ATENEO de DAVAO UNIVERSITY SCHOOL OF BUSINESS AND GOVERNANCE ACC.

3- Financial Accounting theory and practice 1

PRE-FINALS EXAMINATION:

NAME: _______________________________________YR. & SECTION: ___________ SCORE: _________ General Instructions/ reminders: - Cheating is strictly prohibited. - You may write anything on this questionnaire and this serves as your scratch paper. - THIS ALSO SERVES AS YOUR ANSWER SHEET. - Write only the letter o your choice in C!"I#!$ $%##%&. - ERASURES ARE NOT ALLOWED. Tes I. THEORIES- TRUE !" FALSE. Write TRUE if the statement is correct and FALSE if it is otherwise. #$%d&' (&)*e '!+" ,$%)& )%s-e" !% .e s()*e ("!/$ded 0e,!"e .e %+10e". '''(. !n e)ample o processing the grapes into wine or the purpose o selling it as merchandise is covered by "!* + or inventory. #here ore, the process itsel rom point o harvest up to delivering it to inal customer/mar-et is not covered by "!* .(-!griculture. '''+. I air value o a particular biological asset is determined to be clearly unreliable, such asset shall be measured at cost less accumulated depreciation only. #his would mean that any accumulated impairment losses shall be disregarded and cannot be determined on this -ind o asset. '''/. *ales allowance and sales discounts are ignored or the computation o net sales in a given period because they do not a ect the physical volume o goods sold. I this is so, the standard so provides that an account, 0sales return and allowances with no details should also be excluded in determining net sales for inventory estimation purposes. '''.. &etail simply means selling price. In e ect, retail approach does not support the idea o inventory1s measurement per standard e)pressed as lower o cost or net reali2able value. '''3. +4(+ has been the 5th year a ter the building was made available or its intended use and its related use ul li e is estimated to be (4 years. 6or this, such building should be reclassi ied in the statement o inancial position as current asset having a remaining use ul li e o ( year a ter the balance sheet date. '''7. "6&* 3 clearly de ines that asset held or sale should be classi ied as held or sale under current asset. Considering this, gain or loss on reclassi ication should be recorded at the date it is reclassi ied as current asset. '''8. 6air value o government grants shall be recogni2ed when the entity will comply with the conditions attaching to the grant. !nother consideration or such recognition is when the grant is actually received. '''9. :nder de erred income approach o recogni2ing government grant as income, matching principle is applied. *uch principle e)plains that recognition o cost should be parallel to the recognition o income. '''5. ;orrowing cost is the actual interest cost paid by the company or the loan made rom a borrower. *uch borrowing cost should arise rom loan intended or construction or acquisition o property, plant and equipment. '''(4. ;orrowing costs to be capitali2ed are those interest costs that would have been avoided i e)penditure on the quali ying asset had not been made. <uali ying assets are all property, plant and equipment. '''((. $ands treated as inventories are those considered as held or sale under "6&* 3. !nother inventory as in the case o land held or current sale is under "!* +. '''(+. =rdinary repairs are minor replacement o parts, involving small sums and are requently encountered. =rdinary repairs are normally charged to e)pense on cash basis. '''(/. >epreciation is a systematic allocation o the depreciable amount o an asset over its use ul li e. :nder this concept, accumulated depreciation is the yearly allocation o asset cost treated as e)pense in a given period. '''(.. #he discontinuance o recogni2ing depreciation can be made possible. Classi ied as held or sale as in the case o land held or current sale is one o its e)amples.

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'''(3. &evaluation o asset is requently done due to the act that the group o assets is materially impaired in a given period. #hus, initial measurement may indicate initial revaluation using such model. '''(7. !ppreciation is the e)cess o the revalued amount over the historical cost. *uch amount is allocated over the remaining use ul li e o the asset through piecemeal reali2ation. '''(8. &evaluation surplus is an equity account. &eali2ation o its portion in a given period is debited to such amount that may lead to a decrease in equity. '''(9. &evaluation is the same with impairment o asset. '''(5. &evaluation o assets may be made in dissimilar assets provided that the regularity o revaluing these items should be observed based on the materiality di erence o its carrying amount over its related air value. ?owever, it is still upon management1s discretion whether or not to use revaluation as its basis or initial measurement o this asset. '''+4. ;oo- value is a term related to historical cost o the asset while replacement cost is related to revaluation model. !t any given time, both may be interchanged. Tes II. MULTIPLE CHOICE- C!1(+ ) $!%s. 2"$ e !%&' .e &e e" !, '!+" *.!$*e. #$%d&' (&)*e '!+" ,$%)& )%s-e" !% .e s()*e ("!/$ded 0e,!"e .e %+10e". 6=& I#%@* (-+, re er to the in ormation below: =n Aanuary (, +4(+, an entity purchased (44 cows which are / years old or (3,444 each or the purpose o producing mil- or the local community. =n Auly (, +4(+, the cows gave birth to +4 calves. 6air value less Bewborn cal on Bewborn cal on C year old cal / years old cow . years old cow cost to sell o Auly ( >ecember /( on >ecember /( on >ecember /( on >ecember /( the biological assets as .,444 3,444 8,444 (9,444 +.,444 ollows:

'''(. #otal air value on >ecember /(, +4(+ o !.D (,394,444 ;.D (,4.4,444 C.D +,3.4,444 >.D Bone o the above '''+. #otal change in !.D 544,444 ;.D 574,444 C.D (,4.4,444 >.D -4air value

said biological asset

or +4(+ amounted to '''''.

'''/. *t. "eter Company has a recent gross pro it history o .4E o net sales. #he ollowing data are available rom &omero1s accounting records the three months ended @arch /(, +4(+: Inventory at (/( "urchases Bet sales "urchase returns 6reight in 734,444 /,+44,444 .,344,444 83,444 34,444 goods sold

or

:nder gross method, estimated cost o /(, +4(+ should be !.D (,944,444 ;.D +,844,444 C.D /,883,444 >.D Bone o the above

or three months ended @arch

'''.. *t. Gregory Company began operations in +4(+. 6or the year ended >ecember /(, +4(+, *t. Gregory made available the ollowing in ormation: #otal merchandise purchases or the year @erchandise inventory at >ecember /( Collection orm customers 8,444,444 (,.44,444 .,444,444

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!ll merchandise was mar-ed to sell at .4E above cost. !ssuming that all sales are on a credit basis and all receivables are collectible, what should be the >ecember /(, +4(+ accounts receivable balanceF !.D (,444,444 ;.D 8,9.4,444 C.D /,9.4,444 >.D Bone o the above '''3. *t. !ndrew Inc. uses the 6I6= retail method o ollowing in ormation is available: Cost ;eginning Inventory 744,444 "urchases /,444,444 Bet additional mar-up Bet mar-downs *ales revenue What would be estimated cost o !.D (,+44,444 ;.D (,4.4,444 C.D (,744,444 >.D Bone o the above ending inventoryF inventory valuation. #he Retail (,344,444 3,344,444 344,444 (,444,444 .,344,444

'''7.D *t. @atthew Company uses the average cost retail inventory method to account or inventory. #he ollowing in ormation relates to operations or the current year: Cost Retail ;eginning inventory and purchases 7,444,444 5,+44,444 Bet mar-ups .44,444 Bet mar-downs 744,444 *ales 8,944,444 #he !.D ;.D C.D >.D cost o sales or the current year should be 944,444 3,+44,444 3,+34,444 Cannot be determined due to limited in ormation given

'''8. =n >ecember /4, +4(+, *t. @ar- Company purchased a machine rom 6ell Corporation in e)change or a noninterest bearing note requiring eight payments o +44,444. #he irst payment was made on >ecember /4,+4(+ and the others are due annually on >ecember /4. !t date o issuance o note, the prevailing rate o interest or this type o note was ((E. Bote payable carrying amount as o !.D (,(.+,.44 ;.D 5.+,.44 C.D (,4+5,+44 >.D (,4.7,+44 >ecember /(, +4(+ should be

'''9.D *t. "aul Company recently acquired two items o equipment. #he transactions are described as ollows: !cquired a press at an invoice price o /,444,444 subGect to a 3E cash discount which was ta-en. Cost o reight during shipment was " 34,444 and installation cost amounted to +44,444. !cquired a welding machine at an invoice price o +,444,444 subGect to a (4E cash discount which was not ta-en. !dditional welding supplies were acquired at a cost o (44,444. #otal cost o two equipments should be !.D .,544,444 ;.D 3,(44,444 C.D 3,+44,444 C.D 3,444,444 '''5. =n Auly (, +4(+, *t. 6rancis Corporation e)changed its non-monetary asset HequipmentD with another non-monetary asset. #he ollowing data were made available:

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%quipment !ccumulated depreciation 6air value o equipment Cash received on e)change

.,.44,444 +,444,444 /,444,444 544,444

I the cash lows on the no-monetary assets were not the same, what would be the cost o the non-monetary asset receivedF !.D (,344,444 ;.D (,794,444 C.D +,(44,444 >.D /,444,444 '''(4. =n @arch /(, *t. Aohn Company traded in an old machine having a carrying amount o " (,794,444 and paid cash di erence o 744,444 or a new machine having a total cash o +,434,444. =n @arch /(, what amount o loss should *t. Aohn recogni2e on this e)changeF !.D 744,444 ;.D +/4,444 C.D /84,444 >.D -4'''((. =n Aanuary +, +4(+, *t. $oren2o Company received a grant o 74,444,444 to compensate it or costs it incurred in planting trees over a period o ive years. #he company will incur such cost in this manner: Year +4(+ +4(/ +4(. +4(3 +4(7 Costs +,444,444 .,444,444 7,444,444 9,444,444 (4,444,444 year +4(3F

Income to be recogni2ed at the end o !.D 9,444,444 ;.D (+,444,444 C.D (7,444,444 >.D +4,444,444

6=& I#%@* (+-(/, re er to the details below: =n Aanuary +, +4(+, *t. !nthony Inc. received a grant related to a actory building. #he total amount o the grant was (9,444,444. #he company acquired the building rom an industrialist identi ied by the government. I *t. !nthony did not purchase the actory building, which was located in the slums o the cityI it would have been repossessed by a government agency. #he company purchased the building or 3.,444,444. #he use ul li e o the building is not considered to more than three years, mainly due to the act that the previous owner did not properly maintain it. '''(+. :nder deduction rom asset approach, what is the carrying amount o the building in the >ecember /(, +4(+ statement o inancial positionF !.D (9,444,444 ;.D +.,444,444 C.D /7,444,444 >.D 3.,444,444 '''(/. :nder de erred income approach, the carrying amount o >ecember /(, +4(+ should be !.D (9,444,444 ;.D +.,444,444 C.D /7,444,444 >.D 3.,444,444 building as o

'''(.. =n Aanuary +, +4(+, *t. $u-e Company received a grant o 74,444,444 to compensate it or costs it incurred in planting trees over a period o ive years. #he company will incur such cost in this manner: Year 2012 2013 Costs 2 000 000 ! 000 000

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201! 201# 201"

" 000 000 8 000 000 10 000 000

!ctual costs incurred in planting the trees showed +,444,444 and .,444,444 in years +4(+ and +4(/, respectively. ?owever, in +4(. and up to year +4(7, the company has stopped planting trees. >ue to non- ul illment o its obligation, the government is demanding an immediate repayment o the grant in the amount o 34,444,444 which is considered reasonable. What is the loss on government grants related to repayment o !.D (+,444,444 ;.D none C.D +,444,444 >.D 34,444,444 said grantF

'''(3. #he ollowing transactions pertain to the general borrowings made during +4(+ by *t. Aames Company in connection with the construction o the company1s new warehouse: $ri%&i'al (orro)i%* &osts 9E ban- loan +,.44,444 (5+,444 7E short-term note (,744,444 57,444 9E long-term note +,444,444 (74,444 #he construction started on Aanuary (, +4(+ and the warehouse was completed on >ecember /(, +4(+. %)penditures on the warehouse were as ollows: Aanuary (- .44,444I @arch /(- (,444,444I Aune /4- (,+44,444I *eptember /4(,444,444I >ecember /(- .44,444. ?ow !.D ;.D C.D >.D much is the capitali2able borrowing cost o +44,444 (.4,.44 +59,744 Bone o the above this constructionF

''''(7. =n Aanuary (, +4(+, *t. Aude Company borrowed .,444,444 at an interest rate o (4E speci ically or the construction o its new building. Interest earned rom the temporary investment o the proceeds o the loan prior to their disbursement amounted to 34,444. #he company had also the ollowing other loans or +4(+ which were borrowed or general purposes. #he proceeds o these loans were used in part or the construction o the building. Principal Borrowing cost (4E short term note /,444,444 /44,444 (+E long term note .,444,444 .94,444 #he construction began Aanuary (, +4(+ and the building was completed on >ecember /(, +4(+. %)penditures on the building were made as ollows: Aanuary ( (,444,444 @arch /( +,344,444 Aune /4 /,444,444 *eptember /4 +,344,444 >ecember /( (,444,444 What is the total amount o !.D .74,444 ;.D /34,444 C.D ((4,444 >.D 544,444 capitali2able borrowing costF

'''(8. *t. Aoseph Company had the +4(+. *peci ic construction loan General loan

ollowing loans outstanding (,444,444 +4,444,444 (4E (+E

or the entire

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#he company began the sel -construction on Aanuary ( and the building was completed on >ecember /(, +4(+ with the ollowing details o e)penditures: Aanuary ( (,444,444 Auly ( +,444,444 Bovember ( /,444,444 What is the cost o !.D 7,444,444 ;.D 7,+94,444 C.D 7,/44,444 >.D 7,+34,444 new buildingF

'''(9. *t. Cecilia Inc. had the +4(+ and +4(/. *peci ic construction loan General loan

ollowing loans outstanding during the years +,444,444 (3,444,444 (4E (+E

#he company began the sel -construction o a new building on Aanuary (, +4(+ and the building was completed on >ecember /(, +4(/. #he ollowing e)penditures were made during +4(+ and +4(/: Aanuary (, +4(+ Auly (, +4(+ Bovember (, +4(+ Auly (, +4(/ +,444,444 .,444,444 /,444,444 (,444,444

Cost o the building on >ecember /(, +4(/ should be !.D (4,444,444 ;.D 5,344,444 C.D ((,774,444 >.D ((,344,444 6=& I#%@* (5-+4, re er to the details below: >uring +4(+, *t. @ary Inc. had the ollowing transactions pertaining to its new o ice building: "urchase price-$and .+4,444 $egal ees or contracts to purchase land (.,444 !rchitect1s ee 37,444 >emolition o old building on site /3,444 *ale o scrap rom old building +(,444 Construction cost o new building H ully completedD +,.34,444 '''(5. Cost o !.D +,3+4,444 ;.D +,347,444 C.D +,3/.,444 >.D +,/3.,444 '''+4. Cost o !.D .+4,444 ;.D ..9,444 C.D .33,444 >.D ./.,444 the building

land

'''+(. *t. @a. Goretti Company acquired land and building or 3,344,444 on =ctober (, +4(+. #he land was appraised at +,.44,444 and the building at /,744,444. :npaid property ta)es assumed by the company amounted to +34,444. !dditional costs incurred were: ;uilding renovation 344,444 =ption on alternative land and building not acquired 34,444 Cost o survey 3,444 Cost o the land should be !.D +,/43,444 ;.D +,/+3,444 C.D +,.33,444 >.D +,.83,444

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'''++. =n >ecember /(, +4(+, *t. #eresa Company purchased a .,444,444 tract o land or a actory site. #he company ra2ed an old building on the property and sold the materials it salvaged rom the demolition. #he company incurred additional costs and reali2ed salvaged proceeds during >ecember +4(+ as ollows: "ayments to tenants to vacate the premises +44,444 >emolition o old building (44,444 $egal ees or purchase contract and recording ownership 34,444 #itle guarantee insurance /4,444 "roceeds rom sale o salvaged materials (4,444 Cost o the land !.D .,/34,444 ;.D .,/84,444 C.D .,/94,444 >.D .,/54,444 '''+/. =n Aanuary (, +4(+, *t. #herese Corporation bought machinery under a contract that required a down payment o 34,444, plus +. monthly o +3,444 each, or total cash payments o 734,444. #he cash equivalent price o the machinery was 334,444. #he machinery has use ul li e o (4 years and residual value o +3,444. :sing straight line method o depreciation the asset, compute depreciation or year ended >ecember +4(+. !.D 3+,344 ;.D 33,444 C.D 7+,344 >.D 73,444 or the

'''+.. *t. Ignatius Company purchased equipment or 3.4,444 on Aanuary +, +4(+. #he equipment has an estimated salvage value o 74,444 and an estimated use ul li e o 3 years. #he equipment is being depreciated using the sum-o years-digit method. #he !.D ;.D C.D >.D carrying amount o (37,444 +3+,444 /94,444 .(+,444 the equipment on >ecember /(, +4(/ should be

''''+3. =n Aanuary +, +4(+, *t. *ebastian Inc. purchased actory equipment or .,444,444. %stimated salvage value was (74,444. %stimated use ul li e is (4 years and will be depreciated using the double declining balance method. >epreciation !.D /9.,444 ;.D 7(.,.44 C.D 7.4,444 >.D 879,444 or +4(/ should be

'''+7. *t, #homas Co. purchased a machine or 744,444 on Aanuary +, +4(+. #he machine has an estimated use ul li e o 3 years and salvage value o 74,444. >epreciation was computed by the (34E-declining balance method. !ccumulated depreciation as o !.D +(7,444 ;.D +83,444 C.D +5.,444 >.D /47,444 >ecember /(, +4(/ should be

6=& I#%@* +8-+5, re er to the details below: #he ollowing account balances relating to property, plant and equipment o *t. @ary Company appear on the boo-s on Aanuary (, +4(+. $and ;uilding !ccumulated depreciation @achinery !ccumulated depreciation +,444,444 (3,444,444 /,834,444 /,444,444 (,344,444

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!ssets have been carried at cost since their acquisition. !ll assets were acquired on Aanuary (, +44+. #he straight line method is used. =n Aanuary (, +4(+, the company wishes to show property, plant and equipment at revalued amount. =n such date, competent appraisers submitted the ollowing: Re'la&e,e%t &ost $and 3,444,444 ;uilding +3,444,444 @achinery 3,444,444 '''+8. What is the revaluation surplus on Aanuary (, +4(+F !.D (3,444,444 ;.D ((,344,444 C.D /4,444,444 >.D 9,344,444 '''+9. #he +4(+ depreciation should be !.D 3/(,+34 ;.D 983,444 C.D 3+3,444 >.D 7+3,444 '''+5. What is the revaluation surplus on >ecember /(, +4(+F !.D ((,483,444 ;.D ((,(34,444 C.D ((,434,444 >.D (4,934,444 '''/4. *t. Jincent Company ta-es a ull year1s depreciation e)pense in the year o an asset1s acquisition, and no depreciation e)pense in the year o disposition. >ata relating to one o *t. Jincent1s depreciable assets at >ecember /(, +4((, are as ollows: !cquisition year Cost &esidual value !ccumulated depreciation %stimated use ul li e +445 (,(44,444 +44,444 8+4,444 3 years

:sing the same depreciation method H*Y>D in +445, +4(4, +4((, how much depreciation e)pense should the company record in +4(+ or this assetF !.D (+4,444 ;.D (94,444 C.D ++4,444 >.D +.4,444

---------------------END O. $RE.INALS E/A0INATION---------------

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