INTACC THEORIES

1. A new notion and is defined as the event or transaction that causes the cash flows of the entity to change
significantly by the reason of exchange.

a. Derecognition

b. Depreciation

c. Commercial Substance

d. Cost

Answer: c

2. Estimated net amount currently obtainable if the asset is at the end of useful life.

a. Discount

b. Interest

c. Residual Value

d. Fair Value

Answer: c

3. Which is not a major characteristics of property, plant and equipment?

a. The property, plant and equipment are subject to depreciation.

b. The property, plant and equipment are tangible assets.

c. The property, plant and equipment are used in business.

d. The property, plant and equipment are expected to be used over a period of time.

Answer: a

4. Major spare parts and stanby equipment which are expected to be used over a period of more than one year
shall be classified as

a. Inventory

b. Property, Plant and Equipment

c. Noncurrent Investment

d. Expense

Answer: b
5. Which of the following terms best describes the removal of an asset from an entity's statement of financial
position?

a. Derecognition

b. Impairment

c. Depreciation

d. Writeoff

Answer: a

6. A nonmonetary exchange is recognized at fair value of the asset exchanged unless

a. Exchange has a commercial substance

b. The assets are similar in nature
c. The assets are dissimilar
d. Fair value is not determinable
Answer: b

7. In an exchange with commercial substance

a. Gain or loss is recognized entirely
b. Gain or loss is not recognized
c. Only gain should be recognized
d. Only loss should be recognized.
Answer: a

8. When property is acquired by issuing equity shares, which of the following is the best basis for establishing the
historical cost of the acquired asset?

a. Historical cost of the asset to the seller

b. Historical cost of a similar asset
c. Fair value of the asset received
d. Fair value of shares issued
Answer: c

9. A donated plant asset for which the fair value has been determined, and for which directly attributable costs
were incurred, shall be recorded at an amount equal to
a. Directly attributable costs incurred
b. Fair value and directly attributable costs incurred
c. Zero
d. Carrying amount
Answer: b
10. The initial operating loss should be
a. Deferred and amortized over a reasonable period
b. Expensed and charged to the income statement
c. Capitalized as part of the cost of plant
d. Charged to retained earnings
Answer: b

11. The following are elements of cost except:

a. Purchase price including import duties and nonrefundable purchase taxes, after deducting trade
discounts and rebates
b. Cost directly attributable to bringing the asset to the location and condition necessary for it to be capable
of operating in the manner intended by the management
c. Initial estimate of the cost of dismantling and removing the item and restoring the site on which it is
located, the obligation for which an entity incurs
d. All of the above
Answer: d

12. The present value of the cash flows an entity expects to arise from the continuing use of an asset and from the
disposal at the end of useful life or expects to incur when settling a liability
a. Entity-specific value
b. Commercial Substance
c. Exchange
d. Carrying Amount
Answer: a

13. Government assistance does not include the following indirect benefits or benefits not specific to an entity:
a. Free technical or marketing advice
b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the entity’s sales
d. Imposition of trading constraints on competitors
Answer: d

14. Expenditures used to restore assets to good operating condition upon their breakdown or replacement of broken
parts
a. Replacements
b. Repairs
c. Improvements
d. Maintenance
Answer: b

15. Defined as the systematic allocation of the depreciable amount of an asset over the useful life
a. Amortization
b. Depletion
c. Depreciation
d. Derecognized
Answer: c
16. Which of the following statements is true?
S1- Property, plant and equipment does not apply to biological assets
S2- Property, plant and equipment does not apply to mineral rights and reserves
a. S1 only
b. S2 only
c. Both statements
d. Neither S1 nor S2

Answer: c

17. Which of the following statements is true?

S1- Property, plant and equipment that qualifies for recognition as an asset should be measured at cost
S2- Property, plant and equipment should not be acquired for safety and environmental reasons
a. S1 only
b. S2 only
c. Both statements
d. Neither S1 nor S2

Answer: a

18. Which of the following statements is true?

S1- Cost of site preparation should be expensed immediately
S2- Initial operating losses is a directly attributable cost
a. S1 only
b. S2 only
c. Both statements
d. Neither S1 nor S2

Answer: d

19. Which of the following statements is false?

S1- Cost of an item of property, plant and equipment is the cash price equivalent at recognition date
S2- Cash discounts are generally considered as reduction of income
a. S1 only
b. S2 only
c. Both statements
d. Neither S1 nor S2

Answer: b

20. Which of the following statements is false?

S1- If an asset is acquired by installment and there is no available cash price, asset is recorded at an amount
equal to historical costs
S2- The measurement of the building using the replacement costs is preferable
a. S1 only
b. S2 only
c. Both statements
d. Neither S1 nor S2
Answer: c

21. Plant assets may properly include

a. deposits on machinery not yet received.

b. idle equipment awaiting sale.

c. land held for possible use as a future plant site.

d. none of these.

Answer: d

22. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance

b. Acquired for resale

c. Acquired for use

d. Yields services over a number of years

Answer: b

23. Which of these is not a major characteristic of a plant asset?

a. Possesses physical substance

b. Acquired for use in operations

c. Yields services over a number of years

d. All of these are major characteristics of a plant asset.

Answer: d

24. Machinery is classified as.

a. Equity

b. Current Liability

c. Current Asset

d. Noncurrent Assets

Answer: d

25. PPE are classified and presented in which of the following statements?
 a. Statement of Financial Performance

b. Statement of Financial Position

c. Statement of Cash Flows

d. Notes to Financial Statements

Answer: b

26. Residual value is specifically:

a) The gross cash amount that is received from the ultimate sale of the asset, at the end of its life

b) Scrap value

c) The net cash amount that is received from the ultimate sale of the asset, at the end of its life

Answer: C

27. Useful life of an asset refers to the life:

a) A: Of the asset whilst it is available for use in the firm

b) The average of A and B

c) B: Of the asset throughout its life, in the hands of any number of owners

Answer: A

28. Spare parts and servicing equipment are usually accounted for as:

a) Inventory

b) A separate class of fixed assets

c) Expenses written off to the profit or loss on buying

Answer: A

29. Repairs and maintenance costs are normally:

a) Capitalised

b) Recorded as deferred expenses

c) Expensed in the profit or loss as incurred

Answer: C

30. Recognition of costs (to be capitalised) ceases when:

a) The accounting period ends

b) Full production capacity has been reached

c) The item is in the location and capable of operating

Answer: C

31. In the statement of financial position, where is the Property, Plant and Equipment located?

A. Current Assets Section

B. Non Current Assets Section

C. Current Liability Section

D. Non Current Liability Section

Answer-B

32. Which of the following is not an example of PPE?

A. Machinery

B. Land

C. Inventory

D. Building

Answer-c

33. Which is not an essential characteristic of Property, Plant and Equipment?

A. The property, plant and equipment are subject to depreciation.

B. The property plant and equipment are tangible assets.

C. The property, plant and equipment are used in production or supply of goods andservices, for rental and
administrative purposes.

D. The property, plant and equipment are expected to be used over a period of more than one year

Answer-a

34. It is a non-current, tangible capital asset shown on the balance sheet of a business and used to generate
revenues and profits

A. Asset

B. Inventory

C. Property, Plant and Equipment

D. Net Income

Answer-c

35. When an item of property, plant and equipment is revalued, what should be revalued?

A. Selection of assets decided by management

B. The whole class of assets to which it belongs

C. The individual asset

D. Selection of assets picked at random

Answer-b

36. An accounting policy model used when property, plant and equipment are carried at cost less any
accumulated depreciation and impairment loss
A. Cost model
B. Revaluation model
 C. Fair value model
D. Carrying amount model
Answer: A. Cost model
37. The following are included in the cost of self-constructed property, plant and equipment except
A. Direct cost of materials
B. Direct cost of labor
C. Cost of goods sold
D. Indirect cost or incremental overhead specifically identifiable or traceable to the construction
Answer: D. Indirect cost or incremental overhead specifically identifiable or traceable to the
construction
38. It is defined as the event or transaction causing the cash flows of the entity to change significantly by
reason of the exchange.
A. Fair Value
B. Accounting policy
C. Commercial substance
D. Derecognition
Answer: C. Commercial substance
39. An accounting policy model used when property, plant and equipment are carried at revalued carrying
amount
A. Cost model
B. Revaluation model
C. Fair value model
D. Carrying amount model
Answer: B. Revaluation model
40. Which of the following statements is not true about derecognition of property, plant and equipment?
A. It is the cost of property, plant and equipment with the related accumulated depreciation removed
from the statement of financial position.
B. The gain or loss from derecognition shall not be included in profit or loss.
C. Gains shall be included in revenue but treated as other income.
D. The carrying amount of the property, plant and equipment shall be derecognized on disposal or
when no future economic benefits are expected from the use or disposal.
Answer: B. The gain or loss from derecognition shall not be included in profit or loss.

41. PPE means

A. Plant, Proprietorship, and Equipment

B. Plan, Property, and Equipment

C. Property, Plant, and Equipment

D. Plant, Property, and Electronics

Answer: C

42. How is the carrying amount (book value) of property, plant and equipment calculated?
A. Carrying Amount = Acquisition Cost - Depreciation Expense

B. Carrying Amount = Acquisition cost – Accumulated Depreciation

C. Carrying Amount = Acquisition Cost + Accumulated Depreciation

D. Carrying Amount = Acquisition Cost - Transaction Cost

Answer: B

43. Assets classified as property, plant and equipment are intangible assets that doesn't have physical substance.

A. True

B. False

C. Maybe

D. Not quite sure

Answer: B

44. PPE are assets that are expected to be used over multiple accounting periods. They are called as _________.

A. Long-term assets

B. Long-legged assets

C. Long-lived assets

D. Long-value assets

Answer: C

45. How are PPE initially recorded?

A. Acquisition Cost

B. Carrying Amount

C. Face Value

D. Market Value

Answer: A

46. Which of the following is not a characteristic of property, plant, and equipment (PPE)?
a. The property, plant, and equipment are tangible assets.

b. The property, plant, and equipment are used in business.

c. The property, plant, and equipment are expected to be used over a period of more than one year.

d. The property, plant, and equipment are subject to depreciation.

Answer: d

47. What valuation model should an entity use to value property, plant, and equipment?

a. The revaluation model or the fair value model

b. The cost model or the revaluation model

c. The cost model or the fair value through profit or loss model

d. The cost model of the fair value model

Answer: b

48. Which of the following costs should be expensed immediately?

a. Cost of opening a new facility

b. Cost of introducing a new product or service, including cost of advertising and promotional activities

c. Cost of conducting business in a new location

d. All of these are expensed immediately

Answer: d

49. The carrying amount of property, plant and equipment shall be derecognized
a. On disposal

b. When no future economic benefits are expected from the use of the asset.

c. On acquisition

d. On disposal and when no future economic benefits are expected from the use of the asset.

Answer: d

50. Which of the following is not capitalized into the cost of property, plant and equipment?

a. Cost of excess materials from a purchasing error

b. Cost of testing whether the asset works correctly

c. Initial delivery and handling cost

d. Cost of preparing the site for installation

Answer: a

INTACC PROBLEMS

1. Beam Company exchange a truck with a carrying amount of P1,500,000 and a fair value of P1,000,000 for a truck
and P300,000 cash. The fair value of the truck received was P1,800,000.

The cash flows from the new truck are not expected to be significantly different from the cash flows of the old
truck.

At what amount should the truck received in the exchange be recorded?

a. 2,000,000

b. 1,800,000

c. 1,200,000

d. 1,000,000

Answer: c

2. During 2020, Iron Company exchanged an old machine that costs P1,300,000 and was 50% depreciated, for
another used machine and paid a cash difference of P140,000.

The fair value of the old machine was determined to be P800,000.

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

a. 970,000

b. 940,000

c. 870,000

d. 840,000

Answer: b

B. What is the gain on exchange?

a. 150,000

b. 140,000

c. 130,000

d. 120,000

Answer: a

3. During the current year, Zim Company bought a machinery that required a down payment of P150,000, plus 24
monthly payments of P50,000 each for total cash payments of P1,350,000. The cash price of the machinery was
P1,200,000.

The machinery has a useful life of 10 years and residual value of P50,000. The entity used straight line
depreciation.
What amount should be reported as depreciation for the current year?

a. 105,000

b. 115,000

c. 125,000

d. 130,000

Answer: b

4. Bright Company purchased a trace of land for a factory site at P3,000,000.

The entity razed an old building on the property to make room for the construction of the new building and sold
the materials salvaged from the demolition.

Demolition of old building, 200,000

Legal fees for purchase contract, 250,000

Title guarantee insurance, 50,000

Proceeds from sale of salvaged materials, 20,000

What is the carrying amount of land?

a. 3,300,000

b. 3,320,000

c. 3,500,000

d. 3,520,000

Answer: a

5. Miner Company purchased a machine for 4,500,000 on January 1, 2019. The machine had an estimated useful
life of 4 years and a residual value of 500,000. The machine is being depreciated using the sum of the years' digits
method.

A. What is the accumulated depreciation on December 31, 2020?

a. 1,200,000

b. 1,600,000

c. 2,800,000

d. 3,150,000

Answer: b

B. What is the carrying amount on December 31, 2020

a. 2,900,000

b. 2,700,000

c. 1,700,000

d. 1,350,000

Answer: c

6. JPIA company purchased a new machine on a deferred payment basis. A down payment of P500,000 was made
and 4 monthly installments of P50, 000 are to be made at the end of each month. The cash equivalent price of the
machine was P1,200,000. The entity incurred and paid installation costs amounting P50, 000.

What amount is to be capitalized as cost of machine?

a. Php 1, 250,000
b. Php 1, 130,000
c. Php 920,000
d. Php 1,270,000
Answer: A

7. Hiram Company entered into a contract to acquire a new machine which had a cash price of Php 5,700,000.

Down payment Php 700,000

Note payable in three equal annual installments Php 4,500,000
20,000 ordinary shares with a par value of P40 per share Php 800,000
Total Cost Php 6,000,000

Prior to use, installation cost of Php 70,000 was incurred. The machine had an estimated residual value of Php
120,000. What is the initial cost of the machine?
a. Php 5,700,000
b. Php 5,770,000
c. Php 7,300,000
d. Php 7,180,000
Answer: A

8. Angel Company received a government grant of P600,000 related to depreciable asset acquired on January 1,
2018 for Php 7,000,000. This grant was deducted from the cost of the asset with a useful life of 10 years and residual
value of Php 800,000. On January 1, 2020, the grant became fully repayable due to noncompliance with conditions.

What is the depreciation for 2018?

a. Php 560,000
b. Php 550,000
c. Php 800,000
d. Php 850,000
Answer: A

9. ACC Company incurred the following costs in purchasing a land as a factory site:

Purchasing Price Php 3,000,000

Cost of tearing down old building 340,000
Legal fee for title investigation 50,000
Title insurance 40,000
Architect fee 150,000
Liability insurance during construction 20,000
Excavation cost 23,000
Payment to building contractor 9,100,000
Special assessment by city for public improvement 20,000
Interest cost during construction. 200,000

A. What is the cost of land?

a. Php 3,150,000
b. Php 3,100,000
c. Php 3,110,000
d. Php 3,120,000
Answer: C

B. What is the cost of building?

a. Php 9,833,000
b. Php 10,000,000
c. Php 9,853,000
d. Php 10,053,000
Answer: A

10. During the current year, KathNiel Company exchanged an old packing machine, which cost Php 2,400,000 and
was 50% depreciated, for another used machine and paid a cash difference of Php 100,000.

The fair value of the old packaging machine was determined to be Php 700,000.
A. What is the cost of the machine acquired in the exchange?
a. Php 800,000
b. Php 760,000
c. Php 600,000
d. Php 605,000
Answer: A

B. What is the gain/loss on the exchange?

a. Php 500,000 gain
b. Php 500,000 loss
c. Php 600,000 gain
d. Php 600,000 loss
Answer: B

11. Martin Company purchased machinery for $12,000. Sales tax on the purchase was $600. Other costs incurred
were freight charges of $240, repairs of $420 for damage during installation, and installation costs of $270. What is
the cost of the machinery?

a. $12,000.

b. $12,600.

c. $13,110.

d. $13,530.

Answer: c

12. On May 1, 2007, Peanut Company began construction of a building. Expenditures of $120,000 were incurred
monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1,
2007. For the purpose of determining the amount of interest cost to be capitalized, the average accumulated
expenditures on the building during 2007 were

a. $100,000.

b. $120,000.

c. $480,000.

d. $600,000.

Answer: a

13. On March 1, Sandwich Co. began construction of a small building. Payments of $180,000 were made monthly
for four months beginning March 1. The building was completed and ready for occupancy on June 1. In
determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

a. $90,000.
 b. $180,000.

c. $360,000.

d. $720,000.

Answer: a

14. On December 1, Wynne Corporation exchanged 2,000 shares of its $25 par value common stock held in
treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Wynne at a
cost of $40 per share, and on the exchange date the common shares of Wynne had a fair market value of $50 per
share. Wynne received $6,000 for selling scrap when an existing building on the property was removed from the
site. Based on these facts, the land should be capitalized at

a. $74,000.

b. $80,000.

c. $94,000.

d. $100,000

Answer: c

15. On January 2, 2007, Fast Delivery Company traded in an old delivery truck for a newer model. The exchange
lacked commercial substance. Data relative to the old and new trucks follow:

Old Truck

Original cost $24,000

Accumulated depreciation as of January 2, 2007 16,000

Average published retail value 7,000

New Truck

List price $40,000

Cash price without trade-in 36,000

Cash paid with trade-in 30,000

What should be the cost of the new truck for financial accounting purposes?

a. $30,000.

b. $36,000.

c. $38,000.

d. $40,000.
Answer: b

16. Jules Company purchased a new machine on a deferred payment basis. A down payment of P200,000 was
made and a 4 monthly installments of P350,000 are to be made at the end of each month.

The cash equivalent price of the machine was P1,150,000. The entity incurred and paid installation costs
amounting to P80,000.

What is the amount to be capitalized as cost of the machine?

a. 1,300,000

b. 1,230,000

c. 1,070,000

d. 1,350,000

Answer: b

17. Disco Company purchased a high speed industrial centrifuge at a cost of P720,000. Shipping cost amounted to
P80,000. Foundation work to house the centrifuge cost P50,000.

An additional water line had to be run to the equipment at a cost of P60,000. Labor and testing cost totaled
P70,000. Materials used up in testing cost P20,000.

What is the capitalized cost of the equipment?

a. 1,000,000

b. 850,000

c. 870,000

d. 700,000

Answer: a

18. At the beginning of current year, Gord0n Company receive a grant of P9,000,000 from the Japan government
to compensate for massive losses incurred because of recent tsunami.

The grant was made for the purpose of giving immediate financial support to the entity. It will take the entity three
years to reconstruct the assets destroyed by the tsunami.

What amount of grant income should be recognized in the current year?

a. 0

b. 3,000,000

c. 6,000,000

d. 9,000,000
Answer: d

19. Voice Company purchased a P3,000,000 tract of land for a factory site.

The entity razed an old building on the property to make room for the construction of new building and sold the
materials salvaged from the demolition.

Demolition of old building 150,000

Legal fees for purchase contract and recording ownership 125,000

Title guarantee insurance 75,000

Proceeds from sale of salvaged materials 30,000

What is the carrying amount of the land?

a. 3,150,000

b. 3,350,000

c. 3,200,000

d. 3,380,000

Answer: c

20. Loud Printing Company incurred the following costs:

Purchase of collating and stapling attachment 920,000

Installation of attachment 380,000

Replacement parts for overhaul of press 270,000

Labor and overhead in connection with overhaul 130,000

The overhaul resulted in a significant increase in producti9n. Neither the attachment nor the overhaul increased
the estimated useful life of the press.

What total amount of the costs should be capitalized?

a. 1,700,000

b. 1,300,000

c. 920,000

d. 780,000

Answer: a
21. An equipment is purchased for 30,000, 2/10, n/30. The purchased must be recorded using the gross method. The
journal entry for this transaction includes a credit to:
a. Accounts payable 30,000
b. Accounts payable 29, 400
c. Cash 30,000
d. Cash 30,000

Answer: a

22. An equipment is purchased for 50,000, 2/10, n/30. The purchased must be recorded using the net method. The
journal entry for this transaction includes a credit to:
a. Accounts payable 30,000
b. Accounts payable 29, 400
c. Cash 30,000
d. Cash 30,000

Answer: b

23. A piece of land is acquired by issuing 30,000 shares with par value of PHP 2. At the time of acquisition, the fair value
of the land is PHP 70,000 and the share is quoted as PHP 10 per share. The journal entry to record the acquisition
includes debit to:
a. Land 60000
b. Land 70000
c. Land 300000
d. Cash 240000

Answer: a

24. A building is acquired by issuing bonds payable with face amount of 4,500,000. At the time of acquisition, the fair
value of the building is 5,000,000 and the quoted price of the bonds is 4,600,000. The journal entry to record the
acquisition includes debit to:
a. Building 4,600,000
b. Building 4,500,000
c. Building 5,000,000
d. Building 500,000

Answer: a

25. An investment in equity securities with carrying amount of 440,000 is exchanged for equipment with a fair value of
490,000, at the time of exchange the investment has a fair value of 445,000.The journal entry to record the exchage
includes debit to:
a. Equipment 440,000
b. Equipment 490,000
 c. Equipment 445,000
d. Equipment 404,000

Answer: c

26. The Equipment was acquired at cost of ₱6,000,000. This is being depreciated at rate of

5% per year, without scrap. At the end of its 4th year, an independent appraiser valued it

at depreciated amount of ₱6,120,000 , without scrap value.

What amount should be credited to revaluation surplus to record the revaluation?

a) ₱240,000

b) ₱420,000

c) ₱1,320,000

d) ₱ 1,740,000

Answer:C

27. On January 2, 2019 a machine was purchased for ₱800,000. It is being

depreciated on straight line method for 8 years with P160,000 scrap value. At the end

of its 4th year, it is observed that this suffered permanent impairment and estimated

that ₱200,000 is a reasonable amount to be recovered through its use for the rest of its

life. In its December 31, 2023, what amount should be reported as net book value of

the machine?

a) ₱320,000

b) ₱200,000

c) ₱150,000

d) ₱100,000

Answer:C
28. Dandee Company reported an impairment loss of ₱2,200,000 in its income statement

for the year then ended December 31, 2005. This loss was related to an item of PPE

acquired on January 1, 2004 with useful life of 10 years and residual value of

₱200,000. On December 31, 2005 balance sheet, Crane reported these PPE at

₱6,000,000 which is the fair value on that date.

The original acquisition cost of the PPE is

a) ₱8,200,000

b) ₱9,800,000

c) ₱10,200,000

d) ₱10,950,000

Answer:C

29. Aucona Company determined that due to obsolescence an equipment with original cost

of ₱4,500,000 and accumulated depreciation of ₱2,100,000 at January 1, 2006 had

suffered a permanent impairment and as a result should have a recoverable value of

only ₱1,500,000 as of the beginning of the year.

In addition, the remaining useful life was reduced from 8 years to only 3 years as of

January 1, 2006.

The annual depreciation after impairment loss is recorded would be

a) ₱800,000

b) ₱700,000

c) ₱500,000

d) ₱300,000

Answer:C

30. On October 1, 2005, Hashino Company purchased a machine for ₱250,000 that was

placed in service on November 30, 2005. Hashino incurred additional costs for this

machine, as follows:
Shipping 10,000

Installation 15,000

Testing 35,000

In Hashino’s December 31, 2005 balance sheet, the machine’s cost should be

reported at

a) ₱250,000

b) ₱295,000

c) ₱300,000

d) ₱310,000

Answer: D

31. On October 1, 2017 , Noelle Company purchased a machine for P250,000 that was

placed in service on November 30, 2017. Noelle incurred additional costs for this

machine, as follows:

Shipping 10,000

Installation 15,000

Testing 35,000

In Noelle’s December 31, 2017 balance sheet, the machine’s cost should be

reported at

a. 250,000

b. 295,000

c. 300,000

d. 310,000

Answer-d

32. On January 1, 2010, Flax Company purchased a machine for P528,000 and depreciated it by the straight-line
method using an estimated useful life of eight years with no salvage value. On January 1, 2013, Flax determined
that the machine had a useful life of six

years from the date of acquisition with no salvage value. An accounting change was
made in 2013 to reflect these additional data. The depreciation for this machine on

December 31, 2013 would be

A. 110,000

B. 320,000

C. 308,000

D. 352,000

Answer-a

33. On April 1, 2007, Pancake Manufacturing Company bought a new equipment for

P800,000. The equipment has an estimated salvage value of P20,000 and useful life of 12

years. Depreciation is computed using the sum-of-the-years digits method.

How much is the amount of depreciation for 2007?

A. P60,000

B. P75,000

C. P90,000

D. P20,000

Answer-c

34. The Hello Company purchased a tooling machine in 2002 for P120, 000. The machine

was being depreciated on the straight-line method over an estimated useful life of 20

years, with no salvage value. At the beginning of 2012. When the machine had been in use for ten years, the
company estimated that the useful life of the machine would be

extended an additional five years. What would be the depreciation expense recorded for

the above machine in 2012?

A. P4, 000
B. P5, 333

C. P6, 000

D. P7, 333

Answer-a

35. Anna Company, a clothing manufacturer, purchased a sewing machine for P2,000,000

on July 1, 2015. The machine had a 10-year life, a P100,000 residual value, and was

depreciated using the straight line method. On January 1, 2018 a test for impairment

indicated that the undiscounted cash flows from the sewing machine are less than its

carrying value. The machine’s fair value on January 1, 2018 is P600,000. What is the loss

on impairment?

A. 830,000

B. 925,000

C. 950,000

D. 1,300,000

Answer-b

36. Kazzie Corporation bought a packaging machine with the terms of 2/15, n/30 for P6,000,000. Kazzie
Corporation paid within the discount period. The shipping for the machine is FOB shipping point which
costed P53,000. The installation costs P300,000 which included expansion of the factory to make
room for the machine costing P100,000. What is the packaging machine’s capitalized cost?
A. P5,880,000
B. P6,353,000
C. P6,133,000
D. P6,233,000

Solution:
Purchase price net of discount (P6,000,000 x 98%) P5,880,000
Shipping cost 53,000
Installation cost 300,000
Capitalized cost D. P6,233,000
37. BSA Company purchased a machine on a deferred payment basis. BSA Company paid a down payment
of P300,000 and 2 monthly installments of P500,000 should be made every end of the month. The
machine has a cash equivalent price of P860,000 while the installation cost incurred is P24,000. What
amount should BSA Company capitalize as cost of the machine?
A. P884,000
B. P1,300,000
C. P1,324,000
D. 1,024,000

Solution:
Cash Price P860,000
Installation cost 24,000
Capitalized cost A. P884,000
38. Mamamo Company traded in an old machine for a newer model. Below are the following data for the
old and new machine:
Old machine Cost 33,000
Accumulated depreciation 22,000
New machine List price 62,000
Cash price without trade-in 54,000
Cash paid with trade-in 50,000
What amount of the loss shall be recorded for the trade in of machine?
A. (P11,000)
B. (P7,000)
C. (P29,000)
D. (P39,000)

Solution:
Cash price without trade-in P54,000
Cash paid with trade-in (50,000)
Fair Value given P4,000
Book Value (P33,000 – P22,000) (11,000)
Loss B. (P7,000)

39. Snow Panda Company traded in an old machine with a carrying amount of P22,000 and for a P36,000
machine. P5,000 was also paid as a cash difference for the trade in. How much should Snow Panda
Company record as a loss for this transaction?
A. (P27,000)
B. (P14,000)
C. (P9,000)
D. None of the above

Solution:
Carrying amount P22,000
Cash difference 5,000
P27,000
 New machine price (36,000)
Loss C. (P9,000)
40. GAR Inc. and JED Company had an exchange of assets with no commercial substance. The asset from
GAR Inc. had a book value of P280,000 and a fair value of P305,000, while the asset from JED Company
had a book value of P502,000 and a fair value of P600,000. JED Company received P50,000 for the
exchange. What should GAR Inc. record for the asset received?
A. P280,000
B. P330,000
C. P448,000
D. P230,000

Solution:
Purchase price net of discount (P6,000,000 x 98%) GAR Inc. JED Company
Shipping cost P280,000 P502,000
Payment (received) 50,000 (50,000)
Capitalized cost B. P330,000 P448,000

41. Company S had the following balances:

Cost of equipment-₱300,000

Accumulated depreciation for equipment-₱80,000

What is the carrying amount of equipment?

A. ₱220,000

B. ₱300,000

C. ₱80,000

D. ₱380,000

Answer: A

42. In May 2019, Factory Corp. owned PPE machinery with a gross value of ₱5,000,000. Accumulated depreciation
for the same machinery was at $2,100,000. Due to the wear and tear of the machinery, the company decided to
purchase another $1,000,000 in new equipment. For this period, the depreciation expense for all old and new
equipment is $150,000. What is the ending balance of PPE?

A. ₱2,900,000

B. ₱3,750,000

C. ₱3,850,000

D. ₱4,850,000

Answer: B
For items 43-44

The C&T Corporation provides you the following information about its two balance sheet accounts at December
31, 2019 and 2020:

Equipment (at cost):

on December 31, 2019: ₱123,500

on December 31, 2020: ₱138,500

Accumulated depreciation – equipment:

on December 31, 2019: ₱83,500

on December 31, 2020: ₱89,000

The following additional information is available to you:

During the the year 2020, the equipment costing ₱22,500 was sold at a gain of ₱7,250. The book value of the
equipment sold was ₱9,500.

An equipment was purchased for ₱10,000 and the payment was fully settled by issuing bonds payable.

43. What is the amount of cash paid for the purchase of equipment during the year?

A. ₱27,500

B. ₱25,000

C. ₱22,500

D. ₱138,500

Answer: A

44. AB Ltd. exchanged a land with a carrying value of ₱15 million and fair value of ₱20 million, for an imported
plant. Additionally AB Ltd. has also paid ₱5 million along with the land. What will be the cost of the acquired plant
in the financial statements of the AB Ltd.?

A. ₱20 million

B. ₱10 million

C. ₱25 million

D. ₱35 million

Answer: C

45. Bamco Company purchased a new machine on a deferred payment basis. A down payment of ₱100,000 was
made and 4 monthly installments of ₱250,000 are to be made at the end of each month.
The cash equivalent price of the machine was ₱950,000. The entity incurred and paid installation costs amounting
₱30,000. What is the amount to be capitalized as cost of the machine?

A. ₱950,000

B. ₱980,000

C. ₱1,100,000

D. ₱1,130,000

Answer: B

46. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay P10,000 per
year for five years. The plant asset is initially measured at

a. P50,000

b. P50,000 plus imputed interest

c. Present value of P10, 000 annuity for five years at an imputed interest

d. Present value of a P10, 000 annuity for five years discounted at the bank prime interest rate

Answer: c

47. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay P10, 000 at
the time of purchase and P10, 000 at the end of each of the next five years. The plant asset is measured initially at

a. The present value of a P10, 000 ordinary annuity for five years

b. P60, 000

c. P60, 000 plus imputed interest

d. P60, 000 less imputed interest

Answer: d
48. During the current year, Alison Company 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

b. 700,000

c. 760,000

d. 540,000

Answer: a

49. Based on the above information, what is the gain on exchange?

a. 540,000

b. 100,000

c. 60,000

d. 0

Answer: b

50. Apple Company purchased a jewel publishing machine for P3,600,000 on January 1,2018 amd received a
government grant of P500, 000 toward the capital cost.

The accounting policy is to treat the grant as a reduction in the cost of the asset.
The machine is to be depreciated on a straight line basis over 8 years and estimated to have a residual value of
P100, 000 at the end of this period.

What is the depreciation of the machine for 2018?

a. 387,500

b. 500,000

c. 437,500

d. 375,000

Answer: d