INTERMEDIATE ACCOUNTING

PRELECTURE QUIZ: PROPERTY, PLANT AND EQUIPMENT ODM

1. Property, plant & equipment has all of the following characteristics except
a. They are intended for use in operating activities and are not acquired for sale in the ordinary course of
business
b. They are classified as noncurrent tangible assets
c. Their service potential normally diminishes with use
d. They don’t typically make up a large part of a corporation’s operating assets

2. The cost of land does not include

a. Costs of removing old buildings c. Costs of grading , filling, draining, and clearing
b. Special assessments d. Costs of improvements with limited lives

3. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance c. Acquired for use
b. Acquired for resale d. Yields services over a number of years

4. Which of the following terms best describes the removal of an asset from an entity’s statement of financial
position?
a. Derecognition b. Impairment c. Write-off d. Depreciation

5. Hotel California Corporation recently purchased Eagles Hotel and the land on which it is located with the plan to
tear down the Eagles Hotel and build a new luxury hotel on the site. The cost of the Eagles Hotel should be
a. Depreciated over the period from acquisition to the date the hotel is scheduled to be torn down
b. Written off as an extraordinary loss in the year the hotel is torn down
c. Capitalized as part of the cost of the land
d. Capitalized as part of the cost of the new hotel

6. Plant assets may properly include

a. Self-constructed assets currently in use c. Land held for possible use as a future plant site
b. Idle equipment awaiting sale d. Deposits on machinery purchased and not yet received

7. Carrying amount is the

a. Cost of an asset or the amount substituted for cost in the financial statements, less its residual value
b. Amount of cash or cash equivalent paid or the fair value of the other consideration given to acquire an asset
at the time of its acquisition or construction
c. Net amount which the enterprise expects to obtain for an asset at the end of its useful life after deducting
the expected cost of disposal
d. Amount at which an asset is recognized in the balance sheet after deducting any accumulated depreciation
and accumulated impairment losses

8. If land and improvements are purchased, the broker’s commission and any accrued interest or accrued tax
should be
a. Charged to operations c. Appropriate between the land and building
b. Charged to land d. Charged to building

9. Which of the following is not chargeable to machinery and equipment?

a. Installation cost including transportation cost borne by the company
b. Labor charge, material and other expenditure incurred in placing the equipment in readiness for operation
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 c. Direct cost incurred to test or adjust the equipment or facilities before they are ready for productive use
d. Repair cost incurred when equipment is damaged in the process of installation

10. When fixed assets are self-constructed, which costs should be expensed in the period of construction?
a. Fixed and variable overhead costs
b. Fees paid to outside consultants
c. Excess of construction costs over third-party selling price
d. Cost of safety devices required by government agencies

11. Which of the following items is capitalized as part of the cost of PPE?
a. Cost of opening a new facility
b. Cost of relocating or reorganizing an entity’s operations
c. Cost of introducing a new product or conducting business in a new location
d. Cost of site preparation

12. The cost of property acquired on credit with available cash discount is equal to
a. Invoice price plus cash discount, taken or not c. Invoice price plus cash discount, only when taken
b. Invoice price minus cash discount, taken or not d. Invoice price minus cash discount, only when taken

13. The cost of property acquired by installment is equal to

a. List price b. Cash purchase price c. Invoice price d. Installment price

14. This is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of
its useful life
a. Value in use c. Salvage value
b. Fair value less costs to sell d. Depreciable value

15. MASIKAP Company acquired a new equipment by exchanging an old equipment with the following data:
Cost of old equipment ₱ 5,000,000
Accumulated depreciation 4,000,000
Fair value of old equipment 1,200,000
Cash received on exchange 500,000
What amount should be recorded as cost of the equipment received in exchange? ₱700,000

“Don’t wait to buy land,

Buy land and wait.”
-Will Rogers

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