Mang Inasal has developed a secret chicken recipe which has spurred substantial growth for the
business. As a result of the growth, can Mang Inasal recognize an intangible asset?
No, because it is not identifiable
ABC Co. is a manufacturer of several consumer products. It was able to develop internally a
detergent laundry soap (e.g. Arial) which has become popular among consumers. Can the brand
name or trademark relating to the detergent laundry soap be recorded as an intangible asset?
Both A and
Statement 1: ABC Co., entered into a contract with a competitor XYZ Co., whereby XYZ Co. cannot
engage in same line of business ABC Co. is engaged in for a period of 5 years. A s remuneration,
ABC Co. paid XYZ Co. P1,000,000. ABC Co. should recognize an intangible asset.
Statement 2: The exceptional skills of employees as a result of training programs can be capitalized
as intangible asset became the employer are under the control of the business entity.
Only statement 1 is true
Statement 1: Intangible assets with definite useful lines are amortized over their useful lives and are
tested for impairment at the end of reporting period if there is an indication of impairment.
Statement 2: Intangible assets with indefinite useful lives are not amortized but are tested for
impairment at least annually and whenever there is an indication that the intangible asset may be
impaired.
Both statements are true
ABC Mining Co. was able to obtain a contract from the government which gives the company the right
to make oil exploration on a government owned property. ABC paid the government P5,000,000 for
the right. ABC applies the full cost method in accounting for working assets. The journal entry to
record this transaction in the books of ABC is:
Working Asset
Cash
5,000,000
5,000
ABC Construction Co. entered into a contract with the government for the contruction of a
P50,000,000 bridge. As compensation for the construction, the government will allow ABC to change
toll fees on motorists for a period of 10 years. After 10 years, the bridge will be handed back to the
government. Upon completion of the bridge, ABC should recognize a non-current asset under the line
item:
Intangible Asset
Statement 1: The basis for the initial measurement of intangible assets is cost. The basis for
subsequent measurement is cost less accumulated depreciation and any accumulated impairment
loss.
Statement 2: Subsequent expenditures on intangible assets are expensed. They can only be
capitalized if they can enhance future economic benefits.
Only statement 2 is true
Statement 1: Cost incurred in ongoing a corporation such as legal fees and incorporation fees are
charged to expense. These costs are a good example of start-up cost.
Statement 2: Under the residual approach, the formula to determine goodwill is purchase price use
fair value of net assets acquired excluding goodwill.
Both statements are true
Statement 1: All expenditures related to research and development costs are expensed.
Statement 2: Research and development expenditures which have alternative future use can be
capitalized.
Only statement 2 is true
Investment Property is shown in the balance sheet as non-current asset under which of the following?
A separate line item
None of the statements are correct, except
When ancillary services are provided by the entity to the occupants of the property and these
services are a relatively insignificant component of the arrangement, the property is treated as
IP. If significant, it will be treated as OOP otherwise.
Which of the following disclosures shall be made when the fair value model has been adopted for
investment property?
None of the choices
The following properties does not fall under the definition of investment property, except?
None of the choices
I. Abnormal amounts of wasted material, labor, or other resources incurred in constructing or
developing the property are excluded from the initial cost of IP.
II. An entity may choose between the fair value model or cost model as its accounting policy for
subsequent measurement of its IP and shall apply that policy to all of the IP.
Both Statements are true.
I. Equipment such as lift or air-conditioning is generally excluded in the fair value of Investment
Property.
II. The fair value of Investment Property includes prepaid or accrued operating lease income.
Both Statements are false.
An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement only if
An active market exists for the intangible asset.
The proper accounting for costs incurred in creating computer software is
To charge research and development expense when incurred until technological feasibility has
been established for the product.
If an entity constructs a laboratory building to be used as a research and development facility, the
cost of the building is matched against earnings as
Depreciation deducted as part of research and development expense.
An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement only if
None of the choices.
Which of the following costs should be included from research and development expense?
All of the choices
If owner-occupied property is transferred to investment property that is to be carried at fair value, the
difference between the carrying amount of the property and its fair value shall be
Accounted for as revaluation of property, plant, and equipment
Transfers from investment property to property, plant and equipment are appropriate
When there is change of use
Operating losses incurred during the start-up years of a new business should be
Accounted for and reported like operating losses of any other business
Which of the following statements is true regarding the proper accounting treatment for internal use
software costs?
I.
II.
Preliminary costs should be capitalized as incurred.
Application and development costs should be capitalized as incurred.
II only
Which of the following is not one of the criteria which much be met before development costs can be
capitalized?
None of the choices
Statement 1: A share warrant is an example of a stand-alone derivative.
Statement 2: ABC Corporation purchased PLDT bonds for P120,000. Each P1,000 bonds is
convertible into 8, P100 par, PLDT ordinary shares after 2 years at the option of ABC Corporation.
Allocating the P120,000 purchase price between the bond investment and conversion privilege is
known as relative sales price method.
Only Statement 1 is true
Which statement is incorrect regarding embedded derivatives?
A derivative that is attached to a financial instrument but is contractually transferable
independently of that instrument, or has a different counterparty from that instrument, is an
embedded derivative.
A standard contract, traded on an exchange market, that allows a company to buy a specified
quantity of a commodity or a financial security at a specified price on a specified future date is
referred to as a(n)
Futures contract
Market risk excludes
Credit risk
All of the following statements regarding accounting for derivatives are correct except that
Gains and losses resulting from speculation should be deferred.
Credit risk is
The risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation.
On March 1, 2020, a company established a sinking fund in connection with an issue of bonds due on
2021. At December 31, 2025, the independent trustee held cash in the sinking fund account
representing the annual deposits to the fund and the interest earned on those deposits. How should
the sinking fund be reported in the company’s balance sheet at December 31, 2020?
The entire balance in the sinking fund account should appear as a non-current asset
An issuer of bonds uses a sinking fund for the retirement of the bonds. Cash was transferred to the
sinking fund and subsequently used to purchase investments. The sinking fund
Increases by income earned on the investments
All are requisites of a cash surrender value except
Premiums for three full years must have been accrued
The entry to record the receipt of proceeds of the life policy include a
Credit to life insurance expense
Upon the death of an officer, Sandbox Co. received the proceeds of a life insurance policy held by
Sandbox on the officer. The proceeds were not taxable. The policy’s cash surrender value had been
recorded on Sandbox’s books at the time of payment. What amount of income should Sandbox report
in its statements?
Proceeds received less cash surrender value
Which of the following is not a condition for hedge accounting?
The hedge is expected to reduce the entity’s net exposure to the hedged risk, and the hedge is
determined actually to have reduced the net entity-wide exposure to the hedged risk.
Which of the following criteria must be met for bifurcation to occur?
The embedded derivative meets the definition of a derivative instrument.
A hedge of the foreign currency risk of a firm commitment is accounted for as a
Either Fair value hedge or Cash flow hedge
A series of equal periodic payments in which the first payment is made one compounding period after
the date of contract is.
Ordinary annuity
Which statement is incorrect regarding cash surrender value of life insurance policy?
It is reported as a current asset on the statement of financial position