Saint Paul School of Business and Law
Palo, 6501, Leyte, Philippines
ACCOUNTANCY DEPARTMENT
Midterm Examination in FINACT2
Name: _______________________________________________
Schedule: ____________________________________________
Score: _____________
INSTRUCTIONS: Read each item very carefully. Encircle your final answer. For items that
needs solution, kindly show your solution at the space provided below and kindly double rule or
encircle your final answer.
THEORIES:
1. Which of the following items is capitalized as part of the cost of PPE?
a. Cost of opening a new facility
b. Cost of relocation or reorganizing an entity’s operations
c. Cost of introducing a new product or conducting a business in a new location
d. Cost directly attributable to bringing the PPE to intended location and condition
2. Which of the following items is not chargeable to the Land account?
a. Cost of survey by engineers
b. Expenditure for fence, water system, sidewalk and pavement
c. Broker’s commission and fees for registration and title transfer
d. Attorney’s fee and any other expenditures for establishing clean title
3. The following charges are generally capitalized to the Land account except
a. Cost of option of land not acquired
b. Payments to tenants to induce them to vacate the premises
c. Buyer-assumed mortgages and encumbrances like property taxes
d. Special assessments for local improvements which benefit the property
4. The land acquired has an unwanted building that should be demolished. Assuming a
salvage value can be recovered from the demolition of the building, the land account
should be charged with the
a. Salvage value
b. Cost of demolition
c. Cost of demolition plus salvage value
d. Cost of demolition minus salvage value
5. The cost of property acquired by installment is equal to
a. Cash purchase price
b. Invoice price
c. Installment price
d. List price
6. If the qualifying asset is financed by SPECIFIC borrowing, the borrowing cost
capitalized is equal to
a. Actual borrowing costs incurred during the construction period
b. Actual borrowing costs incurred during and after the construction period
c. Actual borrowing costs incurred during construction period less any investment
income on the temporary investment of borrowings
d. Actual borrowing costs incurred during and after the construction period less any
investment income on the temporary investment of borrowings
7. Depreciation measurement should be based on
a. Past input exchange price
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b. Current input exchange price
c. Future input exchange price
d. Current output exchange price
8. If there is a change from sum of years’ digits to straight line method
a. The accumulated depreciation is adjusted to its appropriate balance through
retained earnings based on the straight line method
b. The accumulated depreciation is adjusted to its appropriated balance through net
income based on the straight line method
c. The accumulated depreciation balance is not adjusted but the remaining book
value is allocated over the remaining life using the straight line method
d. The accumulated depreciation balance is not adjusted but the remaining book
value is allocated over the original life using the straight line method
9. A depreciation method used where the usage of the asset varies considerably from
period to period and the service life is more a function of use rather than passage of
time.
a. Straight-line method
b. Units of production method
c. Sum of year’s digits method
d. Declining balance method
10. A method that excludes residual value from the base for the depreciation calculation
is
a. Straight line
b. Service hours
c. Productive output
d. Declining balance
PROBLEMS:

On September 1, 2010, Arius Luke Angelo Corporation purchased a new machine on a
deferred payment basis. A down payment of P20,000 was made and 4 annual
installment of P60,000 each are to be made beginning September 1, 2010. The cash
equivalent price of the machine was P230,000. Due to an employee strike, Toneth
could not install the machine immediately, and thus incurred P3,000 of storage cost.
Cost of installation (excluding the storage cost) amounted to P8,000. The amount to
be capitalized as the cost of the machine?

On October 1, 2010, Baboy Corporation issued 10,000 shares of the P50 par treasury
ordinary shares for a parcel of land to be held for future plant site. The treasury
shares were acquired by Erna at a cost of P60 per share. Erna’s ordinary share has a
fair market value of P70 on October 1, 2010 but the parcel of land has no
determinable fair value. Erna received P50,000 from the sale of scrap when an
existing structure on the site was razed. At what amount should the land be initially
carried?

In June 2009, Bulingling Company acquired a machine in exchange for a nonmonetary asset with a cost of P1,200,000 and an accumulated depreciation of
P600,000 and paid a cash difference of P160,000. The market value of the nonmonetary asset was determined to be P650,000.
Question 1: If the exchange has commercial substance, what is the cost of the new
asset acquired and the amount of gain to be recognized, respectively?
Question 2: If the exchange lacks the necessary commercial substance, what would
be the cost of the new asset acquired and the amount of gain to be recognized,
respectively?

On February 1, 2010, Mahinay Company borrowed P1,000,000 which bears 12%
specifically to finance the construction of its qualifying asset. Construction of the
building started on September 1, 2010 and continues without interruption until the
year end of December 31, 2010. During the period of construction the entity incurs
directly attributable costs of P100,000 in September and P250,000 in each month
from October to December (for simplicity it is assumed that these costs are incurred
on the first day of the month). Each month the borrowings, less any amount that is to
be expended for the building works in that month are re-invested and earn interest at
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a rate of 5% per annum. During the year ended December 31, 2010, the entity incurs
interest on the P1,000,000 loan totaling P110,000 and earns interest on the reinvested portion of the loan of P37,917. What amount of borrowing costs should
Mahinay capitalize?

On April 1, 2005, Indians Corporation bought a factory equipment for P942,000,
salvage value was estimated at P24,000. The asset will be depreciated over 10 years
using the double declining balance method. How much is the total accumulated
depreciation to be reported in the balance sheet on December 31, 2009?

Williamson Corporation purchased a depreciable asset for P300,000 on January 1,
2008. The estimated salvage value is P30,000, and the estimated useful life is 9
years. The straight-line method is used for depreciation. In 2011, Williamson changed
its estimates to a total useful life of 5 years with a salvage value of P50,000. What is
2011 depreciation expense?
There comes a time when you must stand alone.
You must feel confident enough within yourself to follow your own dreams.
You must be willing to make sacrifices.
You must be capable of changing and rearranging your priorities so that your final goal can
be achieved.
Sometimes, familiarity and comfort need to be challenged.
There are times when you must take a few extra chances and create your own realities.
Be strong enough to at least try to make your life better.
Be confident enough that you won't settle for a compromise just to get by.
Appreciate yourself by allowing yourself the opportunities to grow, develop, and find your
true sense of purpose in this life.
Don't stand in someone else's shadow when it's your sunlight that should lead the way.
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