CPA REVIEW SCH0OL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIKVALK/ESCALA/SANTOs/DELA CRUZ

DEPRECIATION AND DEPLETION

1 An entity provided the following schedule of machinery:

nwoy
Total cost Residual value DA Useful life Dep
pw ovr Machine A 5,500,000D 500,000 SM 20
Machine B 2,000,000 200,000 1-Bm 15 0f
Machine
PCousthe
C 400,000 5
7.q 700 7. 4SO
What is the composite life of these assets?
a. 13.3 DA
PR b. 16.0 C o ototl Cast CCL 7.2
C. 18.0
Auwdal 4So
OFCowys
d. 19.8
CP S.7
7,0
2 . On January 1, 2021, an entity purchased machinery for P4,500,000. The machinery has an estimated
useful life of four years with residual value of P500,000. Depreciation is computed by thesum ofthe
years' digits method.What amount should be reported as accumulated depreciation on December 31,
2022? HOMTaUT: t)
DA
a. 1,600,000 4 3/6 M
b. 2,800,000
C. 1,200,000 b Sosad on rmi F)
d. 3,150,000

D 3. Anentity purchased equipment on January 1, 2021 for P5,000,000. The equipment had a useful life
of S years and residual value of P600,000. The policy is to depreciate 5-year assets using the 200%
double declining method for the first 2 years and then switch to straight line. What amount should
be reported as accumulated depreciation on December 31, 2023?

Sa Ded a. 3,000,000 fa SLM Cumidur

b. 3,800,000 100000 -ooe Mowo VN
gorg C. 3,920,000 ADER, 0 3.
d. 3,600,000

D 4. An entity takes a full year depreciation in the year of acquisition and no depreciation in the year of
disposition. Data relating to a depreciable asset on December 31, 2020 are cost P5,50,000,
residual value P1,000,000, accumulated depreciation P3,600,000 and useful life 5 years. The asset
was acquired on July 1, 2018. Using the same depreciation method in 2018, 2019and 2020, what
amount of depreciation should be recorded in 2021? p
a. 1,100.000 T mor MoghmaAad Slr
b. 1,200,000 . p t -v 3.GM . 3
900,000
d. 600,000

5 . On January 1, 2021, an entity acquired an equipment with an estimated useful life of 10 years and
estimated residual value of P50,000. The depreciation applicable to this equipment was P240,000
for 2023 computed under the, sum of
years' digits method. What was the acquisition cost of
equipment?
a. 1,650,000 .

b. 1,700,000
c. 2,400,000
d. 2,450,000 So
6826
 Page 2
Sackyikihon cos
6 . On January 1, 2021, an entity purchased a mineral mine for P26.400.000 with removable ore
estimated at 1.200.000 tons, After it has extracted all the ore, the entity will be required by law to
restore the land to the original condition at an estimated cost of P2,100.000.
AThe present valug of the éstimated restoration cost is P1.800,000. The property can besold
afterwards for P3,000.000.
idudl Vawe
During 2021, the entity incurred P2.000.000 exploration_cost and P1.600,000 development cost
preparing the mine for production. The entity removed 100,000 tons of ore and sold 90,000 tons of
ore in current year.

What amount of depletion should be included in cost of goods sold for the current year?
a. 2,400,000
b. 2,160,000
c. 2,182,500
d. 2,385,000
JCA CO
7. In 2021, an entity purchased property with mineral resources,for P28.000,000. The property had a
residual value of P4.000.000.During 2021, an amount of P3.000.000 was spent for roadsand other
improvements to aid in the extraction of the resourccs Tunnels, bank houses and ofher fixed
installations were also constructed at a cost of P8.00000 The entity spent PLO00,000 in
development cost and P4.000.000 in xploration cost.
A
Production began in 2022 and the tons extracted totaled 3.000,000 in 2022 and 2,500,000 in 2023.
The remaining tons totaled 7.000.000 on December 31, 2022 and 5,500,000 on December 31,
2023.

1 . What amount of depletionshould be recognized in 2022?

a. 12,000,000
b. 10,800,000
C. 9,600,000
d. 8,700,000
2 . What amount of depletion should be reported for 2023?
a. 7,000,000
b. 6,350,000
c. 8,750,000
d. 7,875,000

8. On July 1 2021, an entity purchased the rights to a mine for P20,000,000, of which P2,000,000
Awas allocable tothe land. Estimated reserves were 1,500,000 tons. The entity expected toextract
and sell 20,000 tons per month.
The entity purchased mining equipment on July 1, 2021 for P8,000,000. The mining equipment had
a useful life 8 years. However, after all the resource is removed, the equipment will be of no use
and will be sold for P500,000. JNP

1. What amount should be reportedas depletion for 2021?

a. 2,880,000
b. 1,440,000
c. 2,250,000
d. 1,125,000 ,

C What amount should bereported as depreciation for 2021?

a. 1,500,000
b. 1,200,000
C. 600,000
d 468,750
END 6826
 PHILIPPINES
CPA REVIEW SCHOOL OF THE
Manila
VALIXVALIK/ESCALA/SANTOS/DELA CRUZ
FINANCIAL ACCOUNTING AND REPORTING

REVALUATION AND IMPAIRMENT

The building had a

a building on January 1, 2018 at a cost of P20,000,000.
life acquired
1. An entity
useful of 6 years and residual value of P2.000.000. The building was revalued on January 1,
2021 and the revaluation revealed replacement cost of P30,000,000, residual value of P4,000,000
and revised useful life of 8 vears from the date of acauisition.

1. What is the pretax revaluation surplus on January 1,2021?

a. 6,000,000
b. 8,000,000
c. 7,000,000
d. 5,000,000

2. What is the pretax revaluation surplus on December 31, 2021?

a. 6,000,000
b. 4,800,000
C. 2,800,000
d. 5,250,000

A3. What amount should be reported as depreciation for 2021?

a. 2,600,000
b. 3,400,000
c. 3,000,000
d. 1,400,000

2. On January 1, 2021, an entity showed land with carrying amount of P10,000,000 and building with
cost of P60,000,000 and accumulated depreciation of P18,000,000.
The land and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000.

The original usefullifeofthe building is 20 years and depreciation is computed on the straight line.
The income tax rate is30%)

1. What is the revaluation surplus on January 1, 20212

a. 33,000,000
b. 23,100,000
c. 28,000,000
d. 19,600,000

) 2 . What is the revaluation surplus on December 31, 2021?

a. 33,000,000
b. 21,100,000
c. 21,450,000
d. 21,700,000

A 3. What amount should be reported as depreciation for 2021?

a. 5,000,000
b. 3,500,000
c. 4,500,000
d. 3,000,000

6827
 Page 2
A3. At year-end, an entity had an equipment with cost of P9,000,000 and accumulated depreciation of
P3,000,000. Due to obsolescence and physical damage, the equipment was found to be impaired.
O ame date, the entity detemined that the equipment had a fair valueless ecost of disposal of
P4,500,000, discounted net cash_inflows of P4,000,000 and undiscounted net cash inflows of
P5,000,000. What amount should be reported as impairment loss for the current year?
a. 1,500,000
b. 2,000,000
c. 1,000,000
d. 0

4 On January 1, 2021, an entity owned a machine having a carrying amount of P2,400,000. The
machine was purchased four years earlier for P4,000,000. The straight line depreciation is used.
During December 2021, the entity determined that the machine suffered permanent impairment and
will not be economically useful after December 31, 2021. The entity sold the machine for P650,000
on January 5, 2022. What amount should be reported as impairment loss for 2021?
a. 2,000,000
b. 1,750,000
C. 1,350,000
d. 0

B5. An entity had purchased equipment for P5,600,000 on January 1, 2018. The equipment had an
8-year life and residual value of P800,000. The entity depreciated the equipment using the straight
line method. On December 31, 2021, the entity questioned the recoverability of the carrying
amount of this equipment. On same date, the discounted expected netfuture cashinflows relatedto
the continued use and eventual equipment amounted to P3,500,000. The fair value of the
equipment was P3,000,000. After any loss on impairment has been recognized, what is the carrying
amount of the equipment?
a. 3,500,000
b. 3,200,000
c. 3,000,000
d. 2,400,000

6. On January 1, 2021, an entity purchased equipment with cost of P10,000,000, useful life of 10
entity used straight line depreciation. On December 31, 2021 and
years and no residual value. The
December 31, 2022, the entity determined that impairment indicators are present. There is no
change in useful life or residual value.
December 31, 2021 December 31, 2022
Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,550,000J 8,200,000

1. What is the impairment loss for 2021?

a. 900,000
b. 450,000
C. 600,000
d.

gain on reversal of impairment for

2022?
What is the
a. 400,000
b. 700,000
C. 600,000
d.

END
6827
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/SYVALIX/ESCALA/SANTOS/DELA CRUZ

PAS 16-PROPERTY, PLANT AND EQUIPMENT
1 . Which is mot a characteristic of property, plant and equipment?.
a. Tangible asset
b. Used in production, for rental or for administrative purposes
c. Expected to be used over a period ofmore than one year
d. Subject to depreciation aul av So to olap BxAnd

2 . The cost of an item of property, plant and equipment comprises all of the following, except
a. Purchase price
b. Nonrefundable purchase taxes
c. Cost directly attributable in bringing the asset to the location and condition for the intended use
d. Initial estimate of the cost of dismantling and restoration for which the entity has(no present
obligation.
A3. Directly atributable costs in bringing asset to the location and condition for the intended use include
all of the following, except
a. Cost of relocating or reorganizing part or all of an entity's operations.
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation, assembly and testing cost, including professional fee

4 . Which ofthe following costs should be expensed immediately?

a. Cost of opening a new facility
b. Cost of introducing a new product, including advertising and promotion
c. Cost of conducting business in a new location, including cost of staff training
d. All of these are expensed immediately.

5 . The cost of property, plant and equipment acquired in an exchange with commercial substance is
measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Carrying amount of asset given plus cash payment
d. Carrying amount of asset received plus cash payment

6 . Which ofthe following nonmonetary exchange transactions has commereial substance?

a. Exchange of assets with no difference in future cash flows.
b. Exchange of assets by entities in the same line ofbusiness
C. Exchange of assets with diference in future cash flows
d. Exchange of an equivalent interest in similar productive assets that causes the entities involved to
remain in essentially the same economic position.

b7. The configuration of cash flows of the assets exchanged includes which of the following?
a. The implicit interest rate, maturity of loan and amount of loan
b. The risk, timing and amount of cash flows of the assets
c. The entity-specific value of the asset which is equal to fair value
d. The estimated present value of the assets exchanged

8. When a plant asset is acquired by deferred payment, which condition generally

need for imputation of interest?
does not indicate the

wralck
a. The stated interest rate is significantly different from market interest rate.
b. The cash price of the asset is significantly different from the deferred obligation.
c. The note payable is noninterest bearing.
d. The face amount of the deferred obligationisequal to the fair value of the asset acquired.

6828
 Page 2
9 . If the present value of the note issued in exchange for an asset is less than the face amount, the
differenceis
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the life of the note

10. When a plant asset is acquired by issuance of ordinary shares, the cost is properly measured at
a. Par value of the shares
b. Stated value of the shares (+ o
c. Fair value of plant asset
Dar)
d. Fair value of the shares

11. Which statement best describes depreciation?

a. The systematic allocation of the cost of an asset less residual value over the useful life
b. The removal of the asset from the statement of financial position
c. The amount by which the recoverable amount exceeds carrying amount of an asset
d. The reduction in the value of an asset
b e s X ncud
)12. Economic factors that shorten the useful lifeof an asset include
a. Wear and tear
b. Deterioration or decay through passage of time
C. Damage or destruction due to earthquake
d. Obsolescence

D 13. All of the following factors areconsidered in determining the useful life of an asset, except
a. Expected usage of
asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value

14. What is the theoreticalbasis of straight line depreciation?

a. The operating efficiency of the asset decreasesin later years
b. Service value declines as a function of time rather than use
c. Service value declines as a function of obsolescence rather than time
d. Physical wear and tear are more important than economic obsolescence

B15. A principal objection tothe straight-line method of depreciation is that it

a. Provides for the declining productivity of an aging asset.
b. Ignores variations in the rate of asset use.
c. Tends to result in a constant rate of return on a diminishing investment base.
d. Gives smaller periodie writeoff than decreasing charge methods.

A16. In which of the following is the output or activity method of depreciation most appropriate?
a. An asset's service potential declines with use.
b. An asset's service potential declines with the passage oftime. /Su
c. An asset is subject to rapid obsolescence.
d. An asset incurs increasing repairs with use.

A17. What is the best theoretical support for accelerated depreciation? Adrutoahidn rn aoidur and
a. Assets are more efficient in early years and initially generate more revenue.
b. Expenses should be allocated in a manner that "smooths" earnings.
c. Repairs will probably increase in later periods so depreciation should decrease.
d. Accelerated depreciation provides easier replacement.

18. Which ofthe following subsequent outlays should be expensed immediately?

Expenditure made to increasethe etñiciencyeffectiveness.ofanexisting asset saitline
b. Expenditure made to extend the useful life of an existing asset Scatialiva
c. Expenditure made to maintain an existing asset in operating condition EP/oriimg raniy
d. Expenditure made to addnewasset cuitalie
6828
 Page 3

19. An expenditure madein connection with a machine being used should be

a. pensedimimediately if it merely extends the useful life but does not improve the quality.
b. (Expenseahimmedately if it merely improves the quality but does not extend the useful life.
c. Capitalizey ifit maihtains the machine in normal operating condition.
d. Capitalized if it increases the quantity of output produced by the machine.

20. What valuation model should beusedto measure 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

A21. Which statement is true when an entity chooses the revaluation model?
a. When an asset is revalued, the entire class of property, plant and equipment to which that asset
belongs must be revalued.
b. Individual asset within a class of property, plant and equipment can be revalued,Asnaltlha opitud pa unkra clags
C. Revaluation ofproperty, plant and equipment must be made at least every three years. / wfroti aet rupei
d. Increase in an asset's carrying amount as a result of the first revaluation must be recognized as a
component of profitor loss. JOcA dn

22. When an accounting for property, plant and equipment, an entity

a. Must use the cost model for presenting the asset
b. May elect to use the cost model or the revaluation model on any individual asset.
c. May elect to use the cost model or the revaluation model on any asset class
d. Must use the cost model for land

23. Under the revaluation model in accounting for property, plant and equipment
a. Assets must be revalued quarterly.
b. Assets must be revalued annually.
C. Assets must be revalued at the discretion of management
d. There are no specific rules regarding
the frequency
of revaluation
PAS 20 GOVERNMENT GRANT

C 24. Government grant shall be recognized when there is reasonable assurance that
The entity will with the
a.
comply conditions of the grant
b. The grant will be received.
c. The entity will
comply with the conditions of the grant and the grant will be received.
d. The grant must have been received.

25. Grant in recognition of specific costs is recognized as income

a. Over the same period as the relevant
b. Immediately
expense on a systematic and rational basis.
C. Over 5 years using straight line
d. Over 5 years using sum of
digits
26. Grant related to depreciable asset is usually recognized as incomne
a. Immediately
b. Over the useful life of the asset
c. Over the useful life of
using straight line
the asset using sum of year's
d. Over the useful life of the asset and in digits
proportion to the depreciation of the asset.
27. A grant that becomes receivable as compensation for losses
giving immediate financial already incurred or for the purpose of
support should be recognized as income
a. When received
b. Of the
period
in which it becomes receivable
C. Over 5 years using
d. Over 10
straight line
years using straight line

6828
 Page 4
28. Which disclosure is not required in relation to government grant?
a. The accounting policy adopted for government grant. ore0thin dolos P
b. Unfulfilled conditions and other contingencies attaching to government àsistance. m bun
C. The name of the government agency that gave the grant LogAvd
d. The nature and extent of government grant recognized and government assistance.
fvem Woh n a
PAS 23 BORROWING COSTS s dirtukg bveit
C29. Which st¡tement is true about capitalization of borrowing. cost?
a.
b.
(Allborrowing costs are capitalized.
(Al bortowing eosts are expensed immediately.
C. Borrowing costs directly attributable to a qualifying asset are capitalized
d. Borrowing costs not directly attributable to qualifying asset may be capitalized or expensed. E¥p

30. Which can be treated as qualifying asset for purposes ofcapitalizing borrowing cost?
a Investment property A
b. Investment in financial instru nt
c. Inventory manufactured or produced in large quantity or a repetitivebasis
d. Biological asset MLASUNA N

3T. Assets that qualify for interest capitalization include

a. Assets under construction for an entity's own use.
b. Assets that are ready for the intendeduse.
C. Assets that are not currently beingused because of excess capacity.
d. All ofthese assets qualify for interest capitalization.

3 2 . Which of the following is(notha condition that must be satisfied before interest capitalization can
begin on a qualifying asset?
a Interest cost is being incurred.
b. Expenditures for the assets have been made.
C, The interest rate is equal to or greater than the cost of capital
d. Activities that are necessary to get the asset ready for the intended use are in progress.

D33. Capitalization of borrowing costs

a. Shallbe suspended during temporary period of delay.
b. May bësúspended only during extended period of delay in which active development is delayed.
C. Should never be
suspended once capitalization commences
d. Shall be suspended only during extended period of delay in which active development is delayed.

34. The period of time during which interest must be capitalized ends when
a. The asset is
substantiallycomplete and the
ready for intended use.
b. No further interest is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset ready for the intended use have begun.

35. Which isnot a required disclosure regarding interest cost?

Total interest cost incurred for the period
b. Total capitalized interest cost for the period
The capitalization rate used to determine the capitalizable interest cost
d. Segregation of qualifying asset from other assets

PAS 36-IMPAIRMENT OF ASSETS

36. If the fair value less cost of disposal cannot be determined

a. The asset is not impaired.
b. The recoverable amount is the value in use.
c. The net realizable value is used.
d. The carrying amount of the asset remains the same.

6828
 Page 5
37.1f the asset is to be disposed of
a. The recoverable amount is the fair value less cost of disposal.
DThe recoverable amount is the value in use.
C The asset is not impaired
d. The recoverable
amount is the carrying amount.

) 38. The estimates in calculating value in use include all of the following, except
a. Cash inflows from continuing use of the asset.
.Cash outflows incured to generate the cash inflows from continuing use ofthe asset.
cah flow
C. Net cash flows from the
disposal of the asset at end of useful life.
d. Income tax okteck wrnt waria
payments ddscovt mtl kt uovld b PMEfAY PATE M
39. Which is not relevant in determining value in use?
a. Expected future cash flows from the asset
b. Carrying amount of asset
c.d. Possiblevariation in the amount and timing of future cash flows
Time value of money

C40. The required disclosures for the impairment of assets include all of the following, except
a. The business segment affected
b. The amount of the impairment loss and how fair value was determined
C. The recommendation of the auditor, signed and dated as of the date discovery
d. The facts and circumstances leading to the impairment

PFRS6-EXPLORATION AND EVALUATION OF MINERAL RESoURCES

41. Exploration and evaluationexpenditures are incurred

a. Whensearching for an area that may warrant detailed exploration even though the entity has not.
et obtained the legal rights to explore a specific area.
b. When the legal rights to explore an area have been obtained but the technical feasibility and
commercial viability of extracting a mineral resource are not yet demonstrable.
When preparations for commercial extraction are being made.
d. In extracting mineral resource and processing the resource to make it marketable.

42. Exploration and evaluation asset shall be classified as either tangible or intangible asset and
measured initially at cost and subsequently at
a. The cost model
The revaluation model
C. Either the cost model or the revaluation model
d. The recoverable amount model

C43. Which accurately describes the GAAP regarding accounting for costs of drilling dry holes?
a. Only the successful effort method may be used. SU CLesk

b. Only the full cost method may be used.

Capi tatt
c. Both the successful effort method and the full cost method may be used.
d. Neither the successful effort method nor the full cost method may be used.

A44. Depletion expense

a. Is usually part of cost of goods sold.
b. Includes tangible equipment cost in the depletion base.
c.Excludesintang+ble development cost from the depletion base.
d. Excludes estimated restoration cost from the depletion base.

C45. Which of the following isno part of depletable BASE?

a. Acquisition cost of the mineral resource deposit
b. Exploration cost
c. Tangible equipment cost associated with machinery used to extract the mineral resource PPE
Intangible development cost such as drilling, tunnel and shaft

END 6828
C3 sle. vok 10tu
Ana entity acquired wktn Page 2
a machine and incurred the following
Cash paid for machine, costs
Cost of including VAT of P96,000 Cu4) 896,000 00
transporting
Cost of installation machine 30,000
Cost of testing 50,000
machine 40,000.
Cost of safety rails and platform
Cost of water device surrounding machineC 60,000
to keep machine 80,000.
Cost of adjustment to machine to makecool it operate more efficientlx 75,000
AT Cost
Cost of repairing damage during installation motmeel o G 45,000
of spare parts
to cover breakdowns 155,000
Estimated dismantling cost to be incurred as required by contraCt 65,000
Ahsurance cost for the current year Jr 15,000
Cost of training personnel who will use the machine (E* 25,000

What total amount should be capitalized as cost of the machine?

a. 1,400,000
b. 1,296,000
C. 1,200,000
d. 1,160,000

B 4. During 2021, an entity constructed a new building at a cost of P30,000,000. The expenditures for
the building, which was finished late in 2021, were incurredvenlyduringtheyear, The entity
had the following loans outstanding on December 31, 2021:
10% note to finaa specifically construction of the building, dated Jamuary 1, 2021,
P10,000,000 and unpaid on December 31, 2021. Investments were made on the proceeds from
the loan and income of P100,000 was realized in 2021.
12% 20-year bonds payable issued at face amount on April 30, 2020, P30,000,000.
porrB{ 8% 5-year note payable, dated March 1, 2020, P10,000,000.
What amount of interest should be capitalized as cost of the new building?
a. 1,550,000
b. 1,450,000
C. 1,400,000
d. 1,500,000

5. On July 1,2021, an entity an construction of a plant which was completed on October31, 2022,
On July 1, 2021, the entity obtained a P7,000,000 6% construction loan. The loan was paid on
December 31, 2022. The only other debt was a P15,000,000 Q%)long-term note which was
outstanding during 2021 and 2022. Expenditures onthe plant were: ao 6 v52 s C

July 1,2021 5,000,000 February 1,2022 3,000,000

October 1, 2021 4,000,000 April 1, 2022 2,000,000
September 1, 2022 2,000,000
October 1,2022 500,000
A1 What amount of interest should be capitalized in 2021?
a. 210,000
b. 270,000
C. 540,000
d. 420,000

)2. What amount ofinterest should be capitalized in 2022?

a. 1,000,000
b. 1,350,000
C. 350,000
d. 857,000
3. What amount should be reported as interest expense for 2022?
a. 1,350,000
b. 1,770,000
C.913,000
d. 420,000
END 6825