Quiz 1
Theoretical
The initial measurement basis for investment property closely follows the rules on
determination of initial measurement basis for owner-occupied property.
A. True
B. False
An enterprise using the cost model for its investment property shall also disclose
the fair value of investment property.
A. True
B. False
An entity may choose either the fair value model or the cost model and shall apply
that policy to an entire class of investment property.
A. True
B. False
A change in management’s intention for the use of the property is sufficient
evidence for a change in use.
A. True
B. False
The fair value of the investment property shall take into account the entityâ s
highest and best use of the asset or its price by selling the asset to another market
participant that would use the asset at its highest and best use.
A. True
B. False
When an item of asset is transferred to and from the classification investment
property, carried using the fair value model, the measurement basis at the date of
transfer is the
A. Original cost
B. Fair value
C. Carrying amount
D. Recoverable amount
Which of the following assets would qualify as an investment property as defined
by IAS 40, Investment Property?
A. Property intended for sale in the ordinary course of business
B. Property held for future use as owner-occupied property
C. Owner-occupied property awaiting disposal
D. Property held for a currently undetermined future use
A gain or loss arising from a change in the fair value of investment property shall
be recognized in
A. Profit or loss if the investment property is measured using the fair value model
B. Other comprehensive income if the investment property is measured using the
revaluation model
C. Profit or loss if the investment property is measured using the cost model.
D. Other comprehensive income if the investment property is measured using the cost
model
An enterprise using the cost model for its investment property shall disclose the
following except:
A. The gross carrying amount and the accumulated depreciation at the beginning and end
of the period
B. In the cases when fair value cannot be determined reliably, a description of that
investment property, an explanation of why fair value cannot be determined reliably, and
if possible, a range of estimates within which fair value is likely to lie.
C. The useful lives or the depreciation rates used
D. None of the choices
Under IAS 40, the following information are required to be disclosed in the
financial statements, except:
A. The extent to which the fair value of investment property is based on a valuation by an
independent valuer; if no valuer is involved, that fact is disclosed
B. When classification is difficult, the criteria used to distinguish investment property from
the owner-occupied property and from inventory
C. Contractual obligations to purchase, construct, or develop investment property or for
repairs, maintenance, or enhancements
D. None of the choices
When reclassification is made from owner occupied property to investment
property that will be carried at fair value, any excess of the fair value over the carrying
amount at the date of transfer is
A. Ignored
B. Recognized as gain in profit or loss
C. Credited to revaluation surplus
D. Recorded as a credit to a liability account
In transfers from PPE to investment property using the fair value model, when fair
value exceeds the previous carrying amount. The appropriate entry is to debit the
investment property, credit the PPE and?
A.
B.
C.
D.
Credit to Revaluation Surplus
Debit to Revaluation Surplus/Revaluation Loss (P&L)
Credit to Revaluation Surplus
Credit to Revaluation Gain (P&L)
Investment property refers to land, building, or equipment held to earn rentals or
for capital appreciation or both, rather than for use in the production or supply of goods
or services or for administrative purposes or sale in the ordinary course of business.
A. True
B. False
Under the fair value model, a building held by an enterprise as an investment property
shall be measured at
A. Fair value
B. Fair value less estimated cost to sell
C. Fair value less accumulated depreciation
D. Fair value less accumulated depreciation and accumulated impairment less
Problem Solving:
The following information relates to Fame Company for the year 2021:
(a) Land Held as Investment Property (at cost) - P2,500,000;
(a.1) Fair value at January 1, 2021 - P3,000,000;
(a.2) Fair value at December 31, 2021 - P3,800,000;
(a.3) Estimated disposal cost - P300,000;
(b) Building Held as Investment Property. Construction was computed at January 1,
2021 at a total cost of P10,000,000;
(b.1) Estimated useful life is 40 years with no residual value;
(b.2) Fair value at January 1, 2021- P9,000,000;
(b.3) Fair value at December 31, 2021 - P10,000,000;
(b.4) Estimated disposal cost - 500,000.
A.
B.
C.
D.
Using cost model, how much is the investment property as of January 1, 2021?
P11,750,000
P12,000,000
P12,500,000
P13,800,000
Using a fair value model, how much is taken to P&L for 2021 pertaining to the
investment property?
A. P0
B. P250,000
C. P800,000
D. P1,800,000
Using the cost model, how much is taken to P&L for 2021 pertaining to the
investment property?
A. P0
B. P250,000
C. P800,000
D. P1,800,000
Shopee had the following items of property on December 31, 2022:
(a) Land which at the date of acquisition is not intended for any specific use in the future:
P2,500,000;
(b) Condominium building acquired exclusively with a view to subsequent development
and resale: P10,500,000;
(c) Building leased out under operating lease (the company provides security and
maintenance services to the lessees): P3,000,000;
(d) Equipment leased out to unrelated party under operating lease â P1,000,000;
(e) Administrative and production building: P3,000,000;
(f) Building leased out to unrelated party under a finance lease: P5,000,000;
(g) Land held as future plant site: P7,500,000;
(h) Building in process of construction intended to be leased under operating leases:
P6,000,000;
(i) Five-star hotel owned and managed by the company P5,500,000.
How much should be classified as investment property in the companyâ s
December 31, 2022, statement of financial position?
A. P8,500,000
B. P11,500,000
C. P16,000,000
D. P17,000,000
Using fair value model, how much is the investment property as of January 1,
2021?
A.
B.
C.
D.
P11,750,000
P12,000,000
P12,500,000
P13,800,000
On January 1, 2022, Uniqlo completed the construction of a building which was intended for
future use as investment property for a total cost P10,000,000. The estimated useful life of the
property was 10 years using a straight-line method and the residual value is 5%. The fair values
and the costs to sell of the property follow:
(a) December 31, 2022: P12,000,000 fair value and P100,000 cost to sell;
(b) December 31, 2023: P13,000,000 fair value and P200,000 cost to sell;
(c) December 31, 2024: P14,000,000 fair value and P300,000 cost to sell.
What is the carrying value of the investment property at the end of 2024 using the
fair value model?
A. P7,000,000
B. P7,150,000
C. P13,700,000
D. P14,000,000
If the investment property was carried under the cost model, and it was sold on
December 31, 2024, at its fair value, what is the gain or loss on sale to be
A. P900,000
B. P1,000,000
C. P4,000,000
D. P6,550,000
IKEA and its subsidiary AEKI have provided you with a list of property items they own: Land
held by IKEA for long-term capital appreciation - P50 million; Land held by AEKI for a currently
undetermined future use - P35 million; Building owned and leased out by IKEA under operating
leases - P10 million; Vacant building of AEKI intended to be leased out under a finance lease P12 million; Building owned by IKEA and leased out to AEKI under an operating lease - P8
million; Building owned by AEKI and leased out under operating leases, an insignificant portion
is held as headquarters for administrative purposes â P5 million.
What amount shall be shown as Investment Property in the consolidated
statement of the financial position of IKEA?
A. P60 million
B. P68 million
C. P100 million
D. P120 million
On January 2, 2021, Muji reclassified its 3-year-old owner-occupied building to investment
property to be carried at fair value. The cost of the building is P20,000,000. The carrying value
of the building on the companyâ s books on the reclassification date was P18,000,000, while its
fair value was P30,000,000.
On the date of reclassification, what amount is debited to the â accumulated
depreciation â buildingâ account?
A. P-0B. P2,000,000
C. P10,000,000
D. P12,000,000
Shopee had the following items of property on December 31, 2022:
(a) Land which at the date of acquisition is not intended for any specific use in the future:
P2,500,000;
(b) Condominium building acquired exclusively with a view to subsequent development
and resale: P10,500,000;
(c) Building leased out under operating lease (the company provides security and
maintenance services to the lessees): P3,000,000;
(d) Equipment leased out to unrelated party under operating lease: P1,000,000;
(e) Administrative and production building: P3,000,000;
(f) Building leased out to unrelated party under a finance lease: P5,000,000;
(g) Land held as future plant site: P7,500,000;
(h) Building in the process of construction intended to be leased under operating leases:
P6,000,000;
(i) Five-star hotel owned and managed by the company: P5,500,000.
How much should be classified as the owner-occupied property in the companyâ
s December 31, 2021, statement of financial position?
A. P8,500,000
B. P11,500,000
C. P16,000,000
D. P17,000,000
Adidas acquired a building on January 1, 2022, for P12,000,000. The building has a useful life
of 10 years. The fair value of the building is P18,000,000 on December 31, 2022.
What amount shall be recognized in profit or loss for the year then ended using
the cost model?
A. -0B. Depreciation expense of P1,200,000
C. Fair value gain of P6,000,000
D. Depreciation expense of P1,200,000 and fair value gain of P1,200,000
What amount shall be recognized in profit or loss for the year then ended using
the fair value model?
A. -0B. Depreciation expense of P1,200,000
C. Fair value gain of P6,000,000
D. Depreciation expense of P1,200,000 and fair value gain of P1,200,000
On January 2, 2021, Aromaeda Marketing had a building with a carrying value of P12,500,000
(cost of P25,000,000) held for use as an owner-occupied property.
In July 2021, Aromaeda commenced an operating lease with Cruz Co. Hence, the property was
reclassified from owner-occupied property to investment property. The fair value of this property
on July 1, 2021 was P15,000,000. The corporation records annual depreciation of P2,500,000
on the building. Aromaeda uses the fair value model to account for its investment property.
A.
B.
C.
D.
How much is credited to the Revaluation Surplus account on the date of transfer?
P0
P2,500,000
P3,750,000
P10,000,000
Question 28
Selected Answer:
Answers:
In transfers from PPE to investment property using the fair value model, when fair value is less
than the previous carrying amount. The
appropriate entry is to debit the investment property, credit the PPE and ?
Debit to Revaluation Surplus/Revaluation Loss (P&L)
Debit to Revaluation Surplus/Revaluation Loss (P&L)
Credit to Revaluation Surplus
Credit to Revaluation Gain (P&L)
None of the choices
2 out of 2 points
2 out of 2 points
2 out of 2 points
Question 29
Selected Answer:
Answers:
IKEA and its subsidiary AEKI have provided you with a list of property items they own: Land
held by IKEA for long-term capital appreciation P50 million; Land held by AEKI for a currently undetermined future use - P35 million; Building
owned and leased out by IKEA under operating
leases - P10 million; Vacant building of AEKI intended to be leased out under a finance lease P12 million; Building owned by IKEA and
leased out to AEKI under an operating lease - P8 million; Building owned by AEKI and leased
out under operating leases, an insignificant
portion is held as headquarters for administrative purposes â P5 million. What amount shall be
shown as Investment Property in the separate
statement of financial position of IKEA?
P68 million
P60 million
P68 million
P100 million
P120 million
Question 30
Selected Answer:
Answers:
Which of the following items will be reported under the caption â Investment Propertyâ ?
Building held by the entity as a right-of-use asset and leased out under an operating lease
Building owned by the entity and leased out under one or more finance leases
Building that is being constructed for future use as owner-occupied
Building that houses materials for use in construction activities
Building held by the entity as a right-of-use asset and leased out under an operating lease
Question 31
Selected Answer: True
Answers: True
False
A change in classification from and into investment property carried using the fair value model
shall be measured at fair value, with the
difference between the fair value at the date of reclassification and the previous carrying amount
taken to profit or loss, except for
reclassification from owner-occupied property to investment property.
3 out of 3 points
2 out of 2 points
2 out of 2 points
Question 32
Selected Answer:
Answers:
On January 3, 2022, Furniture Source acquired an investment property for P5,000,000. The
estimated useful life of the property was 25 years.
On the date of acquisition, the company decided to account this investment property under the
fair value model. On December 31, 2022, the
property had a fair value of P5,400,000. On December 31, 2023, the investment property was
reclassified to owner-occupied property when
the fair value of the property was P5,250,000. What is the carrying amount of the investment
property on the date of reclassification?
P5,250,000
P4,600,000
P4,800,000
P5,250,000
P5,400,000
Question 33
Selected Answer:
Answers:
On January 2, 2021, Muji reclassified its 3-year-old owner-occupied building to investment
property to be carried at fair value. The cost of
building is P20,000,000. The carrying value of the building on the companyâ s books on the
reclassification date was P18,000,000, while its
fair value was P30,000,000. On the date of reclassification, the company should
recognize a revaluation surplus of P12,000,000 in other comprehensive income
recognize a gain of P12,000,000 in profit or loss
recognize a revaluation surplus of P12,000,000 in other comprehensive income
recognize a gain of P12,000,000 in retained earnings
record a gain of P12,000,000 in the notes to financial statements
Question 34
Selected Answer: False
Answers: True
False
Transaction costs such as professional fees for legal services and initial operating losses
incurred before an investment property achieves the
planned level of occupancy form part of the initial cost of an investment property.
Question 35
Clarch Co. purchased an investment property on December 31, 2018 at a cost of P1,500,000.
The property has a useful life of 10 years. At
December 31, 2022, the property had a fair value of P1,300,000. The companyâ s depreciation
policy is straight-line basis. On February 28,
3 out of 3 points
3 out of 3 points
2 out of 2 points
3 out of 3 points
Selected Answer:
Answers:
2023, the property was sold for net proceeds of P1,000,000. Using cost model, how much is the
gain or loss on sale of disposal of the
property?
P125,000 gain
P125,000 gain
P300,000 loss
P500,000 loss
No gain or loss
Question 36
Selected Answer: True
Answers: True
False
A property owned by a parent company but leased out to a subsidiary under an operating lease
is an investment property in the separate
financial statements of the parent company.
Question 37
Selected Answer: True
Answers: True
False
Under the fair value model, a lessee that classifies its right-of-use asset as investment property
shall measure the right-of-use asset, and not
the whole underlying asset, at fair value.
Question 38
Selected Answer:
Answers:
Clarch Co. purchased an investment property on December 31, 2018 at a cost of P1,500,000.
The property has a useful life of 10 years. At
December 31, 2022, the property had a fair value of P1,300,000. The companyâ s depreciation
policy is straight-line basis. On February 28,
2023, the property was sold for net proceeds of P1,000,000. Using fair value model, how much
is the gain or loss on sale of disposal of the
property?
P300,000 loss
P125,000 gain
P300,000 loss
P500,000 loss
2 out of 2 points
2 out of 2 points
3 out of 3 points
No gain or loss
Question 39
Selected Answer:
Answers:
On January 1, 2022, Uniqlo completed the construction of a building which was intended for
future use as investment property for a total cost
P10,000,000. The estimated useful life of the property was 10 years using a straight-line method
and the residual value is 5%. The fair values
and the costs to sell of the property follow: (a) December 31, 2022: P12,000,000 fair value and
P100,000 cost to sell; (b) December 31, 2023:
P13,000,000 fair value and P200,000 cost to sell; (c) December 31, 2024: P14,000,000 fair
value and P300,000 cost to sell. What is the
carrying value of the investment property at the end of 2024 using the cost model?
P7,150,000
P7,000,000
P7,150,000
P13,700,000
P14,000,000
Question 40
Selected Answer:
Answers:
On January 1, 2022, Uniqlo completed the construction of a building which was intended for
future use as investment property for a total cost
P10,000,000. The estimated useful life of the property was 10 years using a straight-line method
and the residual value is 5%. The fair values
and the costs to sell of the property follow: (a) December 31, 2022: P12,000,000 fair value and
P100,000 cost to sell; (b) December 31, 2023:
P13,000,000 fair value and P200,000 cost to sell; (c) December 31, 2024: P14,000,000 fair
value and P300,000 cost to sell. What amount of
gain from change in fair value was recognized in 2024 profit or loss if the investment is
accounted for using the fair value model?
P1,000,000
P900,000
P1,000,000
P4,000,000
P6,550,000
Quiz 2
Theoretical
Problem-Solving:
Question 1
Selected Answer: d.
Answers: a.
b.
c.
d.
This problem has 2 questions: Love Company has determined that one of its
cash generating units (CGU) is impaired. The assets of the cash generating unit at
carrying amount are:
Machinery 1,500,000
Building 3,000,000
Equipment 1,875,000
Furniture and fixture 1,125,000
Goodwill 800,000
The recoverable value of the cash generating units is P7,000,000. The fair value
less cost of disposal of the equipment is P1,825,000.
The following are the 2 questions:
· How much is the impairment loss that should be allocated to
Equipment?
· How much is the carrying value of the building after allocation of the
impairment loss?
How much is the impairment loss that should be allocated to Equipment?
125,000
50,000
75,000
0
125,000
Question 2
Selected
Answer:
a.
Answers: a.
b.
c.
d.
Which of the following is a criterion that must be met for an item to be recognized
as an intangible asset other than goodwill?
The item is non-monetary, identifiable and lacks physical
substance
The item is non-monetary, identifiable and lacks physical
substance
The item is part of an activity aimed at gaining a new scientific or
technical knowledge
The item is expected to be used in the production or supply of
goods or services
The fair value can be measured reliably
Question 3
Selected
Answer:
b.
Which disclosure is not required with respect to intangible assets?
Fair value of similar intangible asset used by the competitors
0 out of 3 points
2 out of 2 points
2 out of 2 points
Answers: a.
b.
c.
d.
Useful life of the intangible asset
Fair value of similar intangible asset used by the competitors
Contractual commitment for the acquisition of intangible asset
Reconciliation of carrying amount at the beginning and the end
of the year
Question 4
Selected Answer: False
Answers: True
False
Change in fair value less cost to sell of a biological asset is taken to other
comprehensive income in the statement of comprehensive income.
Question 5
Selected Answer: False
Answers: True
False
Per IAS 38, when a biological asset is acquired by purchase, in all circumstance, it
is initially recorded at fair value less cost to sell. Any difference between the
purchase price and the fair value less cost to sell shall not be accounted.
Question 6
Selected
Answer:
a.
Answers: a.
b.
c.
d.
The cost of an internally generated asset includes all of the following, except
Expenditure on training staff to operate the asset
Expenditure on training staff to operate the asset
Cost of materials and services used in generating the intangible
asset
Compensation costs of personnel directly engaged in generating
the asset
Fees to register a legal right
Question 7
Selected
Answer:
c.
Answers: a.
Which of the following should be expensed as incurred by the franchisee?
Periodic payments to the franchisor based on the franchisee’s
revenue
Payment to an entity other than the franchisor for that entity’s
franchise
2 out of 2 points
2 out of 2 points
2 out of 2 points
1 out of 1 points
b.
c.
d.
Legal fees paid to the franchisee’s lawyers to obtain the
franchise
Periodic payments to the franchisor based on the franchisee’s
revenue
Amount paid to the franchisor for the franchise
Question 8
Selected
Answer:
c.
Answers: a.
b.
c.
d.
An intangible asset is regarded as having indefinite useful life when
There is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity
The useful life of the intangible asset arises from contractual right
There is a foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity
There is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity
The useful life of the intangible asset arises from contractual right
Question 9
Selected Answer: b.
Answers: a.
b.
c.
d.
Which best describes the current method of accounting for R & D?
Immediate recognition as expense
Associating cause and effect
Immediate recognition as expense
Systematic and rational allocation
Income tax minimization
Question 10
This problem has 4 questions: Antonio Company incurred P100,000 of
research and development costs to develop a product for which a patent was
granted on January 1, 2018. Legal fees and other costs associated with the
registration of the patent totaled P300,000. The patent is being amortized over
its legal life. On July 1, 2020, Antonio Company won and paid legal fees of
P80,000 for the successful defense of the patent against an infringement lawsuit
filed by Tony Company.
The following are the 4 questions:
· How much is the amortization expense for the year 2018?
· How much is the carrying value of the patent on December 31, 2020?
· How much is the total expenses for the year 2020?
· How much is the total expenses for the year 2020 assuming Antonio
Company did not win the lawsuit?
2 out of 2 points
2 out of 2 points
3 out of 3 points
Selected Answer: b.
Answers: a.
b.
c.
d.
How much is the carrying value of the patent on December 31, 2020?
255,000
262,500
255,000
248,800
335,000
Question 11
Selected
Answer:
c.
Answers: a.
b.
c.
d.
Which statement accurately describes the appropriate accounting for goodwill?
It should be recorded at cost and not amortized but tested for
impairment on an annual basis and more often if certain events
occur.
It should be recorded at cost and amortized over 40-year period
It should be recorded at cost and amortized over a 10-year period
It should be recorded at cost and not amortized but tested for
impairment on an annual basis and more often if certain events
occur.
It should be recorded at cost and tested for impairment every three
years
Question 12
Selected Answer: c.
Answers: a.
b.
This problem has 3 questions: An entity produces milk for local ice cream
producers. The entity began operations at the beginning of the current year by
purchasing milking cows for P5,000,000. The entity provided the following
information at year-end relating to the milking cows:
Carrying amount – beginning of the year 5,000,000
Increase in fair value due to growth and price change 2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year-end at fair value 400,000
Milk harvested during the year but not yet sold 850,000
The following are the 3 questions:
· What amount of gain on biological asset should be reported in the
current year?
· What amount of gain on agricultural produce should be recognized in
the current year?
· What is the carrying amount of the biological asset at year-end?
What amount of gain on agricultural produce should be recognized in the current
year?
850,000
0
1,250,000
2 out of 2 points
3 out of 3 points
c.
d.
850,000
1,000,000
Question 13
Selected Answer: a.
Answers: a.
b.
c.
d.
On January 1, 20219, ABB Company had capitalized costs of P12,000,000 for a
new computer software product with an estimated useful life of 4 years. Sales for
the software product in 2019 were P4,800,000 and P8,400,000 in 2020. The total
sales of the software over the economic life are expected to be P24,000,000.
What amount of amortization of computer software should ABB Company record
for the year 2019?
3,000,000
3,000,000
6,000,000
0
2,400,000
Question 14
Selected
Answer:
a.
Answers: a.
b.
c.
d.
A research and development activity for which the cost should be expensed is
Design, construction, and testing of preproduction prototype and
model
Design, construction, and testing of preproduction prototype and
model
Periodic design changes to existing product
Trouble shooting in connection with breakdown during
commercial production
Engineering follow-through in early phase of commercial
production
Question 15
Selected Answer: c.
Answers: a.
b.
c.
d.
Start-up costs including legal and state fees incurred to organize a new entity
should be
Expensed as incurred
Capitalized and amortized over 40 years
Capitalized and never amortized
Expensed as incurred
Capitalized and amortized over 5 years
3 out of 3 points
2 out of 2 points
2 out of 2 points
Question 16
Selected
Answer:
c.
Answers: a.
b.
c.
d.
How should research and development costs be accounted for?
Expensed in the period incurred unless it can be clearly
demonstrated that the expenditure will have alternative future use or
unless contractually reimbursable
Expensed in the period incurred
Capitalized when incurred and then amortized over the estimated
useful life
Expensed in the period incurred unless it can be clearly
demonstrated that the expenditure will have alternative future use or
unless contractually reimbursable
Either capitalized or expensed depending upon materiality
Question 17
Selected Answer: a.
Answers: a.
b.
c.
d.
This problem has 4 questions: Antonio Company incurred P100,000 of
research and development costs to develop a product for which a patent was
granted on January 1, 2018. Legal fees and other costs associated with the
registration of the patent totaled P300,000. The patent is being amortized over
its legal life. On July 1, 2020, Antonio Company won and paid legal fees of
P80,000 for the successful defense of the patent against an infringement lawsuit
filed by Tony Company.
The following are the 4 questions:
· How much is the amortization expense for the year 2018?
· How much is the carrying value of the patent on December 31, 2020?
· How much is the total expenses for the year 2020?
· How much is the total expenses for the year 2020 assuming Antonio
Company did not win the lawsuit?
How much is the amortization expense for the year 2018?
15,000
15,000
20,000
5,000
30,000
Question 18
This problem has 2 questions: On January 1, 2020, an entity has a herd of
1002-year-old animals.
Ten animals aged 2.5 years were purchased on July 1, 2020 for P11,000 each.
Ten animals were born on July 1, 2020.
No animals were sold or disposed of during the year.
The fair values less cost of disposal per unit were:
2-year-old animal on January 1 10,000
2.5- year-old animal on July 1 11,000
New born animal on July 1 8,000
2 out of 2 points
3 out of 3 points
3 out of 3 points
Selected Answer: d.
Answers: a.
b.
c.
d.
e.
2-year-old animal on December 31 11,500
2.5-year-old animal on December 31 12,000
Newborn animal on December 31 8,500
3-year-old animal on December 31 15,000
0.5-year-old animal on December 31 10,000
The following are the 2 questions:
· What is the gain from biological asset attributable to price change?
· What is the gain from biological asset attributable to physical change?
What is the gain from biological asset attributable to price change?
165,000
None of the choices
555,000
475,000
165,000
635,000
Question 19
Selected Answer: b.
Answers: a.
b.
c.
d.
ABC Corporation provided the following information regarding its Research
MOP517 included in the company’s intangible asset account as of December 31,
2020:
Research MOP517 is for a research project which consists of the following
charges:
Salaries of research staff P18,000
Patent acquired solely for the use in the project 12,000
Special equipment acquired and useful for
various similar research activities 10,000
Patent acquired for use in several research projects
including MOP517 16,000
Total P56,000
The equipment and patents have been found to be useful for approximately five
years. You have further discovered both patents and the equipment were
acquired at the beginning of 2020.
How much should be recognized as research and development expense for the
year 2020?
35,200
56,000
35,200
18,000
0
Question 20
At the beginning of the current year, an entity acquired a trademark for
P3,000,000. The trademark has eight years remaining in the legal life. It is
3 out of 3 points
3 out of 3 points
Selected Answer: d.
Answers: a.
b.
c.
d.
anticipated that the trademark will be renewed in the future indefinitely without
problem. At year-end, the trademark is assessed for impairment. Because of a
decline in economy, the trademark is expected to generate cash flows of just
P120,000 annually. The useful life of the trademark still extends beyond the
foreseeable horizon. The appropriate discount rate is 6%.
What amount should be recognized as impairment loss on trademark for the
current year?
1,000,000
3,000,000
0
2,000,000
1,000,000
Question 21
Selected
Answer:
c.
Answers: a.
b.
c.
d.
What is the appropriate method of amortizing intangible asset?
The straight-line method, unless the pattern in which the asset’s
economic benefits are consumed by the entity can be determined
reliably
A subjective amount of periodic amortization without regard to any
particular method
The straight-line method in all circumstances
The straight-line method, unless the pattern in which the asset’s
economic benefits are consumed by the entity can be determined
reliably
The double declining balance in all circumstances
Question 22
This problem has 2 questions: You were engaged to audit Love Company for
the year 2019. Your client uses the calendar year. In the course of your audit, you
noted that on January 1, 2019, Love Company showed patent of P1,920,000 with
related accumulated amortization of P240,000. The patent was purchased on
January 1, 2017 at which date the legal life is 16 years. On January 1, 2019, the
useful life of the patent was determined to be only 8 years from the date of
acquisition.
On January 1, 2019, in connection with the purchase of a trademark from Bhe
Company, the parties entered into a noncompetition agreement and a consulting
contract. Love Company paid Bhe Company P800,000, of which three-fourths
was for the trademark, and one-fourth was for Bhe Company’s agreement not to
compete for a five-year period in the line of business covered by the trademark.
Love Company considers the life of the trademark to be indefinite. Moreover,
Love Company agreed to pay Bhe Company P50,000 annually on January 1 of
each year for 5 years.
The following are the 2 questions:
· What is the carrying amount of intangible assets on January 1, 2019?
· What is the total amortization of intangible assets for 2019?
2 out of 2 points
3 out of 3 points
Selected Answer: 320,000
Correct Answer:
Evaluation Method Correct Answer Case Sensitivity
Exact Match 320,000
Note: Input your answer with comma e. g. 4,500
What is the total amortization of intangible assets for 2019?
Question 23
Selected Answer: a.
Answers: a.
b.
c.
d.
This problem has 3 questions: An entity produces milk for local ice cream
producers. The entity began operations at the beginning of the current year by
purchasing milking cows for P5,000,000. The entity provided the following
information at year-end relating to the milking cows:
Carrying amount – beginning of the year 5,000,000
Increase in fair value due to growth and price change 2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year-end at fair value 400,000
Milk harvested during the year but not yet sold 850,000
The following are the 3 questions:
· What amount of gain on biological asset should be reported in the
current year?
· What amount of gain on agricultural produce should be recognized in
the current year?
· What is the carrying amount of the biological asset at year-end?
What is the carrying amount of the biological asset at year-end?
7,150,000
7,150,000
7,600,000
8,250,000
8,000,000
Question 24
Selected
Answer:
a.
Answers: a.
b.
c.
d.
The accounting for cost incurred in creating a computer software is to
Charge research and development expense when incurred until
technological feasibility has been established for the product
Charge research and development expense when incurred until
technological feasibility has been established for the product
Charge research and development expense if the computer
software has alternative future use
Capitalize all costs until the software is sold
3 out of 3 points
2 out of 2 points
Capitalize all costs incurred until a detailed program design or
model is created
Question 25
Selected Answer: a.
Answers: a.
b.
c.
d.
This problem has 4 questions: Antonio Company incurred P100,000 of
research and development costs to develop a product for which a patent was
granted on January 1, 2018. Legal fees and other costs associated with the
registration of the patent totaled P300,000. The patent is being amortized over
its legal life. On July 1, 2020, Antonio Company won and paid legal fees of
P80,000 for the successful defense of the patent against an infringement lawsuit
filed by Tony Company.
The following are the 4 questions:
· How much is the amortization expense for the year 2018?
· How much is the carrying value of the patent on December 31, 2020?
· How much is the total expenses for the year 2020?
· How much is the total expenses for the year 2020 assuming Antonio
Company did not win the lawsuit?
How much is the total expenses for the year 2020 assuming Antonio Company
did not win the lawsuit?
350,000
350,000
87,500
80,000
262,500
Question 26
Selected Answer: c.
Answers: a.
b.
c.
d.
On January 1, 2017, an entity purchased a patent for P4,500,000. The patent is
being amortized over the remaining legal life of 15 years. During 2020, the entity
determined that the economic benefits of the patent would not last longer than 12
years from the date of acquisition.
What is the carrying amount of the patent on December 31, 2020?
3,200,000
3,000,000
3,300,000
3,200,000
3,600,000
Question 27
Selected Answer: c.
Answers:
a.
Entities should evaluate intangible assets with indefinite life at least annually for
Impairment
Estimated useful life
3 out of 3 points
3 out of 3 points
2 out of 2 points
b.
c.
d.
Recoverability
Impairment
Amortization
Question 28
Selected Answer: b.
Answers: a.
b.
c.
d.
This problem has 3 questions: An entity produces milk for local ice cream
producers. The entity began operations at the beginning of the current year by
purchasing milking cows for P5,000,000. The entity provided the following
information at year-end relating to the milking cows:
Carrying amount – beginning of the year 5,000,000
Increase in fair value due to growth and price change 2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year-end at fair value 400,000
Milk harvested during the year but not yet sold 850,000
The following are the 3 questions:
· What amount of gain on biological asset should be reported in the
current year?
· What amount of gain on agricultural produce should be recognized in
the current year?
· What is the carrying amount of the biological asset at year-end?
What amount of gain on biological asset should be reported in the current year?
2,150,000
3,000,000
2,150,000
3,250,000
2,400,000
Question 29
Selected Answer: c.
This problem has 2 questions: On January 1, 2020, an entity has a herd of
1002-year-old animals.
Ten animals aged 2.5 years were purchased on July 1, 2020 for P11,000 each.
Ten animals were born on July 1, 2020.
No animals were sold or disposed of during the year.
The fair values less cost of disposal per unit were:
2-year-old animal on January 1 10,000
2.5- year-old animal on July 1 11,000
New born animal on July 1 8,000
2-year-old animal on December 31 11,500
2.5-year-old animal on December 31 12,000
Newborn animal on December 31 8,500
3-year-old animal on December 31 15,000
0.5-year-old animal on December 31 10,000
The following are the 2 questions:
· What is the gain from biological asset attributable to price change?
· What is the gain from biological asset attributable to physical change?
What is the gain from biological asset attributable to physical change?
475,000
3 out of 3 points
3 out of 3 points
Answers: a.
b.
c.
d.
e.
350,000
395,000
475,000
250,000
None of the choices
Question 30
Selected Answer: c.
Answers: a.
b.
c.
d.
Which intangible asset should be reported as a separate line item?
Goodwill
Franchise
Trademark
Goodwill
Patent
Question 31
Selected Answer: b.
Answers: a.
b.
c.
d.
This problem has 2 questions: On January 1, 2020, Yen Company obtained a
franchise from Euro Company to sell for 20 years Euro’s products. The initial
franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash,
P1,000,000, when the contract is signed and the balance in four equal
installments thereafter, as evidenced by a non-interest-bearing note. The
agreement provides that the franchisor shall provide the necessary initial services
required under a franchise contract. The agreement also provides that 5% of the
revenue from the franchise must be paid to the franchisor. Revenue from the
franchise for 2020 was P5,000,000. The prevailing interest rate for this type of
note is 12%. PV of P1 for 4 periods at 12% is .6355 and PV of ordinary annuity
for 4 periods at 12% is 3.0373.
The following are the 2 questions:
· How much is the initial cost of the franchise?
· How much is the total amount charged against revenues for the year
2020?
How much is the initial cost of the franchise?
4,796,625
3,796,625
4,796,625
4,177,500
6,000,000
Question 32
This problem has 2 questions: Love Company has determined that one of its
cash generating units (CGU) is impaired. The assets of the cash generating unit
at carrying amount are:
2 out of 2 points
3 out of 3 points
0 out of 3 points
Selected Answer: d.
Answers: a.
b.
c.
d.
Machinery 1,500,000
Building 3,000,000
Equipment 1,875,000
Furniture and fixture 1,125,000
Goodwill 800,000
The recoverable value of the cash generating units is P7,000,000. The fair value
less cost of disposal of the equipment is P1,825,000.
The following are the 2 questions:
· How much is the impairment loss that should be allocated to
Equipment?
· How much is the carrying value of the building after allocation of the
impairment loss?
How much is the carrying value of the building after the allocation of the
impairment loss?
2,800,000
2,760,000
2,770,000
None of the choices
2,800,000
Question 33
Selected Answer: a.
Answers: a.
b.
c.
d.
This problem has 2 questions: On January 1, 2020, Yen Company obtained a
franchise from Euro Company to sell for 20 years Euro’s products. The initial
franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash,
P1,000,000, when the contract is signed and the balance in four equal
installments thereafter, as evidenced by a non-interest-bearing note. The
agreement provides that the franchisor shall provide the necessary initial services
required under a franchise contract. The agreement also provides that 5% of the
revenue from the franchise must be paid to the franchisor. Revenue from the
franchise for 2020 was P5,000,000. The prevailing interest rate for this type of
note is 12%. PV of P1 for 4 periods at 12% is .6355 and PV of ordinary annuity
for 4 periods at 12% is 3.0373.
The following are the 2 questions:
· How much is the initial cost of the franchise?
· How much is the total amount charged against revenues for the year
2020?
How much is the total amount charged against revenues for the year 2020?
945,426
945,426
489,831
458,875
239,831
0 out of 3 points
Question 34
Selected
Answer:
b.
Answers: a.
b.
c.
d.
Which of the following items is true about development cost?
Development cost may be capitalized as an intangible asset in
very restrictive situations
Development cost is recorded as component of other
comprehensive income
Development cost may be capitalized as an intangible asset in
very restrictive situations
Development costs must be expensed
Development costs is always deferred and expensed against
future revenue
Question 35
Selected Answer: 2,480,000
Correct Answer:
Evaluation Method Correct Answer Case Sensitivity
Exact Match 2,480,000
This problem has 2 questions: You were engaged to audit Love Company for
the year 2019. Your client uses the calendar year. In the course of your audit, you
noted that on January 1, 2019, Love Company showed patent of P1,920,000 with
related accumulated amortization of P240,000. The patent was purchased on
January 1, 2017 at which date the legal life is 16 years. On January 1, 2019, the
useful life of the patent was determined to be only 8 years from the date of
acquisition.
On January 1, 2019, in connection with the purchase of a trademark from Bhe
Company, the parties entered into a noncompetition agreement and a consulting
contract. Love Company paid Bhe Company P800,000, of which three-fourths
was for the trademark, and one-fourth was for Bhe Company’s agreement not to
compete for a five-year period in the line of business covered by the trademark.
Love Company considers the life of the trademark to be indefinite. Moreover,
Love Company agreed to pay Bhe Company P50,000 annually on January 1 of
each year for 5 years.
The following are the 2 questions:
· What is the carrying amount of intangible assets on January 1, 2019?
· What is the total amortization of intangible assets for 2019?
Note: Input your answer with comma e. g. 4,500
What is the carrying amount of intangible assets on January 1, 2019?
Question 36
Selected
Answer:
d.
Answers: a.
Which of the following research and development related costs should be
capitalized and depreciated over the current and future periods?
Laboratory building for various alternative future use
2 out of 2 points
3 out of 3 points
2 out of 2 points
b.
c.
d.
Administrative salaries allocated to research and development
Inventory used for specific research project
Research findings purchased to aid a research project currently
in process
Laboratory building for various alternative future use
Question 37
Selected
Answer:
a.
Answers: a.
b.
c.
d.
Intangible assets are reported in the statement of financial position
As a separate line item
As a separate line item
With an accumulated amortization account
All of these are allowed in presenting intangible assets
Under property, plant and equipment
Question 38
Selected Answer: c.
Answers: a.
b.
c.
d.
Uste, Inc. is considering purchasing A & B Enterprises which has the following
assets and liabilities.
Cost Fair Market
Value
Accounts receivable P4,800,000 P4,400,000
Inventory 4,800,000 5,000,000
Prepaid insurance 200,000 200,000
Buildings and equipment (net) 1,400,000 4,000,000
Accounts payable (3,200,000) (3,200,000)
Net Assets P8,000,000 P10,400,000
If the purchase price is P12,600,000, the amount of goodwill to be charged in
recording the acquisition is
2,200,000
0
2,400.000
2,200,000
4,600,000
Question 39
This problem has 4 questions: Antonio Company incurred P100,000 of
research and development costs to develop a product for which a patent was
granted on January 1, 2018. Legal fees and other costs associated with the
registration of the patent totaled P300,000. The patent is being amortized over
its legal life. On July 1, 2020, Antonio Company won and paid legal fees of
P80,000 for the successful defense of the patent against an infringement lawsuit
filed by Tony Company.
2 out of 2 points
4 out of 4 points
0 out of 3 points
Selected Answer: a.
Answers: a.
b.
c.
d.
The following are the 4 questions:
· How much is the amortization expense for the year 2018?
· How much is the carrying value of the patent on December 31, 2020?
· How much is the total expenses for the year 2020?
· How much is the total expenses for the year 2020 assuming Antonio
Company did not win the lawsuit?
How much is the total expenses for the year 2020?
80,000
80,000
95,000
15,000
87,500
Question 40
Selected
Answer:
d.
Answers: a.
b.
c.
d.
Amortization of intangible asset with a finite useful life shall commence when
It is available for the intended use
It is first recognized as an asset
The cost can be measured with reasonable certainty
It is probable that it will generate future economic benefits
It is available for the intended use
2 out of 2 points