CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
ANSWER KEY
1. Accounting has been given various definitions, which of the following is
not one of those definitions
a. Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about
economic entities that is intended to be useful in making economic
decisions.
b. Accounting is the art of recording, classifying, and summarizing in
a significant manner and in terms of money, transactions and events
which are, in part of at least, of a financial character and
interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the
results to interested users.
d. Accounting is the process of identifying, measuring, and
communicating economic information to permit informed judgment
and decisions by users of information.
2. Which of the following statements is true?
a. The basic purpose of accounting is to provide information about
economic activities intended to be useful in making economic
decisions.
b. All events and transactions of an entity are recognized the books of
accounts.
c. General purpose financial statements are those statements that
cater to the common and specific needs of a wide range of external
users.
d. The accounting process of assigning numbers, commonly in
monetary terms, to the economic transactions and events is
referred to as classifying.
3. The accounting standards used in the Philippines are adapted from the
standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards
Committee (DPKRASC).
4. Which of the following statements is incorrect regarding the basic
accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident.
Although no lawsuits have yet been filed against ABC, ABC
recognized a liability for the probable loss on the event. This is an
application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be
prepared on the basis of accounting principles which are followed
consistently.
c. Under the entity theory, the business is viewed as a separate entity.
Therefore, the personal transactions of the business owners are not
recorded in the business’ accounting records.
d. The time period concept means that financial statements are
prepared only at the end of the life of a business.
5. Entity A appropriates ₱1M to fund employee benefits for the last
quarter of the following year. Entity A deposits the ₱1M fund in a
payroll account. This economic activity is most appropriately referred
to as
a. production.
c. exchange.
b. savings.
d. investment.
6. It is the branch of accounting that focuses on the general purpose
reports of financial position and operating results known as financial
statements.
a. Financial accounting
c. Managerial accounting
b. Auditing
d. Taxation
7. These are events that do not involve an external party.
a. external events
c. internal events
b. nonreciprocal
d. special event
8. Entity A computes for its profit or loss periodically instead of waiting
until the end of the life of the business before doing so. This is an
application of which of the following accounting concepts?
a. historical cost
c. accrual basis
b. stable monetary unit
d. time period
9. This refers to the use of caution in the exercise of judgments needed in
making estimates required under conditions of uncertainty , such that
assets or income are not overstated and liabilities or expenses are not
understated.
a. faithful representation
c. consistency
b. prudence
d. relevance
10. The bottom part of each of Entity A’s financial statements states the
following “This statement should be read in conjunction with the
accompanying notes.” This is most likely an application of which of the
following accounting concepts?
a. articulation
c. accrual basis
b. consistency
d. time period
11. Entity A’s asset has a carrying amount of ₱1M. At year end, Entity A
obtains information that the asset became obsolete, and therefore its
usefulness has declined. Entity A estimates that the asset has a
recoverable amount of only ₱800K. Entity A recognizes a loss of ₱200K
for the difference. Although this accounting treatment is required, it
violates which of the following concepts?
a. historical cost
c. accrual basis
b. stable monetary unit
d. time period
12. Which of the following events is considered as an internal event?
a. sale
of
inventory
on
d. conversion
of
raw
account
materials
into
finished
b. provision of capital by
goods
owners
e. payment of liabilities
c. borrowing of money
13. Which of the following events is considered as an external event?
a. production
b. payment of taxes
c. gifts
and
contributions
charitable
d. provision of capital by
owners
e. b, c and d
14. Financial statements are said to be a mixture of fact and opinion.
Which of the following items is factual?
a. cost of goods sold
d. patent
amortization
b. discount on capital stock
expense
c. retained earnings
15. The most common form of business organization is a
a. corporation
c. partnership
b. sole proprietorship
d. cell phone stand
16. This concept defines the area of interest of the accountant. It
determines which transactions are recognized in the books of accounts
and which are not.
a. Articulation
c. Separate entity
b. Matching
d. Full disclosure
17. A CPA employed as an accountant in a government agency is
considered to be in
a. private practice.
c. academe.
b. public practice.
d. service.
18. Which of the following statements is correct?
I.
Accounting provides qualitative information, financial information,
and quantitative information.
II.
Qualitative information is found in the notes to the financial
statements only.
III.
Accounting is considered an art because it is supported by an
organized body of knowledge
IV.
Accounting is considered a science because it involves the exercise
of skill and judgment.
V.
Measurement is the process of assigning numbers to objects such
inventories or plant assets and to events such as purchases or
sales.
VI.
All quantitative information is also financial in nature.
VII.
The accounting process of assigning peso amounts or numbers to
relevant objects and events is known as identification.
a. I and V
c. I, II, III, IV and V
b. I, II, VI and V
d. II, VI and V
Explanation: II – not only in the notes but also on the face of the financial
statements. III and IV are inter-changed. VI – all financial information are
quantitative. VII – measuring not identification.
19. Which of the following statements about the Norwalk Agreement is
correct?
a. The Norwalk Agreement requires all domestic companies in the
U.S. to prepare financial statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the
FASB and the IASB which has long-time been abolished.
c. The Norwalk Agreement is a convergence between the FASB and
the IASB to make their existing financial reporting standards
compatible and coordinate their future work programs to ensure
that once achieved, compatibility is maintained.
d. The Norwalk Agreement does not affect the financial reporting
standards in the Philippines.
20. The process of identifying, measuring, analyzing, and communicating
financial information needed by management to plan, evaluate, and
control an organization’s operations is called
a. financial accounting.
c. managerial accounting.
b. tax accounting.
d. auditing.
21. The PFRSs consist of all of the following except
a. PFRSs.
c. Interpretations.
b. PASs.
d. Conceptual Framework.
22. It is the official accounting standard setting body in the Philippines. It
is composed of a chairperson and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
23. Financial reporting standards continuously change primarily in
response to
a. users’ needs.
c. government regulations.
b. political influence.
d. changes in social environments.
24. Accounting is often called the "language of business" because
a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting
principles.
d. accountants in many companies share financial information.
25. You are the accountant of ABC Co. During the period, your company
purchased staplers worth ₱1,500. Although the staplers have an
estimated useful life of 10 years, you have charged their cost as
expense. Which of the following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit
consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation. 
26. All of the following statements incorrectly refer to the Conceptual
Framework except
a. The framework is concerned with all-purpose financial statements
including consolidated financial statements.
b. Financial statements are prepared and presented at least annually
and are directed toward the common and specific information
needs of a wide range of users.
c. Prospectuses and computations prepared for taxation purposes are
outside the scope of the framework.
d. Financial statements include such items as reports by directors,
statements by the chairman, discussion and analysis by
management and similar items that may be included in an annual
report.
e. The framework applies to the financial statements of all
commercial, industrial and business reporting entities, but only for
the private sector.
27. What is the authoritative status of the Conceptual Framework?
a. It has the highest level of authority. In case of a conflict between
the Conceptual Framework and a Standard or Interpretation, the
Conceptual Framework overrides the Standard or Interpretation.
b. If there is a Standard or Interpretation that specifically applies to a
transaction, it overrides the Conceptual Framework. In the absence
of a Standard or an Interpretation that specifically applies, the
Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to a
transaction, it overrides the Conceptual Framework. In the absence
of a Standard or an Interpretation that specifically applies to a
transaction, management should consider the applicability of the
Conceptual Framework in developing and applying an accounting
policy that will result in information that is relevant and reliable.
d. The Conceptual Framework applies only when IASB develops new
or revised Standards. An entity is never required to consider the
Conceptual Framework.
28. The foundation of the Conceptual Framework is formed from
a. the qualitative characteristics that makes information useful to
users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the various measurement requirements which results to fair
presented financial information.
29. What is the objective of financial statements according to the
Conceptual Framework?
a. To provide information about the financial position, performance,
and changes in financial position of an entity that is useful to a wide
range of users in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a
cash flow statement, and a statement of changes in equity.
c. To prepare and present comparable, relevant, reliable, and
understandable information to investors and creditors.
d. To prepare financial statements in accordance with all applicable
Standards and Interpretations.
30. The primary users of financial statements under the Conceptual
Framework include
I.
Existing
and
potential
V. Customers
investors
VI. Governments
and
their
II.
Employees
agencies
III.
Lenders and other creditors
VII. Public
IV.
Suppliers and other trade
VIII. Professional
accountants,
creditors
including auditors
a. I and III
c. I, II, III, IV, V, VI
b. I, II, III, IV, V, VI, VII
d. all of these
31. Under the Conceptual Framework, qualitative characteristics are subclassified into
a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics
c. fundamental and enhancing qualitative characteristics
d. not sub-classified
32. Identify the fundamental qualitative characteristics under the
Conceptual Framework.
I.
Relevance
V.
Verifiability
II.
Reliability
VI.
Timeliness
III.
Faithful representation
VII.
Understandability
IV.
Comparability
a. I and II
b. I and III
c. I, II, III, IV, V and VI
d. IV, V, VI and VII
33. Identify the qualitative characteristics that enhance the usefulness of
financial information.
I.
Relevance
V.
Verifiability
II.
Reliability
VI.
Timeliness
III.
Faithful representation
VII.
Understandability
IV.
Comparability
a. I and II
c. II, III, IV, V and VII
b. I and III
d. IV, V, VI and VII
34. Which of the following are related to the qualitative characteristic of
relevance under the Conceptual Framework?
I.
Predictive value
III.
Timeliness
II.
Confirmatory value
IV.
Materiality
a. I and II
c. I, II and IV
b. I, II and III
d. I, II, III and IV
e.
35. Under this qualitative characteristic, users are assumed to have a
reasonable knowledge of business and economic activities and
accounting and a willingness to study the information with reasonable
diligence. However, information about complex matters that should be
included in the financial statements because of its relevance to the
economic decision-making needs of users should not be excluded
merely on the grounds that it may be too difficult for certain users to
understand.
a. Relevance
c. Understandability
b. Reliability
d. Comparability
36. The Conceptual Framework sets out general recognition principles of
financial statement elements which include all of the following except
a. asset recognition
c. liability recognition
b. equity recognition
d. expense recognition
37. Which of the following is most likely expensed under the ‘immediate
recognition’ principle?
a. cost of inventories
c. cost of equipment
b. impairment loss
d. rentals paid
38. A secondary objective of financial statements
a. is to show information regarding assets and liabilities of an entity
b. is to show information regarding an entity’s financial position,
performance, and changes in financial position
c. is to show the results of the stewardship of management.
d. b and c
39. Which of the following statements is incorrect concerning materiality?
a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the
PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed
qualitatively.
40. The elements of faithful representation do not include
a. Comparability
c. Completeness
b. Neutrality
d. Free from error
41. The ability through consensus among measurers to ensure that
information represents what it purports to represent is an example of
the concept of
a. Relevance
c. Verifiability
b. Comparability
d. Feedback value
42. According to the Conceptual Framework, it is a pervasive constraint on
the information that can be provided by financial reporting
a. materiality
c. cost
b. historical
d. going concern
43. The elements directly related to the measurement of performance
a. income
c. a and b
b. expenses
d. neither a nor b
44. Assets and liabilities are recognized if
a. they meet the definition of an element.
b. have probable future economic benefits and have cost or value that
are measured reliably.
c. a and b
d. neither a nor b
45. The cost of purchases of inventory is recognized as expense
a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice
46. “I say red, you say green.” The information lacks which of the following
qualitative characteristics?
a. Relevance
c. Timeliness
b. Verifiability
d. Colorfulness
47. Which of the following is not one of the decisions that primary users
make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity
48. Entity A is making a materiality judgment. Entity A considers an item
to be material, and therefore needs to be disclosed in the notes to the
financial statements, if the item pertains to a related party transaction.
What type of materiality assessment is Entity A using?
a. quantitative
c. faithful representation
b. qualitative
d. relevance
49. According to the Conceptual Framework, the needs of primary users
that are met by financial statements are
a. all of their needs
b. all of their common needs only
c. majority of their common needs only
d. substantially a majority of their common and specific needs only
50. This refers to the comparability of financial statements of the same
entity but in different periods.
a. Inter-comparability
c. Intra-comparability
b. Extra-comparability
d. Intro-comparability
51. Which of the following financial statements would not be dated as
covering a certain reporting period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
52. Comprehensive income (or total comprehensive income) includes
a. Profit or loss
c. Transactions with owners
b. Other
comprehensive
d. a and b
income
e. All of these
53. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners.
b. To report a measure of overall performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from
discontinued operations and extraordinary items.
54. The information provided by financial reporting pertains to
a. individual business entities and the economy as a whole, rather
than to industries or to members of society as consumers
b. individual business entities, industries and the economy as a whole,
rather than to members of society as consumers
c. individual entities, rather than to industries of the economy as a
whole or to members of society as consumers
d. individual business entities and industries rather than to the
economy as a whole or to members of society as consumers
55. Which of the following statements is correct when an entity departs
from a provision of a PFRS?
a. The entity’s financial statements would be grossly incorrect;
therefore, PAS 1 does not allow such a departure.
b. PAS 1 permits such a departure if the relevant regulatory
framework requires, or otherwise does not prohibit, such a
departure.
c. PAS 1 requires certain disclosures when an entity departs from a
provision of a PFRS.
d. b and c
56. Which of the following statements is correct regarding the
classification of financial liabilities as current or noncurrent in
accordance with PAS 1?
a. Currently maturing obligations are presented as current liabilities
even if their original term is longer than one year and even if a
refinancing agreement is completed after the end of the reporting
period but before the financial statements are authorized for issue.
b. Currently maturing obligations are presented as noncurrent
liabilities only if their original term is longer than one year.
c. Currently maturing obligations are presented as noncurrent
liabilities only if a refinancing agreement is completed after the end
of the reporting period but before the financial statements are
authorized for issue.
d. Currently maturing obligations are presented as noncurrent
liabilities if a refinancing agreement is completed after the financial
statements are authorized for issue.
57. According to PAS 1, the judgments and estimates embodied in the
financial statements, for example, materiality judgments, assessments
of uncertainty and risk, and the like, are the responsibility of the
entity’s
a. management.
c. auditor.
b. accountant.
d. janitor.
58. Which of the following is not a required disclosure under PAS 1?
a. The financial effect of a departure from a PFRS when an entity
departs from a PFRS requirement.
b. Any material uncertainties on the entity’s ability to continue as a
going concern.
c. The recognition, measurement and disclosure of specific
transactions and other events.
d. The reason for using a longer or shorter period when an entity
changes the frequency of its reporting.
Explanations: (a) This is required under PAS 1 along with the
management’s conclusion as to the fair presentation of the financial
statements; that all other requirements of the PFRSs are complied with;
and the title of the PFRS from which the entity has departed.
(b) This is required under PAS 1 whenever such material
uncertainties are identified when management performs its going concern
assessment on the entity.
(d) This is required under PAS 1 along with the disclosures of the
period covered by the financial statements and the fact that amounts
presented in the financial statements are not entirely comparable.
59. An entity’s financial position or condition refers to which of the
following?
a. The status of the entity’s assets, liabilities and equity.
b. The amount of return that the entity has generated from its
economic resources during the period.
c. The level of change in the entity’s economic resources and claims
to those resources, also referred to as the economic phenomena.
d. All of these.
60. Comprehensive income excludes which of the following
a. Revaluation surplus
b. Gains and losses from investments measured at fair value through
profit or loss
c. Income tax expense
d. Distributions to owners
61. Entity A needs guidance in accounting for its inventories. Entity A
should refer to which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
62. Entity A needs guidance in preparing its statement of changes in
equity. Entity A should refer to which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
63. Which of the following concepts is violated when measuring
inventories at the lower of cost and net realizable value?
a. The concept that assets shall not be carried at an amount in excess
of its recoverable amount.
b. Historical cost concept
c. Prudence or conservatism concept
d. Offsetting concept
64. Entity A buys and sells artifacts. Each artifact is unique and not
ordinarily interchangeable. According to PAS 2, the cost formula that
Entity A should use is
a. Specific identification
c. FIFO
b. Weighted Average
d. Any of these
65. Entity A acquires inventories and incurs the following costs:
Purchase price, gross of trade
100,0
discount
00
20,0
Trade discount
00
Non-refundable purchase tax, not
5,0
included
in the purchase price above
Freight-in (Transportation costs)
Commission to broker
00
00
00
15,0
2,0
10,0
Advertisement costs
00
How much is the cost of the inventories purchased?
a. 102,00
b. 122,00
c. 97,000
0
0
Solution:
100,00
Purchase price, gross of trade discount
0
(20,000
Trade discount
)
Non-refundable purchase tax
5,000
Freight-in (Transportation costs)
15,000
Commission to broker
2,000
102,0
Total cost of inventories
00
d. 100,00
0
66. Which of the following is presented in the activities section of the
statement of cash flows?
a. Purchase of a treasury bill three months before its maturity date.
b. Exchange
differences
from
translating
foreign
currency
denominated cash flows.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.
67. In the statement of cash flows of a non-financial institution, interest
income received is presented under
a. operating activities.
c. investing activities.
b. financing activities.
d. a or c
68. An entity makes a change in accounting estimate. How does the entity
recognize the effects of the change in profit or loss?
a. Prospectively in the current period
b. Prospectively in the current and future periods
c. Retrospectively starting from the earliest period presented
d. a or b
69. Materiality does not make any difference with regard to
a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. level of rounding-off of amounts in the financial statements.
70. According to PAS 10, dividends declared after the reporting period, but
before the financial statements are authorized for issue, are
a. recognized as liability at the end of reporting period.
b. not recognized as liability at the end of reporting period.
c. disclosed only as an adjusting event.
d. any of these.
71. At the end of the period, Entity A has deductible temporary difference
of ₱100,000. Entity A’s income tax rate is 30%. Entity A’s statement of
financial position would report which of the following?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
72. You are a business manager. During the period, you have authorized
the acquisition of a machine that will be used in your company’s
manufacturing activities in the next 5 years. In your selection of an
appropriate accounting policy for the recognition and measurement of
the machine, which of the following reporting standards is most
relevant?
a. PAS 1
c. PAS
d. PAS
b. PAS 2
16
32
73. Which of the following is not one of the principal issues in the
accounting for PPE?
a. Recognition.
b. Initial measurement as asset.
c. Allocation of carrying amount over the period of use.
d. Recognition of carrying amount as expense when the related
revenue is recognized.
74. You are the General Manager of Entity A. You have received the
actuarial report for your company’s defined benefit plan. The report
shows the following information:
PV of DBO – Jan. 1, 20x1
1,500,000
FVPA – Jan. 1, 20x1
1,200,000
PV of DBO – Dec. 31, 20x1
1,800,000
FVPA, end. – Dec. 31, 20x1
1,310,000
Actuarial gain
100,000
Return on plan assets
110,000
Discount rate
5%
When reporting on your company’s year-end highlights of financial
summary, which of the following will you report to the Board of Directors
(the ‘big bosses’)?
a. Your company’s net liability for retirement benefits has increased
by ₱490,000.
b. Your company’s net liability for retirement benefits has decreased
by ₱300,000.
c. Your company’s net liability for retirement benefits has increased
by ₱190,000.
d. I will tell them nothing.
Solution:
Net defined benefit liability, beg. (1.5M – 1.2M) = 300,000
Net defined benefit liability, end. (1.8M – 1.310M) = 490,000
Increase = 190,000
75. Entity A has 20 employees who are each entitled to one day paid
vacation leave for each month of service rendered. Unused vacation
leaves are carried forward and can be used in future periods if the
current period’s entitlement is not used in full. However, unutilized
entitlements are forfeited when employees leave the entity. All the
employees have rendered service throughout the current year and
have taken a total of 150 days of vacation leaves. The average daily
rate of the employees in the current period is ₱1,000. However, a 5%
increase in the rate is expected to take into effect in the following year.
Based on Entity A’s past experience, the average annual employee
turnover rate is 20%. How much will Entity A accrue at the end of the
current year for unused entitlements?
a. 0
c. 75,600
b. 90,000
d. 94,500
Solution: [(20 employees x 1 day x 12 months) – 150 days] x ₱1,000 x
105% x 80%* = 75,600
* The paid absences are non-vesting.
76. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of
its annual profit. The bonus shall be divided among the employees
currently employed as at year-end. Relevant information follows:
Profit for the year
₱8,000,000
Employees at the beginning of the year
8
Average employees during the year
7
Employees at the end of the year
6
If you are an alumnus of Entity A, how much bonus do you expect to
receive?
a. 66,667
c. 57,143
b. 50,000
d. 0
Explanation: Only those who are currently employed as at year-end are
entitled to receive the bonus.
77. The transfer of resources from the government to an entity in
exchange for past or future compliance with certain conditions relating
to the operating activities of the entity is called
a. Government grants.
c. Government
financial
b. Government assistance.
assistance.
d. Government asset transfers.
78. Entity A receives land from the government conditioned that the land
will only be used in Entity A’s primary business activities and should
never be sold. If in case, Entity A decides not to use the land in its
primary business activities, it shall return the land to the government.
Which of the following standards is least likely to be relevant in
accounting for the land?
a. PAS 2
c. PAS 20
b. PAS 16
d. All of these are relevant
79. On December 1, 20x1, you imported a machine from a foreign supplier
for $100,000, due for settlement on January 6, 20x2. Your functional
currency is the Philippine peso. The relevant exchange rates are as
follows:
Dec. 1, 20x1
Dec. 31, 20x1
Jan. 6, 20x2
₱50:$1
₱52:$1
₱47:$1
The cost of the machine that will be disclosed in your December 31, 20x1
financial statements is?
a. $100,000
c. ₱5,200,000
b. ₱5,000,000
d. ₱4,700,000
Solution: $100,000 x ₱50 spot exchange rate at acquisition date = ₱5M
80. On January 1, 20x1, Entity A started the construction of a qualifying
asset. The qualifying asset is financed through general borrowings.
The average expenditures during the year amounted to ₱9,500,000.
The capitalization rate is 11%. The actual borrowing costs incurred
during the period were ₱1,990,000. How much are the borrowing costs
eligible for capitalization?
a. 1,990,000
c. 1,090,000
b. 1,045,000
d. 990,000
Solution:
Capitalizable BC from formula = 9,500,000 x 11% = 1,045,000
1,045,000 vs. 1,990,000 actual borrowing costs = Capitalizable BC is
1,045, 000