General instruction:

Please use 1 whole sheet of paper. Show your solution for problems. Final answers should be
written in the upper left quadrant of your yellow paper. (4 columns 1-10, 11-20, 21-30 then 31-40)
The rest of the paper will be the area where you show your solution.

1. Biological Assets
a. Are found only in biotech entities
b. Are living animals or living plants and must be reported as a separate line item in the statement
of financial position
c. Must be measured at cost
d. Do not generally have future ecnomic benefit
2. It is the management of an entity f the biological transformation and harvest of biological asset
for sale or for conversion into agricultural produce or into additional biological asset
a. Agricultural activity
b. Biological activity
c. Economical activity
d. Developmental activity
3. Agricultural activity is a result from which type of asset
a. Agricultural produce
b. Inventories
c. Biological asset
d. Neither a,b, or c
4. Which of the following transactions involving the issuance of shares does not come within the
definition of share based payment under IFRS 2?
a. Employee share purchase plan
b. Employee share options plan
c. Share based payment relation to an acquisition of a subsidiary
d. Share appreciation right
5. Which of the ff. is true regarding the requirements of IFRS 2
a. Private companies are exempt
b. Small companies are exempt
c. Subsidiaries using their parents entity’s share as consideration of goods and services are exepts
d. There are no exemptions from IFRS 2
6. Which statement is incorrect regarding recognition of PPE?
a. Items of PPE should be recognized as assets when it is probable that the future economic
benefits associated with the asset will flow to the enterprise and the cost of the asset can be
measured reliably.
b. Recognition principle is applied to all property, plant, and equipment costs at the time they
are incurred.
c. PPE costs include costs incurred initially to acquire or construct an item of property, plant
and equipment and costs incurred subsequently to add to, replace part of, or service it.
d. If the cost model is used, each part of an item of property, plant, and equipment with a cost
that is significant in relation to the total cost of the item need not be depreciated separately.
7. Which is correct concerning measurement of property, plant and equipment?
I. An entity shall choose either the cost model or the revaluation model as its accounting policy
and shall apply that policy to an entire class of property, plant and equipment.
II. The revaluation model means that property, plant and equipment are carried at cost less any
accumulated depreciation and any accumulated impairment loss.
III. The cost model means that property, plant and equipment are carried at revalued amount,
being the fair value at date of revaluation less any accumulated depreciation and subsequent
accumulated impairment loss.
a. I, II and III b. I only c. II and III only d. II only
8. Which is correct concerning depreciation of PPE?
a. The depreciation method used should not reflect the pattern in which the asset's economic
benefits are consumed by the enterprise.
 b. The depreciation method should be reviewed at least annually and, if the pattern of
consumption of benefits has changed, the depreciation method should be changed
retrospectively as a change in policy.
c. Depreciation should be charged to the income statement, unless it is included in the carrying
amount of another asset.
d. Depreciation begins when the asset is available for use and continues until the asset is
derecognized and became idle.
9. Which is incorrect concerning residual value of PPE?
a. The residual value of an asset is the estimated amount an entity would currently obtain from
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already
of the age and in the condition expected at the end of its useful life.
b. The residual value and the useful life of an asset should be reviewed at least at each financial
year-end and, if expectations differ from previous estimates, any change is accounted for
prospectively as a change in estimate.
c. Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even
if the asset’s residual value does not exceed its carrying amount.
d. The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount.
10. Which is incorrect concerning depreciation of PPE?
e. The depreciation method used should reflect the pattern in which the asset's economic
benefits are consumed by the enterprise.
f. The depreciation method should be reviewed at least annually and, if the pattern of
consumption of benefits has changed, the depreciation method should be changed currently
and prospectively as a change in estimate.
g. Depreciation should be charged to the income statement, unless it is included in the carrying
amount of another asset.
h. Depreciation begins when the asset is available for use and continues until the asset is
derecognized and became idle.
11. Which is correct concerning residual value of PPE?
e. The carrying value of an asset is the estimated amount an entity would currently obtain from
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already
of the age and in the condition expected at the end of its useful life.
f. The residual value and the useful life of an asset should be reviewed at least at each financial
year-end and, if expectations differ from previous estimates, any change is accounted for
prospectively as a change in policy.
g. Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even
if the asset’s residual value does not exceed its carrying amount.
h. The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount.
12. Which is incorrect concerning the revaluation model of measuring PPE subsequent to initial
recognition?
a. If a revaluation results in an increase in value, it should be credited to equity under the heading
"revaluation surplus".
b. If a revaluation results in an increase in value and it represents the reversal of a revaluation
decrease of the same asset previously recognized as an expense, it should be recognized as
income.
c. A decrease arising as a result of a revaluation should be recognized as an expense to the extent
that it exceeds any amount previously credited to the revaluation surplus relating to the same
asset.
d. When a revalued asset is disposed of, any revaluation surplus should be transferred directly to
retained earnings; it cannot be left in equity under the heading revaluation surplus.
13. An item of property, plant and equipment should be recognized as an asset when
I. It is probable that future economic benefits associated with the asset will flow to the enterprise.
II. The cost of the asset to the enterprise can be measured reliably.
a. Both I and II b. Neither I nor II c. I only d. II only

14. Which is incorrect concerning self-constructed asset?

 a. The cost of self-constructed asset is determined using the same principles as for an acquired
asset.
b. Any internal profits from construction are eliminated in arriving at the cost of self- constructed
asset.
c. The cost of abnormal amounts of wasted material, labor or other resources incurred in the
production of a self- constructed asset is included in the cost of asset.
d. The cost of normal amounts of wasted material, labor or other resources incurred in the
production of a self-constructed asset is included in the cost of the asset.
15. The cost of fully depreciated asset remaining in service and the related accumulated depreciation
a. Should be removed from the accounts and excluded from property, plant and equipment
b. Should not be removed from the accounts and therefore included in property, plant and
equipment with disclosure
c. Should not be removed from the accounts and therefore included in property, plant and
equipment without disclosure
d. Should be adjusted to conform with new estimated useful life

Problems:

1. The following expenditures were incurred by Gina Company in 2005:

Purchase of land 10,000,000

Land survey 500,000
Fees for title search of title for land 200,000
Building permit 250,000
Temporary quarters for construction crew 100,000
Payments of tenants of old building for vacating the premises 600,000
Payment to demolition company to raze the old building and clean up 400,000
Excavating basement 350,000
Special assessment tax for street project 60,000
Salvage value of materials from old building retained
by the demolition company 150,000
Damages awarded for injuries sustained in construction 90,000
Costs of construction 20,000,000
Cost of paving parking lot adjoining the building 180,000
Cost of shrubs, trees and other landscaping 40,000

The total costs to be capitalized as land is

a. P11,610,000 c. P11,800,000
b. 11,730,000 d. P11,650,000

2. On January 1, 2003, Tulsa Company purchased a machine for P10,560,000 and depreciated it by
the straight line method using an estimated life of ten years with no residual value. On January 1,
2005, Tulsa determined that the machine had a useful life of eight years from the date of
acquisition and will have a residual value of P450,000. An accounting change was made in 2005
to reflect this additional information. The accumulated depreciation for this machine should have
a balance at December 31, 2005 of
a. P3,445,000 c. P3,055,000
b. P3,168,000 d. P3,033,000

Share Option Outstanding

3. In connection with a stock option plan for the benefit of key employees, Matanao Company
intends to distribute treasury shares when the options are exercised. These shares were originally
bought at P70 per share. On January 1, 2005, Matanao granted stock options for 50,000 shares at
P150 per share as additional compensation for services to be rendered over the next two years.
The options are exercisable during a 4-year period beginning January 1, 2007, by grantees still
employed by Matanao. Market price of Matanao stock was P200 per share at the grant date. The
 fair value of each stock option is P60 on grant date. No stock options were terminated during
2005. In Matanao’s 2005 income statement, what amount should be reported as compensation
expense pertaining to the options?
a. P1,500,000 c. P1,250,000
b. P1,750,000 d. P 750,000

4. On January 1, 2004, Bansalan Company offered its top management stock appreciation right with
the following terms:

Predetermined price P100 per share

Number of shares 50,000 shares
Service period 3 years
Exercise date January 1, 2007

The stock appreciation right is to be exercised on January 1, 2007. The quoted prices of Bansalan
Company stock are 100, 124, and 151 on January 1, 2004, December 31, 2004 and December 31,
2005, respectively. What amount should Bansalan charge to compensation expense for the year
ended December 31, 2005 as a result of the stock appreciation right?
a. P1,700,000 c. P1,200,000
b. P1,300,000 d. P 500,000
5. On January 1, 2005, Mabel Company established a fixed stock option plan for its senior employees.
At total of 200,000 options were granted that permit employees to purchase 200,000 shares of P50
par common stock at P100 per share. Each option had a fair value of P42 on the grant date.
Options are exercisable beginning January 1, 2008 and can be exercised anytime during 2008. The
market price for Mabel common stock on January 1, 2005 was P130. What is the compensation
expense for the year 2005?
a. P6,000,000 c. P2,000,000
b. P8,400,000 d. P2,800,000

Government Grant
6. Osage County owned an idle parcel of real estate consisting of land and a factory building. Osage
gave title to this realty to Norris Co. as an incentive for Norris to establish manufacturing
operations in the County. Norris paid nothing for this realty, which had a fair market value of
P250,000 at the date of the grant. Norris should record this nonmonetary transaction as a
a. memo entry only.
b. credit to Contribution Revenue for P250,000.
c. credit to extraordinary income for P250,000.
d. credit to Donated Capital for P250,000.

7. On September 10, 2004, Flint Co. incurred the following costs for one of its printing presses:
Purchase of stapling attachment P110,000
Installation of attachment 10,000
Replacement parts for renovation of press 36,000
Labor and overhead in connection with renovation of press 14,000
Neither the attachment nor the renovation increased the estimated useful life of the press.
However, the renovation resulted in significantly increased productivity. What amount of the
costs should be capitalized?
a. P0.
b. P134,000.
c. P156,000.
d. P170,000.

8. On January 2, 2004, Pine Corp. replaced its boiler with a more efficient one. The following
information was available on that date:
Purchase price of new boiler P120,000
Carrying amount of old boiler 5,000
 Fair value of old boiler 3,000
Installation cost of new boiler 10,000
The old boiler was sold for P3,000. What amount should Pine capitalize as the cost of the
new boiler?
a. P130,000.
b. P122,000.
c. P125,000.
d. P120,000.
9. BIG BROTHER Company acquired two items of machinery as follows:

➢ On December 30, 2005, BIG BROTHER Company purchased a machine in exchange for a
noninterest bearing note requiring three payments of P1,000,000. The first payment was made
on December 30, 2005, and the others are due annually on December 30. The prevailing rate of
interest for this type of note at date of issuance was 12%. The present value of an ordinary
annuity of 1 at 12% is 1.69 for two periods and 2.40 for three periods. The new machine was
damaged during its installation and the repair cost amounted to P50,000.

➢ On January 1, 2005, BIG BROTHER Company acquired used machinery by issuing to the
seller a three-year, noninterest-bearing note for P3,000,000. In recent borrowing, BIG
BROTHER has paid a 12% interest for this type of note. The present value of 1 at 12% for
3 years is 0.71.

What is the total cost of the machinery?

a. 4,820,000
b.4,530,000
c. 4,580,000
d. 4,870,000
10. In December 2005, SHOWEE Company exchanged an old machine, with a cost P6,000,000 and
50% depreciated, for a dissimilar used machine and paid a cash difference of P1,500,000. The
fair value of the old machine was determined to be P2,000,000. It is known that there is
commercial substance for the said transaction. SHOWEE should record the machine at

a. 6,000,000
b. 4,500,000
c. 3,500,000
d. 3,000,000
11. Reiley Co. purchased land as a factory site for P1,000,000. Reiley 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 title
investigation and making the purchase. Architect's fees were P41,200. Title insurance cost P2,400,
and liability insurance during construction 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.

The cost of the land that should be recorded by Reiley Co. is

a. P1,040,480.
b. P1,046,880.
c. P1,049,880.
d. P1,056,280.

12. Refer to above information, the cost of the building that should be recorded by Reiley Co. is
a. P2,613,800.
b. P2,614,840.
c. P2,623,200.
d. P2,624,240.
13. On April 1, Smiley Corporation purchased for P1,020,000 a tract of land on which was located a
warehouse and office building. The following data were collected concerning the property:
Current Assessed Valuation Vendor’s Original Cost
Land P 400,000 P250,000
Warehouse 240,000 150,000
Office building 560,000 300,000

What are the appropriate amounts that Smiley should record for the land, warehouse, and
office building, respectively?
a. Land, P250,000; warehouse, P150,000; office building, P300,000.
b. Land, P400,000; warehouse, P240,000; office building, P560,000.
c. Land, P364,286; warehouse, P218,571; office building, P437,143.
d. Land, P340,000; warehouse, P204,000; office building, P476,000.

14. On July 1, 2004, Gonzalez Corporation purchased factory equipment for P450,000. Salvage value
was estimated to be P12,000. The equipment will be depreciated over ten years using the double-
declining-balance method. Counting the year of acquisition as one-half year, Gonzalez should record
depreciation expense for 2005 on this equipment of
a. P90,000.
b. P81,000.
c. P78,840.
d. P72,000.

15. A plant asset has a cost of P80,000 and a salvage value of P20,000. The asset has a three-year life.
If depreciation in the third year amounted to P10,000, which depreciation method was used?
a. Straight-line
b. Declining-balance
c. Sum-of-the-years'-digits
d. Cannot tell from information given

16. S On January 1, 2004, Tanner Company purchased a new machine for P2,800,000. The new
machine has an estimated useful life of nine years and the salvage value was estimated to be
P100,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount
should be shown in Tanner's balance sheet at December 31, 2005, net of accumulated
depreciation, for this machine?
a. P2,260,000
b. P1,780,000
c. P1,742,222
d. P1,659,000

17. Rand Corporation, which has a calendar year accounting period, purchased a new machine for
P80,000 on April 1, 1999. At that time Rand expected to use the machine for nine years and
then sell it for P8,000. The machine was sold for P44,000 on Sept. 30, 2004. Assuming straight-
line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in
the year of retirement, the gain to be recognized at the time of sale would be
a. P8,000.
b. P6,000.
c. P4,000.
d. P0.

For problems 18 and 19:

A schedule of machinery owned by Colsen Co. is presented below:
Estimated Estimated
Total Cost Salvage Value Life in Years
 Machine A P260,000 P20,000 12
Machine C 390,000 30,000 10
Machine M 195,000 15,000 6
Colsen computes depreciation by the composite method.

18. The composite rate of depreciation (in percent) for these assets is
a. 10.18.
b. 10.77.
c. 11.03.
d. 11.67.

19. The composite life (in years) for these assets is

a. 9.1.
b. 9.3.
c. 9.8.
d. 10.0.

20. Weston Company purchased a tooling machine on January 3, 1997 for P1,000,000. The machine
was being depreciated on the straight-line method over an estimated useful life of 10 years,
with no salvage value. At the beginning of 2004, the company paid P250,000 to overhaul the
machine. As a result of this improvement, the company estimated that the useful life of the
machine would be extended an additional 5 years (15 years total). What should be the
depreciation expense recorded for the machine in 2004?
a. P68,750
b. P83,333
c. P100,000
d. P110,000

21. On January 1, 2004, KEANA Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 5 years and residual value of
P3,000,000. The depreciation applicable to this equipment was P3,200,000 for 2005 computed
under the sum of year’s digits method. What was the acquisition cost of the equipment?
a. 12,000,000
b. 15,000,000
c. 12,600,000
d. 19,000,000

22. Imus Company acquired two items of machinery as follows:

➢ On December 30, 2005, Imus Company purchased a machine in exchange for a noninterest bearing note
requiring three payments of P1,000,000. The first payment was made on December 30, 2005, and the others
are due annually on December 30. The prevailing rate of interest for this type of note at date of issuance was
12%. The present value of an ordinary annuity of 1 at 12% is 1.69 for two periods and 2.40 for three
periods. The new machine was damaged during its installation and the repair cost amounted to P50,000.

➢ On January 1, 2005, Imus Company acquired used machinery by issuing to the seller a three-year, noninterest-
bearing note for P3,000,000. In recent borrowing, Imus has paid a 12% interest for this type of note. The
present value of 1 at 12% for 3 years is 0.71.

What is the total cost of the machinery?

a. 4,530,000
b. 4,580,000
c. 4,870,000
d. 4,820,000
For numbers 23 to 25 (Biological Assets)

An entity purchased 100 pigs at 1 year old amounting to Php 4000.00 each on Jan. 1, 2019. On
March 31 the pigs gave birth to 5 piglets. On March 31, active market of newborn pig is at Php
2,000.00. On December 31, 1 year old pig cost Php 4500.00 and 2 year old pigs cost Php 5,000 each.
The newborn piglets on December 31 would cost Php2,500.00 each and, 9 month old piglets at Php
3,000 each. Assuming no animals were sold on the said year,

23. How much is the biological assets at December 31?

a. 400,000
b. 410,000
c. 462,500
d. 515,000
24. How much is the total gains to be reported in the income statement?
a. 115,000
b. 105,000
c. 52,500
d. 62,500
25. How much is the price change?
a. 115,000
b. 105,000
c. 52,500
d. 62,500