COLLEGE OF BUSINESS AND ACCOUNTANCY

ACCOUNTING 5 MARCH 6, 2017

SEMI-FINALS EXAMINATION MONDAY, 2:00PM – 5:00PM

SET A
INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS. FULLY
SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED.

On January 2, 2008, Norzagaray Company acquired 20% of the 400,000 ordinary shares
of Imaw Corporation for P30 per share. The purchase price was equal to Imaw’s
underlying book value. Norzagaray plans to hold this stock to influence the
activities of Imaw.

The following data are applicable for 2008 and 2009:

2008 2009

Imaw dividends (paid Oct. 31) P40,000 P48,000

Imaw profit 140,000 160,000
Imaw share market price at year-end 32 31

On January 2, 2010, Norzagaray company sold 20,000 shares of Imaw at their quoted
price of P31 per share. During 2010, Imaw reported profit of P120,000 and on
October 31, 2010, Imaw paid dividends of P20,000. At December 31, 2010, after
significant stock decline, which is expected to be temporary, Imaw’s stock was
selling for P22 per share. After selling the 20,000 shares, Norzagaray does not
expect to exercise significant influence over Imaw, and the shares are classified
as available for sale.

Determine the following:

1. Carrying amount of investment in Imaw as of December 31, 2008

a. P12,020,000 c. P2,420,000
b. P2,500,000 d. P2,388,000
2. Carrying amount of investment in Imaw as of December 31, 2009
a. P2,442,400 c. P12,042,400
b. P2,612,000 d.P2,372,000
3. Total amount to be recognize in profit or loss on January 2, 2010
a. P9,400 c. P33,000
b. P37,600 d. P27,000
4. The income from the investment in Imaw in 2010 is
a. P3,000 c. P4,000
b. P24,000 d. P 0
5. Net unrealized loss on available for sale securities as of December 31, 2010
a. P671,800 c. P639,000
b. 511, 800 d. 459,000

The Marilao Company has the following transactions in the non-marketable shares of
the Sta. Maria Corp.

a. On January 2, 2004, Marilao purchased 4,000, P100 par value, ordinary shares
of Sta. Maria Corp. at P110 per share. Marilao debited investment In Stock
account.
b. The Sta. Maria Corp. was expanding on March 2, 2004, it issued share rights
to its shareholders. The holder needs four rights to purchase one ordinary
share at par. The best estimate of the fair value of the ordinary share on
that date was P140 per share. There was no quoted price for the rights. No
journal entry was made record the receipt of the rights.
c. On April 2, 2004, Marilao exercised all its share rights. The investment in
Stock account was charged for the amount paid.
d. Robinson, Marilao’s accountant, felt that the cash paid for the new shares
was merely an assessment since Marilao’s proportionate share in Sta. Maria
was not changed. Hence he credited all dividends (5% in December of each
year) to the Investment in Stock account until the debit was fully offset.
e. Marilao received a 50% share dividend from Sta. Maria in December 2008.
Because the shares received were expected to be sold, the company’s president
instructed Robinson not to make any entry for this dividend. The company did
 sell the dividend shares in January 2009 for P150 per share. The proceeds
from the sale were credited to income.
f. In December 2009, Sta. Maria’ shares were split on a two-for-one basis and
the new shares were issued as no par shares. Marilao found that each new
share was worth P10 more than the P110 per share original acquisition cost.
For this reason, Marilao decided to debit the investment in stock account
with the additional shares received at 110 per share and credited revenue for
it.
g. In August 2010, Marilao sold one half (1/2) of its holdings in Sta. Maria at
P120 per share. The proceeds were credited to the investment in stock
account.

Marilao uses the average method in recording the sale of its investment in stock.

The fair value of the investment cannot be reliably measured since the shares of
Sta. Maria are not actively traded. Therefore, Marilao used cost to measure its
investment in Sta.Maria.

Answer the following:

6. The cost of investment to be allocated to share rights received on March 2,

2004 is
a. P 0 c. P31,429
b. P29,333 d. P25,143
7. The unadjusted balance of investment in stock on December 31, 2010 is
a. P940,000 c. P390,000
b. P490,000 d. P430,000
8. The adjusted balance of investment in stock on December 31,2010 is
a. P135,000 c. P180,000
b. P360,000 d. P270,000
9. The gain on the sale of dividend shares received in December 2008 is
a. P100,000 c. P80,000
b. P105,000 d. P 195,000
10. The gain on sale of the shares sold in August 2010 is
a. P240,000 c. P120,000
b. P420,000 d.P 870,000

During 2009, Pampanga Company purchased 9,000 ordinary shares of Angeles Company
for P16 per share, 6,000 ordinary shares of Apalit Company for P33 per share and
P120, 000 of treasury notes at 101. These investments are intended to be held as
ready sources of cash and are classified as held for trading.

Also in 2009, Pampanga purchased 10,500 ordinary shares of Arayat Company for P29
per share. The securities are classified as available for sale.

During 2009, Pampanga received the following interest and dividend payment on its
investments:

Angeles Company P1 per share dividend

Apalit Company P3 per share dividend
Arayat Company P2 per share dividend
Treasury notes 6% annual interest earned for 6 months

Fair values of the securities at December 31,2009, were as follows:

Angeles Company P20 per share

Apalit Company P22 per share
Arayat Company P26 per share
Treasury notes 102

On March 23, 2010, the 6,000 ordinary shares of Apalit were sold for P17 per share.
On june 30, 2010, the treasury notes were sold 100.5 plus accrued interest.

Fair values of remaining securities at December 31, 2010, are as follows:

Angeles Company P20 per share
Arayat Company P33 per share
Determine the following:

11.Total dividend income in 2009

a. P48,000 c. P27,000
b. P21,000 d. P 0
12.Carrying amount of Trading Securities as of December 31, 2009
a. P434,400 c. P463,200
b. P342,000 d. P717,900
13.Unrealized loss to be recognized in 2009 profit or loss
a. P49,800 c. P27,600
b. P28,800 d.P 0
14.Total realized on sale of securities in 2010
a. P96,600 c. P29,400
b. P5,400 d. P31,800
15.Net unrealized gain in accumulated other comprehensive income in equity as of
December 31, 2010
a. P42,000 c. P63,000
b. P73,500 d. P 0

The following transactions of the Angat Company were completed during the year
2010:

Jan. 2 Purchased 20,000 shares of Bulacan Auto Co. for P40 per share plus brokerage
costs of P4, 500. These shares were classified as held for trading.

Feb. 1 Purchased 20,000 shares of Malolos Company ordinary shares at P125 per share
plus brokerage fee of P19,000. Angat classifies the shares as available for sale.

Apr. 1 Purchased P2, 000,000 of RP Treasury 7% bonds, paying 102.5 plus accrued
interest of P35, 000. In addition, the company paid brokerage fees of P18,000.
Angat classified these bonds as held for trading.

Jul. 1 received semiannual interest on the RP treasury bonds.

Aug. 1 Sold P500,000 of RP Treasury 7% bonds at 103 plus accrued interest.

Oct. 1 Sold 3,000 shares of Malolos at its fair value of P132 per share.

The market values of the shares and bonds on December 31, 2010, are as follows:

Bulacan Auto Co. P45 per share

Malolos Company P130 per share
RP Treasury 7% bonds 102

Determine the following:

16.Gain or loss on sale of P500,000 RP Treasury bonds on August 1, 2010

a. P15,000 gain c. P2,000 loss
b. P2,500 gain d. P7,500 loss
17.Disregarding income taxes, reclassification adjustment for other comprehensive
income on the sale of 3,000 Malolos shares on October1, 2010
a. P18,150 c. P21,000
b. (P18,150) d. (P21,000)
18.Gain or loss on sale of 3,000 Malolos shares on October 1, 2010
a. P18,150 loss c. P2,000 gain
b. P18,150 gain d. P21,000 gain
19.Gain or loss arising from change in the fair value of securities to be
recognized in 2010 profit or loss
a. P92,500 c. P74,500
b. P97,000 d.P80,000
20. Net unrealized gain in accumulated other comprehensive income in equity as of
December 31, 2010
a. P68,850 c. P66,000
b. P85,000 d. P 0

On June 1, 2010, Natividad Mining Corp. acquired the rights to a coal mine
containing an estimated reserve of 2,000,000 tons of coal. The company estimated
that 25,000 tons of coal would be extracted and sold each month. Cost allocable to
coal was P7, 000,000.
Also on June 1, 2010, the company purchased an equipment to be used in the
production, costing P190, 000 which has an estimated useful life of 10 years. The
equipment was expected to become obsolete after all the coal deposits had been
extracted from the mine and only P10, 000 selling price of the equipment could be
expected. Production was in full blast since June 2, 2010.

Based on the above and the result of your audit, answer the ff.:

21 What would be the depletion expense for the year ended December 31, 2010
a. P1,050,000 c. P306,250
b. P 525,000 d. P612,500
22 What would be the depreciation expense on the new equipment for the year
ended December 31, 2010
a. P18,000 c. P15,750
b. P9,000 d. P16,625

In connection with your employment with Talavera Mining Corporation for the year
ended December 31, 2010, you noted that the company purchased for P10,400,000
mining property estimated to contain 8,000,000 tons of ore. The residual value of
property is P800,000

Building used in mine operations costs P800,000 and have estimated life of fifteen
years with no residual value. Mine machinery costs P1,600,000 with an estimated
residual value P320,000 after its physical life of 4 years.

Following is the summary of the company’s operations for the first year of
operations.

Tons mined 800,000 tons

Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
Operating expenses (excluding depreciation) 576,000

Inventories are valued on a first-in, first-out basis. Depreciation on the building

is to be allocated as follows: 20% to operating expenses, 80% to production.
Depreciation on machinery is chargeable to production.

Based on the above and the result of your audit, answer the ff.:

23 How much is the depletion for 2010

a. P768,000 c. P960,000
b. P192,000 d. P1,040,000
24 Total inventoriable depreciation for 2010
a. P400,000 c. P362,667
b. P384,000 d. P 0
25 How much is the inventory as of December 31, 2010
a. P438,400 c. P422,400
b. 425,600 d. P418,133
26 How much is the cost of the sales for the year ended December 31, 2010
a. P1,689,600 c. P1,753,600
b. P1,702,400 d.P 1,672,533
27 How much is the maximum amount that may be declared as dividends at the end
of the company’s first year of operations
a. P1,494,400 c. P 1,289,600
b. 1,302,400 d. P 1,319,467

Gabaldon Company’s property, plant and equipment and accumulated depreciation

balances at December 31, 2009 are:

Cost Accumulated
Depreciation
Machinery and equipment P1,380,000 P 367,500
Automobiles and Trucks 210,000 114,326
Leasehold improvements 432,000 108,000

Depreciation policy:

a. Depreciation methods and useful lives:

  Machinery and equipment - straight line; 10 years.
 Automobiles and Trucks - 150% declining balance; 5 years, all were acquired
after 2005.
 Leasehold improvements - straight line
b. Depreciation is computed to the nearest month
c. Salvage values are immaterial except for automobiles and trucks which have
estimated salvage values equal to 15% of cost.

Additional information

a. Gabaldon entered into a 12-year operating lease starting January 1, 2007. The
leasehold improvements were completed on December 31, 2006 and the facility
was occupied on January 1, 2007
b. On july 1, 2010, machinery and equipment were purchased at a total invoice
cost of P325,000. Installation cost of P44,000 was incurred.
c. On August 30, 2010, Gabaldon purchased new automobile for P25,000.
d. On September 30, 2010, a truck with a cost of P48,000 and a carrying amount
of P30,000 on December 31, 2009 was sold for P23,500
e. On December 20, 2010, a machine with a cost of P17,000 a carrying amount of
P2,975 on date of disposition, was sold for P4,000

Based on the above and the result of your audit, answer the following:

28 The gain on sale of truck on September 30 is

a. P2,680 c. P250
b. P6,500 d. P 0
29 The gain on sale of machinery on December 20, 2010 is
a. P1,025 c. P 13,000
b. P 2,725 d. P 0
30 The adjusted balance of the property, plant and equipment as of December 31,
2010 is
a. P 1,919,000 c. P2,307,000
b. P 2,388,500 d. 2,351,000
31 The total depreciation expense for the year ended December 31, 2010 is
a. P185,402 c. P 138,000
b. P 245,065 d. P 221,402
32 The carrying amount of the property, plant and equipment as of December 31,
2010 is
a. P1,567,497 c. P 1,578,547
b. P 1,290,547 d. P 1,617,322

In connection with your employment with Cuyapao Company’s financial statements

for the year 2010, you noted the following transactions affecting the property and
equipment items of the company:

Jan. 1 Purchased real property for P5,026,000, which included a charge of P146,000
representing property tax for 2010 that had been prepaid by the vendor; 20% of the
purchased price is deemed applicable to land and the balance to buildings. A
mortgage of P3,000,000 was assumed by Cuyapo on the purchase. Cash was paid for the
balance.

Jan. 15 Previous owners had failed to take care of normal maintenance and repair
requirements on the buildings, necessitating current reconditioning at a cost of
P236,800.

Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on
the lumber salvage. The company proceeded to construct a warehouse. The cost of
such warehouse was P540,800, which was P90,000 less than the average bids made on
the construction by independent contractors. Upon completion of construction, city
inspectors ordered extensive modifications to the building as a result of failure
on the part of the company to comply with building safety code. Such modifications,
which could have been avoided, cost P76,800.

Mar. 1 The company exchanged its own shares with a fair value of P320,000 (par
P24,000) for a patent and a new equipment. The equipment has a fair value of
P200,000

Apr. 1 The new machinery for the new building arrived. In addition, a new franchise
was acquired from the manufacturer of the machinery. Payment was made by issuing
bonds with a face value of P400,000 and by paying cash of P144,000. The value of
the franchise is set at P160,000, while the machine’s fair value is P360,000.

May. 1 The company contracted for parking lots and waiting sheds at a cost P360,000
and P76,800, respectively. The work was completed and paid for on June 1.

Dec. 31 The business was closed to permit taking the year-end inventory. During
this time, required redecorating and repairs were completed at a cost of P60,000.

Based on the above and the result of your audit, determine the cost of the
following:

33 Land
a. P940,000 c. P976,000
b. P1,005,200 d. P1,052,800

34 Buildings
a. P4,645,600 c. P4,762,400
b. P5,005,600 d. P4,681,600
35 Machinery and equipment
a. P360,000 c. P576,615
b. P560,000 d. 659,692
36 Land improvements
a. P360,000 c. P436,800
b. P76,800 d. P 0
37 Total property, plant and equipment
a. P6,764,400 c. P6,718,092
b. P6,731,200 d. P6,618,400

Llanera Corporation for the year 2010 disclosed the following property
dispositions:

Cost Acc. Dep. Proceeds Fair

value
Land P4,800,000 - 3,720,000 3,720,000
Building 1,800,000 - 288,000 -
Warehouse 8,400,000 1,320,000 8,880,000 8,880,000
Machine 960,000 384,000 108,000 864,000

Delivery truck 1,200,000 570,000 564,000 564,000

Land

On January 15, a condemnation award was received as consideration for the forced
sale of the company’s land and building, which stood in the path of a new highway.

Building

On March 12, land and building were purchased at a total cost of P6,000,000, of
which 30% to the building on the corporate books. The real state was acquired with
the intention of demolishing the building, and this was accomplished during the
month of August. Cash proceeds received in September represent the net proceeds
from demolition of building.

Warehouse

On July 4, the warehouse was destroyed by fire. The warehouse was purchased on
January 2, 2004. On December 12, the insurance proceeds and the other funds were
used to purchase a replacement warehouse at a cost of P7,200,000.

Machine

On December 15, the machine was exchanged for a machine having a fair value of
P765,000 and cash of P108,000 was received.

Delivery truck

On November 13, the delivery truck was sold to a used car dealer.
Compute the gain or loss to be recognized for each of the following dispositions:

38 Land
a. P3, 720,000 gain c. P4,800,000 loss
b. P1,080,000 loss d. P 0
39 Building
a. P432,000 gain c. P 1,368,000 loss
b. P2,232,000 loss d. P 0
40 Warehouse
a. P1,800,000 gain c. P5,400,000 loss
b. P480,000 gain d. P 0
41 Machine
a. P36,000 gain c. P 288,000 gain
b. P27,000 gain d. P 0
42 Delivery truck
a. P636,000 loss c. P 66,000 loss
b. P636,000 gain d. P66,000 gain

On January 1, 2009, Cabiao Corporation purchased a tract of land (site number 101)
with a building for P1,800,000. Additionally, Cabiao paid a real state broker’s
commission of P108,000, legal fees of P18,000 and title guarantee insurance of
P54,000. The closing statement indicated that the land value was P1,500,000 and the
building value was P300,000. Shortly after acquisition, the building was razed at a
cost of P225,000.

Cabiao entered into a P9,000,000 fixed-price contract with a Cabanatuan Builders,

Inc. on March 1, 2009 for the construction of an office building on the land site
101. The building was completed and occupied on September 30, 2010. Additional
construction costs were incurred as follows:

Plans, specifications and blueprints P36,000

Architect’s fees for design and supervision 285,000

The building is estimated to have a forty-year life from date of completion and
will be depreciated using the 150%-declining-balance method.

To finance the construction cost, Cabiao borrowed P9,000,000 on March 1, 2009. The
loan is payable in ten annual installments of P900,000 plus interest at the rate of
14%. Cabiao used part of the loan proceeds for working capital requirements.
Cabiao’s average amounts of accumulated building construction expenditures were as
follows:

For the period March 1 to December 31, 2009 P2,700,000

For the period January 1 to September 31, 2010 6,900,000

Cabiao is using the allowed alternative treatment for borrowing cost.

Based on the above and the result of your audit, determine the following:

43 Cost of land site number 101

a. P1,905,000 c. P2,205,000
b. P1,800,000 d. P2,151,000
44 Cost of office building
a. P10,581,000 c. P10,329,000
b. P10,360,500 d. P10,960,500
45 Depreciation of office building for 2010
a. P96,800 c. P102,800
b. P97,130 d. P99,197

Jasmin Corporation was incorporated on January 2, 2016. The following items relate
to Jasmin's property and equipment transactions:

Cost of land P3,000,000

Delinquent property taxes assumed by Jasmin 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 20,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Cost of changes during construction to make new building more energy
efficient 90,000
Interest cost on specific borrowing incurred during construction 360,000
Payment of medical bills of employees accidentally injured while
inspecting building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building during construction 30,000
Cost of open house party to celebrate opening of new building 50,000
Cost of windows broken by vandals distracted by the celebration 12,000
Cash discount not taken 40,000
Freight on new machine 10,000
Invoice price of machinery 2,000,000
Cost of removing the old machine 12,000
Installation cost of new machine 60,000
Testing costs before machine was put into regular operation 15,000
Repair cost of new machine damaged in the process of installation 8,000
Automobiles and trucks 210,000

Depreciation policy:

a. Depreciation methods and useful lives:

Building – 150% declining balance; 40 years from date of completion
Machinery and equipment – straight line, 10 years
Automobiles and trucks – 150% declining balance; 5 years
Land improvements – straight line
b. Depreciation is computed to the nearest month
c. Salvage values are immaterial except for automobiles and trucks which have an
estimated salvage value equal to 15% of cost

Additional information:

1. The land improvements were completed on December 25, 2015 and is expected to
have a useful life of 12 years.

2. On January 14, 2017, a machine with a cost of P17,000, a carrying amount of

P2,975 on date of disposition, was sold for P4,000

3. On July 1, 2017, machinery and equipment were purchased at a total invoice cost
of P325,000. Installation cost of P44,000 was incurred.

4. On August 30, 2017, Jasmin purchased new automobiles for P25,000

5. On September 30, 2017, a truck with a cost of P48,000 and a carrying amount of
P30,000 on December 31, 2016 was sold for P23,500

6. Jasmin entered into a P9,000,000 fixed-price contract with Joanne Builders, Inc.
on March 1, 2016 for the construction of an additional office building on the land.
The building was completed and occupied on September 30, 2017. Additional
construction costs were as follows:
Plans, specifications, and blueprints P 36,000
Architect's fees for design and supervision 285,000

To finance the construction cost, Jasmin borrowed P9,000,000 on March 1, 2016. The
loan is payable in ten annual installments of P900,000 plus interest at the rate of
14%. Jasmin used part of the loan proceeds for working capital requirements.
Jasmin's average amounts of accumulated building construction expenditures were as
follows:
For the period March 1 to December 31, 2016 P2,700,000
For the period January 1 to September 31, 2017 6,900,000

Determine the following:

46. Cost of the Land-2016

A. P2,980,000 B. P3,140,000 C. P3,180,000 D. P3,205,000

47. Cost of Building-2016

A. P10,870,000 B. P21,230,500 C. P20,506,000 D. P10,810,000

48. Cost of Building-2017

A. P10,870,000 B. P21,230,500 C. P20,506,000 D. P10,810,000

49. Cost of Land Improvements-2016

A. P12,000 B. P72,000 C. P122,000 D. -0-

50. Cost of Machinery-2016

A. P1,885,000 B. P1,993,000 C. P1,930,000 D. P2,025,000

51. Amount that should be expensed when incurred for 2016

A. P80,000 B. P100,000 C. P62,000 D. P50,000

52. Total depreciable property and equipment-2016

A. P25,603,000 B. P16,177,000 C. P15,967,000 D. P25,813,000

53. The gain on sale of truck on September 30 is

A. P2,680 B. P6,500 C. P250 D. -0-

54. The gain on sale of machinery on December 20 is

A. P1,025 B. P2,725 C. P13,000 D. -0-

55. The adjusted balance of the property and equipment as of December 31, 2017 is
A. P26,656,500 B. P26,721,500 C. P26,931,500 D. P26,866,500

56. Which of the following statements best describes the principle for classifying
an issued financial instrument as either financial liability or equity?

A. Issued instruments are classified as liabilities or equity in accordance with

the substance of the contractual arrangement and the definitions of a financial
liability, financial asset and an equity instrument.
B. Issued instruments are classified as liabilities or equity in accordance with
the legal form of the contractual arrangement and the definitions of a financial
liability, financial asset and an equity instrument.
C. Issued instrument are classified as liabilities or equity in accordance with the
management's designation of the contractual arrangement.
D. Issued instruments are classified as liabilities or equity in accordance with
risks and rewards of the contractual arrangement.

57. Which statement is true concerning subsequent measurement of financial asset at

fair value?
I. The financial asset shall be measured at fair value if the business model is not
to collect contractual cash flows on specified dates and the contractual cash flows
are not solely payments of principal and interest.
II. An entity may irrevocably designate a financial asset as measured at fair value
through profit or loss even if the financial asset satisfies the amortized cost
measurement.

A. I only C. Both I and II

B. II only D. Neither I nor II
58. When stock dividends of different class are received
A. No formal entry is made but only a memorandum
B. Cash is debited and dividend income is credited
C. A new investment account is debited and dividend income is credited
D. A new investment account is debited and the original investment account is
credited

59. An entity did not amortize the discount on its trading bond investment. What
effect would this have on the carrying amount of the investment and on net income,
respectively?
A. Overstated, overstated
B. Understated, overstated
C. Understated, understated
D. No effect, No effect

60. Transfer from investment property to property, plant, and equipment is

appropriate

A. When there is change of use

B. Based on the entity's discretion
C. Only when the entity adopts the fair value model
D. The entity can never transfer property into another classification once it is
classified as investment

61. In a nonmonetary exchange, which of the following situations will require the
asset to be recognized at the carrying amount of the asset relinquished?

A. A delivery truck exchanged for a delivery van that can deliver four times the
quantity of goods to customers
B. The exchange transaction is intended to facilitate sales to customers
C. The cash flows from the new asset will be significantly different from cash
flows of the exchanged asset
D. The assets are both productive assets

62. Government assistance includes all of the following except

A. Free technical advice

B. Provision of guarantee
C. Government procurement policy that is responsible for a portion of the entity's
sales
D. Improved irrigation water system for the benefit of a local community

63. Which of the following statements about the capitalization of borrowing cost as
part of the cost of a qualifying asset is true?

A. If funds come from general borrowings, the amount to be capitalized is based on

the weighted average amount of expenditures.
B. Capitalization always continues until the asset is brought into use
C. Capitalization always commences as soon as expenditure of the asset is incurred
D. Capitalization always commences as soon as interest on relevant borrowings is
being incurred

64. An entity incurred cost to modify its building and to rearrange its production
line. As a result, an overall reduction in production cost is expected. However,
the modification did not increase the building's fair value and the rearrangement
did not extend the production line's life. Should the building modification cost
and the production line rearrangement cost be capitalized?

A. Only the building modification cost should be capitalized

B. Only the production line rearrangement cost should be capitalized
C. Both the building modification cost and production line rearrangement cost
should be capitalized
D. The building modification cost and production line rearrangement cost should be
expensed
65. A machine with a four-year estimated useful life and an estimated 15% residual
value was acquired at the beginning of the current year. The increase in
accumulated depreciation for the second year using the double declining balance
method would be

A. Original cost x 85% x 50% C. Original cost x 85% x 50% x 50%

B. Original cost x 50% D. Original cost x 50% x 50%
Miss π
 66. Which of the following facts or circumstances would not trigger a need to test an
evaluation and exploration asset for impairment?

A. The expiration of the period for which the entity has the right to explore in the
specific area unless the right is expected to be renewed
B. The absence of budgeted or planned substantive expenditure on further exploration
and evaluation activities in the specific area
C. A decision to discontinue exploration and evaluation activities in the specific
area when those activities have not led to the discovery of commercially viable
quantities of mineral resources
D. Lack of sufficient data to determine whether the carrying amount of the exploration
and evaluation asset is likely to be recovered in full from successful development or
by sale

67. For a fixed amount a month, an entity visits its customers' premises and performs
insect control services. If customers experience problems between regularly scheduled
visits, the entity makes service calls at no additional charge. Instead of paying
monthly, customers may pay a certain annual fee in advance. For a customer who pays
the annual fee in advance, the entity should recognize the related revenue
A. When the cash is collected
B. At the end of the fiscal year
C. At the end of the contract year after all of the services have been performed
D. Evenly over the contract year as the services are performed

68. At issuance date, the present value of a note payable shall be equal to its face
amount if the note
A. Bears a stated rate of interest which is realistic
B. Bears a stated rate of interest which is less than the prevailing market rate for
similar notes
C. Is noninterest bearing and the implicit interest rate is less than the prevailing
market rate for similar notes
D. Is noninterest bearing and the implicit interest rate is equal to the prevailing
market rate for similar notes

69. The gain or loss from extinguishment of a financial liability by issuing equity
instruments shall be presented in the statement of comprehensive income as
A. Other income or other expenses
B. Separate line item in profit or loss
C. Component of other comprehensive income
D. Component of finance cost

70. Plan assets are assets held by a long-term benefit fund that satisfies all of the
following conditions, except
A. The fund is legally separate from the reporting entity
B. The assets of the fund are to be used only to settle the employee benefit
obligations
C. The assets in the fund can be returned to the entity even if the remaining assets
of the fund are not sufficient to meet the plan's obligation
D. The assets are not available to the reporting entity's creditors even in bankruptcy

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Miss π