th years are +4% and -6%, respectively.
The pretax discount rate on December 31, 2018 is 10%.

84. What is the impairment loss on December 31, 2018?

A. 105,000 C. 55,725
B. 58,450 D. 45,320
SOLUTION:
Invoice price, net of cash discounts [(P600,000 – P50,000) x 98%] P539,000
Testing cost 1,000
Installation costs 60,000
Insurance costs (P100,000 x 40%) 40,000
Cost 640,000
Residual value (40,000)
Depreciable amount 600,000

Value in use computation:

For Year 1 to 5 (P90,000 x 3.7908) P341,172
Year 6 [(P90,000 x 104%) x 0.5645] 52,837
Year 7 [(P93,600 x 94%) x 0.5132] 45,153
Residual value (P40,000 x 0.5132) 20,528
 Total value in use P459,690
Fair value less costs to sell P400,000

Cost P640,000
Accumulated depreciation (P600,000 ÷ 120 months x 27) (135,000)
Carrying amount 12/31/2018 505,000
Recoverable amount (459,690)
Impairment loss P45,310

85. What is the depreciation of the machinery for the year 2019?
A. 59,956 C. 63,793
B. 57,143 D. 64,182
SOLUTION:
Depreciation (2019) [(P459,690 – P40,000) ÷ 7 years] P59,956

86. On January 2, 2014, INDIGO CORP. acquired all the net assets of MAROON CORP. for P3,000,000.
The identifiable net assets of MAROON at the time of acquisition is P2,000,000. The net identifiable
net assets of MAROON had a remaining life of 12 years. MAROON is a cash-generating-unit. On
December 31, 2014, the recoverable amount of MAROON was P1,360,000.

In year 2015, the business situation improves in the country and government policies change. As
a result, management re-estimates the recoverable amount of Ancient Ltd. At the end of year
2015, the recoverable amount of MAROON is P1,910,000. Beginning of year 2015, INDIGO had
decided to change its depreciation rate to 10% per annum on carrying value of the net identifiable
assets.

What amount of impairment recovery should INDIGO report in its 2015 profit or loss?
A. None C. P473,000
B. P425,700 D. P686,000
SOLUTION:
Acquisition cost P3,000,000
Net asset acquired 2,000,000
Goodwill P 1,000,000

Identifiable
Particulars Goodwill Assets Total
Gross carrying amount 1/1/14 P1,000,000 P2,000,000 P3,000,000
Accumulated depreciation (167,000) (167,000)
Carrying amount, 12/31/14 P1,000,000 P1,833,000 P1,833,000
Impairment loss -14 1,000,000 473,000 1,473,000
Recoverable amount 1,360,000 P1,360,000
Depreciation - 2015 136,000 136,000
Carrying value -12/31/15 1,224,000 1,224,000

Carrying value -1/14 P2,000,000

Depreciation-14 (167,000)
Depreciation -15 (2,000,000 -167,000 x 10%) (183,300)
Carrying value had there been no impairment P1,649,700
Carrying value per book as of 12/31/15 1,224,000
Impairment recovery to be reported in P/L P425,700
On December 31, 2014, the recoverable amount of MAROON is P1,360,000.

87. YELLOW GREEN CORP. acquired factory equipment on January 1, 2015. The total cost debited
to office equipment amounted to P180,000 which shall be depreciated over 15 years using straight-
line method. On December 31, 2017, the entity assessed that impairment indicators are present
and considered the factory equipment impaired. In estimating recoverable amount, YELLOW GREEN
determined that the fair value of the asset is P130,000. The following costs were also estimated:
Transaction taxes P8,000
Legal cost and commissions 2,000
 Decommissioning cost included already in provision for restoration 5,000
Termination benefits and costs associated with business reorganization 5,000
YELLOW GREEN also determined that the value in use of the asset does not materially exceed fair
value less cost of disposal. The remaining useful life of the machine was reduced to 9 years and
to be depreciated under double declining balance method.
What is the depreciation expense for the year 2018?
A. P40,000 C. P36,667
B. P26,667 D. P24,444
SOLUTION:
Carrying amount (P180,000 x 12/15) P144,000
Recoverable amount (FV-CTS) (P130,000 – P10,000) 120,000
Impairment loss P24,000

Depreciation 2018 (P120,000 x 22.22%) P26,667

NOTE: Declining rate is computed as 200% x 1/9

Use the following information in answering the next item(s):

PURPLE CORP. acquired machine for P1,000,000 on January 1, 2018. The machine was estimated
to have a useful life of 10 years and a residual value of P200,000. Due to frequent breakdowns
on the machine and disruption of production, PURPLE believes that the machine is impaired. The
following information gathered on January 1, 2022:
Fair Value 480,000
Costs of disposal 100,000
Future revenues from the continuing use of the asset 90,000
Annual income taxes 10,000
The residual value, net of necessary costs of disposal, is changed to P180,000. The useful life of
the asset is changed to 8 years from acquisition. The current pre-tax is 10%.

88. What is the impairment loss on January 1, 2022?

A. P271,770 C. P285,667
B. P300,000 D. P303,468
SOLUTION:
Fair value less cost to sell (P480,000 – P100,000) P380,000
Value in use:
Future revenues (P90,000 x 3.1699) 285,291
Residual value (P180,000 x 0.6830) 122,940
Total P408,231

Cost P1,000,000
Accumulated depreciation (P800,000 ÷ 10 years x 4) 320,000
Carrying amount 01/01/2022 680,000
Recoverable amount 408,231
Impairment loss P271,770

89. The depreciation expense for the year 2022 is

A. P49,133 C. P57,058
B. P53,583 D. P50,000
SOLUTION:
Depreciation expense (2022) [(P408,230 – P180,000) ÷ 4 years] P57,058

90. ORANGE CORP. determined that, due to obsolescence, equipment with an original cost of
P9,000,000 and accumulated depreciation on January 1, 2014, of P4,200,000 had suffered
permanent impairment, and as a result should have a carrying amount of only P3,000,000 as of the
beginning of the year. In addition, the remaining useful life of the equipment was reduced from 8
years to 3. In the December 31, 2014 statement of financial position, what amount should be
reported as accumulated depreciation?
A. 1,000,000 C. 6,000,000
B. 5,200,000 D. 7,000,000
SOLUTION:
 Cost 9,000,000
Accumulated depreciation - January 1, 2014 4,200,000
Carrying amount - January 1, 2014 4,800,000
Expected recoverable amount 3,000,000
Impairment loss 1,800,000

Impairment loss 1,800,000

Accumulated depreciation 1,800,000
Adjusted accum. depr’n, Jan. 1, 2014 (4,200,000 + 1,800,000) 6,000,000
Depreciation for 2014 (3,000,000 / 3) 1,000,000
Accumulated depreciation - December 31,2014 7,000,000

91. On December 31, 20x1, GREEN CORP. determined that its building with a historical cost of
P25,000,000 and accumulated depreciation of P19,000,000 is impaired. GREEN estimated an annual
cash flow of P1,000,000 for the next five years. However, the cash flow projection should be
extended up to 7 years. The long-term growth rate on the 6th and 7th years are -4% and -8%,
respectively. The appropriate discount rate is 10%. The fair value less costs of disposal of the
building is P4,000,000. How much is the impairment loss on December 31, 20x1?
A. P2,000,000 C. P1,356,076
B. P1,214,097 D. P2,100,000
SOLUTION:
Fair value less costs to sell P4,000,000
Value in use:
Year 1 to 5 (P1,000,000 x 3.7907) P3,790,700
Year 6 (P1,000,000 x 96% x 0.5644) P541,824
Year 7 (P960,000x 92% x 0.5132) 453,258
Total P4,785,782

Carrying amount (P25,000,000 – P19,000,000) P6,000,000

Recoverable amount 4,785,782
Impairment loss P1,214,217

Use the following information in answering the next item(s):

RED CORP.’s cash-generating-unit has been assessed for impairment and it has been determined
that the unit has incurred an impairment loss of P240,000. The carrying amounts of the assets
were as follows:
Building P6,000,000
Equipment 2,000,000
Land 3,500,000
Fittings 2,500,000
The cash-generating unit has not recorded any amount of goodwill.

92. What amount of impairment loss should be allocated to the building?

A. P50,000 C. P 87,500
B. P62,500 D. P102,857
SOLUTION:
Carrying Impairment Carrying Value
Value Ratio Loss After Allocation
Building P 6,000,000 6/14 P102,857 P5,897,123
Equipment 2,000,000 2/14 34,286 1,965,714
Land 3,500,000 3.5/14 60,000 3,440,000
Fittings 2,500,000 2.5/14 42,857 2,457,143
Total P14,000,000 P240,000 P13,760,000

93. If the fair value less cost to sell the building is P5,960,000, what amount of impairment loss
should be allocated to the equipment?
A. P34,286 C. P62,500
B. P50,000 D. P87,500
SOLUTION:
 Total impairment loss P240,000
Impairment loss assigned to the building:
Carrying value 3,500,000
Fair value 5,960,000 40,000
Impairment loss assigned to the other assets P200,000
x ratio of equipment 25%
Impairment loss assigned to the equipment P 50,000

94. WHITE CORP. has two cash generating units. On December 31, 2014, the carrying amounts of
the assets of one cash generating unit are:
Inventory 200,000
Accounts receivable 300,000
Plant and equipment 6,000,000
Accumulated depreciation 2,600,000
Patent 850,000
Goodwill 100,000
The accounts receivable are regarded as collectible and the fair value less cost of disposal of the
inventory is equal to the carrying amount. The patent has a fair value less cost of disposal of
P750,000. On December 31, 2014, the entity undertook impairment testing of the cash
generating unit and determined the value in use of the unit at P4,050,000.
What is the impairment loss to be allocated to the plant and equipment?
A. 560,000 C. 700,000
B. 600,000 D. 800,000
SOLUTION:
Inventory P200,000
Accounts receivable 300,000
Plant and equipment (6,000,000-2,600,000) 3,400,000
Patent 850,000
Goodwill 100,000
Carrying amount of CGU 4,850,000
Value in use 4,050,000
Impairment loss 800,000
Impairment loss allocated to goodwill 100,000
Remaining impairment loss P700,000

Plant Patent
Allocated loss
(3,400 / 4,250 x 700,000) P560,000
(850/4,250 x 700,000) P140,000
Reallocated loss 40,000 ( 40,000)
P600,000 P100,000

95. BLACK CORP. acquired a trademark on April 1, 2018 amounting to P180,000. It was determined
that due to an indefinite renewal option every 10 years of the trademark, its useful life is indefinite.
Also, it was determined that the trademark is impaired due to internal impairment indicators on
December 31, 2018. The fair value less cost to sell of the trademark is P120,000. The annual future
cash flows from the trademark is P13,000. The pretax discount rate is 10%. How much is the
impairment loss on December 31, 2018?
A. P50,000 C. P40,000
B. P60,000 D. None
SOLUTION:
Fair value less costs to sell P120,000
Value in use (P13,000 ÷ 10%) P130,000
Recoverable amount (whichever is higher) P130,000
Carrying amount 180,000
Impairment loss P50,000
96. The equity section of Buffett Company revealed the following information on December 31,
2014:
Preference share capital, P100 par P5,000,000
Share premium-preference shares 2,000,000
Ordinary share capital, P50 3,200,000
Share premium-ordinary shares 500,000
Subscribed ordinary share capital 800,000
Retained earnings-appropriated 250,000
Unrealized loss on financial assets at FVTOCI 600,000
Subscription receivable-ordinary shares 400,000
Retained earnings- unappropriated 3,500,000
Treasury shares-ordinary 1,000,000
How much is the contributed capital of Buffett Company as of December 31, 2014?
A. P10,100,000 C. P11,100,000
B. P11,500,000 D. P10,500,000

97. On July 1, 2013, the Beauty Corporation was registered with the SEC. Its authorized share
capital consists of 100,000 ordinary shares with par value P20.00 per share.

On July 15, 2013, it issued 10,000 shares at P23 per share. On October 15, 2013, the Beauty Corp.
paid to the majority shareholder the sum of P80,000 for a certain parcel of land; and issued 5,000
ordinary shares for the building on the land. The land was appraised at P130,000. The building has
a cost of P150,000 and its depreciated value is P90,000. It was appraised at P120,000.

On April 15, 2014, the corporation purchased 5,000 of its own ordinary shares for P100,000. On
June 15, 2014, 2,000 of the treasury shares were sold at P24 per share.

How much is the total share premium of Beauty Corp. on June 30, 2014?
a. P108,000 c. P 58,000
b. P 88,000 d. P100,000

98. ATC Company issued all of its outstanding shares for P150 in 2012. On January 10, 2013, ATC
acquired 100,000 treasury shares at P120 per share. ATC reissued 50,000 treasury shares for
P7,500,000 on June 30, 2014, and retired the rest on December 31, 2014. ATC’s equity accounts
as at December 31, 2013 follow:

Share capital, P100 par value P150,000,000

Share premium 75,000,000
Retained earnings 25,000,000
Total P250,000,000

What should be the balance of the share capital account on December 31, 2014?
A. P140,000,000 C. P145,000,000
B. P144,000,000 D. P150,000,000

99. The capital accounts of Kamprad, Inc. on December 31, 2013, were as follows:

Preference share capital, 20,000 shares, P20 par P 400,000

Share premium - preference 160,000
Ordinary share capital, 50,000 shares, P80 par 4,000,000
Share premium – ordinary 600,000
Retained earnings 360,000

During the year ending December 31, 2014, the following summarizes the transactions affecting the
shareholders’ equity

April 30 - 1,000 preference shares were retired at P25 per share.

June 15 - 2,000 treasury shares, ordinary, were purchased at P85 per share
June 30 - A two-for-one ordinary share split was declared.
July 31 - 800 treasury shares were reissued at P50 per share.
Dec. 31 – Profit for 2014 was P300,000.

What was the total share premium on December 31, 2014?

A. P760,000 C. P755,000
B. P766,000 D. P761,000

100. Anil Company was organized on January 1, 2012. On that date it issued 500,000, P10 par
value, ordinary shares at P15 per share. During the period January 1, 2012 through December 31,
2014, Anil reported profit of P3,000,000 and paid cash dividends of P500,000. On January 5, 2014,
Anil purchased 50,000 ordinary shares at P20 per share. On December 31, 2014, 45,000 treasury
shares were sold at P30 per share and retired the remaining treasury shares. What is the total
shareholders’ equity on December 31, 2014?
A. P10,350,000 C. P10,250,000
B. P10,850,000 D. P10,500,000