1. Which of the following standards addresses the accounting for property,
plant and equipment?
a. PAS 12
c. PAS 26
b. PAS 16
d. PFRS 5
2. Which of the following is least likely capitalized as cost of land?
a. Grading, filling, draining clearing and similar site development
activities
b. Survey
c. Landscaping and similar improvements that have limited useful lives.
d. Special assessment
3. LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment
overseas on cash basis for ₱400,000. Additional costs incurred include
the following: commission paid to broker for the purchase of the
equipment, ₱20,000; import duties of ₱100,000; non-refundable purchase
taxes of ₱40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, ₱4,000; costs of assembling and installing the
equipment, ₱8,000; costs of testing the equipment, ₱6,000;
administration and other general overhead costs, ₱16,800; and
advertisement and promotion costs of the new product to be produced by
the equipment, ₱15,200. The samples generated from testing the
equipment were sold at ₱2,000. How much is the initial cost of the
equipment?
a. 576,000
c. 592,800
b. 578,000
d. 594,800
4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures at an
installment price of ₱520,000. REEDY paid ₱40,000 cash down payment
and issued a three-year noninterest bearing note of ₱480,000 payable in
three equal annual installments starting December 31, 20x1 for the
balance. The prevailing rate for the note as of January 1, 20x1 is 12%.
How much is the initial cost of the fixtures?
a. 360,000
c. 480,000
b. 424,293
d. 520,000
5. On April 1, 20x1, ESCULENT EDIBLE Co. purchased land and building by
paying ₱40,000,000 and assuming a mortgage of ₱8,000,000. The land
and building have appraised values of ₱20,000,000 and ₱40,000,000,
respectively. The building will be used by ESCULENT Co. as its new
office.
Additional costs relating to the purchase include the following:
Legal cost of conveying and registering title to
₱32,0
land
00
36,00
Payment to tenants to vacate premises
0
24,00
Option paid on the land and building
0
Option paid on similar land and building not
12,00
acquired
0
60,00
Broker's fee on the land and building
0
Unpaid real estate taxes prior to April 1, 20x1
assumed
120,0
by ESCULENT Co. – assessed on land
00
80,00
Real estate taxes after April 1, 20x1
0
0
0
Repairs and renovation costs before the
building
is occupied
160,0
00
200,0
00
Repair costs after the building is occupied
How much are the respective costs of the land and the building?
Land
Building
a. 14,592,000
24,440,000
b. 15,492,000
32,640,000
c. 16,192,000
32,240,000
d. 17,292,000
23,420,000
6. Old Room Co. purchased land and building for a lump-sum price of
₱48,000,000. The existing building will be demolished and a new building
will be constructed. Old Room incurred the following additional costs:
Title guarantee
80,000
Option paid for the land and old building acquired
24,000
Payments to tenants to vacate premises
48,000
Cost of razing the old building
240,000
Construction cost of new building (completed)
34,000,000


The land and old building have fair values of ₱20,000,000 and
₱40,000,000, respectively.
Some salvaged wood planks from the demolition were used as wall panels
in the new building. Old Room estimates that the salvaged wood planks
have a fair value of ₱120,000. The other salvaged materials were sold for
₱60,000.
How much are the allocated costs of the land and the new building?
Land
New building
Land
New
building
a. 16,864,000
33,780,000
c. 15,980,000
36,670,000
b. 16,104,000
34,180,000
d. 16,014,000
34,810,000
7. LOATH HATE Co. purchased a lot for ₱8,000,000. Immediately after the
purchase, LOATH Co. started the construction of a new building on the
lot. Additional information follows:
Legal cost of conveying title to land
₱ 40,000
Special assessment
20,000
Survey costs
60,000
Materials, labor, and overhead costs
22,000,000
Cash discounts on materials purchased not taken
120,000
Clerical and other costs related to construction
56,000
Excavation costs
400,000
Architectural fees and building permit
240,000
Supervision by management on construction
48,000
Insurance premiums paid for workers
520,000
Payment for claim for injuries not covered by
insurance
180,000
Savings on construction
800,000
Cost of changes to plans and specifications due to
560,000
inefficiencies
Paving of streets and sidewalks (not included in
blueprint)
40,000
Income earned on a vacant space rented as parking
lot during construction
36,000
0
0
How much are the capitalized costs of the land and the building?
Land
Building
Land
Building
a. 8,160,000
23,096,000
c. 8,100,000
23,184,000
b. 8,120,000
23,144,000
d. 8,060,000
23,264,000
8. FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are
shown below:
FEEBLE
WEAK,
Co.
Inc.
Equipment
4,000,000
8,000,000
Accumulated depreciation
800,000
3,200,000
Carrying amount
3,200,000
4,800,000
Fair value
3,800,000
4,400,000
Cash paid by FEEBLE to
600,000
600,000
WEAK
In WEAK’s books, what amounts are recognized for the following?
Equipment
Gain (Loss)
Equipment
Gain (Loss)
a. 3,400,000
400,000
c. 4,400,000
(1,000,000)
b. 3,800,000
(400,000)
d. 5,000,000
0
9. TRANSCEND EXCEED Co. traded-in an old machine for a new model.
Pertinent data are as follows:
Old equipment:
Cost
200,000
Accumulated depreciation
80,000
Average published retail value
24,000
New equipment:
List price
Cash price without trade in
Cash price with trade in
380,000
280,000
220,000
How much is the gain (loss) recognized by TRANSCEND Co. on the
transaction?
a. 60,000
c. (60,000)
b. 160,000
d. 0
10. Nail Bite Co. acquired land with fair value of ₱4,000,000 in exchange for
Nail Bite’s 10,000 shares with par value of ₱40 per share and quoted
price of ₱360 per share. How much gain (loss) should Nail Bite Co.
recognize on the exchange?
a. 3,200,000
c. (400,000)
b. 400,000
d. 0
“From the ends of the earth I call to you, I call as my heart grows faint; lead me to
the rock that is higher than I.” (Psalms 61:2)
- END -
ANSWERS:
1. B
2. C
3. A
Solution:
Purchase price
Commission to broker
400,000
20,000
0
0
Import duties
Non-refundable purchase taxes
Transportation cost
Assembling and installation costs
Testing costs
Proceeds from sale of samples generated
Initial cost of equipment
100,000
40,000
4,000
8,000
6,000
(2,000)
576,000
4. B
Cash down payment
PV of note (480K ÷ 3) x PV of an ordinary annuity of 1 @12%, n=3
Initial cost of fixtures
40,000
384,293
424,293
5. C
Cash payment
Mortgage assumed
Total acquisition cost
Land
Buildin
g
Fair
values
20,000,0
00
40,000,0
00
60,000,0
00
40,000,000
8,000,000
48,000,000
Fractio
ns
20/60
40/60
Land
Purchase price (48M x 20/60); (48M x 40/60)
Legal cost of conveying and registering title
to land
Payment to tenants to vacate premises
Building
16,000,000
32,000
32,000,000
-
12,000
24,000
8,000
16,000
20,000
40,000
120,000
-
-
160,000
16,192,000
32,240,000
(36K x 20/60); (36K x 40/60)
Option paid on the land and building
(24K x 20/60); (24K x 40/60)
Broker's fee on the land and building
(60K x 20/60); (60K x 40/60)
Unpaid real estate taxes prior to April 1,
20x1 assumed – assessed on land
Repairs and renovation costs before the
building is occupied
Totals
6. B
Land
Lump-sum price
Old building
16,000,000
(48M x 20/60); (48M x 40/60)
Title guarantee
Option paid
(24K x 20/60); (24K x 40/60)
Payments to tenants
(48K x 20/60); (48K x 40/60)
Cost of razing old building
Proceeds from salvaged mats.
Fair value of mats.
0
32,000,000
-
80,000
-
8,000
16,000
-
16,000
32,000
-
-
0
New building
-
240,000
(60,000)
-
Construction cost of new bldg.
Totals
16,104,000
32,048,000
34,000,000
34,180,000
7. B
Land
Purchase price of lot
Legal cost of conveying
Special assessment
Survey costs
Materials, labor, & OH
Cash discounts not taken
Clerical and other costs
Excavation costs
Arch. fees & bldg. permit
Supervision by mgmt.
Insurance premiums
Paving of streets
Totals
8,000,000
40,000
20,000
60,000
8,120,000
Land
improvement
New building
40,000
40,000
22,000,000
(120,000)
56,000
400,000
240,000
48,000
520,000
23,144,000
8. B
Equipment: (4,400,000 Fair value of asset given up - 600,000 cash received) =
3,800,000
Gain (Loss): (4,400,000 Fair value of asset given up – 4,800,000 carrying amount
of asset given up) = (400,000) loss
9. C
Date
Equipment – new (cash price w/o trade-in)
Accumulated depreciation
Loss on trade in (squeeze)
Equipment – old
Cash
280,000
80,000
60,000
10. D
1. Subsequent to initial recognition, an entity shall use this model to
account for its items of property, plant and equipment.
a. cost model
c. revaluation model
b. fair value model
d. a or c as an accounting policy choice
2. It is the systematic allocation of the depreciable amount of an asset over
its estimated useful life.
a. Depreciation
c. Impairment
b. Revaluation
d. all of these
3. Which of the following is considered when depreciating an asset under
the cost model?
a. The cost of the asset.
c. The change in the fair value of
the asset.
b. The useful life of the asset.
d. Both a and b.
4. Which of the following depreciation methods will most likely result in the
highest amount of reported profit in the early years of an asset’s useful
life?
a. Straight line
c. 150% declining balance
0
0
200,000
220,000
b. Double declining balance
d. Sum-of-the-years’ digits
5. The most commonly used depreciation method is the
a. straight-line method.
c. replacement method.
b. depreciation method based on revenue. d. inventory method.
6. Assume that a drill press is rebuilt during its sixth year of use so that its
useful life is extended 5 years beyond the original estimate of 10 years. If
the asset recognition criteria are met, the cost of rebuilding the drill
press should be charged to the appropriate:
a. expense account
c. asset account
b. accumulated depreciation account
d. liability account
7. The carrying amount of an item of property, plant and equipment that is
subsequently accounted for under the cost model is equal to
a. the historical cost less any accumulated depreciation.
b. the fair value less any accumulated depreciation.
c. the historical cost less any accumulated depreciation and any
accumulated impairment loss.
d. the fair value less any accumulated depreciation and any accumulated
impairment loss.
8. On January 1, 20x1, SIMPLETON FOOL Co. acquired a piece of
equipment with an estimated useful life of 4 years and a residual value of
₱80,000 for a total purchase cost of ₱400,000. At normal capacity, the
equipment’s estimated service life is 40,000 hours or a total productive
capacity of 160,000 units of a product. In 20x1 and 20x2, the actual
manufacturing hours were 16,000 and 8,000, respectively, and the actual
units produced were 60,000 and 30,000, respectively. How much is the
accumulated depreciation on December 31, 20x2 under each of the
following depreciation methods?
SLM
SYD
DDB
UOPM (input)
UOPM (output)
a.
100,000
160,000
200,000
129,000
120,000
b.
160,000
224,000
300,000
192,000
180,000
c.
80,000
128,455
200,000
128,000
120,000
d.
160,000
224,000
300,000
180,000
192,000
*SLM = straight line method; SYD = sum-of-the-years’ digits; DDB = double declining balance; UOPM = units-of-production method
9. DEPLORABLE BAD Co. acquired a machine on October 5, 20x1 for a total
cost of ₱160,000. The machine was estimated to have a useful life of 4
years and a salvage value of ₱10,000. DEPLORABLE BAD Co. uses the
sum-of-the-years’ digits method and prorates full-year depreciation to the
nearest month. DEPLORABLE BAD Co. sold the machine on December 27,
20x2 for ₱40,000. How much is the gain (loss) on the sale?
a. (48,750)
c. (32,250)
b. 48,750
d. 32,250
10. On January 1, 20x1, DEVIOUS CROOKED Co. purchased the following
assets and decided to depreciate them as a single unit:
Cost
Residual value
Useful life
Machine tools
80,000
4,000
3 years
Meters
64,000
2,000
5 years
Returnable containers 120,000
6 years
What is the composite life?
a. 5.40
c. 4.70
b. 5
d. 4.50
0
0
11. The small tools account of ATROCIOUS CRUEL Co. has a balance of
₱600,000 as of January 1, 20x1. The movements in this account during
the year were as follows:
Feb.
April
Sept.
Cost of new tools acquired
40,000
120,000
Cost of old tools retired
24,000
48,000
Disposal proceeds of old tools
2,000
3,200
How much is the depreciation expense in 20x1 under the retirement method?
a. 134,800
c. 144,000
b. 166,800
d. 118,800
12. On January 1, 20x1, COCKY ARROGANT Co. acquired a piece of
equipment for ₱4,000,000. The equipment will be used to reproduce
gaming software that is expected to be marketed for 3 years. The
equipment is expected to be used in producing products over the next two
years, after which the equipment will be disposed of at a negligible
amount. The estimated revenues from the software are as follows:
Estimated
Year
revenues
20x1
120,000,000
20x2
80,000,000
20x3
40,000,000
Total
240,000,000
The actual revenue earned in 20x1 is ₱180,000,000. The depreciation
expense in 20x1 is most likely equal to
a. 3,000,000
c. 2,977,667
b. 2,000,000
d. 333,333
13. On January 1, 20x1, DIMINUTIVE SMALL Co. signed a ten-year lease for
office space. DIMINUTIVE has the option to renew the lease for an
additional five-year period on or before January 1, 2x10. During the first
half of January 20x2, DIMINUTIVE Co. incurred the following costs:
 ₱3,600,000 for general improvements, with an estimated useful life of ten
years, on the leased premises.
 ₱400,000 for office furniture with an estimated useful life of ten years.
 ₱800,000 for movable assembly line equipment with a useful life of 5
years.
At the time the leasehold improvements were finished, DIMINUTIVE Co. was
uncertain as to the exercise of the lease renewal option. How much is the
depreciation expense on the leasehold improvements in 20x2?
a. 400,000
c. 533,333
b. 360,000
d. 488,889
14. On January 1, 20x1, KNAVE RASCAL Co. acquired a machine for a total
cost of ₱80,000,000. The machine was depreciated using the sum-of-theyears’ digits method over a period of 10 years. On January 1, 20x4,
KNAVE Co. changed its depreciation method to the double declining
balance method. How much is the depreciation expense in 20x4?
a. 40,727,272
c. 12,556,780
b. 11,635,782
d. 13,556,702
0
0
Nov.
88,000
72,000
4,000
15. ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for
a total cost of ₱24,000,000. The aircraft was estimated to have a useful
life of 10 years. ENTREAT Co. uses the straight line method of
depreciation. On January 1, 20x5, a major part of the aircraft was
replaced for a total cost of ₱3,200,000. ENTREAT Co. cannot determine
the cost of the replaced part. How much is the loss on replacement?
a. 1,920,000
c. 1,200,000
b. 1,280,000
b. 0
16. On December 31, 20x1, SWIMMY UNSTEADY Co. determined the
following information for the purpose of revaluing its building:
80,000,
Historical cost
000
Initial estimate of
useful life
25
Actual life
10
140,000,
000
Replacement cost
Effective life
8
Remaining economic
life
Income tax rate
17
30%
If SWIMMY UNSTEADY Co. uses the proportional method of recording, the
entry to record the revaluation would include which of the following?
a. a debit to accumulated depreciation of ₱32,000,000.
b. a credit to accumulated depreciation of ₱12,800,000.
c. a credit to building of ₱15,200,000.
d. a debit to deferred tax of ₱14,160,000.
17. On December 31, 20x1, the building of LITHE FLEXIBLE Co. was
revalued. Information determined on revaluation date is as follows:
72,000,
Historical cost
000
16,000,
Accumulated depreciation
000
Initial estimate of residual
8,000,
value
000
Actual life on revaluation
date
10
144,000,
Replacement cost
000
Effective life
12
Remaining economic life
20
30%
Income tax rate
The estimate of residual value remained unchanged. How much are the (1)
revaluation surplus, net of tax, on December 31, 20x1 and (2) revised annual
depreciation in periods subsequent to December 31, 20x1?
a. 25,900,000; 4,650,000
b. 37,000,000; 895,000
c. 37,000,000; 4,650,000
d. 25,900,000; 4,250,000
0
0
18. On December 31, 20x1, the building of Borong Co. with a historical cost
of ₱320,000,000, accumulated depreciation of ₱160,000,000, and an
estimated useful life of 20 years was determined to have a fair value of
₱200,000,000. Borong Co. is subject to an income tax rate of 30%. Under
the elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for ₱160,000,000.
b. a debit to accumulated depreciation for ₱40,000,000.
c. a debit to building for ₱120,000,000.
d. a credit to building for ₱160,000,000.
19. On December 31, 20x1, the land of CONJUNCTION UNION Co. with an
original cost of ₱40,000,000 was revalued to a fair value of ₱28,000,000.
This was the first revaluation made on the land since it was purchased 2
years ago. On December 20x4, the building was appraised at a fair value
of ₱48,000,000. How much is the gain on impairment reversal in 20x4?
a. 8,000,000
c. 12,000,000
b. 20,000,000
d. 0
20. FORTITUDE ENDURANCE Co. purchased a piece of equipment on August
14, 20x1 for a total cost of ₱400,000. The equipment has an estimated
useful life of 10 years and a residual value of ₱80,000. It is the policy of
FORTITUDE Co. to provide for full-year depreciation in the year of
acquisition and none in the year of disposal. On May 12, 20x4, the
equipment was sold for ₱120,000. Disposal costs of ₱8,000 were
incurred. How much is the gain (loss) on the sale?
a. (184,000)
c. 192,000
b. 184,000
d. (192,000)
“Pride goes before destruction, a haughty spirit before a fall.” (Proverbs 16:18)
- END -
ANSWERS:
1.
2.
3.
4.
5.
6.
7.
D
A
D
A
A
B
C
8. B
Solution:
 Straight line: (400,000 – 80,000) x 2/4 = 160,000
 Sum-of-the-years’ digits: SYD denominator = 4 x [(4 + 1) ÷ 2] = 10
(400,000 – 80,000) x [(4 + 3) / 10] = 224,000
 Double declining balance: DDB rate = 2/4 = 50%
200,00
Depreciation - 20x1 (400K x 50%)
0
100,00
Depreciation - 20x2 (400K - 200K) x 50%
0
300,0
Accumulated depreciation - Dec. 31, 20x2
00
 Units-of-production method (based on input):
(400,000 – 80,000) ÷ 40,000 hours = 8 per hr.
(16,000 + 8,000) x 8 = 192,000
0
0
 Units-of-production method (based on output):
(400,000 – 80,000) ÷ 160,000 units = 2 per unit
(60,000 + 30,000) x 2 = 180,000
9. A
Solution:
Depreciation for each full year of the asset’s useful life is calculated as
follows:
Year
SYD
1
4/10 x 150K* = 60,000
2
3/10 x 150K = 45,000
3
2/10 x 150K = 30,000
4
1/10 x 150K = 15,000
* (₱160,000 - ₱10,000) = ₱150,000
The full-year depreciation is prorated as follows:
Year
SYD
20x1
60,000 x 3/12 = 15,000
20x2
60,000 x 9/12 = 45,000
45,000 x 3/12 = 11,250
Accumulated depreciation as of date of sale
71,250
Net disposal proceeds
Carrying amt. on date of sale (160K - 71,250)
Loss on sale
40,000
(88,750)
(48,750)
10.D
Solution:
Cost
Machine tools
80,000
Meters
R/Containers
Totals
64,000
120,000
264,000
Residual
value
4,000
Dep. amt.
2,000
-
Annual
dep’n.
Useful life
76,000
3
25,333
62,000
120,000
258,000
5
6
12,400
20,000
57,733
Composite life = Depreciable amt. ÷ Annual depreciation
(258,000 ÷ 57,773) = 4.5 (rounded-off)
11. A
Solution:
24,000
(2,000)
48,000
(3,200)
-
72,000
(4,000)
Total
depreciation
144,000
(9,200)
22,000
44,800
-
68,000
134,800
Feb.
Cost of old tools retired
Disposal proceeds
Totals
April
Sept.
Nov.
12. B
Solution:
 Using the straight-line method: (4M ÷ 2) = 2,000,000
 PAS 16 prohibits the use of a depreciation method that is based on revenue.
13. A (3,600,000 ÷ 9) = 400,000
0
0
14. B
Solution:
SYD denominator = 10 x [(10 + 1) / 2)] = 55
Accumulated depreciation on 1/1/x4 = 80M x [(10 + 9 + 8)/55] = 39,272,727
Carrying amt. on 1/1/x4 = 80M – 39,272,727 = 40,727,273
Double declining balance rate = 2/7 = 28.57%
Depreciation in 20x4 = 40,727,273 x 28.57% = 11,635,782
15. A (3.2M x 6/10) = 1,920,000
Supporting journal entries:
Jan. 1,
Accumulated depreciation (3.2M x 4/10)
20x5
Loss on replacement (squeeze)
Aircraft (old part)
Jan. 1,
20x5
1,280,000
1,920,000
3,200,000
to derecognize the old part that is replaced
Aircraft (new part)
3,200,000
3,200,000
Cash
to recognize the new replacement part
16. B
Solution:
Replacement cost
Depreciation (140M x 8/25(a))
Fair value or Depreciated R.C.
Carrying amount (80M x 10/25)
Revaluation surplus - gross of tax
Less: Deferred tax (47.2M x 30%)
Revaluation surplus - net of tax
(a)
140,000,000
(44,800,000)
95,200,000
(48,000,000)
47,200,000
(14,160,000)
33,040,000
(8 effective live + 17 remaining economic life) = 25 total economic life
The movements in the accounts are determined as follows:
Historical Cost
Replacement cost
Building
80,000,000
140,000,000
(32,000,000) (c)
(44,800,000)
Accum. depreciation
48,000,000
95,200,000
CA/ DRC/ RS (b)
(c)
80M historical cost x 10 actual life / 25 historical life = 32M
(b)
Increase
60,000,000
(12,800,000)
47,200,000
Carrying amount/ Depreciated replacement cost/ Revaluation surplus – gross of tax
The entry under the proportional method is as follows:
Building (see table above)
Accumulated depreciation (see table)
Revaluation surplus
Deferred tax liability
Dec. 31,
20x1
17. D
Replacement cost
Depreciation (144M - 8M) x
12/32
Fair value or Depreciated R.C.
Carrying amount (72M - 16M)
Revaluation surplus - gross of
tax
144,000,0
00
(51,000,0
00)
93,000,00
0
(56,000,0
00)
37,000,0
00
0
0
60,000,000
12,800,000
33,040,000
14,160,000
(11,100,0
00)
25,900,0
00
Less: Deferred tax (37M x 30%)
Revaluation surplus - net of
tax
93,000,00
0
(8,000,00
0)
85,000,00
0
Fair value or Depreciated R.C.
Less: Residual value
Depreciable amount
Divide by: Remaining economic
life
20
4,250,00
0
Revised annual depreciation
18. A
Solution:
Fair value
Carrying amount
Revaluation surplus - gross of tax
Less: Deferred tax (40M x 30%)
Revaluation surplus - net of tax
Dec. 31,
20x1
200,000,000
(160,000,000)
40,000,000
(12,000,000)
28,000,000
Accumulated depreciation
Deferred tax liability
Revaluation surplus
Building (balancing figure)
160,000,00
0
12,000,000
28,000,000
120,000,000
The carrying amount after the revaluation is reconciled as follows:
Building (320M – 120M credit in entry)
Accumulated depreciation (160M - 160M debit in entry)
Carrying amount after revaluation (Fair value)
200,000,000
200,000,000
19. C
Solution:
20x1
Fair value
Carrying amount
Impairment loss
28,000,000
(40,000,000)
(12,000,000)
20x4
Fair value
Carrying amount
Increase in carrying amount
48,000,000
(28,000,000)
20,000,000
The increase in carrying amount is allocated as follows:
Increase in carrying amount
Reversal of the previous impairment (gain)
Excess credited to revaluation surplus
20,000,000
12,000,000
8,000,000
20.D
Solution:
May 12,
20x4
Cash (120K – 8K)
Accum. depreciation (400K – 80K) x 3/10
0
0
112,000
96,000
Loss on disposal of equipment (squeeze)
Equipment
0
0
192,000
400,000