AGNPO Midterm Reviewer PDF

CHAPTER 7 10. This document is prepared when end users request for PROBLEM 7-2 (MC) the issuance of inventories that are available on stock. 1. Entity A, a government entity, purchases inventories....

CHAPTER 7 10. This document is prepared when end users request for PROBLEM 7-2 (MC) the issuance of inventories that are available on stock. 1. Entity A, a government entity, purchases inventories. To a. Purchase Requisition Form record a purchase, Entity A would likely debit the (an). b. Custodian Inventory Slip a. Inventory account b. Purchases Account c. Purchase Order c. Expense Account d. a or b d. Requisition and Issue Slip 2. Entity A, a government hospital, acquires medicines to PROBLEM 7-3 (MC) be sold in its pharmacy. Entity A would record the 1. Entity A, a government entity, purchases inventory to be medicines acquired as held for sale in the ordinary course of activities. Which of a. Semi-Expendable Property the following is the correct entry, to record the purchase? b. Inventory Held for Consumption a. Merchandise Inventory xxx Account Payable xxx c. Inventory Held for Distribution b. Purchase xxx Accounts Payable xxx d. Inventory Held for Sale c. a or b depending on the accounting policy being used d. none, a government entity cannot hold inventories for 3. Entity A, a government entity, purchases relief goods sale; only for consumption. which are to be held on standby, ready to be distributed when a calamity strikes. Entity A would most likely classify 2. Entity A, a government entity, distributed welfare goods the goods purchased as to the intended recipients. The entry to recognize the event a. Inventory Held for Consumption is b. Inventory Held for Distribution a. Cost of sales xxx Welfare Goods for Distribution xxx c. Purchases b. Welfare Goods Expense xxx Welfare Goods for d. None of these, only a note disclosure shall be made Distribution xxx c. Distribution costs xxx Welfare Goods for Distribution 4. According to the GAM for NGAs, this shall be used for xxx large numbers of items of inventory that are ordinarily d. None. The expense is recognized at the end of the period interchangeable. when a physical count is performed. The expense is closed a. Specific identification to the Income Summary account. b. FIFO c. Weighted average cost applied in a period inventory 3. At year-end, Entity A, a government entity, determines system the following information:  Carrying amount of goods held d. Weighted average cost applied in a perpetual for distribution — P100,000.  Net realizable value — inventory system P80,000.  Current replacement cost — P90,000. How e. Any of these as a matter of accounting policy choice much of the carrying amount of the inventory is recognized as expense? 5. This refers to the cost an entity would incur to acquire an a. 10,000 b. 20,000 asset on the reporting date. c. 90,000 d. None of these a. Net realizable value b. Fair value c. Current replacement cost d. Present value 6. Which of the following inventories of a government entity would be subsequently measured at the lower of cost and current replacement cost? a. Inventories of rice that are held for sale 4. How much is ending inventory? b. Medicines being sold by a government-owned pharmacy a. 116,382 b. 117,300 c. Books to be distributed to students in public schools c. 116,495 d. Any of these. d. Forest products held for sale 5. How much is the cost of sale? 7. Which of the following events or transactions would not a. 207,805 b. 207,918 (56,862+151,056) lead to the recognition of the cost of inventory as expense? c. 207,000 d. Any of these. a. The inventory is written down. b. The inventory is distributed for free. c. The inventory is exchanged for dissimilar inventory. d. The inventory is consumed in the manufacturing process. 8. The accounting division of a government entity uses this PROBLEM 7-4 (FCD) record and monitor the movements and balances 1. Entity A, a government entity, purchases furniture and inventories. fixtures amounting to P14,000. Entity A would most likely a. Stock Card b. Stock Ledger Card record the purchase as c. Journal Entry d. Special Journal a. Property, Plant and Equipment b. Inventory Held for Consumption 9. Which of the following statements correctly differentiates c. Inventory Held for Manufacturing the Stock Card from the Stock Ledger Card? d. Semi-Expendable Property a. The Stock Ledger Card is maintained by the Budget Division while the Stock Card is maintained by the 2. Accountable forms such as pre-printed forms used in Accounting Division. government transactions are most likely to be classified by b. The Stock Card is subject to audit by the COA while the a government entity as Stock Ledger Card is not. a. Inventory Held for Consumption c. The Stock Card shows quantities only while the Stock b. Inventory Held for Sale Ledger Card shows monetary balances only. c. Semi-Expendable Property d. The stock Card shows quantities only while the d. Not considered inventory, according to the GAM for Stock Ledger Card shows quantities as well as NGAs monetary amounts. 3. Inventories are initially measured at cost and subsequently measured at 3. Which of the following is an agricultural produce? a. The Lower of Cost and Net realizable value for good s a. carabao b. harvested palay held for sale c. extra rice d. powdered milk b. The Lower of Cost and Current replacement cost for goods held for distribution. 4. According to the GAM for NGAs, biological assets are c. a and b measured as follows: d. cost Initial measurement Subsequent measurement a. fair value less costs to sell fair value less cost to sell 4. Which of the following cost formulas is not available for b. cost cost less accumulated depreciation use by government entities? c. cost cost less accumulated depreciation and impairment a. Specific identification b. FIFO losses c. Weighted Average d. All of these are available d. fair value less costs to sell cost 5. The GAM for NGAs requires the use of which of the 5. Which of the following are not considered costs to sell? following inventory systems? a. commissions to brokers a. Perpetual inventory system b. levies by regulatory agencies and commodity exchanges b. Periodic inventory system c. transfer taxes and duties c. a or b d. transport costs d. none of these 6. According to the GAM for NGAs, if there is no active 6. Government entities record purchases of inventories market for a biological asset a. in an inventory account a. the entity shall measure the biological asset at cost less b. in the Purchases account accumulated depreciation c. a orb b. the entity shall measure the biological asset at cost less d. as expenses accumulated depreciation and accumulated impairment losses 7. Which of the following may be included as cost of c. the entity shall use a contract price in determining the fair inventory? value a. freight-in under a freight collect, FOB destination sale d. the entity shall estimate the market price using the term guidance set forth in the GAM for NGAs b. trade discounts c. cost of insurance while the goods are in transit 7. Agricultural produce after the point of harvest is d. advertisement cost that resulted to the resale of inventory accounted for as purchased a. inventory b. PPE c. prepaid assets d. investment property 8. Arrange the following in the sequence they are used in the requisition and receipt of inventories by a government 8. The carrying amount of a group of biological assets of entity Entity A is P100,000 before any year-end adjustment. If the I. Inspection and Acceptance Report (IAR) year-end fair value is P120,000 while the year-end estimate II. Disbursement Voucher (DV) of costs to sell is P5,000, which of the follow ing statements III. Purchase Request (PR) is correct? IV. Journal entry a. Entity A will recognize a gain of P15,000 in surplus V. Purchase Order (PO). or deficit. VI. Stock Card (SC) b. Entity A will recognize a gain of P15,000 directly in equity. a. III, V, I, VI, IV and II c. Entity A will recognize a gain of P10,000 in surplus or b. III, V, I, IV, VI and II deficit. c. III, V, I, II, VI and IV d. Entity A will recognize a gain of P25,000 in surplus or d. V, III, I, II, VI and IV deficit. 9. This is maintained in the Property/Supply Division to 9. Which of the following need not be disclosed in relation record the movements of inventories. to the accounting for biological assets? a. Stock Card (SC) a. consumable and bearer biological assets b. Property/Supply Card (PSC) b. mature and immature biological assets c. Supplies Ledger Card (SLC) c. the amount of change in fair value less costs to sell due to d. Magic Card (MC) physical changes and due to price changes d. the gain or loss on initial recognition of agricultural 10. This is used to report wasted materials, such as produce separately from that of biological assets destroyed spare parts and other spoilages. a. Wasted Stocks Card (WSC) 10. Entity A is determining the measurement of its b. Waste Materials Report biological assets at the end of the period. Entity A’s c. Report on the Physical Count of Inventories biological assets consist of trees in a plantation forest. There d. Inventory Custodian Slip is no separate active market for these trees. However, Entity A was able to gather the following information: CHAPTER 8  FVLCS of land, land improvements and trees as a PROBLEM 8-2 (MC) package, P10M 1. According to the GAM for NGAs, a biological asset is  FVLCS of land, P8M a. an animal or plant b. an asset used in farming  FVLCS of land improvements, P500,000 c. a living animal or plant d. a harvested product How much is the valuation of the trees in Entity A’s year- end statement of financial position? 2. The common features of agricultural activities include all a. P10,000,000 b. P2,000,000 of the following, except: c. P1,500,000 d. P1,000,000 a. capability to change b. management of change c. measurement of change d. wind of change PROBLEM 8-3 (FCD) 1. Living animals and plants are accounted for as biological b. On October 1, 20x1, one biological asset is born. The assets FVLCS of a newborn on this date is P500. a. only if they are harvested for sale. The FVLCS on December 31, 20x1 are as follows: b. only if they relate to agricultural activity. c. in all cases. d. all of these. 2. The essential element of an agricultural activity is a. the management of the biological transformation of biological assets. b. the assets are alive. c. it involves harvesting activity. 9. How much is change in FVLCS due to price change? d. the conversion of raw materials into finished goods. a. 400 b. 800 c. 1,800 d. 2,400 3. Which of the following is a biological asset? a. land used in farming b. picked fruits c. fruit cocktail d. trees in a plantation forest 4. Which of the following statements is correct regarding 10. How much is change in FVLCS due to physical change? the measurement of assets related to agricultural activities? a. 600 b. 800 a. Biological assets are initially and subsequently measured c. 1,600 d. 1,800 at fair value. b. No gain or loss shall be recognized on the initial recognition of a biological asset. c. Agricultural produce is initially and subsequently measured at fair value less costs to sell. d. The gain or loss arising from the initial CHAPTER 9 measurement of biological asset or agricultural PROBLEM 9-2 (MC) produce is recognized in surplus or deficit. 1. Which of the following is considered an investment property? 5. According to the GAM for NGAs, biological assets a. Owner-occupied property awaiting disposal. whose fair value cannot be reliably b. Property that is leased to another entity under a finance determined on initial recognition are measured as follows: lease. Initial measurement Subsequent measurement c. Property held for use in the production or supply of a. fair value less cost to sell fair value less cost to sell goods or services or for b. Cost cost less accumulated depreciation administrative purposes. c. cost cost less accumulated depreciation and d. A building held by the entity under a finance lease impairment losses and leased out under one or d. fair value less costs to sell cost more operating leases on a commercial basis. Use the following information for the next three questions: 2. Which of the following would not be reported as A group of Entity A’s biological assets has a carrying investment property? amount of P100,000 before year-end a. Property owned by the entity and leased out under one or adjustments. Information at year-end is as follows: more operating leases. b. Property head by the entity to be leased out under one or more operating leases. c. Real estate held with an undetermined future use. d. Property owned by the entity and leased out to 6. If Entity A expects to transact in Active Market #1, how another entity under a finance Lease. much is the fair value? a. 130,000 b. 120,000 3. Which of the following costs may properly be included in c. 118,000 d. 123,000 the carrying amount of an investment property? a. Start-up costs, such as opening costs. 7. If Entity A expects to transact in Active Market #2, how b. Operating losses incurred before the investment property much is the carrying amount of the achieves the planned level of occupancy. biological assets in the year-end statement of financial c. Abnormal amounts of wasted materials, labor or other position? resources incurred in constructing or developing the a. 135,000 b. 132,000 property. c. 120,000 d. 123,000 d. Accrued taxes prior to acquisition date that the entity assumes an obligation to pay. 8. If Entity A expects to transact in Active Market #1, how much is the gain or loss from the 4. Entity A, a government entity, acquires a building to be year-end remeasurement? leased out under various operating leases on commercial a. 18,000 b. 28,000 basis. Entity A incurs the following costs on the acquisition: c. 32,000 d. 23,000 Purchase price P10,000,000 Legal services and transfer taxes 10,000 Use the following information for the next two questions: Refurbishments before occupancy 30,000 On January 1, 20x1, Entity A has one 1-year old biological Occupancy permit fees 25,000 asset with carrying amount of P1,000. Property taxes after occupancy 8,000 Opening costs (blessing and feng shui) 500,000 The following transactions occurred during the period: a. On July 1, 20x1, one I-year old biological asset is acquired The entry to initially recognize the investment property in for P1,100, equal to the FVLCS Entity A’s books of account is on this date. a. Investment Property, Land 10,065,000  Cash Modified Disbursement System (MDS), a. Entity A reports a net gain of P300,000 from the event in Regular 10,065,000 its year-end financial statements. b. Investment Property, Land 10,565,000 b. Entity A reports a net gain of P100,000 from the event in Cash Modified Disbursement System (MDS), its year-end financial statements. Regular 10,565,000 c. Entity A recognizes a loss of P600,000 but no gain. c. Investment Property, Land 10,010,000 d. Entity A shall treat the loss event and the insurance Cash Modified Disbursement System (MDS), claim as separate events. Regular 10,010,000 d. Investment Property, Land 10,040,000 PROBLEM 9-3 (FCD) Cash Modified Disbursement System (MDS), 1. Which of the following is an investment property? Regular 10,040,000 a. Property held to provide a social service and which also generate cash inflows. 5. During the period, Entity A, government entity, decides b. Property held for strategic purposes. to use as an office one of its building that has previously c. Property occupied by employees. been leased out under various operating leases on d. Property that is being constructed or developed for commercial basis. Information on the investment property future use as investment property. is as follows: Investment property – Building P1,000,000 2. Which of the following is not an investment property? Accumulated depreciation 800,000 a. Land held for long-term capital appreciation rather than At the date of change in use, the fair value of the investment for short-term sale in the property is P250,000. How much is the gain (loss) on the ordinary course of operations. transfer? b. Land held for a currently undetermined future use. a. 50,000 c. 0 c. A building owned by the entity (or held by the entity b. (50,000) d. A transfer is prohibited. under a finance lease) and leased out under one or more operating leases on a commercial basis. 6. On January 1, 20x1, Entity A acquires a building to be d. Equipment held to be leased out under one or more held as investment property for a total cost of P1,500,000. operating leases on a commercial basis to external The building is estimated to have a 30-year useful life and a parties. 5% residual value. Entity A uses the straight-line method of depreciation. On December 31, 20x5, Entity A sells the 3. According to the GAM for NGAs, government entities building for P1,300,000. How much is gain (loss) on the shall measure an investment property sale? as follows: a. 35,700 c. 53,700 Initial Subsequent b. 37,500 d. 75,300 a. cost Cost model or Fair value Model b. cost Cost Model Use the following information for the next three questions: c. fair value Fair value Model d. fair value Cost Model or Fair value Model Entity A determines an indication that its investment property might be impaired. Entity A then 4. Investment property acquired through donation is gathers the following information: initially measured Carrying amount of investment property P1,000,000 a. equal to the carrying amount in the donor’s books Fair value less costs to sell 900,000 b. at the cost to the donor Value in use 880,000 c. at fair value on acquisition date d. equal to the costs incurred in transferring title of the Following the impairment, Entity A revises its estimate of investment property to the entity residual value to 5% of the recoverable amount and the remaining useful life to 10 years. 5. An entity acquires investment property in exchange for a 7. How much is the impairment loss? long-term noninterest-bearing note. Assuming all of the a. 120,000 c. 100,000 following are determinable with sufficient reliability but b. 20,000 d. 0 differ in amounts, which of them is most likely to be used in the initial measurement of the investment property? 8. How much is the annual depreciation after the a. cash price equivalent of the investment property impairment? b. cash price equivalent of the note payable a. 85,500 c. 85,000 c. present value of future cash flows on the note payable b. 90,000 d. 95,000 discounted at the current market rate d. face amount of note which is equal to the installment 9. Five years after the impairment, Entity A determines an price indication that the impairment may no longer exist. Entity A makes the following estimates and computations: 6. Entity A acquires an investment property for P1,000,000 Fair value less costs to sell P800,000 cash. Additional costs incurred are as follows: Value in use P700,000  Repairs and remodeling before occupancy, P50,000. The investment property would have a carrying amount of  Legal costs of transferring title to the property, P600,000 by now if no P20,000. impairment loss had been recognized in the past.  Repairs after occupancy, P15,000. How much is the gain on the reversal of impairment? The investment property is estimated to have a remaining a. 125,000 c. 127,500 useful life of 10 years and a residual value equal to 5% of b. 129,500 d. 327,500 initial cost. Entity A uses the straight line method of depreciation. How much is the carrying amount of the 10. During the period, one of the buildings of Entity A, a investment property after one year? government entity, was completely destroyed by fire. The a. 914,850 b. 968,350 building has a historical cost of P1,000,000 and an c. 923,100 d. 872,100 accumulated depreciation of P400,000. The building is insured for P700,000. Which of the following statements is 7. According to the GAM for NGAs, transfers to or from correct? investment property shall be made only when there is a a. change in management’s intention 3. According to the GAM for NGAs, cash discounts not b. change in use taken on purchases of items of PPE c. change in business model are d. change in classification a. included in the cost of PPE b. recognized as “Other Losses” 8. During the period, Entity A decides to lease out under c. ignored various operating leases on commercial basis one of its d. debited to the “Purchase Discount Lost” account buildings that has previously been used as office building. Information on the building is as follows: 4. According to the GAM for NGAs, estimates of Historical cost P1,000,000 decommissioning and restoration costs of an Accumulated depreciation 800,000 item of PPE are (choose the incorrect statement) a. included in the initial cost of the item of PPE at the At the date of change in use, the fair value of the building is present value of the estimates. P250,000. Which of the following is the correct b. credited to the “other provisions” account at their present reclassification entry? value. a. Investment Property, Buildings 200,000 c. included in the initial cost of an item of PPE but not Accumulated Depreciation – Buildings 800,000 subject to subsequent depreciation, although subject Buildings 1,000,000 to amortization using the effective interest method. b. Investment Property, Buildings 250,000 d. are recognized as provisions, at present value, and Accumulated Depreciation – Buildings 800,000 subsequently measured similar to a Buildings 1,000,000 financial liability. Gain on reclassification 50,000 c. Investment Property, Buildings 250,000 5. Which of the following costs is not added to the cost of Accumulated Depreciation – Buildings 800,000 an intern of PPE? Buildings 1,000,000 a. Costs of site preparation Revaluation Surplus 50,000 b. Initial delivery and handling costs d. a or c, depending on the entity’s accounting policy c. Net disposal proceeds of samples generated during testing d. Employee benefits arising directly from the acquisition of PPE 6. Entity A acquires 5 motor vehicles for a package price of P10M. In conjunction with the purchase, the supplier provides Entity A a promotional item of 1 motor vehicle which is not of the same type as those acquired. The fair value of the motor vehicle is P2M. Which of the following statements is correct? 9. How much is the impairment loss on December 31, 20x5? a. For individual costing purposes, the cost of each of a. 226,500 b. 326,500 the 5 motor vehicles is P1,600,000. c. 257,500 d. 262,500 b. For individual costing purposes, the cost of each motor vehicle acquired is P1,666,667. 10. On December 31, 2x10, Entity A determines an c. The promotional item is recognized as gain equal to fair indication that the impairment loss recognized in the prior value. period may no longer exist. Entity A makes the following d. a and c estimates and computations: Fair value less costs to sell P1,100,000 7. Entity A acquires a building through self-construction Value in use P1,050,000 (construction by administration). The How much is the gain on the reversal of impairment? initial cost of the building will most likely be based on which a. 215,000 b. 290,000 of the following? c. 75,000 d. 218,000 a. The contract price. b. The costs of direct materials, direct labor and CHAPTER 10 construction overhead, excluding wastages. PROBLEM 10-2 (MC) c. a or b 1. Entity A acquires an equipment for P1M. The equipment d. Fair value at the acquisition date. is acquired not for active use in the production of goods but rather as a standby equipment that 8. Entity A acquires a building through self-construction will only be used if the main equipment needs to be repaired. (construction by administration). The Does this equipment qualify for recognition as property, construction costs incurred are plant and equipment? a. initially recorded in the Registries and recorded in the a. Yes, all of the recognition criteria for a PPE are met. books of accounts only upon completion of the b. No. the equipment does not satisfy all the recognition construction. criteria for a PPE. b. initially recorded in the “Construction in Progress” c. No. Although, the equipment satisfies some of the account. recognition criteria for a PPE, it does not satisfy all. The c. recorded in the “Buildings” account in the period they equipment shall be classified as “Other Assets.” arise. d. Yes and no. During the periods the equipment is idle, it d. initially recorded as “Receivables” during the shall be classified as “Other Assets.” During the periods the construction period. equipment is in active use, it shall be classified as “PPE.” 9. Entity A, a government entity, acquires an equipment for 2. For government entities, the capitalization threshold for P1M on August 6, 20x1. The equipment’s estimated useful PPE is life is 5 year. How much is the carrying amount of the a. P15,000 or more b. more than P15,000 equipment on December 31, 20x1? c. not less than P25,000 d. at least P5,000 a. 920,833 c. 916,667 b. 936,667 d. 979,167  3. Entity A exchanged an equipment with Entity B. Entity A however, did not recognize any gain or loss on the exchange. Which of the following is a valid reason for this? a. No cash was involved in the exchange. b. The fair values of the equipment exchanged were equal c. The exchanged lacks commercial substance. d. All of these 10. Which of the following assets would most likely not be assigned a residual value by a government entity? 4. Entity A receives a donation of land with fair value of a. A major part of an equipment b. A building held as investment property 1M.The donor stipulated Ᵽ that the land shall only be used c. A major tool as a portion of a proposed highway. If in case the project is d. Infrastructure asset discontinued, Entity A shall return the land to the donor. At the date of receipt of the donation, the construction of the 11. Which of the following assets is generally not subject to highway is not yet started. When should Entity A recognize depreciation? the land in its books of accounts? a. Heritage assets c. Roads a. Upon receipt of the donation. b. Infrastructure assets d. a and b b. When the construction of the highway is started. c. When the construction of the highway is completed. 12. Which of the following is considered a heritage asset? d. When the land is used in the construction of the highway. a. road networks c. bridges b. Museum d. forest 5. During the year Entity A, an NGA, incurred interest of Ᵽ200,000 on a loan taken to specifically finance the 13. Which of the following assets of a government entity is construction of a building. The proceeds of a loan were not subject to impairment? temporarily invested and earned interest income of Ᵽ20,000. a. Heritage assets c. Idle land Which of the following entries best reflects b. Reforestation projects d. None of these the recognition of the interest in the books of accounts of Entity A? 14. A government entity derecognizes an item of PPE that a. Interest expense 200,000 is Interest Payable 200,000 a. Idle c. unserviceable b. Interest expense 180,000 b. fully depreciated d. all of these Interest Payable 180,000 c. Construction in Progress-Buildings 15. The national government receives a P10M grant from a and Other Structures 180,000 foreign government condition on the construction of a Interest Payable 180,000 highway. According to the GAM for NGAs, when shall the d. Buildings and Other Structures 180,000 national government recognize revenue from the grant? Interest Payable 180,000 a. when the grant is received b. when the grant becomes receivable PROBLEM 10-4 (FCD) c. when the grant becomes receivable and there is 1. Which of the following is not one of the characteristics reasonable assurance that the attached condition will be of property, plant and equipment? satisfied a. It is a tangible asset. d. when the condition is satisfied b. It is held for use in the production or supply of goods, services or program outputs, for PROBLEM 10-3 (MC) rental to others, or for administrative purposes. c. It is expected to be used for more than one reporting period. d. It is intended for resale in the ordinary course of operations. 2. Which of the following does not result to the recognition of PPE? a. A single purchase of equipment costing P15,000. b. Purchases of equipment that work together as a group, individually costing P1,000 to P5,000 but with a sum total cost of more than P15,000. c. Bulk acquisitions of small items of PPE with aggregate cost of more than P15,000. d. Acquisition of building for P10M intended to be leased out under various operating leases on commercial basis. 2. During the period Entity A starts the construction of a building by administration. Entity A acquires construction materials for 10M. the entry to record Ᵽ the transaction is a. Construction Materials Inventory 10,000,000 Account Payable 10,000,000 b. Construction in Progress-Buildings And Other Structures 10,000,000 The current market rate of interest on acquisition date is Account Payable 10,000,000 10%. c. Construction in Progress-Buildings And Other Structures How much is the initial cost of the equipment? 10,000,000 a. 468,713 Construction Materials Inventory 10,000,000 b. 470,511 (500,000 x 80% x 90% x 98%) + 10,000 + d. None of these. 100,000 + (20,000 x PV of 1 @10%, n=10) c. 472,341 Replacement costs P700,000 d. 489,313 10. How much is the impairment loss assuming Entity A 4. Entity A acquires 5 motor vehicles for a package price of compute for the value in use using the P10M. In construction with the purchase, the supplier Depreciable Replacement Cost Approach? provides Entity A a promotional item of 1 motor vehicle a. 32,667 c. 50,000 which is the same as those acquired. The fair value the b. 32,500 d. 37,500 motor vehicle is P2M. Which of the following statements is correct? a. For individual costing purposes, the cost of each motor vehicle acquired is P2,000,000. b. For individual costing purposes, the cost of each motor vehicle acquired is P1,666,667. c. The promotional item is recognized as gain equal to fair value. 11. Assume the indication of impairment is physical damage d. a and c to the equipment. Entity A estimates that it would cost P10,000 to restore the 5. Entity A acquires a building by awarding a construction equipment’s service potential to the level contract to a contractor. The initial cost of the building will before the physical change. How much is the impairment most likely be based on which of the following? loss under the Restoration Cost a. The contract price. Approach? b. The costs of direct materials, direct labor and a. 42,667 c. 50,000 construction overhead, excluding wastages. b. 42,500 d. 47,500 c. a or b d. Fair value at the acquisition date. Use the following information for the next two questions: Entity A exchange equipment with Entity B. Pertinent data are shown below: Entity A Entity B Carrying amount 85,000 130,000 12. Assume the indication of impairment is a significant Fair value 95,000 115,000 decline in the expected output of the equipment, which Cash paid by Entity A to Entity B 15,000 Entity A estimates to be 10%. How much is the impairment loss under the Service Units Approach? 6. If the exchange has commercial substance, how much is a. 62,667 c. 50,000 the initial measurement of the equipment received by Entity b. 62,500 d. 69,250 A? a. 95,000 c. 115,000 b. 110,000 (95,000 + 15,000) d. 85,000 7. If the exchange has commercial substance, how much is the gain (loss) recognized by Entity A in the exchange? a. 10,000 (95,000 – 85,000) c. (15,000) b. (10,000) d. 15,000 13. Which of the following statements is correct? a. Heritage assets are initially measured at cost and 8. Entity A incurs costs in repairing an item of PPE. It is subsequently measured at cost less accumulated not clear whether the repair is a minor or major repair. depreciation and accumulated impairment losses. Entity A shall b. Infrastructure assets are accounted for similar to the other a. recognize the repair costs as expense items of PPE. However, they are generally assigned a 10% b. capitalize the repair costs residual value. c. a or b c. Reforestation project are not considered PPE. d. none of these d. Fully depreciated PPE are derecognized. 9. Entity A, a government entity, acquires an equipment for 14. Which of the following is derecognized? P1M on August 26, 20x1. The a. Idle PPE equipment’s estimated useful life is 5 years. How much is b. Fully depreciated PPE the accumulated depreciation of c. Unserviceable PPE the equipment on December 31, 20x1? d. Partially damaged PPE a. 66,666 c. 83,333 b. 63,333 d. 79,167 15. How do government entities account for borrowing costs? a. Capitalized if the borrowing costs relate to the acquisition or construction of a qualifying asset. b. Expensed even if the borrowing costs relate to the acquisition or construction of a qualifying asset. c. Choice (a) for the national government; choice (b) for Use the following information for the next three questions: national government agencies. At year-end, Entity A determines an indication that an d. Choice (a) for the national government agencies; equipment with carrying amount of P400,000 is impaired. choice (b) for the national government. This equipment was acquired 5 year earlier and was originally estimated to have a useful life of 10 years and a CHAPTER 11 5% residual value. Entity A determines the following PROBLEM 11-2 (MC) information: 1. In which of the following instances is an asset not Fair value less cost to sell P350,000 considered to be identifiable? a. The asset can be sold separately regardless of whether the  Costs of testing the software, P10,000. entity intends to do so.  Training costs of staff who will be using the b. The asset arises from a contractual right. software, P200,000. c. The asset can be leased out separately on its own or  Costs of updating the software after it was available licensed to be used separately by other entities in exchange for use in the condition originally intended by for cash payments. management, P5,000. d. The asset can only be transferred if the entity is  Administrative and other general overhead costs liquidated. incurred on the acquisition and installation of the software, P15,000. 2. Which of the following is most likely to be recognized as The software’s useful life is 5 years. intangible asset by a government entity? a. Internally generated brand b. Subsequent expenditure on a copyright c. Development costs incurred in internally generating a patent d. Publishing title acquired as a donation 3. Subsequent expenditures on recognized intangible assets are a. generally capitalized and amortized over the remaining useful life or the extended useful life. b. generally expensed, unless they meet the definition of an intangible asset and the asset recognition criteria. c. generally capitalized if they meet the conditions of technical feasibility, probable future economic benefits, and reliable measurement. d. not accounted for. 4. According to the GAM for NGAs, government entities shall use this measurement model in subsequently measuring intangible assets. a. Cost model c. Fair value model b. Revaluation modeL d. a or b PROBLEM 11-3 (FCD) 1. Which of the following is not one of the essential an intangible asset? a. Separability 6. The default amortization method for intangible assets b. Arising from binding arrangement with finite useful life is c. Control a. straight line method b. sum-of-the-years digits d. Held for use in the production or supply of goods c. double declining d. none of these 2. An intangible asset is identifiable if it 7. Which of the following statements is incorrect regarding a. is separable the accounting for impairment of intangible assets under the b. arises from binding arrangements GAM for NGAs? c. is a non-monetary asset without physical substance. a. An entity is required to test for impairment an intangible d. a or b asset with indefinite useful life or an intangible asset not yet available for use at least annually or whenever there is an 3. Which of the following is an indicator of control? indication of impairment. a. the ability of an entity to benefit from an asset. b. An entity shall test for impairment an intangible asset b. the ability of an entity to deny or regulate the access of with definite useful life only when an indication of others to the benefit of an asset. impairment exists. c. an entity can, depending on the nature of the asset, c. The accounting for impairment of intangible assets, and exchange it, use it to provide goods or services, exact a price reversal thereof, is the same as those of investment property for others’ use of it, use it to settle liabilities, hold it, or and PPE. perhaps even distribute it to owners. d. Intangible assets are subject to amortization using d. all of these. the straight line method over a period of 2 to 10 years but are not subject to impairment. 4. Which of the following is most likely not an intangible asset? Use the following information for the next three questions: a. Computer c. Acquired import quota On December 1, 20x1, Entity A acquired a computed b. Trademark d. Customer list software for P1,000,000 and incurred the following costs: 5. A purchased intangible asset is initially measured at  Non-refundable purchase taxes of P30,000, not a. cost included in the purchase price above. b. fair value  Professional fees incurred in the installation of the c. the sum of research and development costs software, P100,000. d. the total of development costs  Modifications to the software before it was brought to the condition intended by management for use, P60,000. 6. The development costs of an internally generated b. Total interest expense over the term of the bonds equals intangible asset can be capitalized if certain conditions are total interest payments plus the amount of discount on met. Which of the following is not one of those conditions? initial recognition. a. Technical feasibility of completing the intangible asset. c. The carrying amount of the bonds decreases each b. Intention to complete the intangible asset. period. c. Ability to measure reliably the expenditure attributable to d. The carrying amount of the bonds increases each period. the intangible asset during its development. d. Existence of similar assets in the market or 5. The carrying amount of bonds payable in the prior year's economic environment where the entity operates. financial statements is ₱100,000. This year, the carrying amount of the same bond issuance is ₱102,000. Which of 7. Internally generated brands, mastheads, publishing titles, the following assumptions is least likely to be valid? lists of users of a service, and items similar in substance are a. The face amount of the bonds is ₱120,000. not recognized as intangible assets because b. The bonds were issued at a discount of ₱20,000. a. it is illegal to recognize these items as assets, according to c. The interest expense during the period is ₱10,000 international intellectual property laws and other business while the interest payment is ₱12,000. laws. d. Total interest expense over the term of the bonds will b. it is often difficult to measure separately the costs of these exceed total interest payments by ₱20,000. items. e. All of these are equally acceptable. c. these cannot be distinguished from the cost of developing the entity’s operations as a whole. 6. Entity A issues 5-year bonds at a discount. At the d. the entity normally cannot demonstrate its ability to use beginning of the 3rd year, Entity A retires the bonds at a these, when completed during their development phase. premium. Which of the following statements is correct? a. Entity A recognizes gain on the retirement. 8. Government entities normally assign their intangible b. Entity A recognizes loss on the retirement. assets a residual value of c. Entity A recognizes neither gain nor loss on the a. 5% of cost c. 25% of cost retirement. b. 10% of cost d. zero d. Answer cannot be determined due to insufficient data. 9. Which of the following intangible assets is not amortized? Use the following information for the next three questions: a. Intangible asset with infinite useful life On January 1, 20x1, the BTr issues a 5-year, 5%, ₱3,000,000 b. Intangible asset with finite useful life c. All intangible assets held by a government entity bonds for ₱ 2,640,656. Interest payments are due every December 31 but the principal is due only at maturity date. d. Intangible asset not yet available for use The effective interest rate is 8%. 10. An entity shall test for impairment an intangible asset with finite useful life 7. The entry on December 31, 20x1 to recognize interest expense is a. only when an indication of impairment exists. b. at least annually or whenever there is an indication of a. Interest Expense 211,252 Discount on Bonds Payable- impairment. c. at each reporting date, including interim periods, if the Domestic 61,252 Cash in Bank-Local Currency, entity prepares interim financial statements. d. Never, because intangible assets held by a government Bangko Sentral ng Pilipinas 150,000 entity is not subject to impairment; only amortization. b. Interest Expense 211,252 Discount on Bonds Payable- CHAPTER 12 PROBLEM 12-2 (MC) Domestic 61,252 Cash - Modified Disbursement 1. Financial liabilities, other than those that are classified to be subsequently measured at fair value through surplus or System (MDS), Regular 150,000 deficit, are measured as follows: Initial Subsequent c. Interest Expense 211,252 Discount on Bonds Payable- a. fair value amortized cost b. fair value plus transaction costs amortized cost Domestic 61,252 Interest Payable 150,000 c. fair value minus transaction costs amortized cost d. fair value plus transaction costs fair value less d. Interest Expense 150,000 costs to sell Discount on Bonds Payable-Domestic 61,252 Cash - Modified Disbursement 2. Which of the following is not a financial liability? System (MDS), Regular 211,252 a. Accounts Payable b. Notes Payable c. Electricity bill payable d. Due to BIR 8. The carrying amount of the bonds on December 31, 20x1 is 3. Transaction costs on issuing bonds are a. 2,579,404 c. 2,768,061 b. 2,701,909 d. 2,786,061 a. expensed outright b. added to the initial carrying amount of the bonds c. deducted from the initial carrying amount of the bonds d. subsequently amortized as expense using the straight line method 4. An entity issues term bonds at a discount. If the bonds are subsequently measured at amortized cost, which of the following statements is not correct? 9. The unamortized bond discount on December 31, 20x2 a. Interest expense each period exceeds interest payment. is a. 359,344 c. 231,939 (2,768,061-3M) b. 298,092 d. 213,939 10. A provision is measured at a. cost b. fair value c. lower of cost and fair value d. the entity's best estimate of the settlement amount PROBLEM 12-3 (FCD) 1. Which of the following may result to the recognition of a 7. Which of the following distinguishes a provision from liability in Entity A's December 31, 20x1 statement of other types of liabilities? financial position? a. A provision requires disclosure in the notes. a. Entity A enters into an entity combination (business b. A provision is supported by an internally generated combination) with Entity B on January 12, 20x2. document (e.g., DVs) rather than externally generated document (e.g., OR or delivery receipt). b. Entity A's building is razed by fire on January 1, 20x2 and c. A provision necessarily needs to be estimated an adjacent building is affected. Investigation shows that because it is a liability of uncertain timing or amount. Entity A was negligent. It is probable that Entity A will be d. A provision need not meet all of the recognition criteria held liable for damages. The owner of the adjacent building for a liability before it is recognized. is seeking compensation for damages amounting to ₱1M; however, Entity A's legal counsel believes that Entity A will 8. A present obligation whose cost can be measured reliably probably settle the case for ₱800,000. but with improbable outflow of resources embodying economic benefits or service potential is most likely to be c. A lawsuit is filed against Entity A on January 3, 20x2. a. Recognized c. recognized and disclosed Apparently, Entity A's geodetic engineer b. disclosed only d. ignored miscalculated the area of the lot where Entity A has started constructing an office building in December 9. Which of the following is correct regarding contingent 20x1. This resulted to the encroachment of an adjacent assets? lot owned by a private individual. Entity A has offered a. Contingent assets are recognized if probable. to settle the case out-of-court for ₱1M; however, the b. Contingent assets are recognized and disclosed if defendant wants payment of ₱1.2M. Both parties probable. agreed to a settlement of ₱1.050M on c. Contingent assets are only disclosed if probable. January 31, 20x1. d. Contingent assets are always ignored. d. Entity A enters into a purchase contract involving the 10. Which of the following statements is correct regarding acquisition of construction materials worth 2M on reimbursements of provisions? December 26, 20x1. The materials are to be delivered in the a. A reimbursement asset is recognized and presented net of second week of January 20x2. the provision in the statement of financial position. b. The provision is presented net of the related 2. Entity A purchases office supplies and receives delivery reimbursement asset in the statement of financial position. thereof. Entity A recognizes a liability from this transaction c. The expense related to the provision may be because of which of the following obligating events? presented in the statement of financial performance a. Payable event c. Constructive obligation net of the reimbursement. b. External event d. Legal obligation d. The amount recognized for the reimbursement may be in excess of the amount of the provision. 3. Entity A obtains a 6%, 5-year, ₱10M face amount loan. Entity A pays transaction cost (service charge) of 3%. How much is the carrying amount of the loan payable on initial recognition? a. 10M c. 10.3M b. 9.7M d. 9,633,314 Use the following information for the next three questions: On January 1, 20x1, the BTr issues a 5-year, 6%, ₱2,000,000 bonds for ₱1,900,000. Transaction costs on the issuance (bond issue costs) amount to ₱59,708. Interest payments are due every December 31 but the principal is due only at maturity date. The effective interest rate adjusted for both the bond discount and bond issue costs is 8%. 4. How much is the carrying amount of the bonds on initial recognition? a. 2,000,000 c. 1,959,709 b. 1,900,000 d. 1,840,292 5. How much is the interest expense for 20x1? a. 160,000 c. 156,777 b. 152,000 d. 147,223 6. How much is the carrying amount of the bonds on December 31, 20×1? a. 1,867,515 c. 1,932,000 b. 1,813,069 d. 1,99,649