Property, Plant, and Equipment
1. An item of property, plant and equipment should be recognized as an asset when
I. It is probable that future economic benefits associated with the asset will flow to
the enterprise.
II. The cost of the asset to the enterprise can be measured reliably
a. I only
c. Both I and II
b. II only
d. Neither I nor II
2. The following are characteristics of property, plant and equipment, except
a. The property, plant 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
d. The property, plant and equipment are subject to depreciation
3. Major spare parts and standby equipment which are expected to be used over a period of
more than one year should be
classified as
a. Property, plant and equipment c. Investment property
b. Inventory
d. Expense
4. Which of the following statements concerning recognition of property, plant and
equipment is incorrect?
a. Most spare parts and servicing equipment are usually carried as inventory and
recognized as expense when incurred
b. An entity should recognize in the carrying amount of an item of property, plant and
equipment the costs of the day-to-day servicing of the item
c. An aircraft and its engines need to be treated as separate depreciable assets if they have
different useful lives
d. Property, plant and equipment may be acquired for safety and environmental reasons in
order for the enterprise to obtain future economic benefits from its other assets.
5. The cost of an item of property, plant and equipment comprises its purchase price,
including import duties and nonrefundable purchase taxes, and
a. The estimated residual value of the asset
b. The market value of any noncash asset surrendered to acquired the asset
c. The implied interest to the debt to finance the purchase
d. All directly attributable costs necessary to bring the asset to working condition for its
intended use
6. The following are directly attributable costs, except
a. Costs of testing whether the assets is functioning properly
b. Professional fees such as for architects and engineers
c. Cost of site preparation, initial delivery, handling, and installation
d. Initial operating loss incurred prior to an asset achieving planned performance
7. When payment for an item of property, plant and equipment is deferred beyond normal
credit terms, the difference
between the cash price equivalent and the total payments should be recognized as
a. Interest expense over the life of the asset
b. Interest expense of the current year
c. Interest expense over the credit period
d. Component of cost of property, plant and equipment
8. Which of the following statements concerning acquisition of an item of property, plant
and equipment by self-construction is incorrect?
a. Any internal profits are eliminated in arriving at the cost of self-constructed asset
b. The cost of self-constructed asset is determined using the same principles as for an
acquired asset
c. The cost of abnormal amount of wasted materials, labor and other resources incurred in
the production of self-constructed asset is included in the cost of the asset
d. The cost normal amount of wasted materials, labor and other resources incurred in the
production of
self-constructed asset is included in the cost of the asset
9. When a corporation issues preferred stock for land, the land should be recorded at the
a. Total par value of the preferred stock issued
b. Total book value of the preferred stock issued
c. Fair value of the land acquired
d. Total liquidating value of the preferred stock issued
10. 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 of the timber should
be
a. Classified as other income
b. Netted against the costs to clear the land and expensed as incurred
c. Deducted from the cost of the plant
d. Deducted from the cost of land
11. In a “basket” or “lump-sum” purchase of assets, which of the following best describes
the process by which the
historical cost of the various assets acquired should be determined?
a. Recording of the individual assets at their original historical cost to the seller with a gain
or loss recognized for the difference between the total of the original historical cost figures
and the price paid in the basket purchased.
b. Allocation of the total cost to the individual assets on the basis of the market value of the
individual assets at the time of the basket purchase
c. Allocation of the total cost to the individual assets on the basis of the historical cost of the
individual assets to their original owner
d. Recording of the individual assets to their current value with recognition of a gain or loss
for the difference between the price paid for the assets and the total value of the individual
assets
12. An exchange transaction has commercial substance when
I. The cash flows of the asset received differ from the cash flows of the asset transferred
and the difference is significant relative to the fair value of the asset exchanged.
II. The entity-specific value of the portion of the entity’s operations affected by the
transaction changes as a result of the exchange and the change is significant relative to the
fair value of the asset exchanged
a. Both I and II
c. I only
b. Neither I nor II
d. II only
13. In an exchange of assets, X company received equipment with a fair value equal to the
carrying amount of equipment given up. X also contributed cash. As a result of the
exchange, X shall recognize
a. A loss equal to the cash given up
b. A gain determined by the proportion of cash paid to the total transaction value
c. A loss determined by the proportion of cash paid to the total transaction value
d. Neither gain nor loss
14. On November 1, 2005, a company purchased new machinery that it does not have to
pay for until November 1, 2008. The total payment on November 1, 2008, 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 factor
a. Present value of an annuity of 1
c. Future amount of an annuity of 1
b. Present value of 1
d. Future amount of 1
15. When an enterprise is the recipient of a donated asset, the account credited may be
a. Common stock account
c. Deferred revenue account
b. Revenue account
d. Retained earnings account
16. The cost of an item of PPE acquired in a non-monetary 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
17. Subsequent cost relating to an item of PPE shall be added to the carrying amount of the
asset when
a. It is probable that future economic benefits associated with the subsequent cost will flow
to the enterprise
b. It is possible that future economic benefits associated with the subsequent cost will flow
to the enterprise
c. It is probable that future economic benefits associated with the subsequent cost will flow
to the enterprise and the subsequent cost can be measured reliably
d. It is possible that future economic benefits associated with the subsequent cost will flow
to the enterprise and the subsequent cost can be measured reliably
18. Which of the expenditure occurs when a company installs a higher capacity boiler to
heat its plant?
a. Rearrangement
c. Addition
b. Ordinary repair and management
d. Betterment
19. An improvement made to a machine increased its fair market value and its production
capacity by 25% without extending the machine useful life. The cost of the improvement
should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account
20. Which of the following would ordinarily be treated as a revenue expenditure rather
than a capital expenditure?
a. Repair and maintenance on building
b. Rearrangement cost that is expected to provide discernible future benefit
c. An addition to an existing building
d. The replacement of a major component of building
21. Borrowing cost are interest and other costs incurred by an entity in connection with
borrowing of funds. Which of the
following is not a borrowing cost?
a. Interest on short-term and long-term borrowings
b. Amortization of discounts or premiums relating to borrowings
c. Amortization of ancillary costs incurred in connection with the arrangement of
borrowings
d. Stock issue costs
22. Which of the following are not qualifying assets?
a. Inventories that require a substantial period of time of bring them to salable condition
b. Power generation facilities
c. Manufacturing plants
d. Inventories that are routinely manufactured or otherwise produced in large quantities
on a repetitive basis over a short period of time
23. When funds are borrowed specifically for the purpose of obtaining a qualifying asset,
the amount of borrowing costs
eligible for capitalization on that asset should be equal to
a. Actual borrowing costs incurred
b. Actual borrowing costs incurred during the construction period
c. Actual borrowing costs incurred less any investment income to the temporary
investment of those borrowings
d. Actual borrowing costs during the construction period less any investment income on
the temporary investment of those borrowings
24. When funds are borrowed generally and used for the purpose of obtaining a qualifying
asset, the amount of borrowing costs eligible for capitalization should be equal to
a. Actual borrowing costs incurred
b. Actual borrowing costs incurred less any investment income to the temporary
investment of those borrowings
c. Average expenditure on the asset multiplied by a capitalization rate or actual borrowing
costs incurred, whichever is higher
d. Average expenditure on the asset multiplied by a capitalization rate or actual borrowing
costs incurred, whichever is lower
25. Gains or losses arising from the disposal of an item of PPE should 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 cost of the asset
d. Net disposal proceeds and the carrying amount of the asset
26. An item of PPE that is retired from active use and held for disposal is measured at
a. Carrying amount
b. Fair value less cost to sell
c. Carrying amount or fair value less cost to sell, whichever is lower
d. Carrying amount of fair value less cost to sell, whichever is higher
27. Which of the following statement concerning measurement of PPE is correct?
I. An entity shall choose either the cost model or the revaluation model as its accounting
policy and shall apply that policy to an entire class of PPE
II.As a benchmark treatment of an item of PPE is carried at cost less any accumulated
depreciation and any accumulated impairment loss
a. I only
c. Both I and II
b. II only
d. Neither I nor II
28. It is the systematic allocation of the depreciable amount of an item of PPE.
a. Depreciation
c. Amortization
b. Depletion
d. Realization
29. Useful life of an item of PPE 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. Both I and II
b. II only
d. Neither I nor II
30. Which of the following statements concerning depreciation is incorrect?
a. The depreciable amount of an item of PPE should be allocated on a systematic basis over
its useful life
b. The depreciation method used should not reflect the pattern in which the asset’s
economic benefits are consumed by the entity
c. The depreciation charge for each period should 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 PPE is a matter of judgment based on the
experience of the entity with similar assets
31. Which of the following is not considered in determining the useful life of an itemPPE?
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
32. The useful life of an item of PPE should be reviewed periodically and if expectations are
significantly different from previous estimates, the depreciation charge for which of the
following periods should be adjusted
a. Current period only
c. Prior periods
b. Future periods only
d. Current and future periods
33. Which of the following statements concerning the residual value of an item of PPE is
incorrect?
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 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 in
accounting policy
34. The depreciation method applied to PPE items should be reviewed periodically, and if
there has been a significant change in the expected pattern of consumption of economic
benefits from those assets, the change should be
a. Accounted for as a change in accounting policy
b. Ignored
c. Accounted for as a change in accounting estimate
d . Accounted for as a correction of a prior error
35. Technical obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Changer or improvements in production or change in the market demand for the product
output of the asset
d. Expiry date of related lease of the asset
36. Which of the following depreciation methods is not based on the passage oftime?
a. Sum of units method
b. Sum of year’s digits method
c. Double declining balance method
d. Straight line method
37. In which of the following depreciation methods is residual value not a factor in
determining depreciation charge for
early years of the asset’s life?
a. Straight line method
b. Service hours method
c. Productive output method
d. Double declining balance method
38. Revaluation of PPE is based on
I. Fair value which is usually the market value of an item of PPE
II. Depreciated replacement cost, in the absence of fair value
a. I only
c. Both I and II
b. II only
d. Neither I nor II
39. Which of the following statements concerning the frequency of revaluation of PPE is
incorrect?
a. Some items of PPE may experience significant and volatile movements in fair value thus
necessitating annual revaluation
b. When the fair value of a revalued asset differs materiality from its carrying amount, a
further revaluation is necessary
c. The frequency of revaluation depends upon the movements in the fair value of the items
of PPE.
d. Frequent revaluation is unnecessary for items of PPE with only insignificant movements
in fair value and instead, revaluations every six to 10 years may be sufficient
40. On the date of revaluation, the accumulated depreciation should be
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. Both I and II
b. II only
d. Neither I nor II
41. When a PPE item’s carrying amount is increased as a result of a revaluation, the
increase should be credited directly to
a. Income
c. Retained earnings
b. Revaluation surplus
d. Deferred income
42. When the revaluation surplus is realized because of the use of the asset by the
enterprise or disposal of the asset, it
may be transferred directly to
a. Retained earnings
c. Common stock
b. Income
d. Additional paid in capital
43. It is a fall in the market value of an asset so that its recoverable amount is now less than
its carrying amount in the balance sheet
a. Impairment
c. Amortization
b. Depreciation
d. Decline in value
44. The recoverable amount of an asset is its
a. Fair value less cost to sell
b. Value in use
c. Fair value less cost to sell or value in use, whichever is higher
d. Fair value less cost to sell or value in use, whichever is lower
45. The internal sources of information indicating possible impairment include all of the
following except,
a. Evidence of obsolescence or physical damage of an asset
b. Significant change in the manner or extent in which the asset is used with an adverse
effect on the enterprise
c. Evidence that the economic performance of an asset will be worse than expected
d. Significant decrease or decline in the market value of the asset
46. Fair value less cost to sell is the
I. Amount obtainable from the sale of an asset in an arm’s length transaction between
knowledgeable, willing
parties, less of cost of disposal
II. Present value of estimated future cash flows expected to arise from the continuing use of
an asset and from its
disposal at the end of its useful life.
a. I only
c Both I and II
b. II only
d. Neither I nor II
47. What is the best evidence of fair value less cost to sell?
a. Sales in price in a binding sale agreement in an arm’s length transaction
b. Market value or fair value in an active market
c. Best estimate of knowledgeable, willing parties in an arm’s length transaction
d. Sales price in a binding sale agreement in an arm’s length transaction or fair value in an
active market, whichever is higher
48. An active market is a market where the following conditions exist.
I. The items traded within the market are homogeneous
II. Willing buyers and sellers can normally be found at any time
III. Prices are available to the public
a. I, II, and III
c. II and III only
b. I and II only
d. I and III only
49. Value in use of an asset is equal to the
a. Undiscounted future net cash flows from the use of the asset
b. Undiscounted future net cash flows from the use and eventual disposition of the asset
c. Discounted future net cash flows from the use of the asset
d. Discounted future net cash flows from the use and eventual disposition of the asset
50. Which of the following should not be included in calculating value in use?
a. Cash inflows from the continue use of the asset
b. Cash outflows incurred to generate the cash inflows from the continuing use of the asset
c. Net cash flows from the disposal of the asset at the end of its useful life
d. Future costs of improving or enhancing the asset’s performance
51. Which of the following statements concerning the estimation of future cash flows is
incorrect?
a. Future cash flows should be based on reasonable and supportable assumptions
b. Future cash flows should be based on the most recent budgets of financial forecasts,
usually up to maximum of 5 years
c. Foreign currency future cash flows should be forecast in the currency in which they will
arise and will be discounted using a rate appropriate to the enterprise
d. The discount rate used in estimating future cash flows should be the current rate after
tax
52. The following statements relate to the recognition and measurement of an impairment
loss. Which is incorrect?
a. An impairment loss should be recognized as expense in the income statement
immediately
b. Impairment loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount
c. If the recoverable amount of an asset is less than its carrying amount, the carrying
amount of the asset should be reduced to its recoverable amount
d. After the recognition of an impairment loss, depreciation charge for the future period
should be adjusted to allocate the revised carrying amount, less its residual value, on a
systematic basis over its original life
53. It is the smallest identifiable group of assets that generate cash inflows from continuing
use that are largely independent of the cash inflows from other assets or group of assets.
a. Cash generating unit
c. Corporate asset
b. Goodwill
d. The enterprise as a whole
54. Which of the following statements concerning corporate assets isincorrect?
a. If there is an indication that a corporate asset may be impaired, the recoverable amount
of the cash generating unit to which the corporate asset belongs is determined and
compared with the carrying amount of the cash generating unit
b. Essentially, corporate assets generate cash inflows independently from other assets
c. Corporate assets are group or divisional assets such as head office building, EDP,
equipment or a research center
d. The recoverable amount of an individual corporate asset cannot be determined unless
management has decided to dispose of the asset
55. Which of the following statements concerning the reversal of an impairment loss is
false?
a. The reversal of an impairment loss should be recognized immediately as an adjustment
of the cash generating unit to which the corporate asset belongs is determined and
compared with the carrying amount of the cash generating unit
b. Essentially, corporate assets generate cash inflows independently from other assets
c. Corporate assets are group or divisional assets such as head office building EDP,
equipment or a research center
d. The recoverable amount of an individual corporate asset cannot be determined unless
management has decided to dispose of the asset
56. Under PAS 36, Impairment of Assets, impairment losses for assets shall be reported
a. As a change in accounting estimate
b. As an equity item
c. As a component of income from continuing operations
d. As a component of discounted operation
57. Which statement is correct about the carrying amount of a depreciable item of PPE
after an impairment loss has been
recognized?
I. The reduced carrying amount of the asset may be increased in subsequent years if the
impairment loss has
been recovered
II. The reduced carrying amount of the asset represents the amount that should be
depreciated over the asset’s
remaining useful life
a. I only
c. Both I and II
b. II only
d. Neither I nor II
58. At December 31 of the current year, MM Company was holding long-lived assets which
it intended to sell. The company appropriately recognized a loss in the current year related
to these assets. On MM’s income statement for the current year ended December 31, this
loss should be reported as a
a. Component of equity
b. Component of income from continuing operations before income tax
c. Separate component of selling and administrative expenses, disclosed net of tax
d. Component of gain or loss from discontinued operation
59. Government assistance is action by government aimed at providing an economic
benefit to an enterprise or group of enterprises qualifying under certain criteria.
Government assistance does not include
a. Government grants related to assets
b. Government grants related to income
c. A forgivable loan from a government
d. Benefits provided only indirectly through action affecting general trading
conditions
60. Government grants are assistance by government in the form of transfers of resources
to an enterprise in return for past or future compliance with certain conditions relating to
the operating activities of the enterprise. They exclude
a. Those forms of government assistance that cannot reliably be valued
b. Transactions with government that cannot be distinguished from the normal trading
transactions of the enterprise
c. A and B
d. Neither A nor B
61. Those government grants whose primary condition is that an enterprise qualifying for
them should acquire (either
purchase or construct) a long-term asset or assets are referred to as
a. Forgivable loans
c. Grants related to income
b. Grants related to assets
d. Government assistance
62. Government grants should not be recognized until there is reasonable assurance that
I. The enterprise will comply with the conditions attaching to the grant
II. The grant(s) will be received
a. I only
c. Both I and II
b. II only
d. Neither I nor II
63. What approach is required by PAS 20 with respect to the accounting treatment of
government grants?
a. Capital approach
c. Balance sheet approach
b. Income approach
d. Income statement approach