INTERMEDIATE ACCOUNTING

PRELECTURE QUIZ: DEPRECIATION, DEPLETION, REVALUATION, & IMPAIRMENT ODM

1. Which of the following uses the straight line method of depreciation?
a. Group method b. Composite method c. Double declining balance d. Both “a” and “b”
2. On January 1, 2013 FIGHTING Company purchased equipment for use in developing a new product. FIGHTING uses the straight line
depreciation. The equipment could provide benefits over a 10-year period, however, the new product development is expected to take
five years and the equipment can be used only for this project. FIGHTING’s 2013 expense equals
a. Total cost of the equipment c. One-fifth of the cost of the equipment
b. Zero d. One-tenth of the cost of the equipment
3. The straight line depreciation is not appropriate for
a. A company that is neither expanding nor contracting its investment in equipment because it is replacing equipment as the
equipment depreciates
b. Equipment on which repairs and maintenance increase substantially with age
c. Equipment with useful life that is not affected by the amount of use
d. Equipment used consistently every period
4. Which of the following statements regarding depreciation is true, according to IAS 16 – Property, Plant and Equipment?
a. An asset must be depreciated from the date of its purchase to the date of sale
b. The annual depreciation charge should 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
5. Depletion expense
a. Is usually part of cost of goods sold c. Includes tangible equipment cost in the depletable cost
b. Excludes restoration cost from the depletable cost d. Excludes intangible development cost from the depletable cost
6. 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 b. Fair value less costs to sell c. Salvage value d. Depreciable value
7. An entity is required to begin depreciating an item of property, plant and equipment when
a. It is available for use and to continue depreciating it until it is derecognized, even if during that period the item is idle
b. It is available for use and to continue depreciating it until it is derecognized, unless during that period the item is idle
c. It is used and to continue depreciating it until it is derecognized, even if during that period the item is idle
d. It is used and to continue depreciating it until it is derecognized, unless during that period the item is idle
8. Which of the following is/are not false? Useful life is;
I. The period over which an asset is expected to be available for use by an entity
II. The number of production or similar units expected to be obtained from the asset by an entity
a. Both “I” and “II” b. I only c. II only d. Neither “I” nor “II”
9. On January 1, 2008, LABANLANG Company purchased equipment at a cost of ₱6,000,000. Depreciation was computed on the straight line
basis at 4% per year. On January 1, 2013, the building was revalued at a fair value of ₱8,000,000. The income tax rate is 30%. What is the
revaluation surplus on December 31, 2014?
a. ₱2,128,000 b. ₱2,240,000 c. ₱2,880,000 d. ₱2,016,000
10. In January 2013, GIVEYOURBEST Company purchased a mineral mine for ₱3,400,000 with removable ore estimated at 2,000,000 tons.
The property has an estimated value of ₱200,000 after the ore has been extracted. The entity incurred ₱1,000,000 of development cost
preparing the mine for production. During 2013, 500,000 tons were removed and 400,000 tons were sold. What is the amount of
depletion that should be expensed in 2013?
a. ₱640,000 b. ₱880,000 c. ₱840,000 d. ₱1,050,000
11. TIWALALANG Company reported an impairment loss of ₱1,600,000 in 2012. This loss was related to an item of property, plant and
equipment which was acquired on January 1, 2011 with cost of ₱10,000,000, useful life of 10 years and no residual value. On December
31, 2012, the entity reported this asset at its fair value on such date. On December 31, 2013, the entity determined that the fair value of
the impaired asset had increased to ₱7,200,000. The straight line method is used. What amount of gain on reversal of impairment should
be reported in 2013?
a. ₱1,600,000 b. ₱1,400,000 c. ₱600,000 d. ₱0
12. On January 1, 2013 WITHACTION Company bought machinery under a contract that required a down payment of ₱100,000, plus 24
monthly payments of ₱50,000 each, for the total cash payments of ₱1,300,000. The cash price of the machinery was ₱1,100,000. The
machinery has a useful life of 10 years and residual value of ₱50,000. WITHACTION uses straight line depreciation. What amount should
WITHACTION report as depreciation for 2013?
a. ₱105,000 b. ₱110,000 c. ₱125,000 d. ₱130,000
13. On July 1, 2008, NOEXCUSES Co., a calendar year company, purchased the rights to mine. The total purchase price was ₱13,200,000, of
which ₱400,000 was allocable to the land. Estimated reserves were ₱1,600,000 tons. NOEXCUSES expects to extract and sell 25,000 tons
per month. NOEXCUSES purchased new equipment on July 1, 2008. The equipment cost ₱6,600,000 and had a useful life of 8 years.
However, after all the resource is removed, the equipment will be of no use and will be sold for ₱200,000. What is the amount of
depreciation for 2008?
a. ₱400,000 b. ₱800,000 c. ₱600,000 d. ₱300,000
14. DOIT Co. purchased equipment on January 2, 2006 for ₱50,000. The equipment had an estimated 5-year service life. DOIT’s policy for
five-year assets is to use the 200% declining depreciation method for the first two years of the asset’s life, and then switch to the straight
line depreciation method. In its December 31, 2008 balance sheet, what amount should DOIT report as accumulated depreciation for
equipment? (2 points)
a. ₱30,000 b. ₱38,000 c. ₱39,200 d. ₱42,000
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-Anonymous
INTERMACC: PRELEC – DEPN, DEPLN, REVLN, & IMPRMNT Page 1 of 1