1. Which of the following shall not be capitalized as 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

2. An entity purchased a new machinery that it does not have to pay until after three years. The total payment on maturity will include both principal and interest. The cost would be the total payment multipled by what time value of money?

a. Present value of an ordinary annuity of 1

b. Present value of 1

c. Future amount of an ordinary annuity of 1

d. Future amount of 1

3. 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.

4. What is the proper treatment of freight and interest on the loan to fund the cost of an imported machinery?

a. Both expenses are capitalized.

b. Interest may be capitalized but freight is expensed.

c. Freight is capitalized but interest cannot be

capitalized

d. Both expenses are expensed.

5. The carrying amount of property, plant and equipment shall be derecognized

a. On disposal

b. When no future economic benefits are expected

c. On acquisition

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

6.If the present value of a note issued in exchange for a plant asset is lesser than the face amount, the difference

a. Included in the cost of the asset

b. Amortized as interest expense over the life of the note

c. Amortized as interest expense over the life of the asset

d. Included in interest expense in the year of issuance