Chapter #10

Property, Plant and Equipment

TRUE OR FALSE

1. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss
is recognized. False
2. The single cost of acquiring land and an unusable old building is allocated between land and
building based on relative fair values. False
3. Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess
physical substance. True
4. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future
benefits. True
5. The carrying amount of an existing old building demolished to make room for the construction of
a new building should be capitalized as cost of the new building. False
6. Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or
acquired for resale. False
7. Depreciation of an asset begins when it is available for use or when it is in the location and
condition necessary for the intended use. True
8. The residual value of an asset may increase to an amount equal to or greater than carrying amount
in which case the depreciation charge is zero. True
9. Depreciation ceases at the earlier between the date the asset is classified as held for sale and the
date the asset is derecognized. True
10. The sum of years' digits method is based on the passage of time. True
11. Improvements are often referred to as betterments and involve the substitution of a better asset
for the one currently used. True
12. The production method of depreciation results in constant charge over the useful life of the asset.
False
13. When land with an old building is purchased as a future building site, the cost of removing the old
building is part of the cost of the new building. True
14. Depreciation is a means of cost allocation, not a matter of valuation. True
15. When an asset's carrying amount is increased as a result of revaluation' the increase is credited to
revaluation surplus as a component of profit or loss. False
16. When an ordinary repair occurs, several periods will usually benefit. False
17. Depreciation is based on the decline in the fair market value of the asset. False
18. The revaluation surplus that is realized because of the use of the asset or disposal of the asset may
be transferred directly to Share Premium. False
19. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the
equipment. True
20. The units-of-production approach to depreciation is appropriate when depreciation is a function
of time instead of activity. False
21. Changes in estimates are handled prospectively by dividing the asset's book value less any salvage
value by the remaining estimated life. True
22. Using the revaluation model, the property, plant and equipment shall be revalued at least
annually. False
23. Variable overhead costs incurred to self-construct an asset should be included in the cost of the
asset. True
24. The three factors involved in the depreciation process are the depreciation base, the useful life,
and the risk of obsolescence. False
25. When an asset is revalued, the entire class of property, plant and equipment to which the asset
belongs must be revalued. True
26. When capitalizing interest during construction of an asset, an imputed interest cost on stock
financing must be included. False
27. Assets purchased on long-term credit contracts should be recorded at the present value of the
consideration exchanged. True
28. Addition refers to an expenditure made to improve existing facilities by increasing capacity. False

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 29. Assets under construction for a company's own use do not qualify for interest cost capitalization.
False
30. An improvement made to a machine which increased the fair value and production capacity
without extending the useful life of the machine should be expensed immediately. False

MULTIPLE CHOICE-THEORIES

1. Which of the following comprise the cost of an item of property, plant and equipment?
I. Purchase price
II. Import duties and non-refundable purchase taxes.
III. Any cost directly attributable in bringing the asset to the location and condition for its
intended use.
IV. Fines paid for violation of import regulations.

A. I, II, and III

B. I, III and IV
C. I, II and IV
D. I, II, III and IV

2. Which of the following is the assumption on which straight-line method of depreciation is based?
A. The operating efficiency of the asset decreases in later years.
B. Service value declines as a function of time rather than use.
C. Service value declines as a function of obsolescence rather than time.
D. Physical wear and tear is more important than economic obsolescence.

3. Which of the following items is capitalized as part of the cost of property, plant and equipment?
A. Cost directly attributable to bringing the asset to the intended location and condition.
B. Cost of introducing a new product or conducting business in a new location.
C. Cost of relocating or reorganizing an entity's operations
D. Cost of opening a new facility

4. When a company purchases land with a building on it and immediately tears down the building so
that the land can be used for the construction of a plant, the costs incurred to tear down the
building is preferably
A. amortized over the estimated time period between the tearing down Of the old building and
the completion of the new building.
B. charged to profit or loss for the period.
C. added to the cost of the new building.
D. added to the cost of the land.

5. A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the
accumulated depreciation would equal the original cost of the asset under which of the following
methods?
Productive output Straight line Double declining balance
A. Yes Yes No
B. No No No
C. No Yes No
D. Yes Yes Yes

6. Property, plant and equipment include all tangible assets with the following characteristics,
except
A. estimated useful life is beyond one year.
B. they are used in the conduct of the business.
C. property is subject to depletion or depreciation.
D. they are intended for sale in the ordinary course of business.

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7. An entity installed a new production facility and incurred a number of expenses at the point of
installation. The entity's accountant is arguing that most expenses do not qualify for capitalization.
Included in those expenses are initial operating losses. These should be
A. Deferred and amortized over a reasonable period of time.
B. Expensed and charged to the income statement.
C. Capitalized as part of the cost of the plant as a directly attributable cost.
D. Taken to retained earnings since it is unreasonable to present it as part of the current year's
income statement.

8. Which of the following statements are correct?

I. Donations of property, plant and equipment should be recorded at the fair value of the
donated asset at the time of donation.
II. When a group of assets is acquired for a lump sum price, the total cost should be allocated to
the individual assets based on their carrying amounts.
III. Property acquired in exchange for shares or other securities in the enterprise should be
recorded at its fair value or the fair value of the securities, whichever is more clearly evident.
IV. When property is acquired in exchange for another asset, its cost is usually determined by
reference to the fair value of the asset received.

A. I, II and III
B. I, III and IV
C. II, III, and IV
D. I, II, III and IV

9. Which of the following items are chargeable to the Land account?

I. Cost of survey by a geodetic engineer
II. Expenditure for fence, water system, sidewalk and pavement
III. Broker's commission and fees for registration and title transfer
IV. Attorney’s fee and any other expenditure for establishing clean title

A. I, II and III
B. l, III and IV
C. II, III and IV
D. I, II, III and IV

10. Use of the sum-of-the-years'-digits method

A. results in salvage value being ignored.
B. means the denominator is the years remaining at the beginning of the year.
C. means the book value should not be reduced below salvage value.
D. all of these.

11. An entity imported machinery to install in its new factory premises before year. end. However,
due to circumstances beyond its control, the machinery was delayed by a few months but reached
the factory premises before year-end. While this was happening, the entity learned from the bank
that it was being charged interest on the loan it had taken to fund the cost of the plant. What is the
proper treatment of freight and interest expense under PAS 16?
A. Both expenses should be capitalized.
B. Interest may be capitalized but freight should be expensed.
C. Freight charges should be capitalized but interest cannot be capitalized under these
circumstances.
D. Both expenses should be expensed.

12. Depreciation, as generally used in accounting, is

A. a process of asset valuation for purposes of presentation in the Statement of financial position.
B. applicable only to long-lived intangible assets.

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 C. used to indicate a decline in market value of a long-lived asset.
D. an accounting process which allocates long-lived asset cost to accounting periods.

13. Which statements are correct concerning the residual value of an item of property, plant and
equipment?
I. The residual value shall be reviewed at least at each financial year end.
II. The depreciable amount of an asset is determined by deducting its residual value from the
asset cost.
III. Residual value is the discounted amount that the entity would obtain from the disposal of the
asset at the end of its useful life, after deducting the estimated costs of disposal.
IV. If there is a change in the residual value of an asset, the change is accounted for prospectively
as an adjustment to future depreciation.

A. I, II and III
B. I, II and IV
C. II, III and IV
D. I and Il

14. Prime Movers Inc. bought a private jet for the use of its top-ranking officials. The cost of the
private jet is P15 million and can be depreciated either using a composite useful life or useful lives
of its major components. It is expected to be used over a period of seven years. The engine of the
jet has a useful life of five years. The private jet's tires are replaced every two years. The private jet
will be depreciated using the straight-line method over
A. Seven years composite useful life.
B. Five years useful life of the engine, two years useful life of the tires, and seven years useful life
applied to the balance cost of the jet.
C. Two years useful life based on conservatism (the lowest useful life off all the parts of the jet).
D. Five years useful life based on a simple average of the useful lives of all major components of
the jet.

15. Which of the following are costs that are directly attributable to bringing the asset to the location
and condition for its intended use?
I. Costs of employee benefits not arising directly from the construction and acquisition of
property, plant and equipment
II. Costs of site preparation
III. Initial delivery and handling costs
IV. Installation, assembly and test costs

A. I, II and III
B. II, III and IV
C. I, II and IV
D. II and III

16. Wealthy Firm Inc. owns a fleet of over 50 cars and 10 ships. It operates in a capital-intensive
industry and thus has significant other property, plant, and equipment that it carries in its books.
It decided to revalue its property, plant, and equipment. The company's accountant has suggested
the alternatives that follow. Which one of the options should Wealthy Firm Inc. select in order to
be in line with the provisions of PAS 16?
A. Revalue only one-half of each class of property, plant, and equipment, as that method is less
cumbersome and easy compared to revaluing all assets together.
B. Revalue an entire class of property, plant, and equipment.
C. Revalue one ship at a time, as it is easier than revaluing all ships together.
D. Since assets are being revalued regularly, there is no need to depreciate.

17. When there is a change from sum of years' digits method to straight line method of depreciation,
the accumulated depreciation is

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 A. adjusted to its appropriate balance through profit based on the straight-line method.
B. adjusted to its appropriate balance through retained earnings based on the straight-line
method.
C. not adjusted but the remaining carrying amount is allocated over the original life using the
straight-line method.
D. not adjusted but the remaining carrying amount is allocated over the remaining life using the
straight-line method.

18. Under the principles of PAS 16 Property, Plant and Equipment, which of the following should be
included in the cost of an item of property, plant and equipment?
A. (1), (2), and (4)
B. (I) and (2)
C. (1) and (4)
D. (4) only

19. The major difference between the service life of an asset and its physical life is that
A. service life refers to the time an asset will be used by a company and physical life refers to
how long the asset will last.
B. physical life is the life of an asset without consideration of salvage value and service life
requires the use of salvage value.
C. physical life is always longer than service life.
D. service life refers to the length of time an asset is of use to its original owner, while physical
life refers to how long the asset will be used by all owners.

20. The diminishing balance method of depreciation results in

A. constant charge over the useful life of the asset if the residual value does not change.
B. decreasing charge over the useful life of the asset.
C. increasing charge over the useful life of the asset.
D. variable charge based on the expected use or output.

21. If an asset's carrying amount is increased as a result of a revaluation, the increase shall be credited
directly to
A. equity under the heading revaluation surplus.
B. equity under the heading unrealized gain.
C. retained earnings.
D. income.

22. If the present value of a note in exchange for an item of property, plant and equipment is less than
its face amount, the difference should be
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 as interest expense in the year of issuance.

23. PAS 16 requires that revaluation surplus resulting from initial revaluation of property, plant, and
equipment should be treated in one of the following ways. Which of the four options mirrors the
requirements of PAS 16?
A. Credited to retained earnings as this is an unrealized gain.
B. Released to the income statement an amount equal to the difference between the depreciation
calculated on historical cost visa-vis revalued amount.
C. Deducted from current assets and added to the property, plant, and equipment.
D. Debited to the class of property, plant, and equipment that is being revalued and credited to
other comprehensive income and accumulated in equity under the heading of revaluation
surplus.

24. Fences and parking lots are reported on the statement of financial position as
A. current assets.

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 B. land improvements.
C. land.
D. property and equipment.

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

26. The term "Depreciable Amount" as it is used in accounting, refers to

A. the total amount to be charged (debited) to expense over an asset’s useful life.
B. the cost of the asset less the related depreciation recorded to date.
C. the estimated market value of the asset at the end of its useful life.
D. the acquisition cost of the asset.

27. When an item of property, plant and equipment is acquired by issuance of ordinary share capital,
the cost of the asset is properly measured by the
A. par value of the ordinary shares.
B. stated value of the ordinary shares.
C. book value of the ordinary shares.
D. fair value of the ordinary shares

28. Which of the following terminologies best describes the removal of an asset from an entitys
accounts?
A. Derecognition
B. Impairment
C. Write off
D. Depreciation

29. The cost of self-constructed property and equipment includes all, except
A. direct cost of materials and labor.
B. indirect cost and incremental overhead specifically identifiable or traceable to construction.
C. financing cost attributable to the construction and incurred up to the completion of
construction.
D. abnormal amount of wasted material, labor and overhead, incurred in the production of the
self-constructed asset.

30. Under relating toPAS16 Property, plant and equipment, which of the following non-current assets
should be capitalized?
(1) Replacement of a building's roof every 15 years
(2) Maintenance of an asset on a three-monthly basis
(3) Installation and assembly costs
(4) Replacement of small spare parts annually

A. (1) and (3)

B. (1) only
C. (3) only
D. (3) and (4)
31. A property acquired in exchange for a non-monetary asset, where the exchange lacks commercial
substance, shall be measured at
A. fair value of the asset given.
B. fair value of the asset received.
C. carrying amount of the asset given.
D. carrying amount of the asset received.

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32. Which of the following are included in the property, plant and equipment category in the
statement of financial position?
I. Building under construction.
II. Land acquired and put on the market for resale.
III. Equipment that is idle temporarily.
IV. Delivery truck acquired on installment, certificate of ownership being held by the finance
company.

A. I, II and II
B. I, III and IV
C. I, II and IV
D. II, III and IV

33. Which of the following disclosures must be made under PAS 16 Property, Plant and Equipment?
(1) The existence and amounts of restrictions on title
(2) A narrative discussion of future capital expenditure plans
(3) The disposal proceeds of each major asset sold in the period
(4) The measurement bases used for determining the gross carrying amount

A. (1) only
B. (2) and (3)
C. (1) and (4)
D. (4) only

34. Fres, Inc. received a consolidated grant of P 120 million. Three-fourths of the grant is to be utilized
to purchase a college building for students from underdeveloped or developing countries. The
balance of the grant is for subsidizing the tuition costs of those students for four years from the
date of the grant.

Which of the following statements is not correct?

A. The grant related to asset is P90 million while the grant related to income is P30 million.
B. The grant related to assets would be recognized in income over the useful life of the college
building, for example, ten years, using a systematic and rational basis.
C. The grant related to income would be recognized over a period of four years.
D. All statements are in accordance with PAS 20.

35. Under PAS 20, government grants related to non-depreciable assets that require fulfillment of
certain conditions should be recognized as income
A. immediately.
B. when the grants are received.
C. when the related assets are sold.
D. over the periods that bear the costs of meeting the conditions.

36. Harvest Farm Corp. received a grant of P 15 million to install and run a windmill in an
economically backward area. Harvest Farm Inc. has estimated that such a windmill would cost P25
million to construct. The secondary condition attached to the grant is that the entity should hire
labor in the local market (i.e., from the economically backward area where the windmill is located)
instead of employing workers from other parts of the country. It should maintain a ratio of 1:1
local workers to workers from outside in its labor force for the next five years. The windmill is to
be depreciated using the straight-line method over a period of ten years.

What is the appropriate treatment of this grant in accordance with PAS 20?
A. The grant received by Harvest Farm Corp. will be recognized as income over a period of ten
years.
B. In each of the five years, the grant will be recognized as income in proportion to the annual
depreciation on the windmill.
C. P2.5 million will be recognized as income in each of the ten years.

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 D. All statements are in accordance with PAS 20.

37. In the case of grants related to an asset, which of these accounting treatments (balance sheet
presentation) is prescribed by PAS 20?
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 statement of comprehensive income and disclose it as an extraordinary gain.

38. Which of these disclosures is not required by PAS 20?

A. The accounting policy adopted for government grants, including methods of presentation
adopted in the financial statements.
B. Unfulfilled conditions and other contingencies attached to government assistance.
C. The names of the government agencies that gave the grants along with the dates of sanction of
the grants by these government agencies and the dates when cash was received in the case of
monetary grants.
D. The nature and extent of government grants recognized in the financial statements and an
indication of other forms of government assistance from which the entity has directly
benefited.

39. In the case of a nonmonetary grant, which of the following accounting treatments is prescribed by
PAS 20?
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; do not recognize the fair value of the grant.

40. In the case of grants related to income, which of these accounting treatments is prescribed by PAS
20?
A. Credit the grant to "general reserve" under shareholders' equity.
B. Present the grant in the statement of comprehensive income as "other income"' or as a
separate line item, or deduct it from the related expense.
C. Credit the grant to "retained earnings" oh the balance sheet.
D. Credit the grant to sales or other revenue from operations in the Statement of comprehensive
income.

41. Which of the following is not specifically excluded from the purview of PAS 20?
A. Government participation in ownership of the entity.
B. Government grant covered by PAS 41 Agriculture.
C. Government assistance provided in the form of tax benefits.
D. Forgivable loan from the government

42. Extravagant, Inc. is to launch a car dealership that deals only in world renowned, expensive brand
names, such as Rolls-Royce and Alfa Romeo. According to the research study undertaken by a
consulting firm that Extravagant hired, this would be yet another business to diversify and invest
in, in order to enhance the corporate image of Extravagant, Inc. with people who matter, as such
an exclusive car dealership would cater only to the needs of the top management of multinational
corporations (MNCs) operating in the country. Extravagant, Inc. invested in this business by
borrowing funds from major local banks. Besides the corporate guarantees Extravagant, Inc. gave
to the banks, they also insisted on depositing with the banks, title deeds of the cars as security for
the loans until the entire loan amounts are paid.

Applying the provisions of PAS 23 Borrowing Costs, which of the following statements is correct?
I. Since the cars purchased are expensive assets, they are qualifying assets.
II. The interest expense on bank borrowings and the guarantee fees for corporate guarantees
given to banks by Extravagant, Inc. would be capitalized with the cost of cars.

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 A. I only
B. II only
C. Both I and Il
D. Neither I nor II

43. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction
used to multiply an expenditure made on April 1 to find weighted-average accumulated
expenditures is
A. 8/8.
B. 8/12.
C. 9/12.
D. 11/12.

44. Borrowing costs shall be capitalized as part of the asset when

A. they relate to qualifying assets and the entity capitalizes them under PAS 23.
B. they relate to motor cars purchased for office use from a dealership in town.
C. they are not directly attributable to the acquisition of qualifying assets as defined under PAS
23.
D. they relate to the period after the qualifying assets are substantially ready for their intended
use although some minor routine administrative work is still going on.

45. An asset was constructed for an enterprise's own use. The asset was financed with specific new
borrowing. The interest cost incurred during the construction period as a result of expenditures
for the asset 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. taken as an interest expense in the construction period.
C. recorded as a deferred charge and amortized over the term of the borrowing.
D. apart of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the asset construction.

46. Capitalization of borrowing costs

A. shall be suspended during temporary periods of delay.
B. may be suspended only during extended periods of delays in which active development is
delayed.
C. should never be suspended once capitalization commences.
D. shall be suspended only during extended periods of delays in which active development is
delayed.

47. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS
23?
A. Interest on bonds issued to finance the construction of a qualifying asset.
B. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
C. Imputed cost of equity.
D. Exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
48. Which of the following may not be considered a "qualifying asset" under PAS 23?
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.

49. Which of the following is not a disclosure requirement under PAS 23?
A. Accounting policy adopted for borrowing costs.
B. Amount of borrowing costs capitalized during the period.

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 C. Segregation of assets that are "qualifying assets" from other assets on the balance sheet or as a
disclosure in the footnotes to the financial statements.
D. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization.

50. 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 proceeds.
D. zero.

51. In measuring an impairment loss, PFRS uses

A. undiscounted cash flows.
B. discounted cash flows.
C. a fair value test.
D. a replacement value test.

52. PAS 36 Impairment of Assets applies to which of the following assets?

A. Assets arising from employee benefits
B. Inventories
C. Deferred tax assets
D. Property, plant, and equipment

53. If the fair value less costs to sell cannot be determined,

A. the asset is not impaired.
B. the recoverable amount is the value-in-use.
C. the net realizable value is used.
D. the carrying value of the asset remains the same.

54. Value-in-use is
A. The market value.
B. The discounted present value of future cash flows arising from use of the asset and from its
disposal.
C. The higher of an asset's fair valueless cost to sell and its market value.
D. The amount at which the asset is recognized in the statement of financial position.

55. Estimates of future cash flows normally would cover projections over maximum of
A. five years.
B. ten years.
C. fifteen years.
D. twenty years.

56. JCJ Printing Company determines that a printing press used in its operations has suffered a
permanent impairment in value because of technological changes. An entry to record the
impairment should
A. recognize an extraordinary loss for the period.
B. include a credit to the equipment accumulated depreciation account.
C. include a credit to the equipment account.
D. not be made if the equipment is still being used.

57. When deciding on the discount rate that should be used, which factors should not be taken into
account?
A. The time value of money.
B. Risks that relate to the asset for which future cash flow estimates have not been adjusted.
C. Risks specific to the asset for which future cash flow estimates have been adjusted.
D. Pretax rates.

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58. If assets are to be disposed of,
A. the recoverable amount is the fair value less costs to sell.
B. the recoverable amount is the value-in-use.
C. the asset is not impaired.
D. the recoverable amount is the carrying value.

59. Josart Enterprise is preparing its financial statements for the year ending June 30, 2021. Certain
items of plant and equipment were scrapped on July 25, 2021. At June 30, 2021, these assets were
being used in production by the entity and had a carrying value of P3 million. The value-in-use of
the asset at June 30, 2021, was deemed to be P4 million, and its fair value less costs to sell was
thought to be P80,000 (the scrap value).

Which of the following statements is incorrect in relation to the impairment and recoverable
amount of the plant and equipment at June 30, 2021?
A. Even though the assets were scrapped on July 25, 2021, the recoverable amount of the asset is
the value-in-use at June 30, 2021 which was higher than the fair value less costs to sell,
B. The assets are not impaired.
C. The scrapping of the assets may be disclosed as a non-adjusting event after the reporting
period.
D. All these statements are correct.

60. Which of the following is the best evidence of an asset’s fair value less costs to sell?
A. An asset that is trading in an active market.
B. The price in a binding sale agreement.
C. Information available that determines the disposal value of the asset in an arm's-length
transaction.
D. The carrying value of the asset.

61. When calculating the estimates of future cash flows, which of the following cash flows should not
be included?
A. Cash flows from disposal.
B. Income tax payments.
C. Cash flows from the sale of assets produced
D. Cash outflows on the maintenance of the asset.

62. An impairment loss that relates to an asset that has been revalued should be recognized in
A. profit or loss.
B. revaluation reserve that relates to the revalued asset.
C. opening retained profits.
D. any reserve in equity.

63. An entity operates an oil platform in the sea. The entity has provided the amount of PIO million for
the financial costs of the restoration of the seabed, which is the present value of such costs. The
entity has received an offer to buy the oil platform for P16 million, and the disposal costs would be
P2 million. The value-in-use of the oil platform is approximately P24 million before the restoration
costs. The carrying value of the oil platform is P20 million.

Which of the following statements is not correct?

A. The fair value less cost to sell of the oil platform is P14 million.
B. The value-in-use of the platform is P 14 million.
C. The recoverable amount of the cash-generating unit exceeds its carrying amount, and it is not
impaired.
D. All these statements are correct.

64. When allocating an impairment loss, such a loss should reduce the carrying amount of which asset
first?

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 A. Property, plant, and equipment
B. Intangible assets
C. Goodwill
D. Current assets

65. Which of the following impairment losses should never be reversed?

A. Loss on property, plant, and equipment.
B. Loss on goodwill.
C. Loss on a business segment.
D. Loss on inventory.

Multiple Choice Problems

A. Assume the following independent cases:

a. At the beginning of the year, a check was issued for P400,000 as payment for a piece of
land and the buyer assumed the liability for unpaid taxes in arrears for the previous year,
P10,000 and those assessed for the current year, P9,000.
b. A company issued 14,000 ordinary shares (P50 par) with a market value of P60 per share
(based upon a recent sale of 100 shares) for the land. The land was recently appraised at
P800,000 by independent and professional appraisers.
c. A company rejected an offer to purchase the land for P8,000,000 cash two years ago.
Instead, the company issued 100,000 ordinary shares for the land (market value of the
ordinary share, P78 each based on several recent large transactions and normal weekly
stock trading volume).
d. A company purchased land by signing a note with the seller, requiring down payment of
P100,000, payment of P120,000 one year from purchase, and P80,000 three years from
purchase. The note is non-interest bearing, but the going rate of similar notes is 10%.
Present value of 1 at 10% for 1 period is 0.91. Present value of 1 at 10% for 3 periods is
0.75.

(1) How much is the cost of land acquired in (a), (b), (c) and (d), respectively?
A. P419,000; P800,000; P7,800,000; P269,200
B. P410,000; P800,000; P7,800,000; P269,200
C. P410,000; P840,000; P7,800,000; P300,000
D. P419,000; P840,000; P8,000,000; P300,000

B. Heavy Machine Shop purchased the following used equipment at a special auction sale for
P400,000 cash: a drill press, a lathe machine and a heavy-duty air compressor. The equipment was
in excellent condition except for the electric motor on the lathe machine, which will cost P9,000 to
replace with a new motor. Heavy Machine Shop has determined that the selling prices for the used
items in local outlets are approximately as follows: Drill press — P84,000; Lathe machine, with
good motor - P240,000; Air compressor - P105,000.

(2) How much is the allocated cost of drill press, lathe machine and air compressor, respectively?
A. P80,000; P220,000; P100,000
B. P133,333; P133,333; P133,334
C. P78,322; P223,776; P97,902
D. P84,000; P240,000; P105,000

C. On January 1, 2021, Liz Company purchased land by paying P 100,000 cash as down payment and
signing a note with the seller. The note is payable in three equal amounts of P 100,000 beginning
January 1, 2022. The note is non-interest bearing, but the prevailing interest rate for similar notes
at that time is 10%. The present value of ordinary annuity of 1 at 10% for four periods is 3.17. The
Present value of an annuity due of 1 at 10% for four periods is 3.49.
(3) What is the cost of the land acquired by Liz?

Page 12 of 25
 A. P400,000
B. P349,000
C. P317,000
D. P300,000

D. A tract of land with a building was acquired for The Closing statement indicated that the land value
was and the building value was P 1,000,000. Shortly after acquisition, the building was demolished
at a cost of P200,000.
A new building was constructed for P3,000,000 plus the following costs: Excavation fees P 120,000;
Architectural design fees – P160,000; Building permit fee — P40,000; Payment for insurance
premium of construction workers during the construction period — P 75,000.
(4) What are the costs of the land and new building, respectively?
A. P6,200,000 and P 3,395,000
B. P6,000,000 and P3,595,000
C. P5,000,000 and P4,595,000
D. P5,000,000 and P3,595,000

E. On January 3, 2021, Alexander McQueen Company purchased a parcel of land with an old building
on it for P2,000,000. The appraised values of the land and building are as follows:

Land – P1,500,000 Building – P1,000,000

On May 1, 2021, Alexander McQueen began demolishing the old building to make room for the
construction of a new one. The estimated remaining life of the old building is four (4) years. The
following costs were incurred for the construction, which was finished on December 31, 2021:

Labor cost – P1,000,000

Materials cost – P1,500,000
Demolition cost – P100,000
Building permit fee – P35,000
Excavation cost – P85,000
Other capitalizable overhead – P250,000

(5) What is the cost of the new building if it will be held for rental to others (investment property) at
completion?
A. P2,970,000
B. P3,703,333
C. P3,770,000
D. P3,970,000
(6) How much is loss on retirement if the new building will be held as owner occupied?

A. P0
B. P733,333
C. P800,000
D. P900,000
(7) What is the cost of the new building if it will be held for sale in the ordinary course of business
(inventory) at completion?
A. P2,970,000
B. P3,703,333
C. P3,770,000
D. P3,970,000

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F. On January 1, 2021, the records of Claireborne Company showed the following accounts and
balances in its property, plant and equipment category:

Land – P350,000
Land Improvements – P20,000
Buildings – P900,000

During 2021, the following data were gathered from an analysis of the accounts:
Cash paid on purchase of land and old building (Value of old building is deemed
insignificant)
P1,250,000
15% Mortgage payable assumed on purchase of property 2,000,000
Realtor’s commission 150,000
Legal fees, realty taxes and documentation expenses 25,000
Payment to persons squatting on the property to relocate them 50,000
Cost of demolishing the old building on the land 60,000
Recovery from the salvage of the building demolished 45,000
Cost of fencing the property 55,000
Payment to contractor for a building constructed 1,000,000
Building permit fees 10,000
Excavation expenses 25,000
Architect fees 25,000
Interest that could have been incurred if the money used for the building 120,000
construction were borrowed at the prevailing interest rate of 12%
(8) What are the balances of Land, Land Improvements and Buildings accounts, respectively, at
December 31, 2021?
A. P3,840,000; P75,000; P1,960,000
B. P3,775,000; P75,000; P1,960,000
C. P3,840,000; P75,000; P2,080,000
D. P3,775,000; P75,000; P2,025,000

G. On January 2, 2021, Rochas Company replaced its mixing machinery with a more efficient one. The
data pertaining to the old machinery as of this date is as follows:
Acquisition cost – P120,000
Accumulated depreciation – 70,000
Fair value – 20,000
The purchase price of the new mixing machinery is P600,000 and its installation cost amounted to
P80,000. The old mixing machinery was sold for P20,000
(9) At what amount should Rochas Company capitalize as the cost of the new mixing machinery?
A. P680,000
B. P660,000
C. P630,000
D. P600,000

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H. Perry Ellis Company has some old equipment that cost P700,000 with an accumulated depreciation
of P400,000. The equipment was traded in for a new machine from a dealer company that had a list
price of P800,000; however, the new machine could be purchased without trade in for P750,000
cash. Perry Ellis Company paid P500,000 cash in the exchange.

(10) At how much should Perry Ellis record the newly acquired machine?
A. P1,250,000
B. P800,000
C. P750,000
D. P300,000
(11) What is the amount of gain (loss) on the exchange?

A. P50,000 gain
B. P50,000 loss
C. P300,000 loss
D. P250,000 loss

I. Cool Company exchanges an old automobile with a carrying amount of P 135,000 (original cost is
P550,000) fora molding machine owned by Water Company. The molding machine is carried in
Water Company's books at a cost of P240,000 with an accumulated depreciation of P83,000 at time
of exchange.

(12) Assume that no cash is involved in the transaction and the fair value of the automobile is not
readily determinable. The fair value of the molding machine is PI 72,800. How much is the gain or loss
on the exchange of Cool Company and Water Company, respectively?
A. P37,800 gain and P15,800 loss
B. P37,800 loss and P15,800 gain
C. P37,800 loss and PI 5,800 loss
D. P37,800 gain and P15,800 gain
(13) Assume that the fair values of the automobile and the molding machine are P145,000 and
P150,000, respectively. In addition, Cool Company paid P5,000 to Water Company to complete the
transaction. How much is the gain or loss on the exchange of Cool Company and Water Company,
respectively?

A. P10,000 gain and P7,000 loss

B. P10,000 loss and P7,000 gain
C. P15,000 loss and P12,000 gain
D. P15,000 gain and P12,000 loss

J. In October, Accra Company exchanged an old packaging machine costing P240,000 and 50%
depreciated, for a dissimilar used machine and paid a cash difference of P32,000. The market value
of the old packaging machine was determined to be P140,000.
(14) How much is the cost of the newly acquired machine and the amount of gain or loss,
respectively, that Accra should record on this exchange?
A. P172,000 and P20,000 loss
B. P172,000 and P20,000 gain
C. P140,000 and P20,000 gain
D. P108,000 and P20,000 gain

K. Klein Company exchanged a car from its inventory for a computer system to be used in its
technological upgrading project. The following information relates to this exchange that took place
on July 16, 2021.
Listed selling price of the car – P900,000

Fair value of the computer system – 860,000

Page 15 of 25
 Carrying amount of the car – 600,000

Cash difference paid by Klein – 100,000

(15) What is the cost of the newly acquired computer system?

A. P600,000
B. P700,000
C. P860,000
D. P960,000

(16) How much is Klein Company's gain on this exchange?

A. P0
B. P120,000
C. P160,000
D. P260,000

L. Betsey Johnson Corp. received a grant related to a factory building that it bought on January 2,
2021. The total amount of the grant was P9 million. Betsey Johnson Corp. acquired the building
from an industrialist identified by the government. If Betsey Johnson Corp. did not purchase the
factory building, which was located in the slums of the city, it would have been repossessed by a
government agency. Betsey Johnson Corp. purchased the factory building for P27 million. The
useful life of the building is not considered to be more than three years, mainly due to the fact that
it was not properly maintained by the previous owner.
(17) What amount should be recognized as income from government grant in 2021?

A. P0
B. P3,000,000
C. P6,000,000
D. P9,000,000

(18) If Betsey's policy is to treat the grant as a reduction in the cost of the asset, how much
depreciation should be recognized in 2021?

A. P0
B. P3,000,000
C. P6,000,000
D. P9,000,000

(19) If Betsey's policy is to treat the grant as deferred income, how much depreciation should be
recognized in 2021?

A. P0
B. P3,000,000
C. P6,000,000
D. P9,000,000

(20) On January 5, 2023, the whole amount of government grant became repayable due to
noncompliance by Betsey. How much loss should be recognized in 2023 as a result of noncompliance?

A. P0
B. P3,000,000
C. P6,000,000
D. P9,000,000

Page 16 of 25
M. Jean Company is constructing a building for its own use. Jean Company capitalizes interest on an
annual basis. The following cumulative expenditures were reflected in its records during 2021:
January 1 – P1.5 M October 1 – P4.2 M

March 1 – P1.86 M December 1 – P4.5 M

The building was completed on December 31, 2021 and it became operational in 2022. At the
beginning of the construction period, Jean Company issued a 12% note for P 1,500,000,
specifically to finance the construction of the plant. Prior to its disbursement, the some of the
proceeds from the loan were temporarily invested and earned interest income of P8,000.

(21) How much is the capitalized interest?

A. P180,000
B. P172,000
C. P289,200
D. P281,200

(22) Assume that in addition to the P1.5 million specific borrowing, Jean Company had the following
outstanding debts throughout the year.

16% Notes Payable – P1,000,000

13% Notes Payable – P3,500,000

How much is the total cost of the self-constructed building?

A. P308,500
B. P4,361,500
C. P4,500,000
D. P4,808,500

(23) Assume that Jean Company did not have any specific borrowing. However, it had the following
outstanding debts throughout the year, proceeds of which were partly used for the construction of
the plant.

16% Notes Payable – P1,000,000

14% Notes Payable – P500,000

How much is the interest expense reported in profit or loss for the year 2021?

A. P652,500
B. P349,459
C. P303,050
D. P300,000

N. The Calvin Company self-constructed an asset for its own use. Construction started on January 1,
2021 and the asset was completed on December 31, 2021. Costs incurred during the year were as
follows:
January 1 – P400,000 August 1 – P480,000

April 1 – P500,000 December 1 – P180,000

(24) What is the average accumulated expenditures for the self-constructed asset?

A. P1,560,000
B. P990,000
C. P870,000
D. P780,000
Page 17 of 25
 (25) If the company had a two-year, 18% loan of P500,000, specifically obtained to

finance the asset construction, what is the capitalized interest added to the cost of the self-
constructed asset?

A. P90,000
B. P140,000
C. P178,200
D. P280,800

(26) Assuming that in addition to the specific borrowing, prior to the construction. The company had
a general borrowing amounting to P600,000 with interest of 20% and a five-year term that used in
part in the self-construction, what is the total cost of the self-constructed asset?

A. P1,770,000
B. P1,748,000
C. P1,650,000
D. P1,560,000

(27) Assuming that the total construction costs of P1,560,000 were incurred evenly during the
construction period, and the company has the following outstanding obligations prior to the start of
the construction:

Specific borrowing P700,000, 16%, due January 1, 2023

General borrowing P500,000, 18%, due January 1, 2022

What is the capitalized interest added to the cost of the self-constructed asset?

A. P124,600
B. P130,000
C. P112,000
D. P218,000

O. Carolina Herrera Company started the construction of a warehouse on January 1, 2021. The total
costs incurred as of December 31, 2021 amounted to P2,000,000 including capitalized borrowing
cost of P350,000.

At the beginning of 2022, the construction of the warehouse resumed. Total expenditures during
2022 amounted to P800,000. Carolina's accountant computed the average expenditure of asset for
2022 of P450,000. The related of obligation 10% per outstanding annum all throughout 2022 is
P25,000,000 and bears an interest of 10% per annum.

(28) Compute the capitalizable borrowing cost for 2022.

A. P80,000
B. P189,000
C. P245,000
D. P280,000

P. The Armani Company takes a full year depreciation expense in the year of an asset's acquisition
and no depreciation in the year of disposal. Data relating to one of Armani's depreciable assets at
December 31, 2020 is as follows:

Year of acquisition – 2019

Estimated residual value – 15,000
Cost – P225,000
Estimated useful life – 10 years
Accumulated Depreciation – P81,000
Page 18 of 25
 (29) Using the same depreciation method as used in 2019 and 2020, how much depreciation expense
should be recorded for this asset in the year 2021?

A. P30,545
B. P28,800
C. P23,040
D. P21,000

Q. Aramis Company purchased a computer on June 30, 2020 for P210,000. The computer has a
salvage value of P 10,000 and a useful life of six years.

(30) Using the double-declining balance method of depreciation, what is the depreciation expense for
the year 2021?
A. P35,000
B. P46,667
C. P55,556
D. P58,333

R. A machine with an eight-year estimated useful life and an estimated 10% residual R. value was
acquired on January 1, 2018.

(31) On December 31, 2021, the balance of accumulated depreciation on this asset, using the sum-of-
the-years' digits method, would be
A. (Original cost x 90%) x 5/36
B. (Original cost x 90%) x 26/36
C. Original cost x 5/36
D. Original cost x 26/36

S. On January 1, 2018, Arden Company purchased for P 132,000 a machine to be depreciated by the
straight-line method over an estimated useful life of eight years, without salvage.
On January 1, 2021, Arden Company determined that the machine has a useful life of six years
from the date of acquisition without salvage value. An accounting change was made in 2021 to
reflect this data.

(32) What is the accumulated depreciation balance at December 31, 2021, after appropriate
adjusting entry for depreciation is made?

A. P88,000
B. P80,000
C. P77,000
D. P73,000

T. Ralph Company purchased a computer hardware on January 1, 2020, for P400,000. The economic
life and residual value are estimated to be 5 years and P40,000 respectively. The asset is being
depreciated using the sum-of-the-years' digits method. In January 2021, the company decides to
change to the straight-line method, the residual value being the same.

(33) What is the accumulated depreciation balance at December 31, 2021?

A. P190,000
B. P180,000
C. P120,000
D. P60,000

Page 19 of 25
U. Euro Company purchased a computer hardware on July 1, 2020 for P400,000. The economic life
and residual value are estimated to be 5 years and P40,000, respectively. The straight-line method
is used. In January 2021, due to advances in technology, the company adjusted its estimate to a
three-year total life and a residual value of P 10,000.

(34) How much is the depreciation expense for 2021?

A. P148,800
B. P141,600
C. P127,200
D. P120,667

V. The Jessica Company acquired a drilling machine on October 1, 2018 at a cost of P250,000 and
depreciated it at 25% per annum on a straight-line basis. On October 1, 2020, P50,000 was spent
on an upgrade to the machine in order to improve its efficiency and increase the inflow of economic
benefits over the machine's remaining life.

(35) According to PAS 16, how much depreciation expense should be recognized in profit or loss for
the year ended September 30, 2021?
A. P87,500
B. P62,500
C. P75,000
D. P112,500

W. The Hilfiger Company acquired a helicopter in 2018. At the time of acquisition, the cost of the jet
frame was P3.2 million and the additional cost of the engine was P300,000.
In 2021, the engine was replaced with a new one costing P500,000. At the time of replacement,
the accumulated depreciation to date on the jet frame was P875,000 and on the engine was P
200,000.

(36) What amount should be derecognized at the date of replacement?

A. P100,000
B. P300,000
C. P550,000
D. Nil

X. Niñ o Cerruti Company has an equipment costing P700,000 with an estimated residual value of
P70,000 and an estimated useful life of six years. After using and depreciating the asset for the past
two years, the company upgraded the machine parts and the cost of upgrading amounted to
P120,000.

(37) Assuming that the upgrading costs improved the quality of the asset's output, what is the revised
depreciation expense for the third year using the straight-line method and sum-of-the-years' digits
method, respectively?
A. P135,000; P168,000
B. P135,000; P196,000
C. P152,000; P196,000
D. P152,000; P168,000

(38) Assuming that the upgrading costs extended the asset's economic useful life by an additional
two years, what is the revised depreciation expense for the third year using the straight-line method
and sum-of-the-years' digits, respectively?

A. P90,000; P140,000
B. P90,000; P120,000
C. P101,667; P140,000

Page 20 of 25
 D. P101,667; P120,000
Y. On January 1, 2016, Davidoff Corporation acquired a building at a cost of P22 million. The building
has been depreciated using straight-line on the basis of a 20-year life, with a residual value of P2
million.

On January 1, 2021, an appraisal of the building by professional and competent appraisers

reported a fair value of P 20 million with an estimated residual value of p3 million and a remaining
useful life of 10 years. It is the company's policy to transfer a portion of the revaluation surplus to
retained earnings while the asset is being used by the company. Assume that the accumulated
depreciation of the revalued asset is restated proportionately with the change in the gross carrying
amount of the asset.

(39) How much is the revaluation surplus recognized at January 1, 2021?

A. P2,700,00
B. P3,000,000
C. P4,000,000
D. P5,000,000

(40) How much is the annual depreciation charge for the building after revaluation?

A. P1,000,000
B. P1,700,000
C. P2,000,000
D. P2,700,000

(41) Assuming that no further revaluation was recorded and the asset was sold on January 1, 2025
for P13,500,000, what is the gain or loss recognized by Davidoff upon the disposal of the asset?

A. P300,000 gain
B. P300,000 loss
C. P2,000,000 gain
D. P2,000,000 loss

Z. On January 1, 2018, a new building was purchased at a cost of P30 million. Depreciation was
computed on the straight-line basis at 4% per On January 1, 2021, the building was appraised and
was reported to have a fair value of P36 million and an estimated remaining life of fifteen years.
This was the first revaluation made on the building since its acquisition.
(42) What is the revaluation surplus recognized in the accounts at January 1, 2021?

A. P1,600,000
B. P6,000,000
C. P8,400,000
D. P9,600,000

(43) What is the revised depreciation expense on the building for 2021?

A. P2,400,000
B. P2,000,000
C. P1,840,000
D. P1,200,000

AA. Jovan Company acquired a building on January 1, 2013 at a cost of P30 million. The building has an
estimated life of fifteen years and a residual value of P3 million. The building was revalued on
January 1, 2021 and the revaluation revealed a. fair value of P22 million; residual value of P4
million and revised remaining life of ten years. It is the company's policy to transfer some of the
surplus to retained earnings as the asset is being used.

Page 21 of 25
 (44) What is the revaluation surplus on December 31, 2021?
A. P5,760,000
B. P6,400,000
C. P8,460,000
D. P9,400,000
BB. There were no additions nor disposals during 2021. Depreciation expense is computed on the
straight-line method over 15 years for the building. On January 1, 2021, all of Joop's property, plant
and equipment were appraised and the replacement cost of the land was P20 million while the
building was estimated to be million. The appraisal also revealed that the building will have a
residual value of PIO million at the end of its remaining useful life. It is the company's policy to
transfer its revaluation surplus piecemeal over the remaining useful life of the asset.
(45) What is the revaluation surplus of Joop Company on December 31, 2021?

A. P25,000,000
B. P28,000,000
C. P29,000,000
D. P30,000,000

CC. Six situations are given below concerning a plant asset currently used in operations.
Case Carrying amount Value in use Net realizable value
1 P120,000 P180,000 P135,000
2 135,000 195,000 120,000
3 150,000 180,000 255,000
4 180,000 120,000 90,000
5 210,000 165,000 195,000
6 225,000 195,000 255,000

(46) Which among the cases, if any, require impairment loss recognition?

A. 4 and 5 only
B. 4, 5 and 6 only
C. 2, 4 and 5 only
D. 1, 2, 3 and 6 only

DD. On December 31, 2021, Lauren Company determined that there had been a significant decrease in
the market value of its equipment. On this date, Lauren compiled the following information
concerning the equipment.
Original cost P10,000,000
Accumulated depreciation 5,000,000
Expected undiscounted net future cash inflows from the continued use and 3,500,000
eventual disposal
Expected discounted net future cash inflows from the continued use and eventual 3,000,000
disposal
Fair value less cost to sell 4,000,000

(47) What is the impairment loss that should be reported in the 2021 profit and loss?

A. P0
B. P1,000,000
C. P1,500,000
D. P2,000,000

Page 22 of 25
EE. On December 31.2021. Winnipeg Company has an item of machinery with a cost of P4,500,000 and
an accumulated depreciation of P1,800,000. On this date, the machinery is found to be impaired
due to obsolescence and a major physical damage.
The entity made an assessment and test for recoverability of the asset and determined that the
machinery's estimated selling price is P2,500,000 and estimated disposal cost is P250,000. The
entity expects net future undiscounted cash flows related to the continued use and eventual
disposal of the machinery of P2,600,000. The net future discounted cash flows related to the
continued use and eventual disposal of the machinery using a discount rate of 10% is P2,180,000.

(48) Winnipeg should report an impairment loss in 2021 of

A. P100,000
B. P200,000
C. P450,000
D. P520,000

(49) Assuming that the machinery has an estimated useful life of 10 years at the time of acquisition,
how much is the depreciation expense for the year ended December 31, 2022?

A. P450,000
B. P433,333
C. P375,000
D. P363,333

FF. Due to obsolescence, an equipment with an original cost of P450,000 and accumulated
depreciation of P210,000 at December 31, 2021, had suffered permanent impairment. As a result,
the equipment should have a carrying value of only P150,000 as of that date. In addition, the
remaining useful life of the equipment was reduced from eight years to three years.
(50) What is the impairment loss recognized in the accounts at December 31, 2021?

A. P300,000
B. P90,000
C. P60,000
D. P0

(51) What is the accumulated depreciation balance for this asset in the December 31, 2022
statement of financial position?

A. P350,000
B. P300,000
C. P260,000
D. P50,000

GG. Hamburg Company reported an impairment loss of P500,000 in its income statement for the year
2018. This loss was related to an item of property, plant and equipment which was acquired on
January 1, 2010 with a cost of P4,000,000 (no residual value). Depreciation on the building is
computed on a straight-line basis and annual depreciation on cost is P160,000. Depreciation for
year 2019 was computed based on the asset's recoverable amount at December 31, 2018.
On December 31, 2021, the entity decided to measure its building using revaluation model. This
building was then appraised to a fair value of P3,240,000.

(52) What amount of gain on impairment recovery should Hamburg report in its 2021 income
statement?

A. P1,673,750
B. P1,566,250
C. P1,100,000

Page 23 of 25
 D. P406,250

(53) How much is the revaluation surplus, if any, recognized at December 31, 2021?

A. P1,160,000
B. P1,066,250
C. P 406,250
D. P 128,750

HH. On January 1, 2021, Velayo Company has equipment having a useful life of 10 years with the
following cost and accumulated depreciation. The company uses straight-line method in
depreciating its equipment.
Equipment P5,000,000
Accumulated depreciation 1,500,000

Due to obsolescence and physical damage, the equipment is found to be impaired on December 31,
2021. Velayo Company has determined the following:

Undiscounted cash flows of the equipment P3,100,00

Fair value of the equipment less cost to sell 2,250,000
Discounted cash flows of the equipment 2,500,000

(54) Velayo Company recognizes an impairment loss on December 31, 2021 at

A. P1,000,000
B. P750,000
C. P500,000
D. Nil
II. On January 1, 2018, Donna Karen Company acquired a bakery equipment at a cost ofP650,000. The
equipment is being depreciated using straight-line method over its estimated useful life of 10
years. On December 31, 2021, a determination was made that the asset's recoverable amount was
only P240,000. On December 31, 2023, the asset's recoverable amount was determined to be
P270,000 and management believes that the impairment previously recognized should be
reversed.
(55) How much impairment loss should be recognized on December 31, 2021?

A. P120,000
B. P150,000
C. P215,000
D. P240,000

(56) What is the asset's carrying amount on December 31, 2023 prior to recording the recovery of
impairment loss?

A. P270,000
B. P240,000
C. P200,000
D. P160,000

(57) How much gain from recovery impairment should be reported in 2023?

A. P150,000
B. P110,000
C. P100,000
D. Nil

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JJ. Faberge, Inc. purchased a machinery on January 1, 2017, at a cost of P500,00. It is being
depreciated using the straight-line method over its projected useful life of 10 years. At December
31, 2018, the asset's fair value wasP550,000. Accordingly, an entry was made on that date to
recognize the revaluation surplus. It is the company policy to transfer a portion of revaluation
surplus to retained earnings every end of the entity's reporting period.

An impairment was detected on December 31, 2021 and the recoverable amount of the asset was
determined to be P200,000.

(58) What amount of revaluation surplus should be credited directly to equity on December 31,
2018?

A. P150,000
B. P100,000
C. P50,000
D. P5,000

(59) What is the amount of impairment loss to be reported by Faberge, Inc. on December 31, 2021?

A. P50,000
B. P93,750
C. P134, 750
D. P143,750

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