ultiple Choice - Theory (PPE)

1. Which of the following is not a characteristic of property, plant and equipment?

a. The property, plant and equipment are tangible assets.

b. The property, plant and equipment are used in business.

c. The property, plant and equipment are expected to be used over a period of more

than a year.

d. The property, plant and equipment are subject to depreciation.

2. What valuation model should an entity use to measure property, plant and equipment?

a. Revaluation model and fair value model

b. Cost model and revaluation model

c. Cost model only

d. Cost model and fair value model

3. The cost of property, plant and equipment comprises all of the following, except

a. Purchase price

b. Import duties and nonrefundable purchase taxes

c. Any cost directly attributable in bringing the asset to the location and condition for

intended use

d. Initial estimate of the cost of dismantling the asset for which the entity has no

present obligation.

4. Which cost should be expensed immediately?

a. Cost of opening a new facility

b. Cost of introducing a new product including cost of advertising and promotional

activities

c. Cost of conducting business in a new location

d. All of these are expensed immediately

5. The cost of property, plant and equipment acquired in an exchange is measured at

the

a. Fair value of the asset given plus cash payment.

b. Fair value of the asset received plus cash payment.

c. Carrying amount of the asset given plus cash payment.

d. Carrying amount of the asset received plus cash payment.

Multiple Choice - Computation (PPE)

1. Disney Company recently acquired two items of equipment

Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount

which was taken.

Cost of freight and insurance during shipment were P50,000 and installation cost

amounted to P200,000.

Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash

discount which was not taken. Additional welding supplies were acquired at a cost of

P100,000.

What is the total increase in the equipment account as a result of the transactions?

a. 4,900,000 b. 5,000,000 c. 5,100,000 d. 5,200,000

2. Best Forwarding Company exchanged a delivery truck costing P1,000,000 for a parcel of

land. The truck had a carrying amount of P650,000 and a fair value of P500,000.

The entity gave P600,000 in cash in addition to the truck as part of this transaction.

It is expected that the cash flows from the assets will be significantly different. The previous

owner of the land had listed the land for sale at P1,200,000.

At what amount should the company record the land?

a. 1,100,000 b. 1,250,000 c. 1,150,000 d. 1,200,000

Multiple Choice - Theory (Borrowing Cost)

1. Borrowing cost can be capitalized as cost of the asset when

a. The asset is a qualifying asset.

b. The asset is a qualifying asset and it is not probable that the borrowing cost will

result in future economic benefit to the entity.

c. The asset is a qualifying asset and it is probable that the borrowing cost will

result in future economic benefit to the entity but the cost cannot be measured

reliably.

d. The asset is a qualifying asset and it is probable that the borrowing cost will

result in future economic benefit to the entity and the cost can be measured

reliably.

2. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing

cost is equal to

a. Actual borrowing cost incurred

b. Actual borrowing cost incurred up to completion of asset

c. Actual borrowing cost incurred up to completion of asset minus any investment

income from the temporary investment of the borrowing

d. Zero

3. Which of the following could be treated as qualifying asset for the purpose of

capitalizing borrowing cost?

a. Investment property

b. Financial asset at fair value

c. Inventory that is manufactured in large quantity on a repetitive basis and takes a

substantial period of time to get ready for use or sale

d. Biological asset

4. If the qualifying asset is financed by general borrowing, the capitalizable borrowing

cost is equal to

a. Actual borrowing cost incurred

b. Total expenditures on the asset multiplied by a capitalization rate

c. Average expenditures on the asset multiplied by a capitalization rate or actual

borrowing cost incurred, whichever is lower

d. Average expenditures on the asset multiplied by a capitalization rate or actual

borrowing cost incurred whichever is higher

5. The period of time during which interest must be capitalized ends when

a. The asset is substantially complete and ready for the intended use.

b. No further interest is being incurred.

c. The asset is abandoned, sold or fully depreciated.

d. The activities that are necessary to get the asset ready for the intended use have

begun.

Multiple Choice - Computation (Borrowing Cost)

1. On January 1, 2020, Cagayan Company took out a loan of P24,000,000 in order to finance

specifically the renovation of a building. The loan carried annual interest at 10%

The renovation work started on the same date. Work on the building was substantially

complete on October 31, 2020.

The loan was repaid on December 31, 20202 and P200,000 investment income was earned

n the period to October 31 on the proceeds of the loan not yet used for the renovation.

What amount of capitalizable borrowing cost should e included in the cost of the building?

a. 2,400,000 b. 2,200,000 c. 2,000,000 d. 1,800,000

2. During 2020 Joshua Company constructed asset costing P5,000,000. The weighted

average expenditures totaled P3,000,000.

To help pay for construction, P2,200,000 was borrowed at 10% on January 1, 2020.

Funds not needed for construction were temporarily invested in short-term securities yielding

P45,000 in interest revenue.

Other than the construction funds borrowed, the only other debt outstanding during the year

was a P2,500,000. 10-year, 9% note payable dated January 1, 2019.

What amount of interest should be capitalized during 2020?

a. 300,000 b. 150,000 c. 247,000 d. 472,000