Acc107 Quiz 2-P1

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The document discusses concepts related to accounting for property, plant and equipment including useful life, depreciation, and residual value.

According to the document, useful life of an item of property, plant and equipment is the period of time over which an asset is expected to be used by the entity.

According to the document, all of the following factors need to be considered in determining the useful life of an asset: expected usage, expected physical wear and tear, technical obsolescence.

ACC 107 Intermediate Accounting 2

Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

Lesson Title: Quiz 2 Materials:


SAS, Calculator
Coverage: Property, Plant and Equipment Part 2

Productivity Tip: Being a good student is less about the ability to rote and more about the desire to learn.

Welcome! Are you ready for your second quiz? I hope you reviewed your modules. Hope for the best
results. Good luck, Future CPA!

Read carefully the instructions for this quiz. Cheating is prohibited.

Multiple Choices. Choose the best answer.

______1. Useful life of an item of property, plant and equipment is


I. The period of time over which an asset is expected to be used by the entity.
II. The number of production or similar units expected to be obtained from the asset by the
entity.
A. I only C. Both I and II
B. II only D. Neither I nor II

______2. Carrying amount is the


A. Cost of an asset or the amount substituted for cost in the financial statements, less its
residual value.
B. Amount of cash or cash equivalent paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction.
C. Net amount which the entity expects to obtain for an asset at the end of its useful life after
deducting the expected costs of disposal.
D. Amount at which an asset is recognized in the statement of financial position after
deducting any accumulated depreciation and accumulated impairment loss.

______3. Which of the following is incorrect with respect to depreciation?


A. The depreciable amount of item of property, plant and equipment shall be allocated on a
systematic basis over its useful life.
B. The depreciation method used shall not reflect the pattern in which the asset’s economic
benefits are consumed by the entity.
C. The depreciation charge for each period shall be recognized as an expense unless it is
included in the carrying amount of another asset.
D. The estimation of the useful life of an item of property, plant and equipment is a matter of
judgment based on the experience of the entity with similar assets.

1
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______4. All of the following factors need to be considered in determining the useful life of an asset,
except
A. Expected usage of the asset C. Technical obsolescence
B. Expected physical wear and tear D. Residual value

______5. The sum of the years method of depreciation results in


A. Constant charge over the life of the asset.
B. Decreasing charge over the life of the asset.
C. Increasing charge over the life of the asset.
D. Charge based on the expected use or output of the asset.

______6. Which is incorrect concerning the residual value of an item of property, plant and equipment?
A. The depreciable amount is determined after deducting the residual value of the asset.
B. In practice, the residual value of an asset is often insignificant and therefore immaterial in the
calculation of the depreciable amount.
C. The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount.
D. The residual value of an asset shall be reviewed at least at each financial year-end and if
expectation differs from previous estimate, the change shall be accounted for as a change in
an accounting policy.

______7. The useful life of an item of property, plant and equipment shall be reviewed periodically and
if expectations are significantly different from previous estimates, the depreciation charge for the
A. Current period only shall be adjusted
B. Future period only shall be adjusted
C. Prior periods shall be adjusted
D. Current and future periods shall be adjusted

______8. The depreciation method applied to property, plant and equipment shall be reviewed
periodically, and if there has been a significant change in the expected pattern of consumption of
economic benefits from those assets, the change
A. Shall be accounted for as change in accounting policy
B. Shall not be recognized.
C. Shall be accounted for as a change in accounting estimate.
D. Shall be accounted for as correction of prior period error.

______9. Technical obsolescence arises from


A. Expected usage of the asset.
B. Expected physical wear and tear.
C. Changes or improvements in production or change in the market demand for the product
output of the asset.
D. Expiry date of related lease of the asset.

2
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______10. Which of the following terms best describes the cost or an amount substituted for cost of an
asset less its residual value?
A. Revalued amount
B. Carrying amount
C. Recoverable amount
D. Depreciable amount

______11. Which of the following statements best describes residual value?


A. The estimated net amount currently obtainable is the asset is at the end if its useful life.
B. The present value of estimated future cash flows expected to arise from the continuing
use of the asset and from its useful life.
C. The amount at which the asset could be exchanged between knowledgeable and willing
parties in an arm’s length transaction.
D. The amount of cash or cash equivalents that could currently be obtained by selling the
asset in an orderly disposal.

______12. Which of the following statements is correct?


A. Assets are depreciated even if their fair value exceeds their carrying amount.
B. Land and buildings are not accounted for separately when acquired together.
C. A noncurrent asset acquired as the result of an exchange of assets is not recognized.
D. A gain on disposal of a noncurrent asset is classified as revenue.

______13. Which of the following statements regarding depreciation is true?


A. An asset must be depreciated from the date of its purchase to the date of sale
B. The annual depreciation charge shall be constant over the life of the asset
C. The total cost of an asset must eventually be depreciated
D. If the carrying amount of an asset is less than the residual value, depreciation is not
charged.

______14. The goal of a depreciation method is to provide a reasonable, consistent matching of


revenue and expense by
A. Measuring the decline in the value of depreciable asset.
B. Systematically allocating the cost of the depreciable asset over its estimated useful life.
C. Determining the impairment in value of the depreciable asset.
D. Measuring the depreciable asset at fair value.

______15. If there is a change from double declining balance to straight line method
A. The accumulated depreciation is adjusted to its appropriate balance through retained
earnings based on the straight line method.
B. The accumulated depreciation is adjusted to its appropriate balance through net income
based on the straight line method.
C. The accumulated depreciation is not adjusted but the remaining book value is allocated
over the remaining life using the straight line method.
D. The accumulated depreciation is not adjusted but the remaining book value is allocated
over the original life using the straight line method
3
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______16. For income statement purposes, depreciation that varies based on production is based from
what depreciation method?
A. Units of production C. Sum of years digits
B. Straight line D. Declining balance

______17. A method which excludes residual value from the base for the depreciation calculation is
A. Straight line
B. Sum of digits
C. Double declining balance
D. Productive output

______18. Which depreciation method applies a uniform depreciation rate each period to an asset’s
book value?
A. Straight line
B. Declining balance
C. Output method
D. Sum of years’ digits

______19. An entity using the composite depreciation method for its fleet of trucks, cars and campers
retired one of its trucks and received cash from a salvage entity. The net carrying amount of these
composite asset accounts would be decreased by the
A. Cash proceeds received and original cost of the truck
B. Cash proceeds received
C. Original cost of the truck less the cash proceeds
D. Original cost of truck

______20. A machine with a 5-year estimated useful life and an estimated 10% residual value was
acquired at the beginning of the current year. At the end of the fourth year, accumulated
depreciation using the sum of years’ digits method would be
A. Original cost less residual value multiplied by 1/15
B. Original cost less residual value multiplied by 14/15
C. Original cost multiplied by 14/15
D. Original cost multiplied by 1/15

______21. Revaluation is based on


I. Fair value which is usually the market value of an item of property, plant and equipment.
II. Depreciated replacement cost, in the absence of fair value.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

4
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______22. The fair value of items of property, plant and equipment is usually their market value. Where
there is no evidence of market value because of the specialized nature of the plant and equipment
and because these items are rarely sold, they are revalued at
A. Replacement cost
B. Depreciated replacement cost
C. Net realizable value
D. Present value of cash inflows from the use of the asset.

______23. Which statement is incorrect concerning the frequency of revaluation?


A. The frequency of revaluation depends upon the movements in the fair value of the items
of property, plant and equipment.
B. When the fair value of a revalued asset differs materially from its carrying amount, a
further revaluation is necessary.
C. Some items of property, plant and equipment may experience significant and volatile
movements in fair value thus necessitating annual revaluation.
D. Frequent revaluations are unnecessary for items of property, plant and equipment with
only insignificant movements in fair value and instead, revaluation every six to 10 years
may be sufficient.

______24. What is the treatment of the accumulated depreciation on the date of revaluation?
I. Restated proportionately with the change in the gross carrying amount of the asset so that the
carrying amount after revaluation equals the revalued amount.
II. Eliminated against the gross carrying amount of the asset and the net amount restated to the
revalued amount of the asset.
A. I only C. Both I and II
B. II only D. Neither I nor II

______25. PAS 16 requires that revaluation surplus resulting from initial revaluation of property, plant
and equipment shall be treated in one of the following way. Which of the four options mirrors the
requirements of PAS 16?
A. Credited to retained earnings as this is an unrealized gain.
B. Released to the income statement an amount equal to the difference between the
depreciation calculated on historical cost vis-à-vis revalued amount.
C. Deducted from the current assets and added to the property, plant and equipment.
D. Debited to the class of property, plant and equipment that is being revalued and credited
to “revaluation surplus”.

______26. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease
shall be
A. Recognized in profit or loss
B. Charged to retained earnings
C. Debited to equity
D. Charged to revaluation surplus

5
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______27. When the revaluation surplus is realized because of the use of the asset by the entity or
disposal of the asset, it may be transferred directly to
A. Retained earnings C. Share capital
B. Income D. Share premium

______28. If a depreciable property is revalued at the middle of the current fiscal year, how is the
depreciation expense for the year (assuming the entity has a calendar 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.

______29. On December 31, 20x1, the building of Sipag Co. with a historical cost of ₱320,000,000,
accumulated depreciation of ₱160,000,000, and an estimated useful life of 20 years was
determined to have a fair value of ₱200,000,000. Sipag Co. is subject to an income tax rate of 30%.
Under the elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for ₱160,000,000.
b. a debit to accumulated depreciation for ₱40,000,000.
c. a debit to building for ₱120,000,000.
d. a credit to building for ₱160,000,000.

______30. On December 31, 20x1, Sipag Co. determined the following information for the purpose of
revaluing its building:

Historical cost 80,000,000


Initial estimate of useful life 25
Actual life 10
Replacement cost 140,000,000
Effective life 8
Remaining economic life 17
Income tax rate 30%

If Sipag Co. uses the proportional method of recording, the entry to record the revaluation would
include which of the following?

a. a debit to accumulated depreciation of ₱32,000,000.


b. a credit to accumulated depreciation of ₱12,800,000.
c. a credit to building of ₱15,200,000.
d. a debit to deferred tax of ₱14,160,000.

______31. On January 1, 20x1, Sipag Co. acquired a piece of equipment with an estimated useful life
of 4 years and a residual value of ₱80,000 for a total purchase cost of ₱400,000. At normal
capacity, the equipment’s estimated service life is 40,000 hours or a total productive capacity of
6
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

160,000 units of a product. In 20x1 and 20x2, the actual manufacturing hours were 16,000 and
8,000, respectively, and the actual units produced were 60,000 and 30,000, respectively. How
much is the accumulated depreciation on December 31, 20x2 under each of the following
depreciation methods?
SLM SYD DDB UOPM (input) UOPM (output)
A. 100,000 160,000 200,000 129,000 120,000
B. 160,000 224,000 300,000 192,000 180,000
C. 80,000 128,455 200,000 128,000 120,000
D. 160,000 224,000 300,000 180,000 192,000
*SLM = straight line method; SYD = sum-of-the-years’ digits; DDB = double declining balance;
UOPM = units-of-production method

______32. Sipag Co. acquired a machine on October 5, 20x1 for a total cost of ₱160,000. The machine
was estimated to have a useful life of 4 years and a salvage value of ₱10,000. Sipag Co. uses the
sum-of-the-years’ digits method and prorates full-year depreciation to the nearest month. Sipag Co.
sold the machine on December 27, 20x2 for ₱40,000. How much is the gain (loss) on the sale?
a. (48,750) c. (32,250)
b. 48,750 d. 32,250

______33. On January 1, 20x1, Sipag Co. purchased the following assets and decided to depreciate
them as a single unit:

Cost Residual value Useful life


Machine tools 80,000 4,000 3 years
Meters 64,000 2,000 5 years
Returnable containers 120,000 - 6 years

What is the composite life?


a. 5.40 c. 4.70
b. 5 d. 4.50

______34. The small tools account of Sipag Co. has a balance of ₱600,000 as of January 1, 20x1. The
movements in this account during the year were as follows:

Feb. April Sept. Nov.


Cost of new tools acquired 40,000 - 120,00088,000
Cost of old tools retired 24,000 48,000 - 72,000
Disposal proceeds of old tools 2,000 3,200 - 4,000

How much is the depreciation expense in 20x1 under the retirement method?

a. 134,800 c. 144,000
b. 166,800 d. 118,800

7
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

______35. On January 1, 20x1, Sipag Co. acquired a piece of equipment for ₱4,000,000. The
equipment will be used to reproduce gaming software that is expected to be marketed for 3 years.
The equipment is expected to be used in producing products over the next two years, after which
the equipment will be disposed of at a negligible amount. The estimated revenues from the software
are as follows:

Year Estimated revenues


20x1 120,000,000
20x2 80,000,000
20x3 40,000,000
Total 240,000,000

The actual revenue earned in 20x1 is ₱180,000,000. The depreciation expense in 20x1 is most
likely equal to
a. 3,000,000 c. 2,977,667
b. 2,000,000 d. 333,333

______36. On January 1, 20x1, Sipag Co. signed a ten-year lease for office space. Sipag has the
option to renew the lease for an additional five-year period on or before January 1, 2x10. During the
first half of January 20x2, Sipag Co. incurred the following costs:

• ₱3,600,000 for general improvements, with an estimated useful life of ten years, on the leased
premises.
• ₱400,000 for office furniture with an estimated useful life of ten years.
• ₱800,000 for movable assembly line equipment with a useful life of 5 years.

At the time the leasehold improvements were finished, Sipag Co. was uncertain as to the exercise
of the lease renewal option. How much is the depreciation expense on the leasehold
improvements in 20x2?
a. 400,000 c. 533,333
b. 360,000 d. 488,889

______37. On January 1, 20x1, Sipag Co. acquired a machine for a total cost of ₱80,000,000. The
machine was depreciated using the sum-of-the-years’ digits method over a period of 10 years. On
January 1, 20x4, Sipag Co. changed its depreciation method to the double declining balance
method. How much is the depreciation expense in 20x4?
a. 40,727,272 c. 12,556,780
b. 11,635,782 d. 13,556,702

______38. Sipag Co. acquired an aircraft from Wagtamad, Inc. on January 1, 20x1 for a total cost of
₱24,000,000. The aircraft was estimated to have a useful life of 10 years. Sipag Co. uses the
straight-line method of depreciation. On January 1, 20x5, a major part of the aircraft was replaced
for a total cost of ₱3,200,000. Sipag Co. cannot determine the cost of the replaced part. How much
is the loss on replacement?
a. 1,920,000 c. 1,200,000
8
This document is the property of PHINMA EDUCATION.
ACC 107 Intermediate Accounting 2
Teachers’ Guide Module #8

Name:_______________________________________________________ Class number: _______


Section: ___________ Schedule:__________________________________ Date: _______________

b. 1,280,000 b. 0

______39. On December 31, 20x1, the building of Sipag Co. was revalued. Information determined on
revaluation date is as follows:

Historical cost 72,000,000


Accumulated depreciation 16,000,000
Initial estimate of residual value 8,000,000
Actual life on revaluation date 10
Replacement cost 144,000,000
Effective life 12
Remaining economic life 20
Income tax rate 30%

The estimate of residual value remained unchanged. How much are the (1) revaluation surplus,
net of tax, on December 31, 20x1 and (2) revised annual depreciation in periods subsequent to
December 31, 20x1?

a. 25,900,000; 4,650,000
b. 37,000,000; 895,000
c. 37,000,000; 4,650,000
d. 25,900,000; 4,250,000

______40. On December 31, 20x1, the land of Sipag Co. with an original cost of ₱40,000,000 was
revalued to a fair value of ₱28,000,000. This was the first revaluation made on the land since it was
purchased 2 years ago. On December 20x4, the building was appraised at a fair value of
₱48,000,000. How much is the gain on impairment reversal in 20x4?
a. 8,000,000 c. 12,000,000
b. 20,000,000 d. 0

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This document is the property of PHINMA EDUCATION.

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