Choose the Correct Answer and Explain:

Topics Covered:

• Government Grant and Borrowing Costs
• Depreciation and Depletion

Question 5

Which of the following depreciation methods applies a uniform depreciation rate each period to an asset's carrying amount?

a)Units-of-production

b)Double-declining balance

c)Straight-line

d)Sum-of-the-years'-digits

Item 7

An asset is being constructed for an entity's own use. The asset has been financed with a specific new borrowing. The interest cost incurred during the construction period is?

a)A part of the historical cost of acquiring the asset to be written off over the estimated useful life of the asset.

b)A prepaid asset to be written off over the estimated useful life of the asset.

c)A part of the cost of the asset to be written off over the term of the borrowing.

d)Interest expense in the construction period.

Item 14

Economic factors that shorten the service life of an asset include?

a)Obsolescence.

b)Supersession.

c)Inadequacy.

d)All of these.

Item 15

An entity borrowed P20,000,000 on Jan. 1, 2020 specifically to finance the construction of a building (Building A). This building was completed on July 1, 2021. Also, the entity has another building (Building B) still under construction at December 31, 2021. How should the entity account for the P20,000,000 loan in the year ended December 31, 2021?

a)Treat P20 million as specific borrowing for Building A from Jan. 1 to June 30 and specific borrowing for Building B from July 1 to Dec. 31.

b)Treat P20 million as specific borrowing for Building A from Jan. 1 to June 30 and general borrowing for Building B from July 1 to Dec. 31.

c)Treat P20 million as specific borrowing for Building A from Jan. 1 to June 30 and excluded from borrowings for Building B.

d)Treat P20 million as general borrowing from Jan. 1 to Dec. 31.

Item 17

Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an asset?

a)Yes, but only to the extent such expenditure is recoverable in future periods.

b)Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated mineral resource have been demonstrated.

c)Yes, but only to the extent required by the entity's accounting policy for recognizing exploration and evaluation asset.

d)No, such expenditure is always expensed in profit or loss as incurred.

Item 20

Of the following costs related to the development of natural resources, which one is not a part of depletion cost?

a)Acquisition cost of the natural resource deposit.

b)Exploration costs.

c)Tangible equipment costs associated with machinery used to extract the natural resource.

d)Intangible development costs such as drilling costs, tunnels, and shafts.

Item 21

Government assistance to entities with no conditions specifically relating to the operating activities of the entity other than the requirement to operate in certain regions or industry sector is accounted for as?

a)Income on a straight-line basis

b)Government grant

c)Other forms of government assistance

d)A credit directly to equity

Item 24

Which statement is incorrect regarding recognition of government subsidies related to the coronavirus pandemic?

a)Government grants can be recognized only when it is confirmed that an entity is eligible to receive the subsidy and that any conditions attaching to these subsidies are met.

b)In cases where subsidies are given to entities without any specified conditions, an asset can be recognized at the time when it is reasonably certain that the grants will be received.

c)The receipt of a grant provides conclusive evidence that the conditions attaching to the grant have been, or will be, fulfilled.

d)None of these.

Item 25

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

a)Associating cause and effect

b)Systematic and rational allocation

c)Immediate recognition

d)Partial recognition

Item 26

A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2019. The depreciation expense for 2021 using the double-declining balance method would be original cost multiplied by?

a)90% 40% 40%

b)60% 60% 40%

c)90% 60% 40%

d)40% 40%

Item 28

Which of the following methods are acceptable in presenting grants related to assets?

a)Reported as deferred income.

b)Deducted in arriving at the carrying amount of the asset.

c)Either a or b.

d)Neither a or b.

Item 29

For income statement purposes, depreciation is a variable expense if the depreciation method used is?

a)Units-of-production

b)Straight-line

c)Sum-of-the-years'-digits

d)Declining-balance