PHINMA UNIVERSITY OF PANGASINAN GEN009 INTERMEDIATE ACCOUNTING 1 P2 - QUIZ 2 (ENHANCEMENNT SUBJECT) SET A NAME: _______________________________________ SECTION: _____________________________________ Encircle the letter of your answer. ERASURES are considered wrong. Any form of cheating is PROHIBITED and will be dealt in accordance with the University Student Manual. 1. Under PAS 23, borrowing costs can be capitalized as part of the asset when a. The asset is a qualifying asset b. The asset is a qualifying asset and it is not probable that the borrowing costs will result in future economic benefits to the entity c. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity and the costs can be measured reliably d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity, but the costs cannot be measured reliably 2. Which of the following may not be considered a “qualifying asset”? a. A toll bridge that usually takes more than a year to build b. A ship that normally takes one or two years to accomplish c. An expensive private jet can be purchased from a local vendor d. A power generation plant that normally takes two years to construct 3. When computing capitalizable interest cost, what is the concept of “avoidable interest”? a. A cost of capital charge for equity b. The total interest cost actually incurred c. That portion of average accumulated expenditures on which no interest cost was incurred d. That portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made 4. Interest cost that is capitalized should a. Be written off over the remaining term of the debt b. Not be written off until the related asset is fully depreciated or disposed of c. Be accumulated in a deferred charge account and written off equally over a 40-year period d. None of these 5. Which of the following statements is true regarding capitalization of interest? a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not the building account b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be recorded as interest revenue d. The minimum amount of interest to be capitalized is determined by multiplying a weighted-average interest rate by the amount of average accumulated expenditures on qualifying asset during the period 6. Which of the following statements about the capitalization of borrowing costs as part of the costs of qualifying asset is true? a. Capitalization always continues until the asset is brought into use b. Capitalization always commences as soon as expenditure of the asset is incurred c. Capitalization always commences as soon as interest on relevant borrowings is being incurred d. If funds come from general borrowings, the amount to be capitalized is based on the weighted average cost of borrowing 7. The period of time during which capitalization of interest begins and when capitalization of interest ends is a. From the time funds are borrowed until the asset is substantially complete and ready for its intended use b. From the time the first expenditures are incurred until the asset is substantially complete and ready for its intended use c. From the time the first expenditures are incurred until no further interest cost is being incurred d. From the time the first expenditures are incurred until activities necessary to get the asset for its intended use have begun 8. An entity commences a new construction project which is to be financed by borrowing. The key dates for the current year are as follows: March 15 Loan interest relating to the project starts to be incurred June 15 Technical site planning commences June 30 Expenditures on the project start to be incurred July 15 Construction work commences From what date can the entity commence the capitalization of borrowing costs? a. March 15 b. June 15 c. June 30 d. July 15 9. Capitalization of borrowing costs shall be suspended a. Only during temporary periods of delay b. At no instance at all as capitalization has already commenced c. Only upon agreement by management and the construction company d. Only during extended periods of delay in which active development is delayed 10. A company constructed machinery for its own use. A bank loan specifically financed this property both during and after the construction. How much of the interests incurred should be reported as interest expense? a. All interests incurred b. Interests incurred after completion c. Interests incurred before completion d. Zero 11. Which of the following is not a disclosure requirement under PAS 23? a. Accounting policy adopted for borrowing costs b. Amount of borrowing costs capitalized during the period c. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization d. Segregation of assets that are “qualifying assets” on the balance sheet as a disclosure in the financial statement notes 12. Which of the following statements is true about biological assets? a. Biological assets must be valued at cost b. Biological assets are only found in Biotech entities c. Biological assets do not generally have future economic benefits d. Biological assets are living animals or plants and must be reported as a separate item in the statement of financial position 13. According to PAS 41, Agriculture, which of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial statements? I. The entity controls the asset as a result of past events II. It is probable that economic benefits relating to the asset will flow to the entity III. An active market for the asset exists IV. The asset comes from a homogeneous biological group a. I and II only b. II and III only c. I, II and III only d. I, II and IV only 14. The cost of agricultural produce harvested from biological assets is a. Cost b. Fair value c. Lower of cost or net realizable value d. Fair value less estimated point of sale costs at the point of harvest 15. Which of the following is not dealt with by PAS 41? a. The accounting for biological assets b. The processing of agricultural produce after harvesting c. The initial measurement of agricultural produce harvested from biological assets d. The accounting treatment of government grant received in respect of biological assets 16. Agricultural activity a. Is the harvested product of the entity’s biological asset b. Is the detachment of agricultural produce from a biological asset or the cessation of a biological asset’s life processes c. Is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or into another biological asset d. Relates to the processes of growth, degeneration, production and procreation that can cause changes of quantitative or qualitative nature in a biological asset 17. Agricultural activity results in which of the following types of assets? a. Biological assets only b. Agricultural produce only c. Both biological assets and agricultural produce d. Financial assets, contingent assets and agricultural produce 18. Where there is a long aging or maturation process after harvest, the accounting for such products is dealt with by a. PAS 41, Agriculture b. PAS 2, Inventory c. PAS 16, Property, Plant and Equipment d. PAS 40, Investment Property 19. Which of the following items would be classified as agricultural produce, according to PAS 41, Agriculture? a. Apple b. Butter c. Bush d. Tree 20. Under PAS 41, which of the following would be classified as a product that is the result of processing after harvest? a. Bananas b. Cheese c. Cotton d. Wool 21. Biological assets are measured at a. Cost b. Fair value less costs to sell c. Lower of cost or net realizable value d. Net realizable value 22. Under PAS 41, any gain arising from the initial recognition of biological assets (e.g., when a calf is born) shall a. Be recognized in the profit or loss b. Be recognized in the other comprehensive income c. Not be recognized although note disclosure is required d. Be deferred and amortized over the life of the biological asset 23. Which of the following is unlikely to be used in fair value measurement of biological asset? a. Quoted market price b. External independent valuation c. The most recent market transactions price d. The present value of the expected net cash flows from the asset 24. Land that is related to agricultural activity is valued a. At fair value b. At fair value in combination with the biological asset that is being grown on the land c. At the resale value separate from the biological asset that has been grown on the land d. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment Property 25. Where there is a production cycle of more than one year, PAS 41 encourages separate disclosure of the a. Physical change only b. Price change only c. Physical change and price change d. Total change in value PROBLEM SOLVING (2 POINTS EACH) 1. During 2022, Erick Company constructed a new hydroelectric power plant at a cost of P25, 000,000. The expenditures for this facility, which was finished late in 2022, were incurred evenly during the year. The entity had the following loans among its liabilities outstanding on December 31, 2022: • 12% note to finance construction of the hydro-electric power plant, dated January 1, 2022, P10, 000,000 that was unpaid as of December 31, 2022. Investments were made on the excess borrowings from this loan and income of P50, 000 was realized from deposits and other investments during 2022. • 8%, 20-year bonds payable issued at face value on January 1, 2014, P40, 000,000. • 15%, 5-year mortgage note payable dated March 1, 2019, P10, 000,000. What is the amount of interest that was capitalized as cost of new building? 1,385,000 Answer1.______________________________________________ 2. On March 1, 2022, XYZ Corporation began construction of an office building. The following expenditures were incurred for construction: March 1, P750,000; April 1, P840,000; May 1, P1,800,000; June 1, P3,000,000; July 1, P1,000,000. The building was completed and occupied on July 1. To help pay for construction P600,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a P5,000,000, 10% note issued two years ago. Question: The weighted-average accumulated expenditure is 1,010,000 Answer 2. Question: The avoidable interest cost is 113,000 Answer3.______________________________________________ 3. During 2021, an TXT Company constructed an asset costing P10, 000,000. The weighted average accumulated expenditures on the asset during the year totaled P6,000,000. To help pay for construction, P4, 400,000 was borrowed at 10% on January 1, 2021, and funds not needed for construction were temporarily invested in short-term securities, yielding P90, 000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a P5, 000,000, 10-year, 9% note payable dated January 1, 2018. What is the amount of interest that should be capitalized during 2021? 494,000 Answer4______________________________________________ Problem4. X Construction Company, Inc. is constructing an office building for its own use. The following expenditures relating to the construction of the office building were made during 2002. Total Construction Expenditures Jan 2, 2002 May 1, 2002 November 1, 2002 P500,000 500,000 400,000 Outstanding company debt: Bond issue directly related to the new office building; interest rate, 12%; term, 5 years from beginning of construction General Borrowings: 10%, 10 year bonds issued Jan 1, 2002 P400,000 8%, 8 year bonds issued Jan 1, 2002 900,000 Estimated cost of equity capital 13% Compute for the capitalizable borrowing cost using Traditional Method. 800,000 Answer5. __________________________________________ -NOTHING FOLLOWS- Use the space provided for your solution PHINMA UNIVERSITY OF PANGASINAN ACC106 INTERMEDIATE ACCOUNTING 1 P2- SPECIAL QUIZ 1 NAME: _______________________________________ SECTION: _____________________________________ SET: __________________________________________ MULTIPLE CHOICE QUESTIONS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PROBLEM SOLVING ( 2POINTS) 21 22 23 24 25