MMSU – CBEA ACC 100 – BS ACC 1 Final Exam

Name: _______________________________________ Section: _____ Date: 5/29/2024 Score: __________

Choose the best answer. Shade the circle corresponding to the letter of your choice in the answer sheet.

1. Which of the following is not capitalized into the cost of property, plant and equipment?
A. Cost of excess materials from a purchasing error C. Initial delivery and handling cost
B. Cost of testing whether the asset works correctly D. Cost of preparing the site for installation

2. 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 its intended use
D. Initial estimate of the cost of dismantling and removing the item and restoring the site, where the entity
has no obligation to do such

3. Which of the following statements best describes the term “depreciation”?

A. An asset must be depreciated from the date of purchase to the date of sale
B. The annual depreciation charge must be constant over the life of the asset
C. The total cost of an asset must eventually be depreciated
D. If the carrying amount of an asset is less than the residual value, depreciation is not charged

4. 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

5. 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 the capitalization rate or actual borrowing cost incurred,
whichever is lower
C. Total expenditures on the asset multiplied by the capitalization rate or actual borrowing cost incurred,
whichever is higher
D. Total expenditures on the asset multiplied by the capitalization rate

6. Statement 1: Government grant related to nondepreciable assets shall be recognized as income over the
periods which bear the cost of meeting the conditions.
Statement 2: If the entity is using the sum-of-the-years digit method, the numerator in the fractions for
computing periodic depreciation is the total life in years.
A. All statements are false. C. Statement I is true.
B. All statements are true. D. Statement II is true.

7. Change in accounting estimate affects reported amounts

A. Retrospectively only. C. Currently and prospectively.
B. Prospectively only. D. Currently and retrospectively.

8. The following are major characteristics of property, plant and equipment, except
A. Long-term in nature C. Acquired for use
B. Acquired for resale D. Physical substance

9. When shall capitalization of borrowing cost end?

A. The necessary activities to get the asset ready for its intended use have started.
B. When the loan is fully settled.
C. When the asset is fully depreciated.
D. When the asset is substantially complete.

10. Depreciation is a variable expense if the method is

A. Production method C. Sum of the year’s digits method
B. Straight-line method D. Double declining balance method
11. The cost of land typically includes the purchase price and which of the following, EXCEPT?
A. grading, filling, draining, and clearing costs.
B. broker’s commission and land transfer title.
C. driveways and parking lots included in the building blueprint.
D. assumption unpaid taxes on the land where the building is located.

12. Statement 1: 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 fair values on the date of acquisition.
Statement 2: Property acquired in exchange for shares of the enterprise should always be recorded the fair
value of the shares issued.
A. False, True B. False, False C. True, False D. True, True

13. Which of the following statements is true regarding capitalization of interest?

A. The amount of interest cost is capitalized during the period should not exceed the actual interest cost
incurred.
B. When excess borrowed funds not immediately needed for construction are temporarily invested, any
interest is expensed in profit or loss.
C. Interest cost is capitalized in connection with the purchase of land to be used as a building site should be
debited to the land account.
D. The minimum amount of interest to be capitalized is determined by multiplying a weighted-average interest
rate by the amount of average accumulated expenditures.

14. Statement 1: Estimates of future cash flows of a property, plant and equipment shall include estimated future
cash inflows and outflows that are expected to arise from improving or enhancing the asset’s performance.
Statement 2: Expenditures on a qualifying asset include only those expenditures that have resulted in
payments of cash, transfers of other assets or the assumption of interest-bearing liabilities.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.

15. Statement 1: 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.
Statement 2: If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or
loss is recognized.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.

16. Statement 1: The single cost of acquiring land and an unusable old building is allocated between land and
building based on relative fair values.
Statement 2: 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.
C. Only statement 1 is correct. C. Both statements are correct.
D. Only statement 2 is correct. D. Both statements are incorrect.

17. The following buildings are property, plant and equipment, except
A. Factory building B. Store building C. Head office building D. Apartment building

18. Which of the following would typically be reported as property, plant and equipment?
A. Land held for capital appreciation
B. Equipment for rental to others under operating leases
C. Land and building for rental to others under operating leases
D. Equipment held for sale in accordance with PFRS 5

19. In accordance with amended PAS 16 effective January 1, 2022, how should the sales proceeds from selling
samples produced when testing an item of PPE and the related cost of producing the samples be accounted
for?
A. Deduct the sales proceeds from the cost of PPE and recognize the related cost in profit or loss.
B. Recognize the sales proceeds and the related cost in profit or loss.
C. Recognize the sales proceeds in profit or loss and include the related cost in the cost of PPE.
D. Deduct the net proceeds from the cost of PPE.
 20. The following statements are related to Borrowing cost:
Statement 1: Under specific borrowing, the actual interest incurred for the period is always capitalized.
Statement 2: Under general borrowing, the excess average interest over the actual interest is recognized as
interest expense.
A. Only statement 1 is true C. Only statement 2 is true
B. Both statements are true D. Both statements are false

21. What is the initial recognition basis of non-interest-bearing note received in exchange for a property?
A. At fair value of the property or note. C. At face value of the note.
B. At maturity value of the note. D. At the carrying amount of the property.

22. Which of the following is similar for sum-of-the-years’-digit method and double declining balance method of
depreciation?
A. results in a lower depreciation method in earlier years of the asset.
B. results in residual value being ignored in computing periodic depreciation expense.
C. the carrying amount should not be lower than its residual value at the end of its useful life.
D. Depreciation rate based on its useful life is used to depreciate the asset.

23. Government grants related to depreciable assets are

A. Recognized as income when the grants are received.
B. Recognized as income at the end of the useful life of the asset received.
C. Recognized as income over the periods and on the same basis as depreciation for that asset.
D. Not recognized.

24. Which statements are correct concerning measurement of cost of property, plant and equipment?
I. The purchase price of an item of property, plant and equipment is the cash price equivalent at the date of
recognition
II. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and total
payment is recognized as interest expense over the life of the asset.
III. If an item of property, plant and equipment is acquired in exchange for a nonmonetary asset or a combination
of monetary and nonmonetary asset, the cost of such item is measured at fair value unless the exchange
transaction lacks commercial substance or fair value of either asset received or given up is not reliably
determinable.
IV. If an entity is able to determine reliably the fair value of both the asset given up and asset received in an
exchange, the fair value of the asset given up is used to measure the cost of asset received in exchange.
A. I and IV only B. I, II and III C. I, III and IV D. All statements are correct

25. If there is a change from sum of years’ digits to straight line method, it should be applied:
A. Prospectively B. Retrospectively C. Either A or B D. None of the above

26. Which of the following costs generally would be capitalized to a property, plant and equipment account?
A. interest on debt incurred to purchase the item C. import duties incurred on purchase
B. property taxes relating to periods after acquisitions D. freight-out

27. Diwata Company acquired machinery on January 1, 2017 which it depreciated under the straight-line method
with an estimated life of fifteen years and no residual value. On January 1, 2022, Diwata estimated that the
remaining life of this machinery was six years with no residual value. How should this change be accounted
for by Diwata?
A. as the cumulative effect of a change in accounting principle in 2022.
B. by setting annual depreciation equal to one-sixth of the book value on January 1, 2022 starting 2022.
C. by continuing to depreciate the machinery over the original fifteen-year life.
D. as a prior-period adjustment.

28. An item of property, plant and equipment acquired in an exchange transaction where the configuration of the
asset received is significantly different from the configuration of the asset given up, shall be initially recorded
at
A. Fair value of the non-cash asset given up, plus cash paid or minus cash received.
B. Fair value of the item of property, plant and equipment received, plus cash paid or minus cash received.
C. Carrying value of the asset given up.
D. Amount established by the Board of Directors.
29. Which of the following shall NOT be presented as Property, Plant and Equipment?
A. A living plant used in the production or supply of agricultural produce with a remote likelihood of being sold as
agricultural produce
B. Land held for lease providing the entity with significant rental revenue
C. Equipment used in the production process
D. Owner-occupied building

30. Which of the following is NOT a qualifying asset under PAS 23 (Borrowing Costs)?
A. Building that will take three years to construct
B. Inventories such as wine and cigars
C. Machinery that is purchased under a three-year installment period
D. Manufacturing plant and power generation facilities

31. In 2023, the firm changed from straight-line (SL) method of depreciation to double declining balance (DDB).
The firm’s 2022 and 2023 comparative financial statements will reflect which method/s?
A. 2022: SL, 2023: SL C. 2022: DDB, 2023: DDB
B. 2022: SL, 2023: DDB D. 2022: SL, 2023: either SL or DDB

32. Which of the following is similar for straight-line method and double declining balance method of depreciation?
A. results in a lower depreciation method in earlier years of the asset.
B. results in residual value being deducted in computing periodic depreciation expense.
C. depreciation rate based on its useful life is used to depreciate the asset.
D. carrying value of the asset is the same at the end of its useful life.

33. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a
qualifying asset?
A. Interest cost is being incurred.
B. Activities that are necessary to get the asset ready for its intended use are in progress.
C. Expenditures for the assets have been made.
D. The interest rate is equal to or greater than the company's cost of capital.

34. Which statement is correct?

I. Total depreciation is the same over the life of an asset regardless of the method of depreciation used.
II. Once selected for existing assets, a company must consistently use the same method of depreciation for
all subsequent fixed asset acquisitions.
A. Statement I only C. Both I and II are correct
B. Statement II only D. Neither I nor II is correct

35. What valuation model should an entity use to measure property, plant and equipment?
A. The cost model or the fair value model. C. The cost model or the revaluation model
B. The revaluation model or the fair value model. D. The cost model or the fair value through OCI

36. Which exchange has commercial substance?

A. Exchange of assets that causes the entities to remain in essentially the same economic position.
B. Exchange of assets with no difference in future cash flows.
C. Exchange by entities in the same line of business.
D. Exchange of assets with difference in future cash flows.

37. A property acquired by issuing equity shares should be recorded at

A. Fair value of shares issued C. Historical cost of a similar asset
B. Fair value of the asset received D. Historical cost of the asset

38. In the case of grant related to income, which of the following accounting treatment is prescribed?
A. Credit the grant to sales.
B. Credit the grant to equity.
C. Present the grant as other income or as a separate line item, or deduct it from the related expense.
D. Credit the grant to retained earnings.
39. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to
A. Zero
B. Actual borrowing cost incurred
C. Actual borrowing cost incurred up to completion of asset
D. Actual borrowing cost incurred up to completion of the asset minus any investment income from borrowing
40. Which is not a disclosure requirement in relation to borrowing cost?
A. Accounting policy adopted for borrowing cost
B. Segregation of qualifying asset from other assets
C. Capitalization rate used to determine the amount of borrowing cost eligible for capitalization
D. Amount of borrowing cost capitalized during the period

41. 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 allocated 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 intention of management for the property when the new building was constructed
D. The contemplated future use of the old building

42. The term betterment refers to

A. An expenditure made to help ensure continuity of capacity.
B. An expenditure made for new facilities which increase capacity.
C. An expenditure made to restore capacity.
D. An expenditure made to improve existing facilities by increasing capacity.

43. Which subsequent expenditure should be expensed immediately?

A. Expenditure made to add new asset.
B. Expenditure made to increase the efficiency or effectiveness of an existing asset.
C. Expenditure made to extend useful life of an existing asset in operating condition
D. Expenditure made to maintain an existing asset in operating condition

44. Depreciation is best described as a method of

A. Asset valuation C. Cost allocation
B. Current value allocation D. Useful life determination

45. In which of the following situations is the production method of depreciation most appropriate?
A. An asset’s service potential declines with use
B. An asset’s service potential declines with the passage of time
C. An asset is subject to rapid obsolescence
D. An asset incurs increasing repairs and maintenance

46. A method which excludes residual value from the base for the depreciation calculation in the earlier years is
A. Straight line C. Double declining balance
B. Sum of years’ digits D. Output method

47. An asset has a nine-year useful life and is to be depreciated under the sum of years’ digits method. The annual
depreciation expense would be the same as that under the straight line method in the
A. Third year B. Fifth year C. Seventh year D. Ninth year

48. The following are capitalized costs of a building except

A. Architect fee C. Property tax incurred after date of acquisition
B. Renovation costs prior to use D. Cost of temporary housing for construction workers

49. Repayment of government grant is treated as a

A. Change in accounting policy C. Correction of error
B. Change in accounting estimate D. Note disclosure only

50. Interest revenue on specific borrowing for qualifying asset

A. Reduces the cost of the asset C. Increases the cost of the asset
B. Reduces the interest expense to be reported D. Must be credited to interest income

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