BSA 2102- INTERMEDIATE ACCOUNTING 1 AND 2

MIDTERM DEPARTMENTAL EXAM REVIEWER

THEORIES

1. The recoverable amount of an impaired asset is equal to its

a. fair value less cost to sell
b. fair value less cost to sell or value in use, whichever is lower.
c. value in use.
d. fair value less cost to sell or value in use, whichever is higher.

2. Which of the following statements pertaining to the recognition and measurement of an

impairment loss is/are valid?
I. An impairment loss is the amount by which the carrying amount of an asset exceeds
its recoverable amount.
II. After the recognition of an impairment loss, depreciation of the asset for the future
periods should be equal to the revised carrying amount less its residual value
allocated on a systematic basis over its original life.
III. An impairment loss shall be recognized in profit or loss immediately.
IV. If the recoverable amount of an asset is less than its carrying amount, the carrying
amount of the asset shall be reduced to its recoverable amount.

a. I, II, III and IV

b. I, III and IV
c. I, II and IV
d. II only

3. Which of the following is not considered in making the estimates of future cash flows for the
purpose of calculating value in use of an asset?
a. Future cash flows for improving or enhancing the asset's performance.
b. Cash inflows from the use of the asset.
c. Cash outflows incurred to generate cash inflows from the use of the asset.
d. Net cash flows from the disposal of the asset.

4. Under IAS 36 Impairment of Assets, the best evidence of an asset's fair value is
a. A price in a binding sale agreement in an arm's length transaction.
b. the market price of the asset in an active market.
c. best estimate between knowledgeable, willing parties in an arm's length transaction.
d. the higher between the price in a binding sale agreement and the market price of the
asset in an active market.
5. An entity is considering whether to apply an impairment test to an individual asset or to the
cash-generating unit to which the asset, belongs. Which of the following statements is true?
I. If the individual asset does not generate cash inflows that are largely independent of
those from other assets, then the cash generating unit should be identified.
II. If the individual asset generates an insignificant proportion of the cash inflows of the
entity as a whole, the cash-generating unit should be identified.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

6. Which statement is correct concerning an impairment test for goodwil1?

I. A cash-generating unit to which goodwill has been allocated shall be tested for
impairment annually and whenever there is an indication of impairment of the unit, by
comparing the carrying amount of the unit, including goodwill, with the recoverable
amount of the unit.
II. If the recoverable amount of the unit exceeds the carrying amount of the unit,
including goodwill, the unit and the goodwill allocated to that unit shall be regarded
as not impaired.

a. I only
b. II only
c. C. Both I and II
d. Neither I nor II

7. Which of the following is an internal source of information about impairment of asset?

a. Significant decline in the market value of the asset
b. Significant change in the technological, market, legal or economic environment of the
business in which the asset is employed
c. Increase in the interest rate or market rate of return on investment, which will likely affect
the discount rate in computing value in use
d. Obsolescence or physical damage of the asset

8. Which statement is true about the revaluation model for property, plant and equipment?
a. The frequency of revaluation depends upon the changes in fair value of the property,
plant and equipment.
b. Property, plant and equipment with significant and volatile changes in fair value
necessitate annual revaluation
c. Property, plant and equipment with insignificant changes in fair value may be revalued
every three to five years.
d. All of these statements are true about the revaluation model.
9. If an entity has a calendar year-end and a depreciable property is revalued at the middle of
the current year, how is the depreciation expense for the year determined?
a. Depreciation for the year is based on the average of the depreciation based on cost and
on revalued amount of the property
b. Depreciation for the entire year is based on cost.
c. Depreciation for the entire year is based on revalued amount.
d. Depreciation for the first half of the year is based on cost and for the second half on
revalued amount

10. When there is no evidence of fair value because of the specialized nature of the property,
plant and equipment the estimate of fair value is
a. Replacement cost
b. Depreciated replacement cost
c. Net realizable value
d. Present value of cash inflows from the use of the asset

11. What is the treatment of the accumulated depreciation on the date of revaluation?
a. Restated proportionately with the change in the gross carrying amount of the asset
b. Eliminated against the gross carrying amount of the assets
c. Not adjusted on the date of revaluation asset
d. Restated proportionately with the change in the gross carrying amount' of the asset or
eliminated against the gross carrying amount of the asset

12. An entity with a fleet of cars and ships decided to revalue the property, plant, and
equipment. Which statement is true?
a. Revalue only one-half of each class of property, plant and equipment.
b. Revalue an entire class of property, plant and equipment.
c. Revalue one ship at a time as it is easier than revaluing all ships together
d. Since assets are being revalued regularly, there is no need to depreciate.

13. When the revaluation model is used for reporting property, plant and equipment, the gain
should be included in
a. Retained earnings
b. Gain from revaluation in the income statement
c. Revaluation surplus as component of other comprehensive income
d. An extraordinary gain in the income statement

14. When an entity chooses the revaluation model for property, plant and equipment, which
statement is true?
a. When an asset is revalued, the entire class of a. property, plant and equipment to which
that asset belongs must be revalued.
b. Individual asset within a class to which that asset belongs can be revalued.
 c. Revaluation must be made every three years.
d. Increase in an asset's carrying amount as a result of the revaluation must be recognized
in income.

15. An investment property is defined as

I. Property (land or building or part of building, or both) held by an owner or by the
lessee as a right-of-use asset held to earn rentals or for capital appreciation.
II. Property held by an owner or by the lessee as a right-of-use asset for use in the
production or for administrative purposes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

16. Which statements are correct concerning investment property?

I. If the property Comprises a portion that is held to earn rentals and another portion
that is held for use in production of goods and these portions could not be sold
separately, the property is an investment property only if an insignificant portion is
held for use in production of goods.
II. When the owner of an office building provides security and maintenance services to
the lessees, the office building is an investment property because the ancillary
services are insignificant.
III. An owner-managed hotel is an investment property rather than owner-occupied
property because the services provided to the guests are significant.
IV. If a property is leased by a subsidiary to another subsidiary, the property is
investment property in the individual financial statements of the subsidiary that owns
it but owner-occupied property in the consolidated financial statements of the group.

a. I, II, III and IV

b. I, II, and III
c. I, II and IV
d. I, III and IV

17. Which of the following statements is are correct under the fair value model of valuing
investment property?
I. Equipment such as lifts or air-conditioning is often an integral part of a building and is
generally included in the fair value of the investment property
II. The fair value of investment property does not reflect future capital expenditure that
will improve or enhance the, property and does not reflect the related future benefits
from this future expenditure.
III. The fair value of investment property includes prepaid or accrued operating lease
income, because the entity recognizes it as a separate liability or asset
 IV. If an office is leased on a furnished basis, the fair value of the office generally
includes the fair value of the furniture, because the rental income relates to the
furnished office

a. I, II, III and IV

b. I, II and III
c. I, II and IV
d. I, III and IV

18. Which of the following would increase the cost of an investment property?
a. Operating losses incurred before the investment property achieves the planned level of
occupancy.
b. Directly attributable expenditure.
c. Start-up costs.
d. Abnormal amounts of wasted material, labor or other resources incurred in constructing
or developing the property.

19. Which of the following statements are correct under the fair value model of valuing
investment property?
I. The fair value of investment property shall reflect market conditions at the end of the
reporting period.
II. The fair value of investment property is the price at which the property could be
exchanged between knowledgeable, willing parties in an arm's length transaction.
III. An entity determines fair value with deduction for transaction costs it may incur on
sale or other disposal
IV. The fair value of investment property reflects, among other things, rental income
from current leases and reasonable and supportable assumptions that represent
what knowledgeable, willing parties would assume about rental income from future
leases in the light of current conditions.

a. I, II, III and IV

b. I, II and III
c. I, II and IV
d. I, III and IV

20. Any gain or loss from the disposal of the investment property shall be determined as the
difference between
a. the total disposal proceeds and the carrying amount of the asset and shall be recognized
in equity.
b. the net disposal proceeds and the carrying amount of the asset and shall be recognized
in profit or loss.
c. the total disposal proceeds and the cost of the asset and shall be recognized in equity.
 d. the net disposal proceeds and the cost of the asset and shall be recognized in profit or
loss.

21. Which of the following statements is incorrect for disposals of investment property?
a. Gains or losses arising from the retirement or disposal of investment property shall be
determined as the difference between the net disposal proceeds and the carrying
amount.
b. Gains or losses arising from the retirement or disposal of investment property shall be
recognized in profit or loss.
c. Compensation from third parties for investment property that was impaired, lost or given
up shall be recognized in profit or loss when the compensation is received.
d. The consideration receivable on disposal of an investment property is recognized initially
at fair value.

22. Which of the following are within the definition of an intangible asset?
I. Held for use in the production or supply of goods or services, for rental to others, or
for administrative purposes.
II. Identifiable nonmonetary asset without physical substance
III. A resource controlled by an enterprise as a result of past events
IV. A resource from which future economic benefits are expected to flow to the
enterprise.

a. II, III and IV

b. I, II and III
c. II and III
d. III and IV

23. Which of the following intangible assets does not have the characteristic of
exchangeability?
a. Patent
b. Goodwill
c. Copyright
d. Franchise

24. Which of the following is correct?

a. The fair value of internally generated intangible assets should be estimated and
recorded on the books of the entity that developed the assets even in the absence of a
business acquisition.
b. The fair value of internally generated intangible assets may be estimated but should not
be recorded on the books or displayed on the financial statements of the entity.
c. Managers may value their own companies and recognize goodwill in the company
accounts even though an entity has not been acquired in a business acquisition.
 d. Goodwill should be recognized in the accounts whenever the value of the firm increases
based on current market prices of the firm's share capital.

25. Which statement is correct concerning the amortization of an intangible asset?

I. Intangible assets with finite life are amortized over their useful life.
II. Intangible assets with indefinite lives are not amortized but tested for impairment at
least annually.
a. Both I and II
b. Neither nor II
c. I only
d. II only

26. What term is generally used to refer to the systematic allocation of the cost of an intangible
asset less any residual value as an expense over the asset's useful life?
a. Depreciation
b. Realization
c. Depletion
d. Amortization

27. Which of the following is a research activity?

a. Design, Construction, and testing of pre-production or pre-use prototypes and models
b. Design, construction and operation of a pilot plant that is not of scale economically
feasible for commercial production
c. Formulation, design, evaluation and final selection of possible alternatives for new or
improved materials, devices, products, processes, systems or services
d. Design, construction and testing of a chosen alternative for new or improved materials,
devices, products, processes, systems or services

28. The cost of purchasing a patent for a product that might otherwise have seriously competed
with the purchaser's patented product should be
a. expensed in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the purchaser's product.
d. amortized over the remaining useful life of the patent for the product whose market
would have been impaired by competition from the newly patented product.

29. Biological assets are measured at

a. Cost.
b. lower of cost or net realizable value.
c. fair value less estimated cost to sell
d. net realizable value less normal profit margin.
30. The following provides examples of biological assets, agricultural produce and products that
are the result of processing after harvest. Which is a correct combination?
Biological asset Agricultural produce Product after harvest
a. Plants Harvested cane Sugar
b. Dairy cattle Cheese Milk
c. Sausage Carcass Pig
d. Vines Wine Grapes

31. Which of the following statements is incorrect in determining the fair value of biological
assets and agricultural produce?
a. Contract prices are not necessarily relevant in determining fair value when entities enter
into contracts to sell their biological assets or agricultural produce at a future date,
because fair value reflects the current market in which a willing buyer and seller would
enter into a transaction.
b. If an active market exists for a biological asset or agricultural produce, in its present
location and condition, the quoted price in that market is the appropriate basis for
determining the fair value of that asset
c. The determination of fair value fora biological asset or agricultural produce may be
facilitated by grouping biological assets or agricultural produce according to significant
attributes.
d. The fair value of a biological asset or agricultural produce adjusted when entities enter
into contracts to sell their biological assets or agricultural produce at a future date.

32. How shall the fair value of biological assets physically attached to land be determined?
a. The fair value of biological assets may be deducted from the fair value of the combined
assets to arrive at fair value of the raw land and land improvements.
b. The fair value of raw land and land improvements may be deducted from the fair value of
the combined assets to arrive at the fair value of biological assets.
c. It cannot be determined.
d. The fair value of raw land and land improvements may be added to the fair value of
biological assets to arrive at the fair value of the combined assets.

33. It is a component of an entity that that has been disposed of or is classified as held for sale.
a. Discontinued operation
b. Continued operation
c. Noncurrent asset held for sale
d. Disposal group held for sale
34. The results of operations of a component of an entity that either has been disposed of or
classified as held for sale shall be reported in discontinued operations if
I. The operations and cash flows of the component have been or will be eliminated from
the on-going operations of the entity as a result of the disposal transaction.
II. The entity continues to have a significant continuing involvement in the operations of the
component after the disposal transaction.
III. The entity outsources the manufacturing operations of a component and sells the
manufacturing facility of the component but continues to sell the product formerly
manufactured by the facility sold.

a. Only I is true
b. Only II is true
c. I and II are true
d. I, II, and III are all true

35. An entity put back an asset that was previously classified as "Held for Sale" into active use;
thus, the criteria for the asset to be classified as Held for Sale" no longer apply. For
accounting purposes, the entity shall
a. continue to classify the asset as Held for Sale, until such date that the asset is retired or
disposed of.
b. reclassify the asset into its previous classification at the lower of fair value less cost to
sell and its carrying amount when the asset was classified as Held for Sale.
c. continue to classify the asset as Held for Sale and resume the depreciation for the asset.
d. reclassify the asset into its previous classification, measuring it at the lower between its
carrying value had the asset not been classified as Held for Sale and its recoverable
amount as determined under IAS 36 Impairment of Assets, and then subject the asset to
depreciation or amortization.
PROBLEMS
36. Marcus Company operates an oil platform in the sea, Marcus company has provided the
amount of P10.000.000 for the financial costs of the restoration of the seabed, which is the
present value of such costs. Marcus Company has received an offer to buy the oil platform
has received an offer to buy the oil platform for P16,000,000 and the disposal costs would
be P2,000,000. The value-in-use of the oil platform is approximately P24,000,000 before the
restoration costs. The carrying value of the oil platform is P20,000,00.
What amount of impairment loss should Marcus Company recognize related to the oil
platform?
a. None c. P6,000,000
b. P4,000,000 d. P8,000,000
37. Chester Company has an oil platform in the sea. Chester Company has to decommission
the platform at the end of its useful life, and a provision was set up at the commencement of
production, the carrying value of the provision is P8,000,000. Chester Company has
received an offer of P20,000,000 (selling costs P1,000,000) for the rights to the oil platform,
which reflects the fact that the owners have to decommission it at the end of its useful life.
The value-in-use of the oil platform is P26,000,000 ignoring the decommissioning costs. The
carrying value of the oil platform is P28,000,000.

What amount of impairment loss should Chester Company recognize related to the oil
platform?
a. None
b. P1,000,000
c. P2,000,000
d. P9,000,000

38. Coward Company purchased building on January 1, 2010 for a total of P10,000,00. The
building has been depreciated using the straight-line method with a 25-year useful life and
no residual value. As of January 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 P450,000 per year. The estimated recoverable amount of the building on
January 1, 2014 is P5,310,000.

How much, if any, is the impairment loss that should be recognized on January 1, 2014?
a. None
b. 22,100,000
c. 3,090,000
d. P5,200,000

39. Cremation Company had a machinery costing P3,000,000 when purchased on January 2,
2010. Estimated useful life of the asset was for 20 years with no salvage value at the end of
its useful life. Cremation uses the straight-line method of depreciation. On January 2, 2015,
Cremation is evaluating the machinery for possible impairment. The machinery has a
remaining useful life of 5 years and is expected to generate cash inflows of P500,000 per
year. Cremation has determined that the rate implicit in current market transaction for similar
asset is 10%. Available information as of January 2, 2015 also showed that the appropriate
market price for the same asset is P1,800,000. Estimated cost of disposal, P150,000.

What amount of impairment loss, if any, is to be recognized?

a. None c. P450,000
b. P355,000 d. P600,000
40. An asset was acquired on January 1, 2012 for P800,000 and is expected to have a 5-year
useful life. Straight-line method of depreciation will be used. At January 1, 2014, the asset is
appraised as having a sound value (depreciated replacement cost) of P720,000. On
January 1, 2016 the asset was again remeasured and based on reliable estimate it has a
sound value of P120.000

What is the replacement cost of the asset on January 1, 2014?

a. P720,000
b. P800,000
c. P1,100,000
d. P1,200,000

41. On January 2,2008, Beige Company 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, 2013, Beige converted the building into a
commercial establishment with only minor renovation costs incurred. In consultation with an
appraise, the building’s fair value as of January 1,2013 was P 11,970,000. On January 11
2015, 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, 2015?

a. P1, 050,000 c. P3, 500,000
b. P1, 250,000 d. P4, 286,000

42. Margot Corporation has one of its many departments that perform machining operations on
parts that are sold to contractors. A group of machines have an aggregate book value at the
latest balance sheet date (December 31, 2014) totaling P369,000. It has been determined
that this group of machinery constitutes a cash generating unit for purposes of applying PAS
36. Upon analysis, the following facts about future expected cash inflows and outflows
become apparent based on the diminishing productivity expected of the machinery as it
ages, and the increasing costs that will be incurred to generate output from the machines.
Costs, excluding PV of Discount
Year Revenues Depreciation Rate of 5%
2015 P225,000 P84,000 .95238

2016 240,000 126,000 .90703

2017 185,000 165,000 .86384

2018 60,000 45,000 .82270
Total P720,000 P420,000
 The fair value less cost to sell of the machinery in this cash-generating unit is determined by
reference to use machinery quotation sheets obtained from a prominent dealer. After
deducting disposition costs, the net selling price is calculated as P253,500.
What is the amount of impairment loss to be recognized by Margot Company on December
31,2014?
a. P93,057 c. P101,255
b. P99,215 d. P115,500
43. Below are the historical cost balances of the property, plant and equipment of Roosevelt
Company at January 1, 2014.
Land P14,000,000
Buildings and improvements 84,000,000
Machinery and equipment 112,000,000
Total P210,000,000
Accumulated depreciation:
Buildings and improvements P10,500,000
Machinery and equipment 28,000,000 38,500,000
Net book value P171,500,000

An appraisal was made for all of Roosevelt's Property, plant and Equipment on the same
date.
The appraisal report disclosed the following:
Fair Values Remaining Useful Life
Land P 28,000,000
Buildings and improvements 126,000,000 18 years
Machinery and equipment 126,000,000 7 years
Total P280,000,000

There were no additions or disposals during 2014. Depreciation expense is computed based
on a straight-line method. The estimated useful life applied to buildings and improvements
was 20 years and 10 years for machinery and equipment. The appraisal was recorded by
Roosevelt on December 15, 2014 only.
How much should be the depreciation expense of Roosevelt for the year ended December
31, 2014?
a. P15,400,000 c. P20,800,000
b. P18,900,000 d. P25,000,000
44. Lincoln Corporation has the following information as of January 1, 2014 on its Property,
plant and Equipment account:
Accumulated
Historical Cost Depreciation
Land P 25,000,000
Buildings & improvements 150,000,000 50,000,000
Machinery & equipment 200,000,000 18,750,000

There were no additions or disposals during 2014. Depreciation expense is computed on

straight-line method over 20 years for buildings and improvements and 10 years for
machinery and equipment. on January 1, 2014, all of the company's property, plant and
equipment appraised as follows:
Fair Values

Land P 50,000,000
Buildings and P225,000,000
improvements
Machinery and equipment 225,000,000

Lincoln booked the appraisal on December 31, 2014.

How much should Lincoln report as revaluation surplus in Property, Plant & Equipment
under the shareholders' equity?
a. P143,750,000 c. P207,500,000
b. P193,750,000 d. P318,250,000

45. On January 1, 2011, Excel Company purchased an asset for P1,000,000, with an estimated
useful life of 10 years. Straight-line method of depreciation is to be used. On January 1,
2013, it was properly determined that the recoverable amount of the asset is P640,000. On
January 1, 2014, it was properly computed that the recoverable amount of the asset is
P740,000..
Under the cost model for long-lived assets, what are the amounts to be reported in the
income statement and shareholders' equity, respectively, immediately on January 1, 2014?
a. P40,000 & P140,000 c. P140,000 & none
b. P120,000 & P60,000 d. P160,000 & P20,000
46. Refer to the previous problem. Under the revaluation model for long-lived assets, what are
the amounts to be reported in the profit or loss and shareholders' equity on January 1,
2014?
a. P140,000 and P 40,000 c. P180,000 and none
b. P 20,000 and P160,000 d. none and 180,000

47. London Company owned a building on January 1, 2016 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, 2017 46,800,000
January 1, 2019 55,500,000

Before income tax, what is the revaluation surplus on January 1, 2017?

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

48. Refer to the previous problem. What is the increase in revaluation surplus to be recognized
as component of other comprehensive income on January 1, 2019?
a. 15,500,000
b. 6. 11,100,000
c. 8,700,000
d. 9,900,000

49. Refer to the problem in number 12. What is the revaluation surplus to be reported in the
statement of changes in equity for the year ended December 31, 2019?
a. 18,200,000
b. 18,000,000
c. 18,900,000
d. 18,500,000
50. Company A is a financial service entity that is involved in real estate development. Company
A has purchased land in Quezon City through the exercise of a purchase option that had
been acquired some years ago. The purchase price was P20, 000,000 and the land's fair
value as determined by an independent value is P46, 400,000 on December 31, 2014.
Company A is undecided about whether to develop the land for sale to a third party or sell it,
but will determine a use within the next accounting period. On December 31, 2014,
Company A should report the property as -
a. Investment property at its original cost of P20, 000,000
b. Investment property at its fair value of P46, 400,000
c. Inventory at its original cost of P20, 000,000
d. Inventory at its fair value of P46, 400,000

51. Act Company acquired an investment property with an installment price of P2, 400,000. The
acquisition of the property requires a down payment of 20% and a non-interest bearing note
payable at the end of each year for five years. The prevailing market rate of interest for
similar instrument is 12%. The present value of factor of annuity of 12% for four periods is
3.605. Act
Company incurred transaction costs amounting to P50,000 for the property.
What is the cost of acquiring the property?
a. P1, 862,400 c. P2, 400,000
b. P1, 914,320 d. P2, 450,000

52. On January 2, 2012, Caramel Company acquired an investment property and the initial cost
of investment property was P5,000,000. On the date of acquisition, the company chooses the
cost model to account for its investment. As of December 31 2013, it has a carrying value of
P4,900,000 and a fair value of P5,100,000.

On December 31, 2014, the company decided to transfer the investment property to owner
occupied property that is also under the cost model. On the date of transfer, the fair value of
property is P5,000,000 while its carrying value was P4,800,000.
What amount of gain or loss on transfer should the company recognize on December 31,
2014?
a. No gain or loss c. P200,000 loss
b. P100,000 loss d. P300,000 loss

53. On January 2, 2013, Haven Corporation acquired a track of land that is to be sold in the
ordinary conduct of business. The purchase price of the property of P50,000,000 was paid
in cash and a total transaction costs of P500,000 related to the acquisition of the property
was paid at a later date. The land was subdivided into 2,000 lots (200 square meters for
 every lot) for an additional cost of P5,500,000. On December 31, 2010, the market value of
the lot was P1,500 per square meter.

As of December 31, 2014, only 20,000 square meters are still unsold and market value of
the lot had increased to P1,600 per square meter. On this date, Haven Corporation decided
to transfer the remaining lots into investment property that is to be carried order the fair
value model. There was no additional cost incurred on the change intention on the property.

What amount of gain should Haven Corporation recognize as a result of the transfer?
a. P29,200,000 c. P29,475,000
b. P29, 225,000 d. P29,500,000

54. In 2014, Tremor Company has an investment property with a carrying amount of
P40,000,000 is destroyed by fire. The building element of the property was carried at
P12,000,000. A claim was made for compensation to the company’s insurers, but has not
been agreed at the time the financial statements for 2014 are issued. In 2015, the claim is
agreed and the company receives P20,000,000 in compensation. Also, at the end of year
2015, a replacement building is constructed at a cost P16,000,000

What amount of impairment loss should Tremor Company recognize in its 2014 statement of
comprehensive income?
a. None
b. P12,000,000
c. P16,000,000
d. P40,000,000
55. On June 15, 2015, Valiant Company sold its investment property for P6,250,000 net of
disposal cost and other transaction costs of P150,000. This property was acquired at a
historical cost of P5,120,00 including total transaction costs of P190,000 has a fair market
value of P6,200,000 as of December 31, 2014.
If the company uses the cost model, what amount of realized gain on sale of the investment
property should Valiant Company recognize?
a. P 50,000 c. P1,080,000
b. P790.000 d. P1,130,000

56. On January 2, 2002, Power Company acquired a building costing P6,500,000. Power
Company estimated that the useful life of the property is 20 years. Power Company’s policy
is to depreciate all depreciable assets using the straight-line method, without scrap.
On January 2, 2007, the building was re-measured at P3,000,000 and with a remaining
revised useful life of 20 years. On January 2, 2012, Power Company converted the property
 into investment property when the fair value is P3,500,000.

What amount unrealized gain or revaluation surplus should Grand Company recognize in its
shareholders’ equity on the date of transfer?
a. None c. P1,125,000
b. P125,000 d. P1,250,000

57. Sailor Company's has bought the entity from previous owners through a leveraged
management buy-in (MBI). The company incurred a total transaction cost related to the MBI
In the amount of P5,000,000 which was broken into the following specific costs: P1,000,000
related to the issue of own equity instrument, P1,500,000 related to the issue of debt
instrument and P2,500,000 for the consultants and lawyers’ fees. The management
proposes to capitalize the P5,000,000 as intangible asset. .
What amount should the company recognize as at intangible asset?
a. none c. P4,000,000
b. P2,500,000 d. P5,000,000

58. Moon Company 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. P675,000 c. P1,680,000
b. P975,000 d. P2,430,000

59. On January 2, 2014, Proton Company paid P500,000 to acquire a patent with a remaining
economic useful life of 15 years. Proton Company expects to use the patent for 5 years and
intends to sell it after 5 years. Newton Company has committed to buy the patent for 40% of
the cost to Proton Company.
In its December 31, 2014, what amount of patent amortization should Proton Company
report in its profit or loss?
a. P40,000 c. P100,000
b. P60,000 d. P200,000

60. Pasture Company has a broadcasting license that expires in 5years. As of January 1, 2011,
the license has a carrying amount of P2,000,000. The license is renewable and has already
been renewed twice in the past. There are no factors to suggest that the license will not be
renewed again and the entity has the intention to do so. The license is expected to
contribute to the entity's cash flow indefinitely.
 In the December 31, 2011 statement of financial position, how much should be reported as
the carrying value of the broadcasting license?
a. None c. P1,900,000
b. P1,600,000 d. P2,000,000

61. Octopus Corporation incurred the following costs during the year ended December 31,
2014:
Laboratory research aimed at discovery of new knowledge 150,000
Radical modification to the formulation of a chemical product 125,000
Research & development costs reimbursable under a
contract to perform research & development for Wings, Inc. 350,000
Testing for evaluation of new products 250,000
What is the total amount the company incurred identified in the research and development
stage?
a. P150,000 c. P525,000
b. P275,000 d. P625,000

62. On January 1, 2010, Saturn Company signed a 12-year lease for warehouse space. Saturn
has an option to renew the lease for an additional 8-year period on January 1, 2013. Saturn
intended to exercise the renewal option. Early January 2012, Saturn made substantial
improvements to the warehouse. The cost of these improvements was P540,000 with an
estimated useful life of 15 years Saturn has taken full year on this leasehold improvement.
In the December 31, 2014 balance sheet, what is the carrying amount of this leasehold
improvement? .
a. P360,000 c. P 468,000
b. P432,000 d. P 504,000

63. A patent right is acquired on January 2012, for P500,000 while it has a legal life of 15 years,
due to rapidly changing technology, management estimates a useful life of only 5 years. At
January 1 2013, management is uncertain that the process can actually be made
economically feasible, and decides to write-down the patent to an estimated market value of
P150,000 with no change in its remaining useful life. On January 1, 2014, having perfected
the related production process, the asset is now appraised at a sound value of P600,000.
Under the revaluation model, what amount should be reported in the shareholder’s equity as
a result of revaluation?
a. None c. P250,000
b. P187,500 d. P300,000
64. Fortitude Company purchased cattle at an auction for P200, 000 on July 1, 2014. Cost of
transporting the cattle back to the company’s farm was P2, 000 and the company would have
to incur cost similar transportation cost if it was to sell the cattle in the auction, in addition an
auctioneer’s fee of 2% of sales price. What amount should the biological assets be initially
recognized?
a. P194, 000 c. P 198, 000
b. P196, 000 d. P 200, 000

65. Creep Company purchased 100 beef cattle at an auction for P8, 000. Creep Company would
have to incur the same transportation costs if it had sold its cattle in the auction. In addition
there would be a 2% auctioneer’s fee on the market price of the cattle payable by the seller.
Creep Company also incurred P4, 000 veterinary expenses. On December 31, 2014, the fair
value of the cattle in the most relevant market increases to P880, 000. On May 2, 2015, Creep
Company sold 18 cattle at auction for P160, 000 and incurred transportation charges of 1,200.
On June 15, 2015, the fair value of the remaining cattle was P662, 560 but on the same day,
42 cattle were slaughtered with total cost of P33, 600. The fair value of the carcasses is P3,
360. No other selling costs are expected. On June 30, 2015, the fair value of the remaining
40 cattle was P358, 400. The estimated transportation cost is P3, 200.
What amount should the biological asset be initially recognized on July 1, 2014?
a. P776, 000 c. P792, 000
b. P784, 000 d. P800, 000

66. Marxian Company owns about one million hectare of forest land. Biological assets (living
trees) are measured at their fair value at each balance sheet date. The fair value of biological
assets is determined based among other estimates on growth potential, harvesting, price
development and discount rate. Changes in estimates could lead to recognition of significant
fair value changes in the statement of comprehensive income. The following relevant data are
made available involving the company’s biological assets:
Fair value- January 1, 2014; P20, 740,000; fair value of acquisitions during the year, P20,
000;
Sales- at fair value, P400, 000; fair value of harvest during the year, P2, 320,000;
Translation differences- credit, P4, 000; fair value, December 31, 2014, P21, 900,000.
What amount of gain due to change in fair value should the company report in its December
31, 2014 statement of comprehensive income?
a. none c. P 1,200, 000
b. P1,160, 000 d. P 3,900, 000
67. Vortex Company’s standing cane fair value as of January 1, 2014 was P2, 700,000 and as of
December 31, 2014 was P2, 250,000. The fair value of the agricultural produce harvested
during the period was P2, 100,000, on the respective dates of harvest.
What net amount of gain or loss should Vortex Company report in its December 31, 2014
profit or loss related to the biological asset and agricultural produced?
a. None c. P 1,650, 000
b. P550, 000 d. P 2,100, 000

68. On July 2014, Thunder Company is committed to a plan to sell a disposal group that
represents a significant portion of its regulated operations. The sale requires regulatory
approval, which could extend the period required to complete the sale beyond on year. Actions
necessary to obtain that approval cannot be initiated until after a buyer is known and a firm
purchase commitment is obtained. However, a firm purchase commitment is highly probable
within one year. The noncurrent assets of disposal group have a carrying value of P4, 000,
000 and liabilities of P 1, 000, 000. The total fair market value as December 31, 2014 of the
disposal group is P 4, 800,000. If the sale is completed within one year, the estimated cost to
sell is P200, 000, but if the sale will extend beyond one year, the present value of the estimated
cost to sell is P 180, 000.
If the sale will extend beyond one year, what amount of gain or loss should the company
report in its 2014 profit or loss?
a. none c. P 620, 000
b. P380, 000 d. P 800, 000

69. On December 31, 2014, Condor Company committed to a plan to sell a manufacturing facility
in its present condition and classifies the facility as held for sale at this date. After a firm
purchase commitment is obtain, the buyer’s inspection of the property identifies environmental
damage not previously known to exist. Condor Company is required by the buyer to make
good the damage, which will extend the period required to complete the sale beyond one year.
However, the entity has initiated actions to make good the damage, satisfactory rectification
of the damage is highly probable. On December 31, 2014, the carrying value of the facility is
P4, 000, 000 and its fair market value is P3, 600, 000.
In its December 31, 2014 statement of financial position, Condor Company should properly
report this manufacturing facility as:
a. Should no longer be included in its December 31, 2014 balance sheet
b. Should be included among the property, plant and equipment at P4, 000, 000
c. Should be included among the property, plant and equipment at P3, 000, 000
d. Should be reported separately as non-current held for disposal and valued at P3, 600, 000
70. On January 2, 2014, Chandler Company committed to a plan to sell its other building and
classified this asset as held for sale. The carrying value of the building as of January 2, 2014
is P5, 000, 000. Chandler Company priced the building at P5, 500, 000, which is equal to its
fair market value. During 2014, the market conditions that existed at the date the building was
classified initially as held for sale deteriorate and as a result, the asset is not sold at the end
of 2014.
During 2014, the company actively solicited but did not receive any reasonable offers to
purchase the building and, in response, reduced the price to P4, 800, 800. The building
continues to be actively marketed at a price that is reasonable given the change in market
conditions.
In Chandler Company’s December 31, 2014 balance sheet, the building:
a. Should be included as property, plant and equipment valued at P4, 800, 000
b. Should be included among the property, plant and equipment at P5, 000, 000
c. Should be reported separately as non-current held for sale and valued at P4, 800, 000
d. Should be reported separately as non-current asset held for disposal and valued at
P5, 500, 000
ANSWERS:
THEORIES
1. D 19. C
2. B 20. B
3. A 21. C
4. A 22. A
5. A 23. B
6. C 24. B
7. D 25. A
8. D 26. D
9. D 27. C
10. B 28. D
11. D 29. C
12. B 30. A
13. C 31. D
14. A 32. B
15. A 33. A
16. C 34. A
17. C 35. D
18. B

PROBLEMS

36. A
Fair value less cost to sell (P16,000,000 - P2,000,000) P14,000,000
Value-in-use (P24,000,000 - P10,000,000) P14,000,000
Carrying value (P20,000,000 - P10,000,000) P10,000,000

Recoverable amount P14,000,000

Impairment loss none

37. B
Fair value less cost to sell (P20,000,000 – P1,000,000) P19,000,000
Value-in-use (P26,000,000 - P8,000,000) P18,000,000
Carrying value (P28,000,000 – P8,000,000) P20,000,000

Recoverable amount P19,000,000

Impairment loss P1,000,000
38. C
Original cost P10,000,000
Less: Accum. Depn. from 01/01/10 to 01/01/14
(P10,000,000 x 4/25) 1,600,000
Carrying value, January 1, 2014 P8,400,000
Less. Recoverable value 5,310,000
Impairment loss P3,090,000

The undiscounted cash flow of P6,750,000 (P450 000 x 15 years remaining useful life) is not the
value in use since PAS 36 dictates that the value in use should be the present value of cash
flows discounted at pretax rate(s) that reflects current market assessments of time value of
money and the risk specific to the asset. Thus, it is to be assumed that the recoverable amount
is the present value of the cash flows or the higher of the fair value less cost to sell or the value

39. B
Original cost P3,000,000
Less: Accum depn. from 01/02/10 to 01/02/15
(P3,000,000 x 5/20) 750,000
Carrying value P2,250,000
Less: Recoverable amount 1,895,000*
Impairment loss P355,000

Net selling price (P1,800,000 - P150,000) P1,650,000

Value in use (P500,000 x 3.79**) 1,895,000*

**The present value factor of annuity of 10% for 5 periods.

Recoverable amount is the higher between the fair value less cost to sell and the value in use.

40. D
Date Particular At Cost Life %based on Appraised
life Value
01/01/12 Asset 800,000 5 100% P1,200,000

01/01/12 to Accum. Depn (320,000) (2) (40%) (480,000)

01/01/14
01/01/14 Book/sound 480,000 3 69% 720,000
value
41. B
Fair value of the building, January 1, 2013 P11,970,000
Less: Carrying value
Cost P10,000,000
Less: Accumulated depreciation
From 01/01/08 to 01/01/13
(P10,000,000 x 5/40 years) 1,250,000 8,750,000
Revaluation surplus-2013 P3,220,000

Recoverable value, January 1, 2014 P7,000,000

Less: Carrying value based on revalued amount P11,970,000
Depreciation (P11,970,000 x 2/35) ( 684,000) 11,286,000
Revaluation decrease (P4,286,000)
Revaluation surplus (P3,220,000 x 33/35) 3,036,000
Impairment loss P1,250,000

Under the revaluation model:

PAS 16, paragraphs 39 states that if an asset's carrying amount is increased as a result of a
revaluation, the increase shall be credited directly to equity under the heading of revaluation
surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses
a revaluation decrease of the same asset previously recognized in profit or loss.
PAS 16, paragraph 40 states that if an asset's carrying amount is decreased as a result of
revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be
debited directly under the heading of revaluation surplus to the extent of any credit balance
existing in the revaluation surplus in respect of that asset.
When the asset was remeasured (revalued) on January 1, 2013, a P3, 220,000 revaluation
surplus was credited and reported in the shareholders' equity. After revaluation the enterprise will
continue to depreciate the asset based on the revalued amount over 35 remaining years, likewise
portion of the revaluation surplus will be transferred to the retained earnings/accumulated profits
and losses, which is the difference of the depreciation based on the revalued amount and the
depreciation, had no revaluation been made (depreciation based on cost). In short, the amount
of revaluation surplus is also amortized over the remaining life of the asset, that on January 1,
2014, its amortized balance is 33/35 years x P3,220,000 (35 remaining years less 2 years expired
from January 1, 2013 to January 1, 2014).
42. A
Costs, Net PV Of PV Of
Excluding Cash Discount Net Cash
Year Depn Inflow Rate Of 5% Inflow
Revenues
2015 P225,000 - P 84,000 = P141,000 x .95238 = P134,286

2016 240,000 - 126,000 = 114,000 x .90703 = 103,401

2017 195,000 - 165,000 = 30,000 x .86384 = 25,915

2018 60,000 - 45,000 = 15,000 x .82270 = 12,341

Total P 275,943

Fair value less cost to sell P253,500

Value in Use 275,943
Carrying Value of Machinery P369,000
Less: Recoverable amount (the higher of the Net
fair value less cost to sell and Value in Use) 275,943

43. D
Depreciation for 2014 based on appraised values:
Buildings and improvements (P126,000,000/18) P 7,000,000
Machinery and equipment (P126,000,000/7) 18,000,000
Total depreciation for 2014 P25,000,000

Under the revaluation model:

PAS 15 paragraph 31 states, After recognition as an asset, an item of property, plant and
equipment whose fair value can be measured reliably shall be carried at a revalued amount.
being its fair value at the dote of the revaluation less any subsequent accumulated depreciation
and subsequent accumulated Impairment losses. Revaluations shall be made with sufficient
regularity to ensure that the carrying amount does not differ materially from that which would be
determined using fair value at the balance sheet date.
Depreciation after the assets revalued should be based on the fair values of the depreciable
assets.
44. B
Fair value of assets P500,000,000
Net book value 306,250,000
Revaluation increment P193,750,000

When an asset's carrying amount is increased as a result of a revaluation, the increase should
be credited directly to equity under the heading of revolution surplus. However, a revaluation
increase should be recognized as income to the extent that it reverses a revaluation decrease of
the same asset previously recognized as an expense.
Since there was no revaluation decrease being recognized previously, the total amount should
be reported in the shareholders' equity.
45. C
Historical cost - January 1, 2011 P1,000,000
Accumulated depreciation from 01/01/11 to 01/01/13 (P1,000,000 x 2/10) 200,000
Carrying value on January 1, 2013 P 800,000
Recoverable Value Carrying Value
As of January 1, 2013 P640,000 P800,000
Depreciation for 2013: _ 80,000 (P 800.000 / 8 yrs.) 100,000
(P640,000 + 8 years)
Carrying amount- P560,000 P700,000

Recoverable value - January 1, 2014 P740,000

Less: Carrying amount based on its previous recoverable amount 560,000
Increase in the value of the asset P180,000
Carrying amount-01/01/14 (based on historical cost) P700,000
Carrying amount-01/01/14 (based on its previous fair value) 560,000
Reversal of impairment loss recognized as income in the income statement P140,000

PAS 36, paragraph 114 states, An impairment loss recognized in prior periods for an asset
other than goodwill shall be reversed it and only if there has been a change in the estimates
used to determine the asset's recoverable amount since the last impairment loss was
recognized the case, the carrying amount of the asset shall, except as described in paragraph
117below be Increased to its recoverable amount. The increase is a reversal of an impairment
loss.
PAS 36, paragraph 117. The increased carrying amount of an asset other than good
attributable to a reversal of an impairment loss shall not exceed the carrying amount that would
have been determined (net of amortization or depreciation) had no impairment loss been
recognized for the asset in prior years
The depreciated carrying amount of the asset on January 1, 2014 is P560,000 and increasing it
by P180,000 will be measuring the asset above its carrying value based on its historical cost
had no impairment loss been recognized previously, therefore, the company con only increase
the asset by P140,000 and recognize this as a reversal of impairment loss and report in the
2014 Income statement.
46. A
Recoverable value - January 1, 2014 P740,000
Less: Carrying amount based on its previous
recoverable amount P560,000
Increase in the value of the asset 180,000
Less. Reversal of impairment loss recognized previously:
Recoverable value - January 1, 2014 560,000
Carrying value on January 1, 2014 700,000 140,000
Revaluation surplus to be reported in the shareholders' equity P_40,000

PAS 36, paragraph 120 - A reversal of an impairment loss on a revalued asset is credited
directly to equity under the heading revaluation surplus. However, to the extent that an
impairment loss on the same asset was previously recognized as an expense in the income
statement, a reversal of that impairment loss is recognized as income in the income statement
47. A
Cost - January 1, 2016 40,000,000
Accumulated depreciation - December 31, 2016
(40,000,000 / 40) (1,000,000)
Carrying amount - January 1, 2017 39,000,000

Fair value - January 1, 2017 46,800,000

Carrying amount - January 1, 2017 39,000,000
Revaluation surplus - January 1, 2017 7,800,000
48. B
Fair value - January 1, 2017 46,800,000
Accumulated depreciation - December 31, 2018:
2017 (46,800,000 / 39) 1,200,000
2018 1,200,000 (2,400,000)
Carrying amount - January 1, 2019 44,400,000

Fair value - January 1, 2019 55,500,000

Carrying amount - January 1, 2019 44,400,000
Increase in revaluation surplus - January 1, 2019 11,100,000

49. B
Revaluation surplus - January 1, 2017 7,800,000
Increase in revaluation surplus - January 1, 2019 11,100,000
Total 18,900,000

Annual realization of revaluation surplus:

2017 (7,800,000/39) (200,000)
2018 (200,000)
2019 (200,000)
2019 (11,100,000/37) (300,000)
Revaluation surplus - December 31, 2019 18,000,000

50. C
The land should be classified as inventory. Although the entity is still undecided on what to do
with the land, the property is being held either for sole or for further development and eventual
sale in the ordinary course of business. Had the entity decided to hold the land for long-term
capital appreciation rather than short-term sale in the ordinary course of business, then it would
be classified as an investment property.

51. B
Down Payment (P2, 400,000 x 20%) 1,384,320 P 480, 000
PV of future payments (P2, 400,000 x 80% + 5 x 3.605) 1,384,320
Fair value of the investment property P1,864,320
Add: Transaction costs 50,000
Historical cost of the investment property P1,914,320
52. A
When the company uses the cost model for investment property, transfers between categories
do not change the carrying amount of the property transferred and they do not change the cost of
the property for measurement or disclosure purposes.

53. A

Cash price of the property P 50,000,000

Transaction cost 500,000
Total P 50,500,000
Subsequent cost - development cost 5,500,000
Total cost of the Inventory P 56,000,000
+ Number of lots 2,000
Unit cost per lot P 28,000
+ Number of square meters per lot 200
Unit cost per square meter P 140
Fair value on the date of transfer (20,000 x P1,600) P 32,000,000
Cost of inventory (20,000 sq. m. x P140/sq. m.) 2,800,000
Gain on transfer P 29,200,000

Transfer from inventories to investment property at fair value - any difference between the fair
value at the date of transfer and the previous carrying amount should be recognized in net profit
or loss for the period.

54. B
For the year 2014, Tremor Company recognizes an impairment loss of P12,000,000 in respect
of the loss of building. The land element is not impaired, but the company would continue to
account for that element as investment property,
55. D
Cost Model Fair Value Model
Selling Price P6,250,000 P 6,250,000
Carrying Value 5,120,000 6,200,000
Gain on sale P 1,130,000 P 50,000
56. B
Historical Cost P 6,000,000
Less: Accumulated depreciation for 5 years
(P6,000,000 ÷ 20 years x 5 years) (1,500,000)
Carrying value as of January 2, 2007 P 4,500,000

Carrying Value – Jan. 2, 2007 P 4,500,000

Fair market value – to profit or loss (2007) 3,000,000
Impairment loss – to profit or loss (2007) P 1,500,000

Fair market value – January 2, 2007 P 3,000,000

Depreciation – 2007 to 2011 (3,000,000 ÷ 20 year x 5years) 750,000
Carrying value as of January 2, 2012 2,250,000

Carrying value – January 2, 2007 P 4,500,000

Depreciation – 2007 to 2011 (4,500,000 ÷ 20 years x 5yrs.) 1,125,000
Carrying value as of Jan. 2, 2012 had no impairment loss P 3,375,000

Fair market value – January 2, 2012 P 3,500,000

Carrying value – 2, 2012 had no impairment loss 3,375,000
Revaluation surplus – to shareholders’ equity P 125,000

57. A
The cost of MBI should not be capitalized as an intangible asset, as they do not in themselves
provide access to future economic benefits. The transaction costs on the equity instrument
Issued should be deducted from equity (PFRS3 par. 31 or PFRS 3 par. 53 revised), the cost
related to the debt issue should be deducted from the liability and recognized over the term of
the loan through an adjustment to the interest cost (PAS 39 por. 43). The consultants' and
lawyers’ fees should be added to the cost of the acquisition of the business (PFRS 3 par. 29 or
PFRS3 por. 53 revised).

58. A
Capitalized Expensed
Original cost
Purchase price P 600,000 P 900,000
Indirect costs 75,000 105,000
Total 675,000 P 1,005,000
Subsequent cost 750,000
Total costs P 675,0000 P 1,775,000
As a result of the unsuccessful litigation on patent B, its purchased price, indirect cost and the
unsuccessful litigation cost should be charged outright as expense. The cost to be capitalized
should be the purchase price and indirect cost of patent A. Subsequent cost incurred such as
fees and other cost of successfully prosecuting or defending a patent should be expensed.
(PAS 38)

The standard requires that only subsequent cost on an intangible asset that would enable the
asset to generate future economic benefits in excess of the original assessed standard of
performance can be capitalized as cost of the intangible asset. Litigation cost or legal cost
incurred in prosecuting an intangible is considered as cost of maintaining the asset rather than
enhancing or increasing its future economic benefits.

59. B
Cost P500,000
Salvage value (P500,000 x 40%) (200,000)
Amortizable cost 300,000
/ Useful life to Proton Co. 5 years
Amortization – 2014 P60,000

Although PAS 38 requires a residual value of nil to be assumed on Intangible assets, this isone
of the exceptions to that rule because of third party has committed to buy the asset after five
years (paragraph 100)

60. D
The broadcasting license would be treated as indefinite and the license would not be
amortized.

61. C
Laboratory research aimed discovery of new knowledge P 150,000
Radical modification to the formulation of a chemical product 125,000
Testing tor evaluation of new products 250,000
Total amount incurred as R & D for 2014 P 525,000

If the company cannot distinguish the research phase from the development phase, the
company treats the expenditure as if it was incurred in the research phase only.
Internally Developed Computer Software the cost incurred on the research stage in creating
the software should be charged outright to expense when incurred until a technological
feasibility has been established for the product. Technological feasibility is established when a
company has produced either a detailed program design of the software or a working model.
After establishing technological feasibility, the cost of software to be capitalized should
include the costs of coding and testing and the cost to produce the product masters.

The cost of the computer software should be allocated based on the pattern in which the asset's
future economic benefits are expected to be consumed by the entity. If such pattern cannot be
determined reliably, the straight-line method is used.
Purchased Software:
a. If it is for sale - should be treated as an inventory
b. If it is held for licensing or rental to others - recognized as an intangible asset
c. If it is for use and integral pan to the hardware - treated as part of the hardware and
capitalized as property, plant and equipment.

62. B
Cost of leasehold improvements P540,000
Less: Total accumulated depreciation 108,000
(from 01/01/10 to 12/31/14)
Carrying value as of December 31, 2014 P432,000

Term of the lease 12

Add: Additional lease term as a result of renewal option 8
Extended lease term 20
Less: Expired lease term (01/01/10 to 01/01/12) 2
Remaining extended lease term 18
Life of improvements 15

Accum. Depreciation = P540,00/15* x 3 yrs. (age of the improvements)

= P108,000

If the lease contract contains a provision for an option to renew and the likelihood of renewal
option is highly probable, depreciation shall be based on the remaining extended lease term or
the life of the improvement, whichever is shorter.
63. D
Based on historical Measure:
Jan. 2012 Historical Cost P500,000 5 years
Jan. 2013 Amortization (100,000) (1) year
Jan. 2013 Carrying value P400,000 4 years
Amortization-2013 (100,000) (1) year
Jan. 2014 Carrying value P300,000 3 years

Based on Fair Value after Impairment loss:

Jan 2013 Fair value P150,000 4 years
Amortization – 2013 ( 37,500) (1) year
Jan. 2014 Amortized fair value P112,500 3 years

Jan 2014 fair value P600,000

Jan 2014 Amortized historical cost 300,000
Revaluation surplus to be reported in equity P300,000

64. A
Fair value P 200, 000
Transportation Costs (2, 000)
Auctioneer’s fee (P200, 000 x 2%) (4, 000)
Adjusted fair value P 194, 000

65. A
Fair value P 800, 000
Transportation Costs (8, 000)
Auctioneer’s fee (P200, 000 x 2%) (16, 000)
Adjusted fair value P 776, 000

66. D
Fair value- January 1, 2014 P20,740,000
Acquisitions 20,000
Harvest (2, 320,000)
Sales (400,000)
Translation Adjustment (40,000)
Fair value- December 31, 2014 (21,900,000)
Increase in fair value- recognized as a gain P 3,900,000
67. C
Total fair value end of the year:
Biological Asset P 2,250, 000
Agricultural produced 2, 100, 000 P 4,350,000
Less: Fair value start of year 2,700,000
Net increase in fair value to profit or loss P 1, 650,000

68. B.
Fair value of the disposal group P 4,800,000
Less: Estimated disposal cost 180,000
Adjusted fair value 4, 620,000
Less: Liabilities of the disposal group 1,000,000
Fair value of non-current asset of the disposal group P 3, 620,000
Carrying value of noncurrent asset 4,000,000
Loss P 380,000

69. D
Philippine Financial Reporting Standard (PFRS) 5:
Par. 6- “An entity shall classify a non-current asset (or disposal group) as held for sale if its
carrying amount will be recovered principally through a sale transaction rather than through
continuing use.”
Par. 7- “For this to be the case, the asset (or disposal group) must be available for immediate
sale in its present condition subject only to terms that are usual and customary for sales of such
assets (or disposal groups) and its sale must be highly probable.”
Par. 8 – “For the sale to be highly probable, the appropriate level of management must be
committed to a plan to sell the asset (or disposal groups), and an active programme to locate a
buyer and complete the plan must have been initiated. Further, the asset or disposal group must
be actively marketed for sale at a price that is reasonable in relation to its current fair value. In
addition, the sale should be expected to qualify for recognition as a completed sale within one
year from the date of classification; except as permitted by Par. 9, and actions required to
complete the plan should indicate that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn.”

70. C
Although there has been a delay to complete the sale, the cause of delay were events and
circumstances that were beyond the control of the company and that there is sufficient evidence
that the company remains committed to its plan to sell the building, chandler Company continue
to recognize this building in its balance sheet as Non-current Asset Held for Disposal and the
building should be valued at its reduced fair market value of P4, 800, 000.