NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

NEGROS ORIENTAL STATE UNIVERSITY

College of Business Administration
Accountancy Department

CFAS (PROPERTY, PLANT AND EQUIPMENT )

INSTRUCTION: READ THE PROBLEMS CAREFULLY AND ANSWER IT CORRECTLY.

PROBLEM 1

1. According to PAS 16, the selection of an appropriate depreciation method rests upon the entity’s
a. management.
b. accountant.
c. regulator.
d. all of these

2. Which of the following is not one of the essential characteristics of a PPE?

a. tangible asset
b. used in business
c. primarily held for sale
d. long-term in nature

3. PAS 16 requires an entity to review the depreciation method and the estimates of useful life and residual
value at the end of each year-end. A change in any of these is accounted for using
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these

4. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line method
would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.

5. Which of the following instances does not preclude an entity from recognizing depreciation during a
certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no production
during the period.
c. The asset is classified as held for sale under PFRS 5.
d. The asset becomes idle or is taken out of active use.

Use the following information for the next five questions:

Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

Purchase price, gross of trade discount 1,000,000

Trade discount available 10,000
Freight costs 20,000
Testing costs 30,000
Net disposal proceeds of samples generated
during testing 5,000
Present value of estimated costs of dismantling the
equipment at the end of its useful life 6,209

6. How much is the initial cost of the equipment?

a. 1,061,209
b. 1,051,209
c. 1,041,209

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NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
d. 1,031,209

7. The equipment has an estimated useful life of 10 years and a residual value of ₱200,000. Entity A uses
the straight line method of depreciation. How much is the carrying amount of the equipment on
December 31, 20x3?
a. 788,846
b. 802,846
c. 795,846
d. 764,846

8. On December 31, 20x3, Entity A revalues the equipment at a fair value of ₱820,000. There is no change in
the residual value and the remaining useful life of the asset. How much is the revaluation surplus on
December 31, 20x3?
a. 17,154
b. 24,154
c. 55,154
d. 31,154

9. How much is the depreciation expense in 20x4?

a. 102,500
b. 117,143
c. 136,667
d. 88,571

10. Entity A sells the equipment for ₱870,000 on January 1, 20x5. Entity A incurs selling costs of ₱20,000 on
the sale. How much is the gain (loss) on the sale?
a. 118,571
b. 132,500
c. 147,143
d. 152,673

PROBLEM 2: FILL IN THE BLANKS.

___________________1. Refers to the process of recording the accounts or transactions. Bookeeping

___________________2. Refers to the profession or practice of accounting. Accountancy

___________________3. Is the process of evaluating the correspondence of certain assertions with established criteria
and expressing an opinion thereon. auditing

___________________4. Costs that do not meet the definition of an asset, or ceases to meet the definition of an asset,
are expensed immediately. Immediate recognition

___________________5. Costs that are not directly related to the earning of revenue are initially recognized as assets
and recognized as expenses over the periods their economic benefits are consumed, using some method of
allocation. Systematic and rational allocation.

___________________6. The accounting objective is geared towards proper income determination. Entity theory

___________________7. Means the entity has the exclusive rights over the benefits of an asset and the ability to
present others from accessing those benefits. Control

___________________8. The recognition of an item is appropriate if it provides both relevant and faithfully
represented information. Faithful representation

___________________9. It is the removal of a previously recognized asset or liability from the entity’s statement of
financial position. Derecognition.

___________________10. The price that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date. Fair value.

___________________11. The present value of the cash flows, or other economic benefits that an entity expects to
derive from the use of asset and from its ultimate disposal. Value in use

___________________12. Measures reflect changes in values at the measurement date. Current value

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___________________13. Begins when the asset is available for use and ceases when the assets is derecognized,
classified as held for sale under PFRS 5, or fully depreciated. Depreciation

___________________14. The estimated amount that an entity would currently obtain form 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. Residual value

___________________15. Is the estimated selling price in the ordinary course of business less estimated costs of
completion and the estimated costs necessary to make the sale. NRV

PROBLEM 3: WRITE FALSE IF THE STATEMENT IS TRUE AND WRITE LETTER T IF THE STATEMENT IS
FALSE.

________________1. According to PAS 2, net realizable value and fair value less costs to sell are the same. FALSE

________________2. According to PAS 2, inventories are measured at net realizable value. FALSE

________________3. The maintenance costs of a machine used in the manufacturing process are included in the cost
of inventories. TRUE

________________4. Materiality judgments apply only to items that are recognized but not to those that re
unrecognized. FALSE

________________5. The conceptual framework is concerned with the provision of financial information to both
external users and internal users. FALSE

________________6. The conceptual framework does not defines income and expenses in terms of changes in assets
and liabilities. FALSE

________________7. Once promulgated, accounting standards are be changed. TRUE

________________8. General purpose financial statements are those statements that cater to the common and
specific needs of a wide range of internal users. FALSE

________________9. The financial statements are the only source of information when making economic decisions.
FALSE

________________10. All information presented in the financial position are sourced from the accounting records of
the entity. FALSE

“The heart of the discerning acquires knowledge, for the ears of the wise seek it out.” (Proverbs 18:15)

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