PART 1: THEORETICAL

MULTIPLE CHOICE: Choose the correct answer from the given choices.

1. Which of the following subsequent expenditures after initial recognition will be capitalized?
a. Expenditures expected to benefit the current period only.
b. Expenditures expected to maintain the current level of performance of the asset.
c. Expenditures expected to increase the useful life of the asset.
d. Expenditures expected to restore and maintain the asset.

2. Subsequent expenditures to an equipment which increased the fair value and productive capacity should be:
a. Expensed
b. Capitalized
c. Neither expensed or capitalized
d. Reported as part of SHE

3. What is the recoverable amount of the asset?

a. Higher between the fair value less cost to sell and value in use.
b. Lower between the fair value less cost to sell and value in use.
c. A choice of the entity between fair value less cost to sell and value in use.
d. None of the above.

4. If the fair value less cost to sell is not determinable, the recoverable amount should be:
a. No impairment for the asset.
b. The carrying value is the same.
c. The net realizable value should be used.
d. Value in use.

5. Which of the following statements is true? Under the cost model, the asset shall be measured in the statement
of financial position at:
a. Revalued amount less accumulated depreciation.
b. Revalued amount less accumulated depreciation and accumulated impairment losses.
c. Replacement cost less accumulated depreciation and accumulated impairment losses.
d. Historical cost less accumulated depreciation and accumulated impairment losses.

6. Under the revaluation model, how should the assets be measured on the statement of financial position?
a. Historical cost less accumulated depreciation less accumulated impairment losses.
b. Revalued amount less accumulated depreciation less accumulated impairment losses.
c. Revalued amount less impairment losses.
d. Historical cost less impairment losses.

7. Which of the following statements is correct?

a. If an item of property, plant, and equipment is revalued, the entire class of property, plant, and equipment
to which it belongs shall also be revalued.
b. IAS 16 allows selective revaluation of a class of property, plant, and equipment.
c. Recoverable amount is the lower between asset’s fair value less cost to sell and value in use.
d. All of the statements are correct.

8. The carrying amount of the asset was decreased as a result of revaluation. How should this revaluation
decrease be accounted for?
a. Entirely charged to profit or loss.
b. Revaluation decrease is first charged to equity to the extent of the balance of the revaluation surplus and
any remainder to retained earnings.
c. Revaluation decrease is first charged to profit or loss, and any remainder is debited to equity to the extent
of the balance of the revaluation surplus.
d. Revaluation decrease is first charged to equity to the extent of the balance of the revaluation surplus, and
any remainder is charged to profit or loss.

9. The carrying amount of the asset was increased as a result of revaluation. How should this revaluation increase
be accounted for?
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 a. Entirely recognized in profit or loss.
b. Credited entirely to revaluation surplus.
c. Reversal of the impairment previously recognized up to the extent of the limit, and any excess is credited
to revaluation surplus.
d. No correct answer.

10. The following are exploration and evaluation expenditures, except:

a. Expenditures before an entity obtained the legal rights to explore an area
b. Acquisition of rights to explore
c. Topographical, geological, geochemical, and geophysical studies
d. Exploratory drilling

11. Exploration and evaluation assets shall be measured in the statement of financial position using:
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model based on accounting policy of the reporting entity.
d. Neither cost model or revaluation model based on the accounting policy of the reporting entity.

12. Which of the following assets will qualify as an investment property?

a. Land held for sale in the ordinary course of business.
b. Land held as future plant site.
c. Land leased out to an unrelated entity under an operating lease.
d. Building which is owner-occupied.

13. Initial cost of an investment property includes:

a. Current real property taxes paid.
b. Abnormal amounts of wasted materials, labor or other resources incurred in developing the asset.
c. Legal fees and other costs necessary to acquisition.
d. All of the above are capitalized as investment property.

14. An investment property shall be measured in the statement of financial position using:
a. Cost model
b. Revaluation model
c. Cost model or fair value model depending on accounting policy of the reporting entity.
d. Cost model or revaluation model depending on accounting policy of the reporting entity.

15. ABC Company uses the cost model to measure its investment property subsequent to initial acquisition. Which
of the following statements is correct?
a. ABC will present the investment property in the statement of financial position at cost.
b. ABC will present the investment property in the statement of financial position at cost less accumulated
depreciation.
c. ABC will present the investment property in the statement of financial position at cost less accumulated
depreciation less accumulated impairment losses.
d. No statement above is correct.

16. Statement 1: Transfer from investment property to owner-occupied property under the cost model shall be at
the carrying value.
Statement 2: Transfer from investment property to owner-occupied property under the cost model shall be at
the fair value.
a. True; true.
b. False; false.
c. True; false.
d. False; true.

17. Statement 1 : An asset held as inventory and reclassified into investment property under the fair value model,
the difference between the carrying value versus fair value is taken to profit or loss.
Statement 2: An asset held as inventory and reclassified into investment property under the fair value model,
the difference between the carrying value versus fair value is taken to equity.
a. True; true.
b. False; false.
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 c. True; false.
d. False; true.

18. If an owner-occupied property is reclassified into investment property using the fair value model, the excess
between fair value and carrying value of the asset is:
a. Ignored
b. Recognized in profit or loss
c. Credited to revaluation surplus
d. No correct answer.

19. According to IAS 40, transfers to and from investment property shall be made when and only when:
a. When there is management intention.
b. When there is management change.
c. When there is change of accounting policy.
d. When there is change in use.

20. DEF Company has a building that is held to earn rental income in an operating lease to an unrelated party. At
the end of the reporting period and if the company uses the fair value model, which of the following statements
is correct?
a. Rental income is reported in profit or loss.
b. Changes in fair value is reported in profit or loss.
c. Either rental income or changes in fair value is reported in profit or loss.
d. Both rental income and changes in fair value are reported in profit or loss.

PART 2: PROBLEM-SOLVING
SUPPLY THE ANSWER. Round-off final answers to the nearest peso. When applicable, round-off unit
costs to the nearest centavo.

PROBLEM 1
Eli Company purchased an equipment on January 1, 2024 for P750,000. It was estimated to have a useful life of
5 years and a residual value of P30,000. The company used the SLM for depreciation. On January 1, 2026, Eli
Company paid P120,000 to overhaul this equipment. Because of this expenditure, the useful life of the asset was
extended by additional 2 years with no change in its residual value.

Required:
1. What should be the carrying value of the equipment on December 31, 2026? 471,600
2. What should be the depreciation expense to be reported by Eli Company for the year ended December 31,
2027? 110,400

PROBLEM 2
On January 1, 2024, Eliseo Company acquired an equipment costing P1,290,000. The equipment was estimated
to have a useful life of 9 years and a residual value of P75,000. Eliseo uses the SLM of depreciation and cost
model.

On December 31, 2027, Eliseo determined that there were objective evidence of impairment of the asset. On this
date, the fair value of the asset was P550,000 and its related cost to sell was P45,000. The asset was expected to
provide the following cash flow during its remaining 5-year useful life:

Cash inflow Cash outflow

100,000 49,000
150,000 31,000
125,000 25,000
150,000 55,000
145,000 23,000

The residual value is unchanged. The pre-tax discount rate applicable was 8%.

PVF of P1 for single payment using 8% is as follows:

Period PVF
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 1 .9259
2 .8573
3 .7938
4 .7350
5 .6806

Required:
3. What is the asset’s value in use? 432,523
4. What amount of impairment loss should Eliseo Company recognize for the year ended December 31, 2027?
245,000
5. What is the depreciation expense for the year ended December 31, 2028? 86,000

PROBLEM 3
Panganiban Company acquired an equipment on January 1, 2024, costing the company P1,500,000. It was
depreciated using the SLM with an estimated useful life of 10 years. Panganiban Company reports assets at
revalued amount less any accumulated depreciation and accumulated impairment losses. The company uses the
elimination method to record revaluation and transfers a portion of its revaluation surplus as the asset is being
used.

On December 31, 2025, the fair value of the asset was P1,687,500. On December 31, 2027, the fair value of the
asset was determined to be P1,010,625. On December 31, 2029, the fair value of the asset was determined to be
P1,095,000.

Required:
6. What amount of revaluation surplus should be credited in equity on December 31, 2025? 487,500
7. What is the ledger balance of the accumulated depreciation account on December 31, 2026? 210,938
8. What amount of impairment/revaluation loss should be reported by Panganiban Company on December 31,
2027? 0
9. What is the depreciation expense for the year ended December 31, 2028? 273,750

PROBLEM 4
On January 01, 2024, ERP Company purchased a land with mineral deposits. It was acquired by the company at
a purchase price of P21,000,000. Experts estimate that the company can extract a total of 2,250,000 tons of
mineral deposits and the company expects that it can extract 37,500 tons per month.

The company also purchased a new equipment to be used in mining activities on January 01, 2024 at a purchase
price of P12,000,000 with a useful life of 10 years. The company estimated the residual value to be P750,000 at
the end of its useful life.

Actual mineral deposits extracted for the year 2024 was 375,000 tons.
Actual mineral deposits extracted for the year 2025 was 246,000 tons.

Round-off unit costs to the nearest centavo (e.g. P12.34 per unit).

Required:
10. What amount of depletion expense should be recognized for the year ended December 31, 2024? 3,498,750
11. What amount of depreciation expense should be recognized for the year ended December 31, 2025? 1,230,000

PROBLEM 5
ABC Company and its subsidiaries own the following properties

Land held by ABC for undetermined future use 7,500,000

A vacant building owned by ABC to be leased out under an operating lease to an unrelated party 4,500,000
Property held by DEF Company, a subsidiary of ABC, in the ordinary course of business 3,000,000
Property held by ABC for use in production 6,000,000
Building owned by GHI Company, a subsidiary of ABC, for which GHI provides security and
2,250,000
maintenance services to the lessees under an operating lease
Land leased by ABC to DEF under an operating lease 3,750,000
Property under construction to be used as investment property 9,000,000
Land held as future plant site 5,250,000
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 Machinery leased out by ABC to an unrelated party under an operating lease 1,500,000

Required:
12. In its consolidated financial statements for the year ended December 31, 2024, how much of the above shall
be reported as investment property? 23,250,000
13. In its consolidated financial statements for the year ended December 31, 2024, how much of the above shall
be reported as owner-occupied assets? 16,500,000

PROBLEM 6
DEF Company owns land and building for which it uses administratively. These assets are carried using the cost
model. The following information was made available at the beginning of the year 2024:

Land:
Cost – P30,000,000
Fair value – P42,000,000

Building:
Cost – 60,000,000
Accumulated Depreciation – 15,000,000
Fair value – 52,500,000

On January 1, 2024, due to change in use, the assets above were leased out to unrelated entities under an operating
lease. The company uses the fair value model to account for all investment property.

14. How much gain/loss shall be reported for the year ended December 31, 2024 resulting from the reclassification
above? (Please indicate whether gain or loss). 0

PROBLEM 7
GHI Company holds a land property held in the ordinary course of business carried at the cost of P22,500,000.
Due to change in use, the same asset was leased out to JKL Company under an operating lease starting on August
31, 2024 and was reclassified to investment property. At the commencement of the lease, the property had a fair
value of P30,000,000 while its related cost to sell was P1,500,000.

15. Assuming GHI’s investment property will be carried using the fair value model, how much of the above shall
be reported in 2024 profit or loss? 7,500,000

PROBLEM 8
JKL Company purchased an investment property on January 1, 2024 for P3,300,000. The useful life of the asset
was 30 years. The fair value of the asset on December 31, 2024 was P4,500,000.

On December 31, 2024, the asset was sold for P4,500,000 with cost to sell amounting to P150,000. JKL uses the
cost model to account for all its investment property and depreciates its assets using the SLM.

16. What amount of gain/loss from the disposal of the investment property should JKL Company report for the
year ended December 31, 2024? 1,160,000

PROBLEM 9
MNO Company constructed a building classified as investment property. Total construction cost amounted to
P75,000,000 and was completed on January 1, 2024. The estimated useful life of the building was 25 years and
estimated residual value was P7,500,000.

Valuation experts provided the following fair values of the asset as follows:

December 31, 2024 82,500,000

December 31, 2025 79,500,000
December 31, 2026 90,000,000

Required: Assuming the company uses the cost model and using the information in Problem 9:
17. What is the carrying value of the asset on December 31, 2024? 72,300,000
18. How much of the above shall be reported in profit or loss for the year 2025? (2,700,000)
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Required: Assuming the company uses the fair value model and using the information in Problem 9:
19. How much of the above shall be reported in profit or loss for the year 2024? 7,500,000
20. What is the carrying value of the asset on December 31, 2025? 79,500,000

-END OF THE EXAMINATION-

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