UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
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A.
1.
Property, Plant & Equipment
Which is not major characteristic of property, plant asset
equipment?
a. The property, plan and equipment are tangible
assets
b. The property, plant and equipment are used in
business
c. The property, plant and equipment are expected to
be used over a period of more than one year
d. The property, plan and equipment are subject
to depreciation.
An
item pf property, plan and equipment shall be
recognized as an asset when
I. It is probable that future economic benefits
association with the asset will flow to the entity
II. The cost of the asset to the entity be measured
reliably.
a. I only
c. I only
b. Both I and II
d. Neither I nor II
3.
Major spare parts and standby equipment which are
expected to be used a period of more than one year shall
be classified as
a. Property, plan and equipment
b. Inventory
c. Noncurrent investment
d. Expense
5.
Under the cost model, subsequent to initial recognition as
an asset, an item of property, plant and equipment shall
be carried at
a. Cost
b. Revalued amount
c. Cost less accumulated depreciation and any
accumulated impairment loss
d. Revalued amount less accumulated depreciation and
any accumulated impairment loss
The cost of an item of property, plant and equipment
comprises its purchase price, including import duties and
nonrefundable purchase taxes, and
a. The implied interest on the debt to finance the
purchase
b. The market value of any noncash asset surrendered
to acquire the asset
c. The estimated residual value of the asset
d. All directly attributable costs necessary to
bring the asset to working condition for its
intended use
sh
Th
6.
Which statement is correct concerning recognition of
property, plant and equipment?
I. Most spare parts and servicing equipment are usually
carried as inventory and recognized as expense
when consumed.
II. If the spare parts and servicing equipment can be
used only in connection with an item of property,
plan and equipment and their use is expected to be
irregular, they are accounted for as property, plant
and equipment and are depreciated over their useful
life of the related asset, whichever is shorter.
a. I only
c. II only
b. Both I and II
d. Neither I nor II
is
4.
7.
9.
Which is incorrect concerning acquisition of an item of
property, plant and equipment by self-construction?
a. The cost of self-constructed asset is determined
using the same principle as for an acquired asset
b. Any internal profit is eliminated in arriving at the cost
of self-constructed asset
c. The cost of abnormal amount of wasted
material, labor and other resources incurred in
the production of self-constructed asset is
included in the cost of the asset
d. The cost of normal amount of wasted material, labor
and other resources incurred in the production of self
–constructed asset is included in the cost of the
asset.
10. Which of the following is the most appropriate policy as
regards the allocation of joint overhead cost to plant and
equipment constructed by the entity for its own use?
a. Assign no overhead.
b. Assign only variable overhead
c. Assign overhead equal to the amount that would
have been assigned to production that is curtailed
because
of the construction
d. Assign a proportionate share of overhead to
the construction on the same basis as that
used for the assignment to normal production
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2.
between the cash price equivalent and the total payment
shall be recognized as
a. Interest expense of the current year
b. Component of cost of the property, plant and
equipment
c. Interest expense over the credit period
d. Interest expense over the life of the asset
11. It is the present value of cash flows an entity expects to
arise at the end continuing use of an asset and from its
disposal at the end of its useful life or expects to incur
when settling a liability
a. Entity-specific value
c. Fair value
b. Value in use
d. Discounted value
12. The cost of an item of property, plant and equipment
acquired in a nonmonetary exchange is measured at the
a. Carrying amount of the asset given up
b. Fair value of the asset given up
c. Carrying amount of the asset received
d. Fair value of the asset received
13. The cost an item of property, plant and equipment that is
acquired in exchange for combination of monetary and
nonmonetary asset is measured at the
a. Fair value of the asset given up plus the
amount of any cash or cash equipment
transferred
b. Fair value of the asset received plus the amount of
any cash or cash equivalent transferred
c. Book value of the asset given up plus the amount of
any cash or cash equivalent transferred
d. Book value of the asset received plus the amount of
any cash or cash equivalent
14. If an entity is able to determine reliability the fair value of
the asset received and the fair value of the asset given
up in an exchange transaction, of the asset acquired is
measured at
a. Fair value of asset given up
b. Fair value asset received
c. Either the fair value of asset received or the fair
value of asset given up
d. Neither item fair value of asset received nor the fair
value of asset given up
Directly attributable costs include all of the following
except
a. Cost of site preparation, initial delivery, handling and
installation
b. Professional fees such as for architects and engineers
c. Estimated cost of dismantling and removing the
asset and restoring the site for which the entity has a
present obligation
d. Cost incurred while an item capable of
operating for its intended use has yet to be
15. If an item of property, plant and equipment is acquired in
brought into use or is operated at less than
exchange for a nonmonetary asset and the exchange
capacity
lacks commercial substance, the cost the asset acquired
8. When payment item of property, plan equipment is
is measured at
deferred beyond normal credit terms, the difference
a. Fair value of the asset given give up
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Page 1 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
b.
c.
d.
Fair value of the asset received
Carrying amount of the asset given up
Carrying amount of the asset received
16. A donated plant asset for which the fair value has been
determined, and for which directly attributable cost were
incurred, shall be recorded at an amount equal to
a. Directly attributable costs incurred
b. Fair value and directly attributable costs
incurred
c. Book value on books of donor directly attributable
costs incurred
d. Book value on books of donor
18. An entity imported machinery to install in its new factor
premises before year-end. However due to circumstances
beyond its control, the machinery was delayed by a few
months but reached the factory premises before yearend. While this was happening, the entity learned from
the bank that it was being charged interest on the loan it
had taken to fund the cost of the plant. What is the
proper treatment of freight and interest expense?
a. Both expenses should be capitalized
b. Interest may be capitalized but freight should be
expensed
c. Freight charge should be capitalized but
interest cannot be capitalized under these
circumstances
d. Both expenses should be expensed
19. Which of the following terms best describes the removal
of an asset from an entity’s statement of financial
position?
a. De-recognition
c. Impairment
b. Write-off
d. Depreciation
is
20. Gains and losses arising from the retirement or disposal
of an item of property, plant and equipment shall be
determined as the difference between
a. Gross disposal proceeds and the cost of the asset
b. Gross disposal proceeds and the carrying amount of
the asset
c. Net disposal proceeds and the carrying amount
of the asset
d. Net disposal proceeds and carrying amount of
the asset
sh
Th
22. When an item of property, plant and equipment is
acquired by issuing securities, which of the following is
the best basis for establishing the historical cost of the
acquired asset?
a. Historical cost of the asset to the seller
b. Historical cost of a similar asset acquired in another
transaction by the buyer
c. Fair value of the asset received or the fair
value of the securities issued, whichever is
more readily determinable
d. Historical cost of the asset is zero since noncash is
paid in the acquisition
23. When a plant asset is acquired by deferred payment,
which of the following condition generally does not
indicate the need to consider the imputation of interest
cost in the transaction price?
a. The interest rate sated on the deferred obligation is
significant different from current market interest rate
b. The cash deferred obligation assumed by the buyer
of the asset
c. The instrument representing the deferred obligation
is noninterest bearing
d. The
face
amount
of
the
instrument
representing the deferred obligation is equal
to the market value of the plant asset
exchanged
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17. 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
qualify for capitalization. Included in those expenses are
initial operating losses. These should be
a. Deferred and amortized over income reasonable
period of time
b. Expensed
and
charged
to
the
income
statement
c. Capitalized as part of the of plant as a directly
attributable cost
d. Taken to retained earnings since it is unreasonable to
present it as part of the current year’s income
statement
recognized at the difference between the total of the
original historical cost figures and the price paid in
the basket purchase
24. Donated equipment for which the fair value has been
determined shall be recorded as a debit to the
appropriate equipment account and credit to
a. Other comprehensive income
b. Retained earnings
c. Share capital
d. Revenue or gain
25. The following statements relate to the cost of an asset.
Which statement is true?
I. The cost includes cash equivalents paid to acquire an
asset
II. The cost includes the fair value of any nonmonetary
consideration given to acquire an asset
a. I only
c. II only
b. Both I and II
d. Neither I nor II
26. An entity purchased certain plant asset under a deferred
payment contract. The agreement was to pay P10,000
per year for five years. The plant assets shall be
measured at
a. P50,000
b. P50,000 plus imputed interest
c. Present value of P10,000 annuity for five years
at an imputed interest
d. Present value of a P10,000 annuity for five years
discounted at the bank prime interest rate
27. An entity purchased certain plant asset under a deferred
payment contract. The agreement was to pay P10,000 at
the time purchase and P10,000 at the end of each of the
next five years. The plant asset should be valued at
a. The present value of a P10,000 ordinary annuity for
five years
b. P60,000
c. P60,000 plus imputed interest
d. P60,000 less imputed interest
21. In a “basket” or lump-sum” purchase of asset, which of
the flowing best describes the process by which the
historical cost of the various assets acquired shall be
determined?
a. Allocation of the total cost to the assets on the basis
of the historical cost of the individual assets to their
original owner
b. Allocation of the total cost to the individual
assets on the basis of the fair value of the
28. If the present value of a note issued in exchange for plant
individual assets at the time o the basket
asset is less than its face amount, the difference shall be
purchase
a. Included in the cost of the asset
c. Recording of the individual assets at their fair value
b. Amortized as interest expense over the life of
with recognition of a gain or loss for the difference
the note
between the price paid for the assets and the total
c. Amortized as interest expense over the life of the
value of the individual assets.
asset
d. Recording of the individual asset at their original
d. Included in interest expense in the year of issuance
historical cost to the seller with a gain or loss
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Page 2 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
29. Which of the following items shall not be capitalized into
the cost of property, plant and equipment?
a. Cost of excess materials resulting from a
purchasing error
b. Cost of testing whether the asset works correctly
c. Initial delivery and handling costs
d. Cost of preparing the site for installation
30. At the beginning of the current year, an entity purchased
new machinery that it does not have to pay until after
three years. The total payment on maturity will include
both principal and interest. Assuming interest at a 10%
rate, the cost of the machine would be the total payment
multiplied by what time value of money concept?
a. Present value of annuity of 1
b. Present value of 1
c. Future amount of annuity of 1
d. Future amount of 1
c.
d.
B.
1.
Land, Building and machinery
When an entity purchases land with a building on in and
immediately tears down the building so that the land can
be used for the construction of a plant, the cost incurred
to tear down the building shall be
a. Expensed as incurred
b. Added to the cost of the plant
c. Added to the cost of the land
d. Amortized over the estimated time period between
the tearing down of the building and the completion
of the plant
2. An entity purchased land to be used as the site for the
construction of a plant. Timber was cut from the building
site so that construction of the plant could begin. The
proceeds from the sale for the timber shall be
a. Classified as other income
b. Netted against the cost to clear and expensed as
incurred
c. Deducted from the cost of the plant
d. Deducted from the cost of land
3.
Land was purchased to be used as the site for the
construction of plant. A building on the property was sold
and removed by the buyer so that construction on the
plant could begin. The proceeds from the sale of the
building shall be
a. Netted against the cost to clear the land and
expensed as incurred
b. Netted against the cost to clear the land amortized
over life of the plant
c. Deducted from the cost of the land
d. Classified as other income
4.
If an entity purchases a lot and building and subsequently
tears down the building and uses the property as a
parking lot, The property accounting treatment of the
cost of the building would depend on
a. The significance of the cost allocated to the building
in relation to the combined cost of the lot and
building
b. The length of time for which the building was held
prior to its demolition
c. The contemplated future use of the parking lot
d. The intention of management for the property
when the building was acquired
5.
An entity’s forest land was condemned for used as a
national park. Compensation for the condemnation
exceeded the forest land’s carrying amount. The entity
purchased similar, but larger, replacement forest land for
an amount greater than the condemnation award. As a
result of the condemnation and replacement, what is the
net effect on the carrying amount of forest land reported
in the entity’s statement of financial position?
a. The amount is increased by the excess of the
replacement forest land’s cost over the
condemned land’s carrying amount
b. The amount is increased the excess of the
replacement
forest
land’s
cost
over
the
condemnation award
c. The amount is increased the by the excess of the
condemnation award over the condemned forest
land’s carrying amount
d. No effect, because the condemned forest land’s
carrying amount is used as the replacement forest
land’s carrying amount
6.
The term “betterment” refers to
a. Expenditure made for new facilities which increase
“capacity”.
b. An expenditure made to restore “capacity” after
abandonment or retirement
is
32. Scott company nonmonetary assets with Dale Company.
No cash was exchanged. The carrying amount of the
asset surrendered by Scott exceeded both the fair value
of the asset received and Dale’s carrying amount of that
asset. Scott should recognize .the difference between the
carrying amount of the asset it surrendered and
a. The fair value of the asset it received as a loss
b. The fair value of the asset it received as a gain
c. Dale’s carrying amount of the asset it received as
loss
d. Dale’s carrying amount of the asset it received as a
gain
33. Solen Company and Nolse Company exchanged truck
with fair value in excess of carrying amount. In addition,
Solen paid Nolse to compensate for the difference in truck
fair value. As a consequence of the exchange Solen shall
recognize
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 paid to
the total consideration
c. A loss determined by the proportion paid to the total
consideration
d. Neither a gain nor loss
Th
A gain in an amount determined by the ratio of cash
received to total consideration
A loss in an amount determined by the ratio of cash
Neither a gain nor a loss
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31. Vik Auto and Kin clothier exchanged goods, held for
resale with equal fair value. Each will use the other’s
goods to promote their own products. The retail price of
the car that Vik gave up is less than the retail price of the
clothes received. What profit should Vik recognize for the
nonmonetary exchange?
a. A profit is not recognized
b. A profit equal to the difference between the retail
price of the clothes received and the car
c. A profit equal to the difference between the retail
price and the cost of the car
d. A profit equal to the difference between the
fair value and the cost of the car
b.
sh
34. In an exchange of assets, an entity received equipment
with a fair value equal to the carrying amount of
equipment given up. The entity also contributed cash. As
a result of the exchange, the entity shall recognize
a. A loss equal to the cash given up
b. A loss determined by the proportion of cash paid to
the total transaction value
c. A gain determined by the proportion of cash paid to
the total transaction value
d. Neither gain not loss
35. State Company and Talse Company exchanged plots of
land with fair value in excess of carrying amount. In
addition, State received cash from Talse to compensate
for the difference in land value. As a result of the
exchange , State shall recognize
a. A gain equal to the difference between the fair
value and the carrying amount of the land
given up
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Page 3 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
c.
d.
An expenditure made to improve existing
facilities by increasing “capacity”
Expenditure made to help insure continuity of service
capacity.
d.
Cost incurred to have existing building
removed to make room for construction of new
building
Which type of expenditure occurs when an entity install a
higher capacity boiler to hear its plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment
14. The cost of land include all of the following except
a. Commissions related to acquisition
b. Property taxes after date of acquisition
assumed by the purchaser
c. Property taxes to date of acquisition assumed by the
purchaser
d. Cost of survey
8.
An improvement made to a machine increase its fair
market value and its production capacity by 25 percent
without extending the machine’s useful life. The cost of
the improvement shall be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the
machine account
15. Which of the following expenditure may property be
capitalized?
a. Expenditure for massive advertising campaign
b. Insurance on plant during construction
c. Research and development related to a long-term
asset which is giving the entity a competitive market
advantage
d. Title search and other legal costs related to a piece
of property which was not acquired
9.
A building suffered uninsured fire damage. The damaged
portion of the building was refurbished with higher quality
materials. The cost and related accumulated depreciation
of the damaged portion are identifiable. To account for
these events, the owner shall
a. Capitalize the cost refurbishing and record a
loss in the current period equal to the carrying
amount of the damaged portion of the building
b. Capitalize the cost of refurbishing by adding the cost
to the carrying amount of the building
c. Record a loss the current period equal to the cost of
refurbishing and continue to depreciate the original
cost of the building
d. Record a loss in the current period equal to the sum
of the cost of refurbishing and the carrying amount of
the damaged portion of the building
C. Depreciation and Depletion
16. It is the systematic allocation of the depreciable amount
of an item of property, plant and equipment
a. Depreciation
c. Depletion
b. Amortization
d. Realization
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7.
is
10. An entity incurred costs to modify its building and to
rearrange its production line. As a result, an overall
reduction in production costs is expected. However the
modification did not increase the building’s 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?
a. Only the building modification cost should be
capitalized
b. Only the production line rearrangement cost should
be capitalized
c. Both the building modification cost and
production line rearrangement cost should be
capitalized
d. The building modification cost should be expensed.
sh
Th
11. Which of the following cost relating to noncurrent assets
shall not be capitalized?
a. Replacement of a building’s roof every 15 years
b. Cost of the site preparation
c. Installation and assembly costs
d. Replacement of small spare parts annually
12. Which of the following would ordinarily be treated as
revenue expenditure rather than a capital expenditure?
a. Cost of servicing and overhaul to restore or
maintain the originally assessed standard of
performance
b. The replacement of a major component of building
c. An addition to an existing building
d. Rearrangement cost that is expected to provide
discernible future benefit
17. Useful life of an item of property, plant and equipment is
I. The period of time over which an asset is expected to
be used by the entity
II. The number of production or similar units expected
to be obtained from the asset by the entity.
a. I only
c. II only
b. Both I and II
d. Neither I nor II
18. Carrying amount is the
a. Cost of an asset or the amount substituted for cost in
the financial statements, less its residual value
b. Amount of cash equivalent paid or the fair value of
the other consideration given to acquire an asset at
the time of its acquisition or construction
c. Net amount which the entity expects to obtain for an
asset at the end of its useful life after deducting the
expected costs of disposal
d. Amount at which an asset is recognized in the
statement of financial position after deducting
any
accumulated
depreciation
and
accumulated impairment loss
19. Which of the following statement is incorrect with
respects to depreciation?
a. The depreciable amount of item of property, plant
and equipment shall be allocated on a systematic
basis over its useful life
b. The depreciation method used shall not reflect
the pattern in which the asset’s economic
benefits are consumed by the entity
c. The depreciation charge for each period shall be
recognized as an expense unless it is included in the
carrying amount of another asset
d. The estimation of the useful life of an item of
property plant and equipment is a matter of
judgment based on the experience of the entity with
similar assets.
20. All the following factors need to be considered in
determining the useful life of an asset except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
13. The cost of building include all of the following except
21. The sum of units method of depreciation results in
a. Any renovating or remodeling cost incurred to put
a. Constant charge over the life of the asset
the building purchased in a condition for it intended
b. Decreasing charge over the life of the asset
use
c. Increasing charge over the life of the asset
b. Cost of excavation
d. Charge based on the expected use or output of
c. Expenditure for service equipment and fixture made
the asset
a permanent part of the structure
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Page 4 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
22. Which is incorrect concerning the residual value of an
item of property, plant and equipment?
a. The depreciable amount is determined after
deducting the residual value of the asset
b. In practice, the residual value of an asset is often
insignificant and therefore immaterial in the
calculation of the depreciable amount
c. The residual value of an asset may increase to an
amount equal to or greater than the asset’s carrying
amount
d. The residual value of an asset shall be
reviewed at least at each financial year-end
and if expectation differs from previous
estimate, the change shall be accounted for as
a change is an accounting policy
24. The depreciation method applied to property, plant and
equipment shall be reviewed periodically, and if there has
been a significant change in the expected pattern of
consumption of economic benefits from those asset, the
change
a. Shall be accounted for as a change in accounting
policy
b. Shall not be recognized
c. Shall be accounted for a change in accounting
estimate
d. Shall be accounted for as correction of a prior period
error
25. Technical obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Changes or improvement in production or
change in the market demand for the product
output of the asset
d. Expiry date of related lease of the asset
is
26. Which of the following terms best describes the cost or an
amount substituted for cost of an asset less it residual
value?
a. Revalued amount
b. Recoverable amount
c. Carrying amount
d. Depreciable amount
27. Which of the following statements best describes residual
value?
a. The estimated net amount currently obtainable
if the asset is at the end of its useful life
b. The present value of estimated future cash flows
expected to arise from the continuing use of the
asset and from its ultimate disposal
c. The amount at which the asset could be exchanged
between knowledgeable and willing parties in an
arm’s length transaction
d. The amount of cash or cash equivalents that could
currently be obtained by selling the asset in an
orderly disposal.
sh
Th
30. An entity bought a private jet for the use of its top
ranking officials. The private jet 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 tire are replaced
every 2 years. The private jet shall be depreciated using
the straight line method over
a. 7 years composite useful life
b. 5 years useful life of the engine, 2 years useful
life of the tire and 7 years useful life applied to
the balance cost of the jet
c. 2 years useful life based on conservatism
d. 5 years useful life based on a simple average of the
useful lives of all major components of the jet
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23. The useful of an item of property plant and equipment
shall be reviewed periodically and if expectations are
significantly different from previous estimates, the
depreciation charge for the
a. Current period only shall be adjusted
b. Future period only shall be adjusted
c. Prior periods shall be adjusted
d. Current and future periods shall be adjusted
29. Which of the following statement regarding depreciation
is true?
a. An asset must be depreciated from the date of its
purchase to the date of sale
b. The annual depreciation charge shall be constant
over the life of the asset
c. The total cost of an asset must eventually be
depreciated
d. If the carrying amount of an asset is less than
the residual value, depreciation is not charged
28. Which of the following statements is correct
a. Assets are depreciated even if their fair value
exceeds their carrying amount
b. Land and buildings are nor accounted for separately
when acquired together
c. A noncurrent asset acquired as the result of an
exchange of asset is not recognized
d. A gain on disposal of a noncurrent asset is classified
as revenue
31. The accounting term “book value” is best described as
when of the following?
a. A measure of the market value of the asset at the
time book value is determined
b. A measure of the market value, less estimated
residual value of, the asset at the time book value is
determined
c. A measure of the difference between the
historical
cost
of
the
asset
and
the
accumulated depreciation recognized to the
time book value is determined
d. A measure if the deference between the historical
cost of the asset and the total of the estimated
residual value and the accumulated depreciation
recognized to the time book value is determined
32. An addition that is an integral part of an older asset
normally would be depreciated over
a. The useful life of the addition
b. The useful life of the addition or the original
asset whichever is shorter
c. The useful life of the original asset
d. Either the useful life of the addition or the original
asset as a matter of professional judgment
33. Depreciation is best described as a method of
a. Asset valuation
b. Cost allocation
c. Current value allocation
d. Useful life determination
34. Which of the following depreciation method is not based
on the passage of time?
a. Sum of units method
c. Sum of year’ digits
b. Declining balance
d. Straight line
35. In which of the following depreciation methods is residual
value not a factor in determining depreciation charge in
early years of the asset’s life?
a. Straight line
c. Service hours
b. Productive output
d. Declining balance
36. Which of the following depreciation methods is not
appropriate for situations involving a large number of
similar items, each having a small peso cost?
a. Inventory method
c. Retirement method
b. Replacement method
d. Composite method
37. Which statement is incorrect concerning the depreciation
methods?
a. Under the output method, the cost per unit of
production is constant.
b. The straight line method is particularly appropriate
where the asset is expected to decline in usefulness
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Page 5 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
c.
d.
as a function of time expected use pattern of the
asset is fairly constant over time
The sum of years’ digits method provides for a
decreasing depreciation charge
First-year depreciation under the double
declining balance method is computed as the
depreciable amount multiplied by double the
straight line rate
38. The goal a depreciation method is to provide a
reasonable, consistent matching of revenue and expense
by
a. Measuring the decline in the value of depreciable
asset.
b. Systematically allocating the cost of the
depreciable asset over its estimated useful life
c. Determining the impairment in value of the
depreciable asset
d. Measuring the depreciable asset at fair value
40. An entity acquired equipment and used the straight line
depreciation with a useful life of 15 years and no residual
value. After 4 years of using the asset, the entity
estimated that the remaining life of the equipment was
six years with no residual value. How should this change
be accounted for?
a. Revising future depreciation annually to equal the
original cost divided by six
b. Revising future depreciation annually to equal
the carrying amount after 4 years divided by
six
c. Disclosing the effect of the change on each year’s
earnings, but maintaining the depreciation as
originally determined
d. Revising future depreciation annually to equal the
depreciable amount divided six
is
41. As generally used in accounting, what is depreciation?
a. It is a process of asset valuation
b. It applies only to long-lived intangible assets
c. It is used to indicate a decline in market value of a
ling-lived asset.
d. It
is
an
accounting
process
which
systematically allocates long-live asset cost to
accounting periods
sh
Th
c.
d.
Equipment on which maintenance and repairs
increase substantially with age
Equipment with useful life that is not affected by the
amount of use
Equipment used consistently every period
44. A principal objection on the straight line method of
depreciation is that it
a. Provides for the declining productivity of an aging
asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of result on a
diminishing base
d. Gives smaller periodic Write-off than decreasing
charge methods
45. For income statement purposes, depreciation is a variable
expense if the depreciation method used is
a. units of production
c. straight line
b. Sum of digits
d. Declining balance
46. A method which excludes residual value from the base for
the depreciation calculation is
a. Straight line
c. Sum of digits
b. Double declining balance
d. Productive
output
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39. If there is a change from double declining balance to
straight line method
a. The accumulated depreciation is adjustment to its
appropriate balance through retained earnings based
on the straight line method
b. The accumulated depreciation is adjusted to its
appropriate balance through net income based on
the straight line method
c. The
accumulated
depreciation
is
not
adjustment but the remaining book value is
allocated over the remaining life using the
straight line method
d. The accumulated depreciation is not adjustment but
the remaining book value is allocated over the
original life using the straight line method
b.
42. Which of the following statements is the assumption on
which straight line depreciation is based?
a. The operating efficiency of the asset decreases in
later years
b. Service value declines as a function of time
rather than use
c. Service value declines as a function of obsolescence
rather than time
d. Physical wear and tea are more important than
economic obsolescence.
43. The straight line method of depreciation is not
appropriate for
a. An entity that is nether expanding nor contracting its
investment in equipment because it is replacing
equipment as the equipment depreciates
47. In which of the following situation is the units of
production method of depreciation most appropriate?
a. An asset’s service potential declines with use
b. An asset’s service potential declines with the
passage of time
c. An asset is subject to rapid obsolescence
d. An asset incurs increasing repairs and maintenance
with use
48. What factor must be present to use the unit of production
method of depreciation?
a. Total units to be produced can be estimated
b. Production is constant over the life of the asset
c. Repair cost increase with use
d. Obsolescence is expected
49. Which of the following reasons provides the best
theoretical support for accelerated depreciation?
a. Assets are more efficient in early years and
initially generate more revenue
b. Expenses should be allocated in a manner that
“smoothes” earnings
c.
Repairs and maintenance cost will probably increase
in later periods so depreciation should decline
d. Accelerated
depreciation
provides
easier
replacement because of the time value of money
50. Which
depreciation
method
applies
a
uniform
depreciation rate each period to an asset’s book value?
a. Straight line
c. Declining balance
b. Output method
d. Sum of year’s’ digits
51. The composite depreciation method
a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the
retirement of single asset in the group
d. Excludes residual value from the base of the
depreciation calculation
52. An entity using the composite depreciation method for its
fleet of trucks, cars and campers retired one of its trucks
and received cash from a salvage entity. The net carrying
amount of these composite asset accounts would be
decreased by the
a. Cash proceeds received and original cost of the truck
b. Cash proceeds received
c. Original cost of the truck less the cash proceeds
d. Original cost of truck
53. A machine with a four-year estimated useful life and an
estimated 15% residual value was acquired at the
beginning of the current year. The increase in
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Page 6 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
accumulated depreciation for the second year using the
double declining balance method would be
a. Original cost x 85% x 50%
b. Original cost x 50%
c. Original x 85% x 50% x 50%
d. Original cost x 50% x 50%
54. A machine with 5-year estimated useful life and an
estimated 10% residual value was acquired at the
beginning of the current year. At the end of the fourth
year accumulated depreciation using the sum of years
digits method would be
a. Original cost less residual value multiplied by 1/5
b. Original cost less residual value multiplied by
14/15
c. Original cost multiplied 14/15
d. Original cost multiplied by 1/15
56. The most common method of recording depletion for
accounting purposes is the
a. Percentage depletion method
b. Decreasing charge method
c. Straight line
d. Production or output method
57. Depletion expense
a. Is usually part of cost of goods sold
b. Includes tangible equipment cost in the depletable
cost
c. Excludes intangible development cost from the
depletable cost
d. Excludes restoration cost from the depletable cost
58. Information needed to compute a depletion charge per
unit includes the
a. Estimated total amount of resources available
for removal
b. Amount of resources removed during the period
c. Cumulative amount of resources removed
d. Amount of resources sold during the period
is
59. Which of the following accurately describes the generally
accepted accounting principle regarding the accounting
for the costs of drilling dry wells in the oil and gas
industry?
a. Only the successful effort method may be used
b. Only the full cost method may be used
c. Both successful effort and full cost method
may be used
d. Neither the successful effort method nor the full cost
method may be used pending promulgation by the
securities and Exchange Commission of its own
approach to accounting for the costs of drilling dry
wells
62. Does PFRS 6 require an entity to recognize exploration
and evaluation expenditure as a asset?
a. Yes but only to the extent such expenditure is
recoverable in future periods
b. Yes, but only to the extent the technical feasibility
and commercial viability of extracting the associated
mineral resource have been demonstrated
c. Yes, but only to the extent required by the
entity’s accounting policy
for recognizing
exploration and evaluation asset
d. No, such expenditure is always expensed in profit or
loss as incurred
63. 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 resource
d. Expenditures for activities in relation to evaluating
the technical feasibility and commercial viability of
extracting a mineral resource
64. Which measurement model applies to exploration and
evaluation asset 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
65. Which of the following facts or circumstances would not
trigger a need to test an evaluation and exploration asset
for impairment?
a. The expiration of the period for which the entity has
the right to Explore in the specific area unless the
right is expected to be renewed
b. The absence of budgeted or planned substantive
expenditure on further exploration and valuation
activities in the specific area.
c. A decision discontinues exploration and evaluation
activities in the specific area when those activities
have not led to the discovery of commercially viable
quantities of mineral resources.
d. Lack of sufficient data to determine whether
the carrying amount of the exploration and
evaluation asset is likely to be recovered in full
from successful development or by sale
D.
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d.
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55. An asset has a nine-year useful life and is to be
depreciated under the sum of year’s digits method. The
annual depreciation expense would be the same as that
under the straight line method in the
a. Third year
c. Fifth year
b. Seventh year
d. Ninth year
c.
feasibility
and
commercial
viability
of
extracting a mineral resource are not yet
demonstrable
When a special area is being developed and
preparations for commercial extraction are being
made
In extracting mineral resource and processing the
resource to make it marketable or transportable
60. Which type of expenditure is included in the term
‘exploration and evaluation” of mineral resources.
I. The extraction and processing of mineral resources
for transport to market
II. The commercial review of possible areas for mineral
extraction before bidding for the legal rights to
explore a specific area
a. I only
c. II only
b. Either I or II
d. Neither I nor II
Revaluation
66. Revaluation is based on
I. Fair value which is usually the market value of an
item of property, plant and equipment
II. Depreciated replacement cost, in the absence of fair
value
a. I only
c. II only
b. Both I and II
d. Neither I nor II
67. The fair value of items of property, plant and equipment
is usually their market value. When there is no evidence
of market value because of the specialized nature of the
plant and equipment and because these items are rarely
sold they are revalued at
a. Replacement cost
b. Depreciated replacement cost
c. Net realizable value
d. Present value of cash inflows from the use of the
asset
61. Exploration and evaluation expenditures are 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
68. Which statement is incorrect concerning the frequency of
have
been
obtained
but
the
technical
revaluation?
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Page 7 of 8
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES
Chapter 6 – PAS 16 PROPERTY, PLANDT & EQUIPEMNT
EDMUND E. HILARIO, CPA, MBA
SYNTHESIS IN FIN ACCTG THEORY
1 St SEMESTER 2019 – 2020
================================================================================
=
a.
b.
c.
d.
The frequency of revaluation depends upon the
movements in the fair value of the items of property
plant and equipment
When the fair value of a revalued asset differs
materially from its carrying amount, a further
revaluation is necessary
Some items of property, plant and equipment may
experience significant and volatile movement in fair
value thus necessitating annual revaluation
Frequent revaluation are unnecessary for items
of property, plant and equipment with only
insignificant movements in fair value and
instead, revaluation every six 10 years may be
sufficient
Charged to retained earnings
Debited to equity
Charged to revaluation surplus
74. When the revaluation surplus is realized because of the
use of the asset by the entity or disposal of the asset, it
may be transferred directly to
a. Retained earnings
c. Income
b. Share capital
d. Share premium
75. If a depreciable property is revalued at the middle of the
current fiscal year, how is the depreciation expense for
the year (assuming has a calendar year-end determined?
a. Depreciation for the year is based on the average of
the depreciation based on cost and on revalued
amount of the property
b. Depreciation for the entire year is based on cost
c. Depreciation for the entire year is based on revalued
amount
d. Depreciation for the first half of the year is
based on cost and for the second half on
revalued amount
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69. What is the treatment of the accumulated depreciation on
the date of revaluation?
I. Restated proportionately with the change in the
gross carrying amount of the asset so that the
carrying amount after revaluation equals the
revalued amount
II. Eliminated against the gross carrying amount of the
asset and the net amount restated to the revalued
amount of the asset
a. I only
c. II only
b. Either I or II
d. Neither I nor II
b.
c.
d.
70. Which statement is incorrect concerning the class of
property, plant and equipment to be revalued?
a. When an item of property, plant and equipment is
revalued, the entire class of property, plant and
equipment to which that asset belongs shall be
revalued
b. A class of property, plant and equipment is a
grouping of assets of a similar nature and use in an
entity’s operations.
c. The items within a class of property, plant and
equipment are revalued selectively
d. A class of assets may be revalued on a rolling basis
provided revaluation of the class of assets is
completed within a short period of time and provided
the revaluation are kept up to date
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is
71. An entity 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 entity’s accountant has
suggested the alternatives that follow. Which one of the
options should the entity select in order to be in line with
the provisions of PAS 16?
a. 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
b. Revalue an entire class of property, plant and
equipment
c. Revalue one ship at a time as it is easier than
revaluing all ships together
d. Since asset are being revalued regularly, there Is no
need to depreciate
72. PAS 16 requires that revaluation surplus resulting from
initial revaluation of property, plant and equipment shall
be treated in one of the following ways. Which of the four
option mirrors the requirements of PAS 16?
a. Credited to retained earnings as this is an unrealized
gain
b. Released to the income statement an amount equal
to the difference between the depreciation calculated
on historical cost vis-à-vis revalued amount
c. Deducted from current assets and added to the
property, plant and equipment
d. Debited to the class of property, plant and
equipment that is being revalued and credit to
“revaluation surplus”
73. When an asset’s carrying amount is decreased as a result
of a revaluation, the decrease shall be
a. Recognized in profit or loss
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