Handout for tutorials #1 2nd sem, Exercises for Accounting. University of San Jose Recoletos
dominic_skibba28 February 2016

Handout for tutorials #1 2nd sem, Exercises for Accounting. University of San Jose Recoletos

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Uni versity of San Jose Recoletos Colleg e of Commerce Depart ment of Accountancy and Finance



1. If an item of property, plant and equipment is acquired in exchange for a nonmonetary asset and the exchange lacks commercial substance, the cost of the asset acquired is measured at

a. Fair value of the asset given up

b. Fair value of the asset received

c. Carrying amount of the asset received.

d. Carrying amount of the asset given up

2. For the purpose of the initial recognition of an item of property, plant and equipment, the date on which the fair values should be measured is referred to as the:

a. fair value date

b. recognition date

c. measurement date

d. acquisition date

3. When it is probable that total contract costs will exceed total contract revenue, the expected loss should be

a. Recognized as an expense immediately

b. Set off against profits or other contracts where available

c. Recognized as an expense immediately, unless revenue to date exceeds costs to date

d. Apportioned to the years of the contract according to the stage of completion

4. For the purposes of recognizing an item of property, plant and equipment, the acquisition date is defined as the date:

a. the contract to exchange the assets is signed

b. on which the offer to acquire the asset becomes unconditional.

c. on which theacquirer obtains control of the acquiree.

d. the consideration is paid.

5. An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a carrying value of P5,000 and a fair value of P6,000. The journal entry to record the acquisition of the Plant will show:

a. a gain on sale of P1,000;

b. a loss on acquisition of P1,000;

c. proceeds on sale of Equipment of P1,000;

d. proceeds on sale of Plant of P1,000.

6. Which statement is correct regarding investment property?

a. Entities should determine the fair value of investment property

b. Entities should use the fair value model

c. Entities should use the cost model

d. Entities should determine the fair value of investment property on the basis of valuation by an independent valuer who holds a recognized and relevant professional qualification.

7. Justin Corporation has investment property that is held to earn rental income. Justin prepares its financial statements in accordance with PFRS. Justin uses the fair value model for reporting the investment property. Which of the following is true?

a. Changes in fair value are reported as profit or loss in the current period

b. Changes in fair value are reported as other comprehensive income for the period

c. Changes in fair value are reported as an extraordinary gain on the income statement

d. Changes in fair value are reported as deferred revenue for the period.

8. I. An entity is encouraged, but not required, to determine the fair value of investment property on the basis of a valuation by an independent valuer who holds a recognised and relevant professional qualification.

II. If the owner uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately.

III. Property rented to a parent, subsidiary, or fellow subsidiary is considered investment property in consolidated financial statements that include both the lessor and the lessee, because the property is owner-occupied from the perspective of the group.

A. True,True,False C. False,True,False

B. False,True,True D. True,False,True

9. I. Investment property is initially measured at cost, excluding transaction costs.

II. One method must be adopted for all of an entity's investment property. Change is permitted only if this results in a more appropriate presentation.

III. For a transfer from investment property carried at fair value to owner- occupied property or inventories, the carrying amount at the change of use is the 'cost' of the property under its new classification

Which of the following statements are false?



10. An investment property should be derecognised , except

a. on disposal

b. when the investment property is temporarily withdrawn from use

c. no future economic benefits are expected from its disposal

d. All choices are circumstances that call for derecognition of Investment Property

11. Expenditures capitalized as noncurrent assets generally include those expenditures that:

11.a. are made for normal repairs to maintain the usefulness of the asset over a number of years.

11.b. are made for normal repairs to maintain the usefulness of the asset over a number of years.

11.c. are material and that have an economic benefit to the entity only in the current year.

11.d. are material and that have an economic benefit to the entity that extends beyond the current year.

12. The entry to record depreciation on long-term assets: 11.e. decreases total assets and increases net income. 11.f. decreases current assets and increases expenses. 11.g. decreases total assets and decreases earnings before taxes. 11.h. increases earnings before taxes and increases tax expense.

13. According to IAS 16 - 'Property, Plant and Equipment', which one of the following items can be capitalized (i.e. recorded in the balance sheet as PPE)? a. Cost of excess materials resulting from a purchase error b. Cost of training staff on the new asset c. Initial operating losses whilst demand builds up d. Cost of preparing the site for installation

14. Which one of the following statements best describes the 'carrying value' of an asset? a. The higher of the asset's value in use and its recoverable amount b. The cost of the asset less its residual value c. The higher of the asset's NRV and its value in use d. The amount at which the asset is recognized in the balance sheet after

deducting any accumulated depreciation and accumulated impairment losses

15. Which of the following statements best describes the process of accounting depreciation?

11.i. A process that attempts to recognize loss in economic value over a period of time.

11.j. A process for setting aside cash so funds will be available to replace the asset.

11.k. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.

11.l. A process for recognizing all of the economic cost associated with using an asset in a revenue generating activity.

16. Under PAS 16, how often should the useful life of an asset be reviewed? 11.m. At least at each financial year end 11.n. Every six months 11.o. At management’s discretion 11.p. Never

17. Expenditures that add to the utility of fixed assets for more than one accounting period are:

11.q. Committed expenditures

11.r. Revenue expenditures

11.s. Current expenditures

11.t. Capital expenditures

18. I. If land is held definitely as a future plant site, it is classified as owner – occupied property and not an investment property and therefore shall be included in property, plant, and equipment.

II. Special assessments and real property taxes are treated as an outright expense

11.u. Only statement one is true

11.v. Only statement two is true.

11.w. Both statements are true

11.x. Both statements are false

19. I. When the building is demolished immediately to make room for construction of a new building, any allocated carrying amount, notwithstanding the purpose of new building is recognized as loss

II. If the land and building Is purchased at a single cost, the single cost is allocated notwithstanding the circumstances.

11.y. Only statement one is true

11.z. Only statement two is true.

11.aa. Both statements are true

11.bb. Both statements are false

20. The following are charged to the building when acquired by means of construction except:

11.cc. Architect Fee

11.dd. Payments to tenants to induce them to vacate the land

11.ee. Safety inspection fee

11.ff. Cost of excavation

21. James & Arun Ltd. is purchasing a second-hand grinding machine from a competitor who has gone bankrupt. James & Arun Ltd. will incur the following costs: Agreed price to be paid to vendor, P16,000 Dismantling the machine at its current location, P1,300 Transportation to James & Arun's factory, P700 Machine refurbishment costs prior to re-installation, P350 Re-installation, P550 According to PAS 16 - 'Property, Plant and Equipment', the total included in non-current assets (PPE) in respect of the machine should be:____________

22. An enterprise sells on 1 January 2005 a van which it bought on 1 January 2002 for P3,000, and has been depreciating the van each year at 25% per annum on a straight line basis. It trades this van in for a new van costing P5,000 and pays the supplier P4,600 cash. What is the gain or loss on the disposal of the old van?______________

23. Kakadu Ltd purchased land for P80,000. The company also paid P12,000 in accrued taxes on the property, incurred P5,000 to remove an old building and

received P2,000 from the salvage of the old building. The land will be recorded at:______________

24. Jupiter Company traded machinery with a book value of P180,000 and a fair value of P300,000. It received in exchange from Saturn Company a machine with a fair value of P270,000 and cash of P30,000. Saturn’s machine has a book value of P285,000. What amount of gain should Robert recognize on the exchange? ____________

25. On August 1, 2013, Erwin Corporation purchased a new machine on a deferred payment basis. A down payment of P3,000 was made and 4 monthly installments of P2,500 each are to be made beginning on September 1, 2013. The cash equivalent price of the machine was P12,000. Erwin incurred and paid installation costs amounting to P500. The amount to be capitalized as the cost of the machine is______________)

26. On January 2, 2010, James Corp. replaced its boiler with a more efficient one. The following information was available on that date:

Purchase price of new boiler


Carrying amount of old boiler


Fair value of old boiler 4,000 Installation cost of new boiler


The old boiler was sold for P4,000. What amount should York capitalize as the cost of the new boiler? ______________

27. CONCORDIA CO. purchased real property for P3,225,000 which included P67,500 for realty tax arrears for prior years. A mortgage of P1,500,000 was assumed by CONCORDIA CO. on the purchase. Twenty percent of the purchase price should be allocated to the land and the balance to the building. In order to make the building suitable for the use of CONCORDIA CO., remodeling costs had to be incurred in the amount of P337,500. This however necessitated the demolition of a portion of the building, which resulted in recovery of salvage material sold for P11,250 cash. Landscaping

and parking lot cost the company a total of P120,000 while repairs in the main hall were P16,875. The cost of the building was: _______ ______

28. On 1 January 20X1 an entity acquired a building for 95,000, including 5,000 non-refundable purchase taxes. The purchase agreement provided for payment to be made in full on 31 December 20X1. Legal fees of 2,000 were incurred in acquiring the building and paid on 1 January 20X1. The building is held to earn lease rentals and for capital appreciation. An appropriate discount rate is 10 per cent per year. The entity shall measure the initial cost of the building at:________________

29. On 1 January 20X1 an entity acquired an investment property (building) in a remote location for P100,000. After initial recognition, the entity measures the investment property using the cost-depreciation-impairment model, because its fair value cannot be measured reliably without undue cost or effort on an ongoing basis. At 31 December 20X1 management: • assessed the building’s useful life at 50 years from the date of acquisition • presumed the residual value of the building to be nil (given that the fair

value cannot be determined reliably) • assessed that the entity will consume the building’s future economic

benefits evenly over 50 years from the date of acquisition • declined an unsolicited offer to purchase the building for P130,000. This is

a ‘one-off’ offer that is unlikely to be repeated in the foreseeable future.

The entity should measure the carrying amount of the building on 31 December 20X1 at:____________

30. A used machine with a purchase price of P77,000, requiring an overhaul costing P8,000, installation costs of P5,000, and special acquisition fees of P2,000, would have a cost basis of:_____________

31. During your review of the records of X Factor Corporation for th year 2012, you noted that X Factor sold a machine with carrying amount of P640,000 (cost is P1.6M) on June 30, 2012. X Factor received an P800,000 non-interest bearing note due in 3 years. There is no established market value for the machine. The yield rate for this type of note is 12%. X Factor recorded the transaction by debiting Note Receivable for P800,000 and crediting Machinery for P640,000 and Gain on sale for the difference. Because of this, X Factor’s profit for the year ended December, 2014 had been overstated by _____________________

32. Covenant Co. purchased land as a factory site for P1,000,000. Covenant paid P40,000 to tear down two buildings on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for the title investigation and making the purchases. Income of P8,000 was earned through using the land as a car park before construction started. Architect’s fees were P41,200. Title insurance cost P2,600. Excavation cost P10,440. The contractor was paid P2,400,000.

An assessment made by the city for pavement was P6,400. Interest costs during construction were P170,000. Liability insurance cost during construction amounted to P2,600. The cost of the building that should be recorded by Covenant Co. is __________________

33. Aquator Motor Sales exchange a car from its inventory for a computer to be used as a noncurrent operating asset. The following information relates to this exchange that took place on July 31, 2012:

Carrying amount of the car P30,000 Listed selling price of the car 45,000 Fair value of the computer 43,000 Cash difference paid by Aquator 5,000

On July 31, 2012, how much profit should Aquator recognize on this exchange?_________________

Use the following information for numbers 33 to 37

On January 2, 2012, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2013. Expenditures for the construction were as follows:

January 2, 2012 P200,000 September 2, 2012


December 31, 2012


March 31, 2012 600,000 September 30, 2013


Indian River Groves borrowed P1,100,000 on a construction loan at 12% interest on January 2, 2012. This loan was outstanding during the construction period. The company also had P4,000,000 in 9% bonds outstanding in 2012 and 2013.

34. What were the weighted-average accumulated expenditures for 2012?

35. The interest capitalized for 2012 was:

36. What were the weighted-average accumulated expenditures for 2013 by the end of the construction period?

37. The total costs of the new citrus processing plant at September 30, 2013 was:

38. Taylor Company buys a lift truck with a list price of P40,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. The company paid an extra P400 to have a special horn installed. What should be the recorded cost of the truck?

Use the following information for numbers 39 and 40

On January 1, 2014, Minister Corporation purchased a tract of land (site number 123) with a building for P6,000,000. Additionally, Minister paid real estate broker’s commission of P150,000, legal fees of P60,000, and a title guarantee insurance of P18,000. The closing statement indicated that the land value was P5,000,000 and the building value was P1,000,00. Shortly after acquisition, the building was razed at a cost of P75,000.

Minister entered into a P3,000,000 fixed – price contract with Prime Builders, Inc. on March 1, 2014 for the construction of an office building on land site number 123. The building was completed and occupied on September 30,2015. Additional construction costs were incurred as follows:

Plans, specifications and blueprints…………………………………….P120,000

Architects’ fees for design and supervision…………………………..P250,000

The building is estimated to have a forty-year life from date of completion and will be depreciated using the 150% declining balance method. To finance the construction cost, Minister borrowed P3,000,000 on March 1, 2014. The loan is payable in ten annual installments of P300,00 plus interest at the rate of 14%. Minister’s average amounts of accumulated building construction expenditures were as follows:

For the period March 1 to December 31, 2014………………….P900,000 For the period January 1 to September 30, 2015………………P1,300,000

39. What is the total cost of the land account?

40. If borrowing cost is added to the asset constructed, what is the capitalized cost of the office building?

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