MAC 407- Assessment

Investment Property
Galore Co. ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure. The entity’s board of directors decided that instead of
selling the condominium, the entity would hold this property for purposes of earning
rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the property was placed in
service on January 1, 2023. The cost of the construction was P50,000,000. The useful
life of the condominium is 25 years and its residual value is P5,000,000. An
independent valuation expert provided the following fair value at each subsequent year-
end:
December 31, 2023 55,000,000
December 31, 2024 53,000,000
December 31, 2025 60,000,000

1. Under the cost model, what amount should be reported as depreciation of

investment property for 2023?
a. 1,800,000 c. 2,200,000
b. 2,000,000 d. 0

2. Under the fair value model, what amount should be recognized as gain from
change in fair value in 2023?
a. 5,000,000 c. 7,000,000
b. 3,000,000 d. 0

3. Bona Company purchased an investment property on January 1, 2021 for

P2,200,000. The property had a useful life of 40 years and on December 31, 2023
had a fair value of P3,000,000. On December 31, 2023, the property was sold for
net proceeds of P2,900,000. The entity used the cost model to account for the
investment property.

What is the gain or loss to be recognized for the year ended December 31, 2023
regarding the disposal of the property?
a. 865,000 gain c. 100,000 loss
b. 810,000 gain d. 700,000 gain
 4. Crosswind Co. owned a single investment property which had an original cost of
P5,800,000 on January 1, 2021. On December 31, 2023, the fair value was
P6,000,000 and on December 31, 2024, the fair value was P5,900,000. On
acquisition, the property had a useful life of 40 years.

What is the expense to be recognized in profit or loss for the year ended
December 31, 2024 under the fair value model and cost model?
Fair value model Cost model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500

Property Plant and Equipment

5. At the beginning of the current year, Town Co. purchased for P5,400,000,
including appraiser’s fee of P50,000, a warehouse building and the land on which
it is located. The following data were available concerning the property:
Current appraised value Seller’s
original cost
Land 2,000,000 1,400,000
Warehouse building 3,000,000 2,800,000
5,000,000 4,200,000

What is the initial measurement of the land?

a. 2,140,000 c. 2,000,000
b. 1,800,000 d. 2,160,000
6. On December 31, 2023, Bart Co. purchased a machine in exchange for a
noninterest bearing note requiring eight payments of P200,000. The first
payment was made on December 31, 2023 and the others are due annually on
December 31. At date of issuance, the prevailing rate of interest for this type of
note was 11%. Present value factors are as follows:
PV of an ordinary annuity of 1 at 11% for 8 periods 5.146
PV of an annuity of 1 in advance at 11% for 8 periods 5.712

What amount should be recorded as initial cost of the machine?

a. 1,600,000 c. 1,400,000
b. 1,029,200 d. 1,142,400

7. Lax Co. recently acquired two items of equipment. The transactions are described
as follows:
- Acquired a press at an invoice price of P3,000,000 subject to a 5% cash
discount which was taken. Costs of the freight and insurance during
shipment were P50,000 and installation cost amounted to P200,000.
- Acquired a welding machine an invoice price of P2,000,000 subject to a 10%
cash discount which was not taken. Additional welding supplies were acquired
at a cost of P100,000.

What is the total increase in the equipment account as a result of the

transactions?
a. 4,900,000 c. 5,100,000
b. 5,000,000 d. 5,200,000

8. Figaro Co. acquired land and paid in full by issuing P600,000 of its 10 percent
bonds payable and 40,000 ordinary shares with par value of P10. The share was
selling at P19 and the bonds were trading at 102.
 What amount should be recorded as cost of the land?
a. 988,000 c. 1,372,000
b. 1,000,000 d. 1,387,200

9. Jazz Co. purchased land with a current market value of P2,400,000. The
carrying amount of the land was P1,305,000. In exchange for the land, the entity
issued 20,000 ordinary shares with par value of P100 and market value of P140
per share. The shares are traded in an established stock exchange.

What amount should be recorded as cost of the land?

a. 1,305,000 c. 2,400,000
b. 2,000,000 d. 2,800,000

10. In October of the current year, Ewing Co. exchanged an old packing
machine, which cost P1,200,000 and was 50% depreciated, for another used
machine and paid a cash difference of P160,000. The fair value of the old
packaging machine was determined to be P700,000.

What is the cost of the machine acquired in the exchange?

a. 860,000 c. 760,000
b. 700,000 d. 540,000

11. The Knight Co. imported an equipment at a peso equivalent to P330,000.

The company has to pay additional cost of importing the asset such as P10,000
import duties and P15,000 non-refundable purchase taxes. Costs of bringing
and preparing the asset for its intended use include P2,000 transportation cost,
P4,000 installation and testing and trial run costs.

How much is the initial cost of the new machine?

a. 330,000 c. 346,000
b. 336,000 d. 361,000
12. Light Co. has recently purchased a computer system for its office. The
following information was gathered in relation to the acquisition of the unit:
List price P 152,000
Trade discount and rebates taken 56,000
Installation and assembly cost 3,200
Initial delivery and handling cost 6,400
Purchase discount 2%
What is the acquisition cost of the new computer?
a. 94,080 c. 105,680
b. 103,680 d. 160,600

13. On August 1 2019, Bright Co. purchased a new machine on a deferred

payment basis. A down payment of P100,000 was made and 4 monthly
installments of P250,000 each are to be made beginning on August 1, 2019. The
terms of the agreement is not considered normal. The cash equivalent price of the
machine was P950,000. Bright incurred and paid installation costs amounting to
P30,000.

How much should be capitalized as cost of the machine?

a. 950,000 c. 1,110,000
b. 980,000 d. 1,130,000

14. Night Co. bought a new machine and agreed to pay for it in equal annual
installments of P500,000 at the end of the next five years. Assume that the
present value of a prevailing interest rate at 15% for five periods is 3.35. The
future amount of an ordinary annuity of 1 at 15% for five periods is 6.74. The
present value of at % for five periods is 0.5.

How much should Night record as the cost of the machine?

a. 1,250,000 c. 2,500,000
b. 1,675,000 d. 3,370,000
15. On March 31, 2019, Mr. Right Enterprises traded in an old machine having a
carrying amount of P1,600,000 and paid a cash difference of P600,000 for a new
machine having a total cash price of P2,000,000.

On March 31, 2019 what amount of loss should Mr. Right recognize on this
exchange?
a. None c. 400,000
b. 200,000 d. 600,000

16. On October 1, 2019, Jet Corp. issued 10,000 shares of the P25 pat treasury
ordinary share for a parcel of land to be held for a future plant site. The treasury
shares were acquired by Jet at a cost of P30 per share. Jet’s ordinary share had a
fair market value of P40 per share on October 1, 2019. Jet received P50,000
from the sale of scrap when an existing structure on the site was razed.

At what amount should the land be carried?

a. 250,000 c. 350,000
b. 300,000 d. 400,000

On October 2019, Ship Co. exchanged a used packaging machine having a book
value of P240,000 for a new machine and paid a cash difference of P30,000. The
market value of the used packaging machine was determined to be P280,000.

17. In its profit or loss for the year ended December 31, 2019, how much gain
should Ship recognize on this exchange, assuming the exchange is considered with
commercial substance?
a. None c. P30,000
b. P10,000 d. P40,000
18. On the date of exchange, what amount should Ship Co. recognize as the cost
of the asset received, assuming the exchange is considered not lacking in
commercial substance?
a. P200,000 c. P280,000
b. P250,000 d. P310,000

Star Co. owns a tract of land which it purchased in 2011 for P3,000,000. The land
is held as future plant site and has a fair market value of P4,800,000 on March 1,
2014. Struck Co. also owns a tract of land held as future plant site. Struck paid
P4,200,000 for the land in 2010 and the land has a fair market value of
P6,000,000 on March 1, 2014. On this date, Star exchanged its land and paid
P1,200,000 cash for the land owned by Struck. As a result of this transaction, the
entity’s specific value was not affected by the above exchange.
19. How much should Star record the land acquired in the exchange?
a. 4,200,000 c. 5,400,000
b. 4,800,000 d. 6,000,000

20. What amount of gain should Star Co. recognize on the exchange?
a. None c. P120,000
b. P80,000 d. 180,000

21. Faith Inc. has a fiscal year ending April 30. In May 1, 2018, Faith borrowed
P10,000,000 at 15% to finance construction of its own building. Repayments of
the loan are to commence on the month following completion of the building.
During the year ended, April 30, 2019, expenditures for the partially completed
structure totaled P6,000,000. These expenditures were incurred evenly throughout
the year. Interest earned on the unexpended portion of the loan amount to
P400,000 for the year.
 How much should be shown as capitalized interest on faith’s financial statements
at April 30, 2019?
a. None c. P450,000
b. P50,000 d. P1,100,000

22. During 2019, Torch Co. had the following transactions pertaining to its new
office building:
Purchase price- Land P 420,000
Legal fees for contracts to purchase land 14,000
Architect’s fee 56,000
Demolition of old building on site 35,000
Sale of scrap from old building 21,000
Construction cost of new building (fully completed) 2,450,000

At what amount should the cost of land and cost of building be shown in Torch
December 31, 2019 statement of financial position?
Land Building
a. P420,000 P2,520,000
b. P434,000 P2,520,000
c. P448,000 P2,506,000
d. P455,000 P2,354,000

23. On January 1, 2019, Shaw Co. purchased a machine for P504,000 that was
placed in service on March 1, 2019. Additional costs incurred to bring the asset to
its location and prepare for its intended use were: shipping, P4,000 and
installation and testing cost, P6,000. The estimated useful life of the asset was
10 years and has an estimated salvage value of P34,000.

What amount of depreciation should be recognized for the year ended December
31, 2019?
a. 40,000 c. 44,000
 b. 42,000 d. 48,000

24. On May 1, 2018, Nonfat Co. purchased a new machinery for P2,700,000.
The machinery has an estimated useful life of 7 years and depreciation is
computed using the sum-of-years’-digit method. Estimated salvage value of the
machine is P180,000.

What is the total accumulated depreciation on December 31, 2019?

a. 900,000 c. 990,000
b. 960,000 d. 1,170,000

25. Dreamer Co. purchased on October 1, 2018 an equipment for P800,000. The
equipment had an estimated useful life of 8 years. The estimated salvage value
was estimated at P50,000 at the end of its useful life. The equipment is being
depreciated using the double-declining balance method.

What is the amount of depreciation to be charged against 2019 income?

a. 140,625 c. 175,781
b. 175,000 d. 187,500
26. On December 31, 2019, Purple Co. sold a building, receiving as
consideration a P4,000,000 non-interest bearing note due in three years. The
building costs P3,800,000 and the accumulated depreciation was P1,600,000 at
the date of sale. The prevailing rate of interest for a note of this type was 12%.
The present value of P1 for three periods at 12% is 0.71.

In its December 31, 2019, how much gain or loss should Purple report on the
derecognition of its asset?
a. 200,000 gain c. 960,000 loss
b. 640,000 gain d. 1,800,000 gain

London Co. owned a building on January 1, 2023 with historical cost of

P40,000,000. The property is depreciated over 40 years on a straight line basis
with no residual value. The entity adopted a policy of revaluation of property.
The building has so far been revalued twice at fair value as follows:
January 1, 2024 46,800,000
January 1, 2026 55,500,000

27. What is the revaluation surplus on January 1, 2024

a. 7,800,000 c. 5,800,000
b. 6,800,000 d. 4,800,000

28. What is the increase in revaluation surplus to be recognized as component

of other comprehensive income on January 1, 2026?
a. 15,500,000 c. 8,700,000
b. 11,100,000 d. 9,900,000
29. What is the revaluation surplus to be reported in the statement of changes
in equity for the year ended December 31, 2026?
a. 18,200,000 c. 18,900,000
b. 18,000,000 d. 18,500,000

On January 1, 2018, Boston Co. purchased a new building at a cost of P6,000,000.

Depreciation was computed on the straight line basis at 4% per year. On
January 1, 2023, the building was revalued at a fair value of P8,000,000.

30. What is the depreciation for 2023?

a. 320,000 c. 100,000
b. 400,000 d. 240,000

31. What is the revaluation surplus on December 31, 2023?

a. 3,072,000 c. 3,040,000
b. 1,900,000 d. 1,920,000
Intangible Asset
Listen Co. is a mining company, which acquires a drilling rig to be used for drilling
of core samples for the purpose of analysis as part of its E & E activities in a new
area (Area F) it has recently acquired the rights to explore. The following
transactions occurred during 2011-2012.

On July 1, 2011, the company acquired the rig at a cost of P2,800,000 and
capitalized as a tangible E&E asset with an estimated useful life of 14 years.
The drilling rig is used solely for the purposes of drilling core samples in Area F, as
expected. Listen Co’s financial year ends every June 30.

32. What is the carrying value of the Equipment (drilling rig) as of June 30,
2012?
a. None c. 2,600,000
b. 200,000 d. 2,800,000

33. What amount should be recognized as intangible asset as of June 30, 2012?
a. None c. 300,000
b. 200,000 d. 400,000

34. Neglected Corp. purchased land for P6,000,000. The company expected to
extract 1 million tons of mine from this land over the next 20 years at which time,
residual value shall be zero. During the first 2 years of the mine’s operations,
30,000 tons were mined each year and sold for P80 per ton. The estimate of the
total remaining lifetime capacity of the mine was raised to 1,200,000 tons at the
start of the third year and the residual value was estimated to be P480,000.
During the third year, 50,000 tons were mined and sold for P85 per ton.

How much would be the depletion for the third year?

a. 215,000 c. 225,000
b. 227,500 d. 235,000
35. Super Value Co. quarries marble at two locations and sells it to be used in
construction of buildings. The company provides for a depletion rate of 5%. The
quarry is leased on a year-to-year basis with the company paying a royalty of
P0.05 per ton of marble quarried. Other data relevant to the requirements are:
Estimated total reserves, tons 60,000,000
Tons quarried through December 31, 2018 4,000,000
Tons quarried, 2019 1,600,000
Sales, 2019 P1,200,000

How much would be the depletion for 2019 for financial reporting purposes?
a. None c. 80,000
b. P60,000 d. 300,000

Coward Co. purchased a building on January 1, 2010 for a total of P10,000,000.

The building has been depreciated using the straight-line method with a 25-year
useful life and no residual value. As of Jan. 1, 2014, Coward is evaluating the
building for possible impairment. The building has a remaining useful life of 15
years and is expected to generate cash inflows of P450,000 per year. The
estimated recoverable amount of the building on January 1, 2014 is P5,310,000.

36. How much, if any, is the impairment loss that should be recognized on
January 1, 2014?
a. None c. 3,090,000
b. 2,100,000 d. 5,200,000
37. What is the amount of depreciation to be recognized in year 2014?
a. 340,000 c. 400,000
b. 354,000 d. 560,000

Maiden Co. has two cash-generating units, Yellow and Blue. There is no goodwill
within the units’ carrying values. The carrying values are Yellow P10,000,000
and Blue P15,000,000. Maiden Co. has an office building that has not been
included in the above rules and can be allocated to the units on the basis of their
carrying values. The office building has a carrying value of P5,000,000. The
recoverable amounts are based on value-in-use of P9,000,000 for Yellow and
P19,000,000 for Blue.

38. What amount of impairment loss should Maiden Co. recognize on the cash-
generating unit Yellow?
a. None c. 2,000,000
b. P1,000,000 d. 3,000,000

39. What amount of impairment loss should Maiden Co. recognize on the cash-
generating unit Blue?
a. None c. 2,000,000
b. P1,000,000 d. 3,000,000

40. On January 2, 2014, Beige Co. has completed the construction of a building
for a total cost of P10,000,000. The building is to be depreciated on a straight-
line basis over its estimated useful life of 40 years. On January 2, 2019, Beige
converted the building into a commercial establishment with only minor renovation
costs incurred. In consultation with an appraiser, the building’s fair value as of Jan.
1, 2019 was P11,970,000. On January 1, 2021, due to sudden change in the
 economic environment, Beige is evaluating possible impairment and determined
that the recoverable value of the building was P7,000,000.

What is the amount of impairment loss, if any, on January 1, 2021?

a. 1,050,000 c. 3,500,000
b. 1,250,000 d. 4,286,000

41. On October 1, 2018, Jupiter Inc. exchanged 2,000 shares of its P500 par
value ordinary shares held in treasury for a patent owned by Mars Co. the
treasury shares were acquired in 2017 at a cost of P800,000. At the time of
exchange, Jupiter’s ordinary share was quoted at P550 per share and the patent
had a net carrying value on Mar’s books of P900,000.

At what amount should Jupiter record the patent?

a. 800,000 c. 1,000,000
b. 900,000 d. 1,100,000

42. Moon Co. purchased Patent A for P600,000 and Patent B for P900,000.
Moon also paid indirect costs of P75,000 for Patent A and P105,000 for Patent
B. Both patents were challenged in legal actions. Moon paid P300,000 in legal fees
in successful defense of Patent A and P450,000 in legal fees in an unsuccessful
defense of Patent B.

What amount should Moon capitalize for patents?

a. 675,000 c. 1,680,000
b. 975,000 d. 2,430,000
43. On January 2, 2019, Earth Co. bought a trademark from Mars Co. for
P600,000. Earth retained an independent consultant, who estimated the trademark’s
remaining life to be 20 years. Its amortized cost on Mars’ accounting records was
P456,000.

At what amount should the trademark be initially recorded?

a. 456,000 c. 585,000
b. 570,000 d. 600,000

44. On January 1, 2015, Better Co. bought a trademark for P400,000, having an
estimated remaining useful life of 6 years. After 16 years, revenues expected
from this intangible will be zero. In January 2019, Better paid P60,000 for legal
fees in a successful defense of the trademark.

What amount of expense should Better Co. recognize and charge against income
during 2019?
a. 15,000 c. 30,000
b. 25,000 d. 85,000

45. General Products Co. bought Special Products Division in 2015 and
appropriately recorded P500,000 of goodwill related to the purchase. On December
31, 2016, the fair value of Special Products Division is P4,000,000 and it is
carried on General Product’s books for a total of P3,400,000, including the
goodwill. An analysis of Special Products Division’s assets indicates that goodwill
of P400,000 exists on December 31, 2016.

What goodwill impairment should be recognized by General Products in 2016?

a. None c. 200,000
b. 50,000 d. 300,000