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. 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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. sh Th d. ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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? ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ 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 ar stu ed d y vi re aC s o ou urc rs e eH w er as o. co m 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 sh Th 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 ================================================================================ == This study source was downloaded by 100000817391530 from CourseHero.com on 07-21-2021 00:24:24 GMT -05:00 https://www.coursehero.com/file/50919559/Chapter-6-PAS-16-PropertyPlant-Equipmentdoc/ Powered by TCPDF (www.tcpdf.org) Page 8 of 8