VALUATION CONCEPTS AND METHODS
Midterm Quiz 02 – Property, Plant and Equipment
I.MUTIPLE CHOICE (15 points)
1) Which of the following is not a major characteristic of an item of property, plant and equipment?
A. Acquired for resale C. Long-term in nature
B. Acquired for use
D. Possesses physical substance
2) Fence and parking lot are reported in the statement of financial position as
A. Current assets
C. Land improvements
B. Land D. Property, plant and equipment D. Possesses physical substance
3) A non-recoverable purchase tax on the purchase of machinery should be charged to
A. A separate deferred charge account
C. Miscellaneous tax expense
B. Accumulated depreciation
D. The machinery account
4) Which of the following costs should be capitalized for self-constructed assets?
A. Materials and labor
C. Materials, labor and overhead
B. Materials and overhead
D. Labor and overhead
5) The cost of a non-monetary asset acquired in exchange for another non-monetary asset with
commercial substance is usually recorded at
A. Either the fair value of the asset given, or the asset received
B. The fair value of the asset given, and a gain or loss is recognized
C. The fair value of the asset given and a gain but not a loss may be recognized
D.The fair value of the asset received if it is equally reliable as the fair value of the asset
given
6) Accounting recognition should be given to the gain realized on a non-monetary exchange of plant
asset, except when the exchange has
A. Commercial substance and additional cash is paid
B. No commercial substance and additional cash is paid
C. Commercial substance and additional cash is received
D. All of these cause recognition of a gain
7) When accounting for property, plant and equipment, an entity
A. Must use the cost model for land
B. Must use the cost model for presenting the assets
C. May elect to use the cost model or the revaluation model on any asset class
D. May elect to use the cost model or the revaluation model on any individual asset
8) When the revaluation model is used for reporting property, plant and equipment, the gain or loss
should be included in
A. Income for the period
B. Gain from revaluation in the income statement
C. An extraordinary gain or loss in the income statement
D. A revaluation surplus account in other comprehensive income
9) Under the revaluation model for accounting for property, plant and equipment
A. Asset must be revalued quarterly
B. Asset must be revalued annually
C. Asset must be revalued bi-annually
D. There is no rule regarding the frequency of revaluation
10) When an entity chooses the revaluation model as the accounting policy for measuring property, plant
and equipment, which of the following statements is correct?
A. Revaluation of property, plant and equipment must be made at least every three years.
B. When an asset is revalued, the entire class of property, plant and equipment to which
that asset belongs must be
revalued
C. Increase in an asset’s carrying amount as a result of the first revaluation must be recognized
as a component of
profit or loss
D. When an asset is revalued, individual asset within a class of property, plant and equipment to
which that asset
belongs can be revalued
11) Which of the following most accurately reflects the concept of depreciation?
A. The process of charging the decline in value of an economic resource to income in the period
in which the benefit
occurred
B. A method of allocating asset cost to an expense account in a manner which closely matches
the physical
deterioration of the asset
C. The process of allocating the cost of tangible asset to expense in a systematic and
rational manner to those periods
expected to benefit from the use of the asset
D. An accounting concept that allocates the portion of an asset used up during the year to the
contra asset account
for the purpose of properly recording the fair value of the asset
12) The term “depreciable value” or “depreciation base” refers to
A. The acquisition cost of the asset
B. The estimated fair value of the asset at the end of the useful life
C. The cost of the asset less the related depreciation recorded to date
D. The total amount to be charged to expense over an asset’s useful life
13) Which of the following disclosures is not required for property, plant and equipment?
A. The depreciation method used
B. The existence and amount of restriction on title
C. A narrative discussion of future capital expenditure plans
D. The measurement basis used for determining the gross carrying amount
14) Which of the following statements is correct?
A. A gain on disposal of a noncurrent asset is classified as revenue
B. Assets are depreciated even if the fair value exceeds carrying amount
C. Land and building are not accounted for separately when acquired together
D. A noncurrent asset acquired as the result of an exchange of assets is not recognized
15) Which of the following is not a capital expenditure?
A. An addition
C. A replacement
B. A betterment
D. Repair and maintains an asset in operating condition
TEST II - PROBLEM SOLVING (25 points)
1)On January 1, 2020, Harbor Company purchased land and building at a single cost of P20,000,000. On
this date, it was determined that the land and building had a fair value of P18,000,000 and P7,000,000
respectively. The entity also incurred legal fees for purchase contract and recording ownership P200,000,
and title guarantee insurance P100,000. The entity immediately demolished the building to make way for
construction of a new building to be used as owner-occupied. The total contract price and other directly
attributable cost to the building amounted to P15,000,000. The entity incurred demolition cost of
P350,000. What is the initial cost of the land? #32
2)Isabel Company purchased for P4,500,000 a tract of land as a factory site. An existing building on the
property was razed and construction was begun on a new factory building. The entity incurred the
following costs:
Cost of razing old building, net of proceeds from salvaged materials 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
What is the cost of building in accordance with PIC Interpretations?
3) Rouse Company installed a production assembly line to manufacture tennis balls. In the current year,
the entity acquired a machine and rearranged the assembly line to install the machine. The
rearrangement resulted in efficiency in production. The following expenditures were incurred:
Purchase price of the machine (VAT inclusive 12%) 1,008,000
Labor cost to install machine 250,000
Parts added in rearranging the assembly line 400,000
Cost of testing the machine 150,000
Proceeds from sale of samples produced from testing 50,000
Cost of training worker who will operate the machine 100,000
What is the initial cost of the machine? #28
4) During 2020, Leah Company constructed asset costing P5,000,000. The weighted average
expenditures totaled P3,000,000. To help for construction an amount of P2,200,000 was borrowed at
10% on January 1, 2020, and funds not needed from construction were temporarily invested in short-term
securities yielding P50,000 in interest revenue. Other than the construction funds borrowed, the only
other debt outstanding during the year was a P2,500,000 10-year, 12% note payable dated January 1,
2017. What amount of interest should be capitalized during 2020?
5) During the year, King Company made the following expenditures relating to plant building:
Continuing and frequent repairs 40,000
Repainted the plant building 10,000
Major improvements to the electrical wiring system 32,000
Partial replacement of roof tiles 14,000
How much should be charged to repair and maintenance expense?