PROPERTY PLANT AND EQUIPMENT

1. Property, plant and equipment are defined as

a. Tangible assets held for sale in the ordinary course of business.
b. Tangible assets held to earn rentals or for capital appreciation.
c. Tangible assets held for use in the production or supply of goods or services or for
administrative purposes.
d. Tangible assets held for use in the production or supply of goods or services for rental to
others, or for administrative purposes and expected to be used during more than one
reporting period.
(VALIX)
2. 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 one
year.
d. The property, plant and equipment are subject to depreciation.
(VALIX)

3. Spare parts and servicing equipment that can be used only in connection with an item of property,
plant and equipment are accounted for as property, plant and equipment and depreciated over
a. Their useful life
b. The useful life of the related asset
c. Their useful life or the useful life of the related asset, whichever is longer
d. Their useful life or the useful life of the related asset whichever is shorter
(VALIX)

4. What valuation model should an entity use to value property, plant and equipment?
a. The revaluation model or the fair value model
b. The cost model or the revaluation model
c. The cost model or the fair value through profit or loss model
d. The cost model or the fair value model
(VALIX)

5. The cost of an item 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 the
intended use
d. Initial estimate of the cost of dismantling and removing the item and restoring the site,
the obligation for which the entity does not incur when the item was acquired
(VALIX)

6. Costs directly attributable to bringing the asset to the location and condition for the intended use
include all of the following, except
a. Cost of employee benefit not arising directly from the acquisition of property, plant and
equipment
b. Cost of site preparation
 c. Initial delivery and handling cost
d. Installation and assembly cost
(VALIX)

7. Which of the following costs should be expensed immediately? ‘

a. Cost of opening a new facility
b. Cost of introducing a new product or service, including met of advertising and promotional
activities
c. Cost of conducting business in a new location
d. All of these are expensed immediately
(VALIX)
8. A nonmonetary exchange is recognized at fair value of the asset exchanged unless
a. Exchange has commercial Substance
b. Fair value is not determinable
c. The assets are similar in nature
d. The assets are dissimilar
(VALIX)

9. In an exchange with commercial substance

a. Gain or loss is recognized entirely.
b. Gain or loss is not recognized.
c. Only gain should be recognized.
d. Only loss should be recognized.
(VALIX)

10. The cost of an item of property, plant and equipment that is acquired in 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 the cash payment.
(VALIX)

11. Which exchange has commercial substance?

a. Exchange of assets with no difference in future cash flows.
b. Exchange by entities in the same line of business.
c. Exchange of assets with difference in future cash flows.
d. Exchange of assets that causes the entities to remain in essentially the same economic
position.
(VALIX)

12. For a nonmonetary exchange, the configuration of cash flows includes which of the following?
a. The implicit rats, maturity date of loan and amount of loan
b. The risk, timing and amount of cash flows of the assets
c. The entity-specific value of the asset
d. The estimated present value of the assets exchanged
(VALIX)

13. Which of the following statements is true concerning acquisition of an item of property, plant and
equipment by self-construction?
 a. The cost of self-constructed asset is determined using the same principles as for an
acquired asset.
b. Any internal profit is eliminated 1n arriving at the cost of self-constructed asset.
c. The cost of abnormal amount of wasted material is not included 1n the cost of the asset.
d. All of the statements are true.
(VALIX)

14. The carrying amount of property, plant and equipment shall be derecognized
a. On disposal
b. When no future economic benefits are expected from the use of the asset
c. On acquisition
d. On disposal and when no future economic benefits are expected from the use of the asset
(VALIX)

15. Gain and loss arising from the derecognition of property, plant and equipment shall be determined
as the difference between
a. Gross disposal proceeds and the, cost of the asset
b. Gross disposal proceeds and the carrying amount.
c. Net disposal proceeds and the cost of the asset
d. Net disposal proceeds and the carrying amount
(VALIX)

16. Entities are encouraged to disclose all of the following in relation to property, plant and equipment,
except
a. The carrying amount of temporarily idle property, plant and equipment.
b. The gross carrying amount of fully depreciated property, plant and equipment still in use.
c. The carrying amount of property, plant and equipment classified as held for sale.
d. The fair value of property, plant and equipment that is not materially different from
carrying amount when the cost model is used.
(VALIX)

17. Which of the following is not capitalized into the 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
(VALIX)

18. An entity purchased a 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 of the machine would be the
total payment multiplied by what time value of money concept?
a. Present value of annuity of 1
b. Present value of 1
c. Future amount of annuity of 1
d. Future amount of 1
(VALIX)

19. 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.
(VALIX)

20. An entity imported machinery to be installed in the new factory premises before year end. What is
the proper treatment of freight and interest on the loan to fund the cost of machinery?
a. Both freight and interest are capitalized
b. Interest may be capitalized but freight is expensed.
c. Freight is capitalized but interest cannot be capitalized.
d. Both freight and interest are expensed.
(VALIX)

21. The cost of an item of property, plant and equipment comprises the purchase price and
a. The implied interest on the debt financing
b. The fair’ value of any noncash asset surrendered
c. The estimated residual value of the asset“
d. All directly attributable costs necessary to bring the asset to the location and condition
for the intended use
(VALIX)

22. When property is acquired by issuing equity shares, which of the following is the best basis for
establishing the historical cost of the acquired asset?
a. Historical cost, of the asset to the seller
b. Historical cost of a similar asset
c. Fair value of the asset received or the fair value of the shares issued, whichever is more
readily reliable
d. Historical cost of the, asset is zero
(VALIX)

23. When a plant asset is acquired by deferred payment, which condition generally does not indicate
the need to consider the imputation of interest?
a. The interest rate stated on the deferred obligation is significantly different from market
interest rate.
b. The cash price of the plant asset is significantly different from the deferred obligation.
c. The instrument representing the deferred obligation is noninterest bearing.
d. The face amount of the deferred obligation is equal to the fair value of the plant asset
exchanged.
(VALIX)

24. If the present value of a note issued in exchange for a plant asset is less than the face amount, the
difference is
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
(VALIX)

25. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay
P10, 000 per year for five years. The plant asset is initially measured at
a. P50, 000.
b. P50, 000 plus imputed interest ’
c. Present value of P10, 000 annuity for five years at an imputed interest
d. Present value of a P10, 000 annuity for five years discounted at the bank prime interest rate
(VALIX)

26. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay
P10, 000 at the time of purchase and P10, 000 at the end of each of the next five years. The plant
asset is measured initially at
a. The present value of a P 10000 ordinary annuity for five years.
b. P60, 000
c. P60, 000 plus imputed interest.
d. P60, 000 less imputed interest.
(VALIX)

27. Which of the following is the most appropriate policy as regards the allocation of joint overhead
cost to plant and equipment constructed by the entity for own use?
a. Assign no overhead.
b. Assign only variable overhead
c. Assign overhead equal to the amount that would have been assigned to production that is
curtailed because of the construction.
d. Assign a proportionate share of overhead to the construction on the same basis as that
used for the assignment to normal production.
(VALIX)

28. Vik Auto and King Clothier exchanged goods, held for resale with equal fair value. The retail price of
the car that Vik gave up is less than the retail price of the clothes received. What profit should Vik
recognize for the nonmonetary exchange?
a. A profit is not recognized.
b. A profit equal to the difference between the retail price of the clothes received and the car
c. A profit equal to the difference between the retail price and the cost of the car.
d. A profit equal to the difference between the fair value and the carrying amount of the car.
(VALIX)

29. Scott Company exchanged nonmonetary assets with Dale Company. No cash was exchanged. The
carrying amount of the asset surrendered by Scott exceeded both the fair value of the asset
received and Dale’s carrying amount of that asset. Scott should recognize the difference between
the carrying amount of the asset it surrendered and
a. The fair value of the asset it received as a loss
 b. The fair value of the asset it received as a gain
c. Dale’s carrying amount of the asset it received as a loss
d. Dale’s carrying amount of the asset it received as a gain
(VALIX)
30. Solen Company and Nolse Company exchanged truck with fair value in excess of carrying amount. In
addition, Solen paid Nolse to compensate for the difference in truck fair value. As a consequence of
the exchange, Solen shall recognize
a. A gain equal to the difference between the fair value and carrying amount of the truck
given
b. A gain determined by the proportion of cash paid to the total consideration
c. A loss determined by the proportion of cash paid to the total consideration
d. Neither a gain nor a loss
(VALIX)
31. Slate Company exchanged plots of land with fait value in excess of carrying amount. In. addition,
Slate received cash from Talse to compensate for the difference in land value. As a It f the exchange,
Slate shall recognize
a. A gain equal to the difference between the fair value, and the carrying amount of the land
given
b. A gain in an amount determined by the ratio of cash received to total consideration.
c. A loss in an amount determined by the ratio of cash received to total consideration
d. Neither gain nor a loss
(VALIX)
GOVERNMENT GRANT
32. This is defined as “assistance by government in the form of transfer of resources to an entity in
return for past or future compliance with certain conditions relating to the operating activities of
the entity
a. Government grant
b. Government assistance
c. Government donation
d. Government aid
(VALIX)

33. Government grant shall be recognized when there is reasonable assurance that
a. The entity will comply with the conditions of the grant.
b. The grant will be received.
c. The entity will comply with the conditions of the grant and the grant will be received.
d. The grant must have been received.

(VALIX)

34. It is a government grant whose primary condition is that an entity qualifying for it should purchase,
construct or otherwise acquire long-term asset.
a. Grant related to asset
b. Grant related to income
c. Government gift
d. Government appropriation
(VALIX)
35. Government grant in’ recognition of specific costs is recognized as income
a. Over the same period as the relevant expense.
b. Immediately.
c. Over a maximum of 5 years using straight line.
d. Over a maximum of 5 years using sum of digits.

(VALIX)

36. Government grant related to depreciable asset is usually recognized as income

a. Immediately.
b. Over the useful life of the asset using straight line.
c. Over the useful life of the asset using sum of years digits.
d. Over the useful life of the asset and in proportion to the depreciation of the asset.
(VALIX)

37. Government grant related to nondepreciable asset that requires fulfillment of certain conditions
a. Should not be recognized as income.
b. Should be recognized as income immediately.
c. Should be recognized as income over 40 years.
d. Should be recognized as income over the periods which hear the cost of meeting the
conditions.
(VALIX)
38. A government grant that becomes receivable as compensation for, expenses or losses already
incurred or for the purpose of giving immediate financial support to the entity with no future
related costs should be recognized as income
a. When received.
b. Of the period in which it becomes receivable.
c. Over a maximum of 5 years using straight line .
d. Over a maximum of 10 years using straight line.

(VALIX)

39. A government grant that becomes repayable shall be accounted for as

a. Change in accounting estimate.
b. Change in accounting policy
c. Both change in accounting estimate and change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy
(VALIX)
40. Repayment of grant related to income shall be
a. Recognized as component of other comprehensive income
b. Charged to retained earnings
c. Expensed immediately
d. Applied first against the deferred income balance and any excess shall be recognized
immediately as an expense.
(VALIX)
41. Repayment of grant related to an asset shall be recorded by
a. Increasing the carrying amount of the asset if the deduction approach is used.
b. Recognizing as expense the cumulative additional depreciation that would have been
recorded to date in the absence of the grant if the deduction approach is used.
c. Reducing the deferred income balance to zero if the deferred 1ncome approach 1s used.
 d. All of these
(VALIX)

42. Government assistance includes all 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 an entire local community

(VALIX)

43. Which of the following is included in government assistance?

a. The construction of infrastructure in developing areas
b. The imposition of trading constraints on competitors
c. Improvement to the general transport and communication network
d. None of these can be included in government

(VALIX)

44. A forgivable loan from a government or the benefit of a government loan at NIL or below market
interest rate is accounted for as
a. Government grant
b. Government assistance
c. Both government grant and government assistance
d. Neither government grant nor government assistance
(VALIX)

45. The amount of benefit in a zero-interest government loan is measured as the difference between
a. Face amount and present value of loan
b. Face amount and fair value of loan
c. Fair value and present value of loan
d. Fair value and face amount of loan

(VALIX)

46. In the case of a nonmonetary grant, which of the following accounting treatment is prescribed?
a. Record the asset at replacement cost and the grant at a nominal value
b. Record the grant at a value estimated by management
c. Record both the grant and the asset at fair value of the nonmonetary asset
d. Record only the asset at fair value and not recognize the fair value of the grant
(VALIX)
47. In the case of grant related to an asset, which of following accounting treatment is prescribed?
a. Record the grant at a nominal value in the first year and write it off in the subsequent year.
b. Either set up the grant as deferred income or deduct it in arriving at the carrying amount
of the asset.
c. Record the grant at fair value in the first year and take it to income in the subsequent year.
d. Take it to the income statement and disclose it as an extraordinary gain
 (VALIX)

48. In the case of grant related to income, which of the following accounting treatment is prescribed?
a. Credit the grant to general reserve under shareholders’ equity.
b. Present the grant in the income statement as other income or as a separate line item, or
deduct it from the related expense.
c. Credit the grant to retained earnings
d. Credit the grant to sales.

(VALIX)

49. Which disclosure is not required in relation to government grant?

a. The accounting policy adopted for government grant
b. Unfulfilled condition and other contingency attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized in the financial statements

(VALIX)

BORROWING COST
50. Borrowing costs are defined as
a. Interest expense using the effective interest method.
b. Finance charges in respect of finance lease.
c. Exchange differences arising from foreign currency borrowings to the extent that these are
regarded as an adjustment to interest cost.
d. Interest and other costs that an entity incurs in connection with borrowing of funds.
(VALIX)

51. Which of the following statements is true concerning capitalization of borrowing cost?
I. If the borrowing is directly attributable to the qualifying asset, the borrowing cost is required to
be capitalized as cost of the asset.
II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be
expensed as incurred. ,
a. I only
b. II only
c. Both I and II
d. Neither I nor II

(VALIX)

52. Borrowing costs 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 costs will result in
future economic benefits to the entity.
c. The asset is a qualifying asset and it is probable that the borrowing costs will result in future
economic benefits to the entity but the costs cannot be measured reliably.
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in
future economic benefits to the entity and the costs can be measured reliably.

(VALIX)

53. 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

(VALIX)

54. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing
borrowing costs?
a. Investment property
b. Investment in financial instrument
c. Inventory that is manufactured or produced in large quantity on a repetitive basis and takes
a substantial period of time to get ready for use or sale
d. Biological asset

(VALIX)

55. 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

(VALIX)

56. Which of the following is not a condition that must be satisfied before interest capitalization can
begin on a qualifying asset?
a. Interest is being incurred.
b. Expenditures for the asset have been made.
c. The interest rate is equal to or greater than the cost of capital
d. Activities that are necessary to get the asset ready for the intended use are in progress the
intended use are in progress.

(VALIX)

57. Capitalization of borrowing cost

a. Shall be suspended during temporary period of delay
b. May be suspended only during extended period of delay in which active development is
delayed
c. Shall never be suspended
d. Shall be suspended only during extended period of delay in which active development is
delayed
(VALIX)
58. 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.

(VALIX)

59. Which of the following is not a disclosure requirement in relation to borrowing cost?
a. Accounting policy adopted for borrowing cost
b. Amount of borrowing cost capitalized during the period
c. Segregation of qualifying asset from other assets
d. Capitalization rate used to determine the amount of borrowing cost eligible for
capitalization

(VALIX)

60. Which of the following may not be considered a qualifying asset?

a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.

(VALIX)

61. Assets that qualify for interest capitalization include

a. Asset under construction for an entity's use.
b. Asset that is ready for the intended use.
c. Asset that is not currently being used because of excess capacity.
d. All of these assets qualify for interest capitalization.

(VALIX)

62. Which of the following costs may not be eligible for capitalization as borrowing cost?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discount or premium relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange difference arising from foreign currency borrowing to the extent that it is
regarded as an adjustment to interest cost pertaining to a qualifying asset.

(VALIX)

63. Which statement 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.
 (VALIX)

64. Which of the following is the correct approach in accounting for interest incurred in financing the
construction of property, plant and equipment?
a. Capitalize only the actual interest incurred during construction.
b. Charge construction with all costs of funds employed
c. Capitalize no interest during construction.
d. Capitalize interest equal to the prime interest rate times the estimated cost of the asset
being constructed

(VALIX)

65. When computing the amount of interest cost to be capitalized, the concept of “avoidable interest”
refers to
a. The total interest cost actually incurred.
b. A cost of capital.
c. That portion of total interest cost which would net have been incurred if expenditures for
asset construction had not been made.
d. That portion of average accumulated expenditures on which no interest cost was incurred.

(VALIX)

66. An entity is commencing a new construction project which is to be financed by borrowing.

May 15 Loan interest relating to the project starts to be incurred

June 15 Technical site planning commences.

June 30 Expenditures on the project start to be incurred

July 15 construction work commences.

The entity can commence the capitalization of borrowing cost from what date?

a. May 15
b. June 15
c. June30
d. July 15

(VALIX)

LAND AND BUILDING

67. The cost of land usually includes all of the following, except
a. Commission related to acquisition
b. Property tax after date of acquisition
 c. Property tax to date of acquisition
d. Cost of survey

(VALIX)

68. The cost of land typically includes all bf the following, except
a. Grading, filling, draining and clearing cost
b. Special assessment for street lights and drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property

(VALIX)

69. Fence and parking lot are reported as

a. Current assets
b. Land improvements
c. Land
d. Expense

(VALIX)

70. The cost of building usually includes all of the following, except ,
a. Any renovating cost incurred to put the building purchased in a condition for' the intended
use
b. Cost of excavation
c. Expenditure for movable equipment and fixture
d. Cost incurred to have existing building removed to make room for construction of new
building

(VALIX)

71. The single cost of acquiring land and usable old building is
a. Charged to the land only
b. Charged to the building only
c. Allocated between land and building based on relative fair value
d. Allocated between land and building based on carrying amount

(VALIX)

72. The single cost of acquiring land and an unusable old building with no fair value is
a. Charged to the land only
b. Charged to the building only
c. Allocated between land and building based on relative fair value
d. Allocated between land and building based on carrying amount.

(VALIX)

73. The cost of demolishing an old building to make room for the construction of a new building should
be
a. Expensed immediately
b. Charged to the land
c. Charged to the new building
 d. Allocated between land and building based on relative fair value.

(VALIX)

74. When land and an old building are acquired, the cost of immediately demolishing the old building
to prepare the land for the intended use as investment property should be
a. Expensed immediately
b. Charged to the land
c. Accounted for as deferred charge
d. Charged to retained earnings

(VALIX)

75. The carrying amount of an existing old building demolished to make room for the construction of a
new building should be
a. Accounted for as loss
b. Capitalized as cost of the new building
c. Charged to the land
d. Charged to the .new building if accounted for as inventory

(VALIX)

76. When an entity acquired land with an old building and immediately demolished the old building so
that the land can be used for the construction of a plant the cost incurred to demolish the old
building should be
a. Expensed as incurred
b. Added to the cost of the plant
c. Added to the cost of the land
d. Amortized over the estimated time period between the demolition of the building and the
completion of the plant

(VALIX)

77. If an entity purchased a lot and an old building and demolished the old building to make room for
the construction of a new building, the proper accounting treatment of the carrying amount of the
old building would depend on
a. The significance of the cost allocated to the building in relation to the combined cost of the
lot and building
b. The length of time for which the building was held prior to demolition
c. The contemplated future use of the old building
d. The intention of management when the new building was constructed

(VALIX)

78. An entity purchased land to be used as an investment property. Timber was cut from the site so
development of the land could begin The proceeds from the sale of the timber should be
a. Classified as other income
b. Credited to retained earnings
c. Deducted from the cost of the land
d. Classified as deferred income and amortized over five years

(VALIX)
79. An entity purchased land and a hotel with the plan to tear down the hotel and build a new hotel.
The allocated cost of the old hotel should be
a. Depreciated over the remaining life of the old hotel.
b. Written off as loss in the year the hotel is torn down
c. Capitalized as part of the cost of the land.
d. Capitalized as part of the cost of the new hotel.

(VALIX)

80. An entity‘s forest land was condemned for use as a national park. Compensation for the
condemnation exceeded the forest land’s carrying amount. The entity purchased similar, but larger,
replacement forest land for an amount greater than the condemnation award. As a result of the
condemnation and replacement, what is the net effect on the carrying amount of forest land
reported in the statement of financial position?
a. The amount is increased by the excess of the replacement forest land’s cost over the
condemned land’s carrying amount
b. The amount is increased by the excess of the replacement forest land’s cost over the
condemnation award
c. The amount is increased by the excess of the condemnation award over the condemned
forest land’s carrying amount
d. No effect, because the condemned forest land’s carrying amount is used as the replacement
forest land’ s carrying amount

(VALIX)

81. The term “betterment” refers to

a. An expenditure made for new facilities which increase “capacity”.
b. An expenditure made to restore ‘‘capacity” after abandonment or retirement.
c. An expenditure made to improve existing facilities by increasing “capacity”.
d. An expenditure made to help insure continuity of service capacity.

(VALIX)

82. Which type of expenditure occurs when' an entity installs a higher capacity boiler to heat the plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment

(VALIX)

83. An improvement made to a machine which increased the fair value and production capacity
without extending the useful life of the machine should be
a. Expensed immediately
b. Debited to accumulated depreciation
c. Capitalized 1n the machine account
d. Allocated between accumulated depreciation and the machine account

(VALIX)
84. Which of the following would be treated as a revenue expenditure rather than a capital
expenditure?
a. Cost of servicing and overhaul to restore or maintain the originally assessed standard of
performance.
b. The replacement of a major component of building
c. An addition to an existing building
d. Cost of improvement that is expected to provide discernible future benefit

(VALIX)

85. A building suffered uninsured fire damage. The damaged portion of the building was refurbished
with higher quality materials. The cost and related accumulated depreciation of the damaged
portion are identifiable. What is the accounting for these events?
a. Capitalize the cost of refurbishing and record a loss in the current period equal to the
carrying amount of the damaged portion of the building
b. Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building
c. Record a loss in the current period equal to the cost of refurbishing and continue to
depreciate the original cost of the building
d. Record a loss in the current period equal to the sum of the cost of refurbishing and the
carrying amount of the damaged portion of the building

(VALIX)

86. An entity incurred cost to modify a building and to improve a production line. As a result, an overall
reduction in the production cost is expected. However, the modification did not increase the fair
value of the building and the improvement did not extend the life of the production line. Should the
building modification cost and the production line improvement cost be capitalized?
a. Only the budding modification cost should be capitalized.
b. Only the production line improvement cost should be capitalized.
c. Both the building modification cost and production line improvement cost should be
capitalized.
d. The building modification cost and production line improvement cost should be expensed.

(VALIX)

87. Which of the following should not be capitalized?

a. Replacement of roof of building every 15 years
b. Cost of site preparation
c. Installation and assembly cost
d. Replacement of small spare parts annually

(VALIX)

88. Which of the following expenditures may properly be capitalized?

a. Expenditure for massive advertising campaign
b. Insurance on plant during construction
c. Research and development related to a long-term asset which is giving the entity a
competitive market advantage
d. Title search and other legal cost related to a piece of land which was not acquired

(VALIX)
89. Which of the following subsequent expenditures should be expensed immediately?
a. Expenditure made to increase the efficiency or effectiveness of an existing asset
b. Expenditure made to extend the useful life of an existing asset
c. Expenditure made to maintain an existing asset in operating condition
d. Expenditure made to add new asset

(VALIX)

90. An expenditure made in connection with a machine being used by an entity should be
a. Expensed if it merely extends the useful life but does not improve the quality.
b. Expensed if it merely improves the quality but does not extend the useful life.
c. Capitalized if it maintains the machine in normal operating condition
d. Capitalized if it increases the quantity of units produced by the machine
(VALIX)