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Intermediate Accounting 1 Quiz on Property, Plant, and
Equipment
Intermediate Accounting 1 (Ateneo de Manila University)
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Intermediate Accounting 1
Quiz: Property, Plant, and Equipment
1. What is the measurement basis of an asset that is acquired in a non-monetary
exchange?
With commercial substance
With no commercial substance
a. Carrying amount of assets given up
Carrying amount of asset given up
b. Carrying amount of assets given up
Fair value of asset given up
c. Fair value of asset given up
Carrying amount of asset given up
d. Fair value of asset given up
Fair value of asset given up
2. In order for a cost to be capitalized (capital expenditure), the following must be
present:
a. The useful life of an asset must be increased
b. The quantity of assets must be increased
c. The quality of assets must be increased
d. Any one of these
3. Which of the following cost are capitalized for self-constructed assets?
a. Materials, labor, and overhead
b. Materials and labor only
c. Labor and overhead only
d. Materials and overhead only
4. Historical cost is the basis advocated for recording the acquisition property, plant,
and equipment for all of the following reasons except
a. At the date of acquisition, cost reflects fair market value
b. Property, plant, and equipment items are always acquired at their original
historical cost
c. Historical cost involves actual transactions and, as such, is the most reliable
basis
d. Gains and losses should not be anticipated but should be recognized when
the asset is sold
5. What valuation model should an entity use to value property, plant, and
equipment?
a. The revaluation model or the fair value model
b. The cost model or the revaluation model
c. The cost model or the fair value through profit or loss model
d. The cost model or the fair value model
6. Which statement is incorrect regarding initial measurement of PPE?
a. PPE should be initially recorded at cost, which includes all costs necessary
to bring the asset to working condition for its intended use
b. If payment for an item of property, plant, and equipment is deferred, interest
at a market rate must be recognized or imputed
c. If an asset is acquired in exchange for another asset, the cost will be
measured at the fair value
d. If an asset acquired in exchange for another asset is not measured at fair
value, its cost is measured at the carrying amount of the asset received
7. Fences and parking lots are reported on the balance sheet as
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a. Current assets
b. Land improvements
c. Land
d. Property and equipment
8. Plant assets may properly include:
a. Deposits on machinery not yet received
b. Idle equipment awaiting sale
c. Land held for possible use as a future plant site
d. None of these
9. When a plant asset is acquired by issuance of common stock, the cost of the plant
asset is properly measured by the
a. Par value of the stock
b. Stated value of the stock
c. Book value of the stock
d. Fair value of the stock
10. Which of the following is not part of the cost of property, plant, and equipment?
a. Purchase price of the asset, excluding taxes that are recoverable
b. Directly attributable costs of bringing the asset to working condition for its
intended use
c. Administration and other general overhead costs
d. All of the above are part of the cost of a PPE
11. During the year, Brown Company made the following expenditure relating to plant
building:
Continuing and frequent repairs
P40,000
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?
Answer: P64,000
For items 12 to 15
Angel Co. commenced operations on July 1, 2021. During the following year, the
company acquired a tract of land, demolished the building on the land and built a
new factory. Equipment was acquired for the factory and, in March 2022, the plant
was ready to commence operation. During this period, the following inflows and
outflows occurred:
While searching for a suitable block of land, Angel Company placed an option
to buy with three real estate agents at a cost of P1,000 each.
One of these blocks of land was later acquired.
Payment of option fees
Receipt of loan from bank
Payment to settlement agent for title search, stamp duties, and
settlement fees
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P3,000
4,000,000
100,000
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Payment of arrears in rates on building and land
Payment for land
Payment for demolition of current building on land
Proceeds from sale of material from old building
Payment to architect
Payment to council for approval of building construction
Payment for safety fence around construction site
Payment to construction contractor for factory building
Payment for external driveways, parking bays and safety lighting
Payment for safety inspection on building
Payment for equipment
Payment of freight and insurance costs on delivery of equipment
Payment of installation costs on equipment
Payment for safety equipment surrounding equipment
Payment for removal of safety fence
Payment for new fence surrounding the factory
Payment for advertisements in the local paper about the
forthcoming factory and its benefits to the local community
Payment for opening ceremony
Payments to adjust equipment to more efficient operating levels
subsequent to initial operation
50,000
1,000,000
120,000
55,000
230,000
120,000
34,000
2,400,000
540,000
30,000
640,000
56,000
120,000
110,000
20,000
80,000
5,000
60,000
33,000
Compute the cost of the following:
12. Land
Answer: P1,151,000
13. Land improvements
Answer: P620,000
14. Building
Answer: P2,899,000
15. Equipment
Answer: P959,000
16. Calli owns equipment that cost P93,500 with accumulated depreciation of P64,000.
Calli asks P35,000 for the equipment but sells the equipment for P33,000.
Compute the amount of GAIN or LOSS on the sale.
Answer: P3,500 GAIN
17. Holi Inc. purchased a machine under a deferred payment contract on December
31, 2021. Under the terms of the contract, Holi is required to make eight annual
payments of P140,000 each beginning December 31, 2022. The appropriate
interest rate is 8%. The purchase price of the machine is? (PV of ordinary annuity
at 8% for 8 periods is 5.74664)
Answer: P804,529.60
For items 18 to 20
The following expenditures were incurred by Brendon Enterprises Co. in 2021:
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Purchase of land
Land survey
Fees for search of title for land
Building permit
Temporary quarters for construction crews
Payment to tenants of old building for vacating premises
Razing old building
Excavating basement
Special assessment tax for street project
Dividends
Damaged awarded for injuries sustained in construction (no
insurance was carried)
Costs of construction
Cost of paving parking lot adjoining building
Cost of shrubs, trees and other landscaping
P3,900,000
52,000
6,000
35,000
107,500
46,000
470,000
100,000
20,000
50,000
84,000
29,000,000
400,000
330,000
Determine the cost of each of the following:
18. Land
Answer: P3,978,000
19. Land improvements
Answer: P730,000
20. Building
Answer: P29,758,500
21. Diana Company installed a production assembly line to manufacture tennis balls.
Un 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%)
P1,008,000
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?
Answer: P1,250,000
22. Jade Company bought a new display case for P42,000 and was given a trade-in
of P2,000 on an old display case, so the company paid P40,000 cash with the
trade-in. The old case had an original cost of P37,000 and accumulated
depreciation of P34,000. If the transaction has commercial substance, the
company should record the new display case at?
Answer: P42,000
For items 23 to 24
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Devin Co. purchased land as a factory site for P900,000. Devin paid P80,000 to
tear down two buildings on the land. Salvage was sold for P5,400. Legal fees of
P3,480 were paid for title investigation and making the purchase. Architect’s fees
were P31,200. Title insurance cost P2,400, and liability insurance during
construction cost P2,600. Excavation cost P10,440. The contractor was paid
P2,500,000. An assessment made by the city for pavement was P6,400. Interest
costs during construction were P175,000.
23. The cost of the land that should be recorded by Devin Co. is?
Answer: P912,280
24. The cost of the building that should be recorded by Devin Co. is?
Answer: P2,793,840
25. In,2021, Dani Corp. purchased a secondhand machine at a price of P300,000. A
cash down payment of P50,000 was made and a two-year, noninterest bearing
note was issued for the balance. Recent transactions involving similar machinery
indicate that the used machine has a secondhand market value of P240,000. A
new machine would cost P400,000
The following costs were incurred on the machine during the year:
Cost of removing the old machine
Cash proceeds from the sale of the old machine
General overhaul and repair to recondition the machine prior to use
Cost of spare parts purchased and set aside for breakdowns during
the first two years of normal use of the machine
Cost of labor to install the machine
Cost of the testing the machine prior to use
Cost of hauling the machine from the vendor’s place of business to
the company’s premises
Cost of repairing the damage to the machine when it was dropped
during installation
Repairs incurred during the first year of operations
Safety devices added to the machine to comply with the terms of
the collective bargaining agreement entered into with the
employees’ union
Cost of training workers to operate the machine
Determine the amount to be capitalized as cost of the machine.
Answer: P272,800
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P2,000
1,200
10,000
20,000
4,000
1,800
5,000
3,000
6,000
12,000
1,500