Investment Property

Galore Co. ventured into construction of a condominium in Makati which is rated as the 4. Crosswind Co. owned a single investment property which had an original cost
largest state-of-the-art structure. The entity’s board of directors decided that instead of of P5,800,000 on January 1, 2021. On December 31, 2023, the fair value was
selling the condominium, the entity would hold this property for purposes of earning P6,000,000 and on December 31, 2024, the fair value was P5,900,000. On
rentals by letting out space to business executives in the area. acquisition, the property had a useful life of 40 years. What is the expense to
The construction of the condominium was completed and the property was placed in be recognized in profit or loss for the year ended December 31, 2024 under the
service on January 1, 2023. The cost of the construction was P50,000,000. The useful fair value model and cost model?
life of the condominium is 25 years and its residual value is P5,000,000. An independent Fair value model Cost model
valuation expert provided the following fair value at each subsequent year-end: a. 147,500 145,000
December 31, 2023 55,000,000 b. 100,000 145,000
December 31, 2024 53,000,000 c. 145,000 100,000
December 31, 2025 60,000,000 d. 100,000 147,500
1. Under the cost model, what amount should be reported as depreciation of
investment property for 2023?
a. 1,800,000 c. 2,200,000
b. 2,000,000 d. 0

Property Plant and Equipment

5. At the beginning of the current year, Town Co. purchased for P5,400,000,
including appraiser’s fee of P50,000, a warehouse building and the land on
which it is located. The following data were available concerning the property:
2. Under the fair value model, what amount should be recognized as gain from Current appraised value Seller’s original cost
change in fair value in 2023? Land 2,000,000 1,400,000
a. 5,000,000 c. 7,000,000 Warehouse building 3,000,000 2,800,000
b. 3,000,000 d. 0 5,000,000 4,200,000
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What is the initial measurement of the land?
a. 2,140,000 c. 2,000,000
b. 1,800,000 d. 2,160,000

3. Bona Company purchased an investment property on January 1, 2021 for

P2,200,000. The property had a useful life of 40 years and on December 31,
2023 had a fair value of P3,000,000. On December 31, 2023, the property was
sold for net proceeds of P2,900,000. The entity used the cost model to account
for the investment property. What is the gain or loss to be recognized for the 6. On December 31, 2023, Bart Co. purchased a machine in exchange for a
year ended December 31, 2023 regarding the disposal of the property? noninterest bearing note requiring eight payments of P200,000. The first
a. 865,000 gain c. 100,000 loss payment was made on December 31, 2023 and the others are due annually on
b. 810,000 gain d. 700,000 gain December 31. At date of issuance, the prevailing rate of interest for this type of
note was 11%. Present value factors are as follows:
PV of an ordinary annuity of 1 at 11% for 8 periods 5.146
PV of an annuity of 1 in advance at 11% for 8 periods
5.712
What amount should be recorded as initial cost of the machine?
a. 1,600,000 c. 1,400,000
 b. 1,029,200 d. 1,142,400

10. In October of the current year, Ewing Co. exchanged an old packing machine,
7. Lax Co. recently acquired two items of equipment. The transactions are which cost P1,200,000 and was 50% depreciated, for another used machine and
described as follows: paid a cash difference of P160,000. The fair value of the old packaging machine
- Acquired a press at an invoice price of P3,000,000 subject to a 5% cash was determined to be P700,000. What is the cost of the machine acquired in the
discount which was taken. Costs of the freight and insurance during exchange?
shipment were P50,000 and installation cost amounted to P200,000. a. 860,000 c. 760,000
- Acquired a welding machine an invoice price of P2,000,000 subject to a b. 700,000 d. 540,000
10% cash discount which was not taken. Additional welding supplies were
acquired at a cost of P100,000.
What is the total increase in the equipment account as a result of the
transactions?
a. 4,900,000 c. 5,100,000
b. 5,000,000 d. 5,200,000

11. The Knight Co. imported an equipment at a peso equivalent to P330,000. The
company has to pay additional cost of importing the asset such as P10,000
import duties and P15,000 non-refundable purchase taxes. Costs of bringing
and preparing the asset for its intended use include P2,000 transportation cost,
P4,000 installation and testing and trial run costs. How much is the initial cost
of the new machine?
8. Figaro Co. acquired land and paid in full by issuing P600,000 of its 10 percent a. 330,000 c. 346,000
bonds payable and 40,000 ordinary shares with par value of P10. The share was b. 336,000 d. 361,000
selling at P19 and the bonds were trading at 102. What amount should be
recorded as cost of the land?
a. 988,000 c. 1,372,000
b. 1,000,000 d. 1,387,200

12. Light Co. has recently purchased a computer system for its office. The
following information was gathered in relation to the acquisition of the unit:
List price P 152,000
Trade discount and rebates taken 56,000
Installation and assembly cost 3,200
9. Jazz Co. purchased land with a current market value of P2,400,000. The Initial delivery and handling cost 6,400
carrying amount of the land was P1,305,000. In exchange for the land, the entity Purchase discount 2%
issued 20,000 ordinary shares with par value of P100 and market value of P140 What is the acquisition cost of the new computer?
per share. The shares are traded in an established stock exchange. What amount a. 94,080 c. 105,680
should be recorded as cost of the land? b. 103,680 d. 160,600
a. 1,305,000 c. 2,400,000
b. 2,000,000 d. 2,800,000
13. On August 1 2019, Bright Co. purchased a new machine on a deferred payment from the sale of scrap when an existing structure on the site was razed. At what
basis. A down payment of P100,000 was made and 4 monthly installments of amount should the land be carried?
P250,000 each are to be made beginning on August 1, 2019. The terms of the a. 250,000 c. 350,000
agreement is not considered normal. The cash equivalent price of the machine b. 300,000 d. 400,000
was P950,000. Bright incurred and paid installation costs amounting to
P30,000. How much should be capitalized as cost of the machine?
a. 950,000 c. 1,110,000
b. 980,000 d. 1,130,000

On October 2019, Ship Co. exchanged a used packaging machine having a

book value of P240,000 for a new machine and paid a cash difference of
P30,000. The market value of the used packaging machine was determined to
be P280,000.
17. In its profit or loss for the year ended December 31, 2019, how much gain
14. Night Co. bought a new machine and agreed to pay for it in equal annual should Ship recognize on this exchange, assuming the exchange is considered
installments of P500,000 at the end of the next five years. Assume that the with commercial substance?
present value of a prevailing interest rate at 15% for five periods is 3.35. The a. None c. P30,000
future amount of an ordinary annuity of 1 at 15% for five periods is 6.74. The b. P10,000 d. P40,000
present value of at % for five periods is 0.5. how much should Night record as
the cost of the machine?
a. 1,250,000 c. 2,500,000
b. 1,675,000 d. 3,370,000

18. On the date of exchange, what amount should Ship Co. recognize as the cost of
the asset received, assuming the exchange is considered not lacking in
commercial substance?
a. P200,000 c. P280,000
15. On March 31, 2019, Mr. Right Enterprises traded in an old machine having a b. P250,000 d. P310,000
carrying amount of P1,600,000 and paid a cash difference of P600,000 for a
new machine having a total cash price of P2,000,000. On March 31, 2019 what
amount of loss should Mr. Right recognize on this exchange?
a. None c. 400,000
b. 200,000 d. 600,000

Star Co. owns a tract of land which it purchased in 2011 for P3,000,000. The
land is held as future plant site and has a fair market value of P4,800,000 on
March 1, 2014. Struck Co. also owns a tract of land held as future plant site.
Struck paid P4,200,000 for the land in 2010 and the land has a fair market value
of P6,000,000 on March 1, 2014. On this date, Star exchanged its land and paid
16. On October 1, 2019, Jet Corp. issued 10,000 shares of the P25 pat treasury P1,200,000 cash for the land owned by Struck. As a result of this transaction,
ordinary share for a parcel of land to be held for a future plant site. The treasury the entity’s specific value was not affected by the above exchange.
shares were acquired by Jet at a cost of P30 per share. Jet’s ordinary share had 19. How much should Star record the land acquired in the exchange?
a fair market value of P40 per share on October 1, 2019. Jet received P50,000 a. 4,200,000 c. 5,400,000
b. 4,800,000 d. 6,000,000
 c. P448,000 P2,506,000
d. P455,000 P2,354,000

20. What amount of gain should Star Co. recognize on the exchange?
a. None c. P120,000
b. P80,000 d. 180,000 23. On January 1, 2019, Shaw Co. purchased a machine for P504,000 that was
placed in service on March 1, 2019. Additional costs incurred to bring the asset
to its location and prepare for its intended use were: shipping, P4,000 and
installation and testing cost, P6,000. The estimated useful life of the asset was
10 years and has an estimated salvage value of P34,000. What amount of
depreciation should be recognized for the year ended December 31, 2019?
a. 40,000 c. 44,000
b. 42,000 d. 48,000

21. Faith Inc. has a fiscal year ending April 30. In May 1, 2018, Faith borrowed
P10,000,000 at 15% to finance construction of its own building. Repayments
of the loan are to commence on the month following completion of the building.
During the year ended, April 30, 2019, expenditures for the partially completed
structure totaled P6,000,000. These expenditures were incurred evenly
throughout the year. Interest earned on the unexpended portion of the loan
amount to P400,000 for the year. How much should be shown as capitalized 24. On May 1, 2018, Nonfat Co. purchased a new machinery for P2,700,000. The
interest on faith’s financial statements at April 30, 2019? machinery has an estimated useful life of 7 years and depreciation is computed
a. None c. P450,000 using the sum-of-years’-digit method. Estimated salvage value of the machine
b. P50,000 d. P1,100,000 is P180,000. What is the total accumulated depreciation on December 31,
2019?
a. 900,000 c. 990,000
b. 960,000 d. 1,170,000

22. During 2019, Torch Co. had the following transactions pertaining to its new
office building:
Purchase price- Land P 420,000
Legal fees for contracts to purchase land 14,000 25. Dreamer Co. purchased on October 1, 2018 an equipment for P800,000. The
Architect’s fee 56,000 equipment had an estimated useful life of 8 years. The estimated salvage value
Demolition of old building on site 35,000 was estimated at P50,000 at the end of its useful life. The equipment is being
Sale of scrap from old building 21,000 depreciated using the double-declining balance method. What is the amount of
Construction cost of new building (fully completed) 2,450,000 depreciation to be charged against 2019 income?
At what amount should the cost of land and cost of building be shown in Torch a. 140,625 c. 175,781
December 31, 2019 statement of financial position? b. 175,000 d. 187,500
Land Building
a. P420,000 P2,520,000
b. P434,000 P2,520,000
26. On December 31, 2019, Purple Co. sold a building, receiving as consideration On January 1, 2018, Boston Co. purchased a new building at a cost of
a P4,000,000 non-interest bearing note due in three years. The building costs P6,000,000. Depreciation was computed on the straight line basis at 4% per
P3,800,000 and the accumulated depreciation was P1,600,000 at the date of year. On January 1, 2023, the building was revalued at a fair value of
sale. The prevailing rate of interest for a note of this type was 12%. The present P8,000,000.
value of P1 for three periods at 12% is 0.71. In its December 31, 2019, how 30. What is the depreciation for 2023?
much gain or loss should Purple report on the derecognition of its asset? a. 320,000 c. 100,000
a. 200,000 gain c. 960,000 loss b. 400,000 d. 240,000
b. 640,000 gain d. 1,800,000 gain

31. What is the revaluation surplus on December 31, 2023?

London Co. owned a building on January 1, 2023 with historical cost of a. 3,072,000 c. 3,040,000
P40,000,000. The property is depreciated over 40 years on a straight line basis b. 1,900,000 d. 1,920,000
with no residual value. The entity adopted a policy of revaluation of property.
The building has so far been revalued twice at fair value as follows:
January 1, 2024 46,800,000
January 1, 2026 55,500,000
27. What is the revaluation surplus on January 1, 2024
a. 7,800,000 c. 5,800,000
b. 6,800,000 d. 4,800,000

Intangible Asset
Listen Co. is a mining company, which acquires a drilling rig to be used for
drilling of core samples for the purpose of analysis as part of its E & E activities
in a new area (Area F) it has recently acquired the rights to explore. The
following transactions occurred during 2011-2012.

28. What is the increase in revaluation surplus to be recognized as component of On July 1, 2011, the company acquired the rig at a cost of P2,800,000 and
other comprehensive income on January 1, 2026? capitalized as a tangible E&E asset with an estimated useful life of 14 years.
a. 15,500,000 c. 8,700,000 The drilling rig is used solely for the purposes of drilling core samples in Area
b. 11,100,000 d. 9,900,000 F, as expected. Listen Co’s financial year ends every June 30.

32. What is the carrying value of the Equipment (drilling rig) as of June 30, 2012?
a. None c. 2,600,000
b. 200,000 d. 2,800,000

29. What is the revaluation surplus to be reported in the statement of changes in

equity for the year ended December 31, 2026?
a. 18,200,000 c. 18,900,000
b. 18,000,000 d. 18,500,000
33. What amount should be recognized as intangible asset as of June 30, 2012? useful life and no residual value. As of Jan. 1, 2014, Coward is evaluating the
a. None c. 300,000 building for possible impairment. The building has a remaining useful life of
b. 200,000 d. 400,000 15 years and is expected to generate cash inflows of P450,000 per year. The
estimated recoverable amount of the building on January 1, 2014 is P5,310,000.
36. How much, if any, is the impairment loss that should be recognized on January
1, 2014?
a. None c. 3,090,000
b. 2,100,000 d. 5,200,000

34. Neglected Corp. purchased land for P6,000,000. The company expected to
extract 1 million tons of mine from this land over the next 20 years at which
time, residual value shall be zero. During the first 2 years of the mine’s
operations, 30,000 tons were mined each year and sold for P80 per ton. The
estimate of the total remaining lifetime capacity of the mine was raised to
1,200,000 tons at the start of the third year and the residual value was estimated 37. What is the amount of depreciation to be recognized in year 2014?
to be P480,000. During the third year, 50,000 tons were mined and sold for P85 a. 340,000 c. 400,000
per ton. How much would be the depletion for the third year? b. 354,000 d. 560,000
a. 215,000 c. 225,000
b. 227,500 d. 235,000

Maiden Co. has two cash-generating units, Yellow and Blue. There is no
goodwill within the units’ carrying values. The carrying values are Yellow
35. Super Value Co. quarries marble at two locations and sells it to be used in P10,000,000 and Blue P15,000,000. Maiden Co. has an office building that has
construction of buildings. The company provides for a depletion rate of 5%. not been included in the above rules and can be allocated to the units on the
The quarry is leased on a year-to-year basis with the company paying a royalty basis of their carrying values. The office building has a carrying value of
of P0.05 per ton of marble quarried. Other data relevant to the requirements P5,000,000. The recoverable amounts are based on value-in-use of P9,000,000
are: for Yellow and P19,000,000 for Blue.
Estimated total reserves, tons 60,000,000 38. What amount of impairment loss should Maiden Co. recognize on the cash-
Tons quarried through December 31, 2018 4,000,000 generating unit Yellow?
Tons quarried, 2019 1,600,000 a. None c. 2,000,000
Sales, 2019 P1,200,000 b. P1,000,000 d. 3,000,000
How much would be the depletion for 2019 for financial reporting purposes?
a. None c. 80,000
b. P60,000 d. 300,000

39. What amount of impairment loss should Maiden Co. recognize on the cash-
generating unit Blue?
a. None c. 2,000,000
Coward Co. purchased a building on January 1, 2010 for a total of P10,000,000. b. P1,000,000 d. 3,000,000
The building has been depreciated using the straight-line method with a 25-year
 43. On January 2, 2019, Earth Co. bought a trademark from Mars Co. for P600,000.
Earth retained an independent consultant, who estimated the trademark’s
remaining life to be 20 years. Its amortized cost on Mars’ accounting records
was P456,000. At what amount should the trademark be initially recorded?
40. On January 2, 2014, Beige Co. has completed the construction of a building for a. 456,000 c. 585,000
a total cost of P10,000,000. The building is to be depreciated on a straight-line b. 570,000 d. 600,000
basis over its estimated useful life of 40 years. On January 2, 2019, Beige
converted the building into a commercial establishment with only minor
renovation costs incurred. In consultation with an appraiser, the building’s fair
value as of Jan. 1, 2019 was P11,970,000. On January 1, 2021, due to sudden
change in the economic environment, Beige is evaluating possible impairment
and determined that the recoverable value of the building was P7,000,000.
What is the amount of impairment loss, if any, on January 1, 2021?
a. 1,050,000 c. 3,500,000 44. On January 1, 2015, Better Co. bought a trademark for P400,000, having an
b. 1,250,000 d. 4,286,000 estimated remaining useful life of 6 years. After 16 years, revenues expected
from this intangible will be zero. In January 2019, Better paid P60,000 for legal
fees in a successful defense of the trademark. What amount of expense should
Better Co. recognize and charge against income during 2019?
a. 15,000 c. 30,000
b. 25,000 d. 85,000

41. On October 1, 2018, Jupiter Inc. exchanged 2,000 shares of its P500 par value
ordinary shares held in treasury for a patent owned by Mars Co. the treasury
shares were acquired in 2017 at a cost of P800,000. At the time of exchange,
Jupiter’s ordinary share was quoted at P550 per share and the patent had a net
carrying value on Mar’s books of P900,000. At what amount should Jupiter
record the patent? 45. General Products Co. bought Special Products Division in 2015 and
a. 800,000 c. 1,000,000 appropriately recorded P500,000 of goodwill related to the purchase. On
b. 900,000 d. 1,100,000 December 31, 2016, the fair value of Special Products Division is P4,000,000
and it is carried on General Product’s books for a total of P3,400,000, including
the goodwill. An analysis of Special Products Division’s assets indicates that
goodwill of P400,000 exists on December 31, 2016. What goodwill impairment
should be recognized by General Products in 2016?
a. None c. 200,000
b. 50,000 d. 300,000

42. Moon Co. purchased Patent A for P600,000 and Patent B for P900,000. Moon
also paid indirect costs of P75,000 for Patent A and P105,000 for Patent B.
Both patents were challenged in legal actions. Moon paid P300,000 in legal
fees in successful defense of Patent A and P450,000 in legal fees in an
unsuccessful defense of Patent B. What amount should Moon capitalize for
patents?
a. 675,000 c. 1,680,000
b. 975,000 d. 2,430,000