PHINMA Examination

ACC 107 Intermediate Accounting 2

1. Which of the following inventories carried by a manufacturer is similar to the merchandise

inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
ANS: C

2. Walsh Retailers purchased merchandise with a list price of P50,000, subject to trade discounts
of 20% and 10%, with no cash discounts allowable. Walsh should record the cost of this
merchandise as
a. P35,000.
b. P36,000.
c. P39,000.
d. P50,000.
ANS: B

3. On June 1, 2020, Penny Corp. sold merchandise with a list price of P20,000 to Linn on account.
Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was
made f.o.b. shipping point. Penny prepaid P400 of delivery costs for Linn as an accommodation.
On June 12, 2020, Penny received from Ison a remittance in full payment amounting to
a. P10,976.
b. P11,368.
c. P11,376.
d. P11,196.
ANS: C

4. Dannah Co. has incurred the following costs in connection with its purchase of inventory:

Purchase price based on vendor’s invoices 1,250,000

Trade discounts on purchases already deducted from vendor’s invoices 125,000
Salaries of accounting department 150,000
Brokerage commission paid to agents for arranging imports 50,000
Sales commission paid to sales agents 75,000
After-salary warranty costs 62,500
Import duties 100,000
Freight and insurance on purchases 250,000
Other handling costs relating to imports 25,000

What is the total cost of the purchases?

a. P1,425,000
b. P1,550,000

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c. P1,675,000
d. P1,625,000
ANS: C

5. Goods in transit which are shipped f.o.b. shipping point should be

a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
ANS: B

6. The balance in Moon Co.'s accounts payable account at December 31, 2020 was P700,000
before any necessary year-end adjustments relating to the following:
 Goods were in transit to Moon from a vendor on December 31, 2020. The invoice cost was
P40,000. The goods were shipped f.o.b. shipping point on December 29, 2020 and were
received on January 4, 2021.
 Goods shipped f.o.b. destination on December 21, 2020 from a vendor to Moon were received
on January 6, 2021. The invoice cost was P25,000.
 On December 27, 2020, Moon wrote and recorded checks to creditors totaling P30,000 that
were mailed on January 10, 2021.
In Moon's December 31, 2020 statement of financial position, the accounts payable should be
a. P730,000.
b. P740,000.
c. P765,000.
d. P770,000.
ANS: D

Use the following information for the next two questions:

During 2020 Carne Corporation transferred inventory to Nolan Corporation and agreed to
repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow
from Norwalk Bank, remitting the proceeds to Carne. In 2021 when Carne repurchased the
inventory, Nolan used the proceeds to repay its bank loan.

7. This transaction is known as a(n)

a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
ANS: D

8. On whose books should the cost of the inventory appear at the December 31, 2020 statement of
financial position date?
a. Carne Corporation
b. Nolan Corporation

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c. Norwalk Bank
d. Nolan Corporation, with Carne making appropriate note disclosure of the transaction
ANS: A

9. Net realizable value is

a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
ANS: D

Use the following information for the next two questions

The Jurly Corporation uses the lower-of-cost-or-net realizable method to value inventory. Data
regarding the items in work-in-process inventory are presented below:
Markers Pens
Historical Cost P 120,000 P 94,400
Selling price 180,000 180,000
Estimated Cost to complete 24,000 24,000
Replacement Cost 104,000 84,000
Normal profit margin as a percentage of selling price 25% 25%

10. The lower lower-of-cost-or-net realizable for the markers is

a. P104,000
b. P117,000
c. P120,000
d. P156,000
ANS: C

11. The lower lower-of-cost-or-net realizable for the pens is

a. P111,000
b. P156,000
c. P84,000
d. P94,400
ANS: D

12. When using the periodic inventory system, which of the following generally would not be
separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the period
ANS: A

13. Malone Corporation uses the perpetual inventory method. On March 1, it purchased P30,000
of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost P3,000. On March 9,
Malone paid the supplier. On March 9, Malone should credit

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a. purchase discounts for P600.
b. inventory for P600.
c. purchase discounts for P540.
d. inventory for P540.
ANS: D

14. Presented below is information pertaining to ABC Co.:

Cost Retail
Inventory, January 1 21,750 35,000
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase discounts 1,250 -
Purchase returns 13,000 21,500
Departmental Transfers-In (Debit) 2,500 3,750
Departmental Transfers-Out (Credit) 2,000 3,000
Markups 15,000
Markup cancellations 5,000
Markdowns 30,000
Markdown cancellations 7,500
Abnormal spoilage (theft and casualty loss) 12,500 17,500
Sales 109,500
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
Normal spoilage (shrinkage and breakages) 500

How much is the ending inventory under the Average cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400
ANS: B

15. Transactions for the month of June were:

Purchases Sales
June 1 (balance) 800 @ P3.20 June 2 600 @ P5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

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Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO
basis is
a. P4,110.
b. P4,160.
c. P4,290.
d. P4,470.
ANS: D

16. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:

Inventory, Jan. 1 10,000

Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000
Freight-in 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%

Additional information:
Goods in transit as of October 1, 20x1 amounted to ₱1,000, cost of goods out on consignment is
₱1,200, and materials damaged by flood can be sold at a salvage value of ₱1,800. How much is
the inventory loss due to the flood?
a. 3,000
b. 2,500
c. 4,400
d. 4,900
ANS: A

17. Which of the following would be classified as agricultural produce?

a. Lumber
b. Bush
c. Butter
d. Apple
ANS: D

18. Which of the following would be classified as a product that is the result of processing after
harvest?
a. Cotton
b. Wool
c. Bananas
d. Cheese
ANS: D

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19. Generally speaking, biological assets relating to agricultural activity shall be measured using
a. Historical cost
b. Historical cost less depreciation less impairment
c. A fair value approach
d. Net realizable value
ANS: C

20. A herd of 5 four year old animals was held on January 1, 2017. On July 1, 2017 a 4 ½ year old
animal was purchased. The fair values less costs to sell were as follows:

4 year old animal at January 1, 2017 P200

4 ½ year old animal at July 1, 2017 P212
5 year old animal at December 31, 2017 P230

How much is the gain to be recognize from the change in fair value less costs to sell in 2017?
a. 168
b. 172
c. 184
d. None of these
ANS: A

21. The following information pertains to Madagascar Co.

Sheep 500,000 Wool 6,000
Rubber products 10,000 Thread 3,000
Trees in a timber plantation 95,000 Felled trees 8,000
Maize plants 40,000 Clothing 150,000
Lumber 62,000 Milk 9,000
Pigs 200,000 Carcass 7,000
Roasted peanuts 20,000 Sugar 67,000
Cotton plants 10,000 Harvested cotton 13,000
Peanut plants 5,000 Harvested peanuts 140,000
Sugarcane 25,000 Harvested cane 22,000
Tobacco plants 45,000 Picked leaves 3,000
Tea bushes 800,000 Oil palms 300,000
Dairy cattle 1,000,000 Picked grapes 2,000
Fruit trees 600,000 Picked fruit 10,000
Tea 43,000 Grape vines 2,000,000
Rubber trees 300,000 Harvested latex 10,000
Yarn 22,000 Cured tobacco 320,000
Carpet 33,000 Wine 500,000
Logs 45,000 Processed fruit 20,000
Wheat plants 60,000 Palm oil 50,000

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 Cheese 75,000 Bean plants 20,000
Sausages 88,000 Cured hams 92,000

How much is classified as biological assets that are accounted for under PAS 41 Agriculture?
a. 2,660,000 b. 2,000,000 c. 6,000,000 d. 2,250,000
ANS: B

22. This is defined as “assistance by government in the form of transfer of resources to an entity
in return for past or future compliance with certain conditions relating to the operating activities
of the entity”.
a. Government grant
b. Government assistance
c. Government donation
d. Government aid
ANS: A

23. Which of the following is included in government assistance?

a. The construction of infrastructure in developing areas
b. The imposition of trading constraints on competitors
c. Improvement to the general transport and communication network
d. None of these can be included in government assistance.
ANS: D

24. In case of grant related to an asset, which of the following accounting treatment is prescribed?
a. Record the grant at a nominal value in the first year and write off in the subsequent year.
b. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
asset.
c. Record the grant at fair value in the first year and take it to income in the subsequent year.
d. Take it to the income statement and disclose it as an extraordinary gain.
ANS: B

25. The Pala Company purchase a varnishing machine for P150,000 on January 1, 2017. The
company received a government grant of P13,500 in respect of this assets. Company policy was
to depreciate the asset over 4 years on a straight-line basis and to treat the grant as deferred income.
Under PAS 20, what should be the carrying amount of the machine and the deferred income
balance a December 31, 2018, respectively?
a. P75,000; P6,750
b. P112,500: P10,125
c. P81,750; P6,750
d. P75,000; P13,500
ANS: A

26. The Person Company purchased a jewel polishing machine for P360,000 on January 1, 2017
and received a government grant of P50,000 towards the capital cost. Company policy is to treat
the grant as a reduction in the cost of the asset. The machine was to be depreciated on a straight-
line basis over 8 years and was estimated to have a residual value of P5,000 at the end of this

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period. Under PAS 20, what should be the depreciation expense in respect of the machine for the
year ended December 31, 2017?
a. P38,750
b. P76,250
c. P44,375
d. P38,125
ANS: D

27. Which of the following statements is true concerning acquisition of an item of property, plant
and equipment by self-construction?
a. The self-constructed asset is determined using the same principles for an acquired asset.
b. An internal profit is eliminated in arriving the cost of self-constructed asset.
c. The cost of abnormal amount of wasted material is not included in the cost of the asset.
d. All of the statements are true.
ANS: D

28. The cost of an item of property, plant and equipment that is acquired in exchange for
combination of monetary and nonmonetary asset is measured at the
a. Fair value of the asset given plus cash payment
b. Fair value of the asset received plus cash payment
c. Carrying amount of the asset given up plus cash payment
d. Carrying amount of the asset received plus the cash payment
ANS: A

29. Major spare parts and standby equipment which are expected to be used over a period of more
than one year shall be classified as
a. Property, plant and equipment
b. Inventory
c. Noncurrent investment
d. Expense
ANS: A

30. In an exchange of PPE with commercial substance

a. Gain or loss is recognized entirely
b. A gain or loss is computed by comparing the fair value of the asset received with the fair value
of the assets given up
c. Only gain should be recognized
d. Only loss should be recognized
ANS: A

31. Bernie Company made the following expenditures relating to its plant assets during 2018:

Partial Replacement P42,000

Major improvement to the electrical wiring system 196,000
Continuing and frequent repair 120,000

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As a result of the improvement to the electrical wiring system future economic benefit will flow
to the enterprise. How much should be changed to repairs and maintenance expense?
a. P120,000
b. P138,000
c. P162,000
d. P258,000
ANS: C

32. On January 2, 2018, Protein Company purchased a transportation equipment costing

P2,400,000. The new asset has an estimated useful life of 8 years with no salvage value. Protein
Company depreciates this type of asset using the straight-line method. On January 2, 2020, Protein
determined that the machine had a useful life of 6 years from the date of acquisition with no salvage
value. As a result of the change in the estimated useful life of the asset, what is the carrying value
of the transportation equipment as of December 31, 2020?
a. P1,200,000
b. P1,350,000
c. P1,500,000
d. P1,800,000
ANS: B

33. Which of the following principles best describes the conceptual rationale for the methods of
matching depreciation expense with revenues?
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
ANS: B

34. Lennon Company purchased a depreciable asset for P200,000. The estimated salvage value is
P10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100 hours in
the current year. The activity method will be used for depreciation. What is the depreciation
expense on this asset?
a. P19,000
b. P20,900
c. P22,000
d. P190,000
ANS: B

35. A plant asset has a cost of P24,000 and a salvage value of P6,000. The asset has a three-year
life. If depreciation in the third year amounted to P3,000, which depreciation method was used?
a. Straight-line
b. Declining-balance
c. Sum-of-the-years'-digits
d. Cannot tell from information given
ANS: C

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36. On December 31, 2016, Aethan C. revalued its machinery with a cost of P8,000,000,
accumulated depreciation of P2,000,000, and an estimated useful life of 20 years has been
estimated to have a replacement cost of P15,000,000. On January 2, 2019, the machinery was sold
at net proceeds of P10,000,000. What is the revaluation surplus on December 31, 2016?
a. P1,750,000
b. P3,750,000
c. P5,250,000
d. P7,000,000
ANS: C

37. ON January 1, 2016, Jan Co. revalued it machinery with a cost of P12,000,000, acquired 4
years ago with an estimated useful life of 20 years and has been estimated to have a replacement
cost of P14,000,000. The machinery is estimated to have a remaining useful life of 25 years as of
January 1, 2016. On January 2, 2018, the machinery was sold at net proceeds of P10,000,000. How
much is the depreciation expense in 2016?
a. P400,000
b. P448,000
c. P480,000
d. P560,000
ANS: B

38. Entities are encouraged to disclose all of the following in relation to property, plant and
equipment, except:
a. The carrying amount of temporarily idle property, plant and equipment
b. The gross carrying amount of fully depreciated property, plant and equipment still in use.
c. The carrying amount of property, plant and equipment classified as held for sale.
d. The fair value of property, plant and equipment that is not materially different from carrying
amount when the cost model is used.
ANS: D

39. Vik Auto and King Clothier exchanged goods, held for resale, with equal fair value. The retail
price of that car that Vik gave up is less than the retail price of the clothes received. What profit
should Vik recognize for the nonmonetary exchange?
a. A profit is not recognized
b. A profit equal to the difference between the retail price of the clothes received and the car.
c. A profit equal to the difference between the retail price and the cost of the car.
d. A profit equal to the difference between the fair value and the carrying amount of the car.
ANS: D

40. Depletion expense

a. is usually part of cost of goods sold.
b. includes tangible equipment costs in the depletion base.
c. excludes intangible development costs from the depletion base.
d. excludes restoration costs from the depletion base.
ANS: A

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41. In January 2017, Jenn Mining Corporation purchased a mineral mine for P4,200,000 with
removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated
value of P400,000 after the ore has been extracted. Jenn incurred P1,150,000 of development costs
preparing the property for the extraction of ore. During 2017, 340,000 tons were removed and
300,000 tons were sold. For the year ended December 31, 2017, Jenn should include what amount
of depletion in its cost of goods sold?
a. P516,800
b. P456,000
c. P594,000
d. P673,200
ANS: C

42. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is
equal to
a. Actual borrowing cost incurred
b. Actual borrowing cost incurred up to completion of asset
c. Actual borrowing cost incurred up to completion of asset minus any investment income from
the temporary investment of the borrowing.
d. Zero
ANS: C

43. Faith, Inc. has a fiscal year ending April 30. On 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 interest on Faith’s financial statements at April
30, 2019?
a. None
b. P50,000
c. P450,000
d. 1,100,000
ANS: C

Use the following information for the next two questions:

On January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was
used to finance the construction of a qualifying asset:
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000

Expenditures made on the qualifying asset were as follows:

Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
December 1 2,000,000

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Construction was completed on December 31, 20x1.

44. How much borrowing costs are capitalized to the cost of the constructed qualifying asset?
a. 1,045,000 c. 1,026,667
b. 971,111 d. 920,000
ANS: D

45. How much is the cost of the qualifying asset on initial recognition?
a. 13,010,000 c. 14,920,000
b. 15,045,000 d. 14,971,111
ANS: C

46. During 2016, Belardo Corporation constructed and manufactured certain assets, and incurred
the following interest costs in connection with those activities:

Interest costs incurred on warehouse constructed for Belardo’s own use 20,000
Special-order machine for sale to unrelated customer 9,000
Inventories routinely manufactured, produced on a repetitive basis 7,000

All of these assets required an extended period of time for completion. Assuming the effect of
interest capitalization is material, what is the total amount of interest cost to be capitalized>
a. 0
b. 20,000
c. 29,000
d. 36,000
ANS: C

47. In which of the following instances is the capitalization of borrowing costs under PAS 23
would most likely be suspended?
a. Construction is temporarily stopped for the curing of concrete.
b. Active development is stopped to give time for the engineers to reevaluate a design flaw.
c. The construction of a bridge is disrupted by troubled waters.
d. The construction of a building is discontinued because it is condemned by the government. The
resumption of development is uncertain.
ANS: D

48. Expenditures on a qualifying asset include only those that have resulted in the following,
except:
a. Payments of cash
b. Transfers of other assets
c. Purchases on account
d. The assumption of interest-bearing liabilities
ANS: C

49. Which of the following would not be reported as investment property?

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a. Property owned by the entity and leased out under one or more operating leases.
b. Property held by the entity to be leased out under one or more operating leases
c. Real estate held for an undetermined future use.
d. Property owned by the entity and leased out to another entity under a finance lease.
ANS: D

50. A property is classified as investment property if

a. it is leased out under a finance lease.
b. the owner-occupied portion of the property is significant.
c. the entity provides relatively insignificant ancillary services (e.g., security, janitorial services,
and the like) to the occupants of the property.
d. it is rented between a parent entity and a subsidiary and consolidated financial statement are
prepared for the group.
ANS: C

51. On January 1, 2016, Rachel Company leased a building from Gold Company for the purpose
of letting out to tenants. The lease is properly classified as finance lease under PAS 17. The fair
value of the building on January 1 and December 31 is P3.5 million and P4 Million, respectively.
The present value of the minimum lease payment computed based on the implicit interest rate of
12% is P3.2 million. What amount should be the amount to be recorded by Rachel Company on
January 1, 2016 as investment property?
a. P4 Million
b. P3.2 Million
c. P3.5 Million
d. P3 Million
ANS: B

Use the following information for the next three questions:

Blatche Company completed the construction of a shopping mall at the end of 2014 for a
total cost of P200 million. The mall has an estimated economic life of 25 years. The mall was
constructed for the purpose of earning rentals by letting out space in the shopping mall to tenants.
An independent valuation expert was used by the company to fair value the shopping mall at the
end of 2015 and 2016 were P240 million and P230 million, respectively.

52. If Blatche Company opted to use the cost model to measure the shopping mall, how much
should be recognized in profit or loss in 2016 as a result of the fair value changes?
a. P46,000,000
b. P10,000,000
c. P30,000,000
d. P0
ANS: D

53. If Blatche Company opted to use the cost model to measure the shopping mall, how much is
the carrying amount of the shopping mall to be reported in its statement of financial position as of
December 31, 2016?
a. P23 M

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b. P192 M
c. P200 M
d. P184 M
ANS: D

54. If Blatche Company opted to use the fair value model to measure the shopping mall, how much
is the carrying amount of the shopping mall to be reported in its statement of financial position as
of December 31, 2016?
a. P23 M
b. P192 M
c. P200 M
d. P184 M
ANS: A

55. Which of the following statement is incorrect in determining the fair value of an investment
property?
a. An entity shall determine the fair value of investment property by deducting transaction cost
that may be incurred upon disposal.
b. The fair value of investment property shall reflect market conditions at the end of the reporting
period.
c. If an office is leased on a furnished basis, the fair value of the office generally includes fair value
of the furniture because the rental income relate to the furnished office.
d. The fair value of investment property excludes prepaid or accrued operating lease income.
ANS: A

56. On December 31, 20x1, DECAPITATE BEHEAD Co. decided to lease out under operating
lease one of its buildings that was previously used as office space. The building has an original
cost of ₱12,000,000 and accumulated depreciation of ₱8,000,000 as of January 1, 20x1. Annual
depreciation is ₱400,000. DECAPITATE Co. uses the fair value model for investment property.
The fair value of the building on December 31, 20x1 is ₱6,000,000. The entry to record the transfer
of the building to investment property includes a
a. credit to gain on reclassification for ₱2,000,000.
b. credit to revaluation surplus for ₱2,000,000.
c. debit to building for ₱12,000,000.
d. credit to revaluation surplus for ₱2,400,000.
ANS: D

57. Costs incurred internally to create intangibles are

a. capitalized.
b. capitalized if they have an indefinite life.
c. expensed as incurred.
d. expensed only if they have a limited life.
ANS: C

58. How should research and development costs be accounted for?

a.Must be capitalized when incurred and then amortized over their estimated useful lives.

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b.Must be expensed in the period incurred.
c.May be either capitalized or expensed when incurred, depending upon the materiality of the
amounts involved.
d.Must be expensed in the period incurred unless it can be clearly demonstrated that the
expenditure will have alternative future uses or unless contractually reimbursable.
ANS: D

59. Which of the following methods of amortization is normally used for intangible assets?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance
ANS: B

60. Maris Corporation acquired a patent on May 1, 2018. Maris paid cash of P25,000 to the seller.
Legal fees of P1,000 were paid related to the acquisition. What amount should be debited to the
patent account?
a. P1,000
b. P24,000
c. P25,000
d. P26,000
ANS: D

61. Lopez Corp. incurred P420,000 of research and development costs to develop a product for
which a patent was granted on January 2, 2022. Legal fees and other costs associated with
registration of the patent totaled P80,000. On March 31, 2017, Lopez paid P120,000 for legal fees
in a successful defense of the patent. The total amount capitalized for the patent through March
31, 2017 should be
a. P200,000.
b. P500,000.
c. P540,000.
d. P620,000.
ANS: A

62. Riley Co. incurred the following costs during 2017:

Modification to the formulation of a chemical product P160,000
Trouble-shooting in connection with breakdowns during commercial
production 150,000
Costs of marketing research for new product 200,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
In its income statement for the year ended December 31, 2017, Riley should report research and
development expense of
a. P575,000.
b. P725,000.
c. P415,000.

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d. P335,000.
ANS: A

63. A company acquires a patent for a drug with a remaining legal and useful life of six years on
January 1, 2015 for P1,200,000. The company uses straight-line amortization for patents. On
January 2, 2017, a new patent is received for a timed-release version of the same drug. The new
patent has a legal and useful life of twenty years. The least amount of amortization that could be
recorded in 2017 is
a. P200,000.
b. P40,000.
c. P54,545.
d. P60,000.
ANS: B

64. What is the impairment of an asset?

a. A fall in the market value of an asset so that the recoverable amount is less than carrying amount.
b. A decline in value of an asset so that the recoverable amount is more than carrying amount.
c. An allocation of cost over the useful life of an asset.
d. A change in the estimated useful life of an asset.
ANS: A

65. Marcus Company operates an oil platform in the sea. Marcus Company has provided the
amount of P10,000,000 for the financial costs of the restoration of the seabed, which is the present
value of such costs. Marcus Company has received an offer to buy the oil platform for P16,000,000
and the disposal costs would be P2,000,000. The value-in-use of the oil platform is approximately
P24,000,000 before the restoration costs. The carrying value of the oil platform is P20,000,000.
What amount of impairment loss should Marcus recognize related to the oil platform?
a. None
b. P4,000,000
c. P6,000,000
d. P8,000,000
ANS: A

Use the following information for the next two questions:

Coward Company purchased a building on January 1, 2020 for a total of P10,000,000. The building
has been depreciated using the straight-line method with a 25-year useful life and no residual value.
As of January 1, 2024, Coward is evaluating the building for possible impairment. The building
has a remaining useful life of 15 years and is expected to generate cash inflows of P450,000 per
year. The estimated recoverable amount of the building on January 1, 2024 is P5,310,000.

66. How much if the impairment loss that should be recognized on January 1, 2024?
a. None
b. P2,100,000
c. P3,090,000
d. P5,200,000

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ANS: C

67. What is the amount of depreciation to be recognized in year 2024?

a. P340,000
b. P354,000
c. P400,000
d. P560,000
ANS: B

68. Factor Company’s cash generating unit has been assessed for impairment and it has been
determined that the unit has incurred an impairment loss of P240,000. The carrying amounts of
the assets were as follows:

Building P6,000,000
Equipment 2,000,000
Land 3,500,000
Fittings 2,500,000

The cash generating unit has not recorded any amount of goodwill. What amount of impairment
loss should be allocated to the building?
a. P50,000
b. P62,500
c. P87,500
d. P102,857
ANS: D

69. Which of the following statements is true concerning reversal of an impairment loss?
I. The increased carrying amount of the asset due to a reversal of an impairment loss shall not
exceed the carrying amount that would not have been determined had no impairment loss been
recognized in the prior years.
II. An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANS: C

70. On January 1, 2017, an entity purchased equipment with cost of P10,000,000, useful life of 10
years and no residual value. The entity used straight line depreciation. On December 31, 2017 and
December 31, 2018, the entity determined that impairment indicators are present. There is no
change in useful or residual value.
December 31, 2017 December 31, 2018
Fair Value Less cost of disposal P8,100,000 P8,300,000
Value in use 8,550,000 8,200,000

Which of the following is included in preparing the entry on December 31, 2018?

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a. Debit to Impairment loss for the amount of P250,000.
b. Debit to Revaluation Surplus for the amount of P700,000.
c. Credit to Gain on Reversal for the amount of P400,000.
d. Debit to Depreciation expense for the amount of P1,000,000.
ANS: C

NOTHING FOLLOWS

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