Chapter 8: Aecountlag for Property, Plant and Egutemene CISES 5 FINANCIAL ACCOUNTING AND REPORTING THEORIES L of : on rene, plant and equipment are defined as Tangible assets held for sale in the ordinary course of business. ie Tangible assets held to earn rentals or for capital appreciation. C. Tangible assets held for use in the production or supply of goods or services or for administrative purposes. D. Tangible assets expected to be used more than one period. E. Tangible assets held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and expected to be used during more than one reporting period. % 2 Which of the following is not a characteristic of property, plant, and equipment? The property, plant, and equipment are tarigible assets. 7 The property, plant, and equipment are used in business operations. C. The property, plant, and equipment are expected to be used over a Period of more than one year. D. The property, plant, and equipment are subject to depreciation. E, All of the foregoing are characteristics of property, plant and equipment. 3. Which of the following can be classified as property, plant and equipment? + 1. Land held for an undetermined use. Il. Land held for future plant site. . III. Building held for sale in the ordinary course of business. IV. Equipment used in the production of goods. Major spare parts v. A. Land. B, and Iv c. 1, IV, and D. WIV, andV E. I, Il, IV, andV easurement of Property, plant and equipment Which of the following forms part of the initial cost of property, plant and equipment? A. Purchase price B, Import.duties and non-refundable purchase taxes C. Costs directly attributable to bringing the asset to the location and condition necessary for it to operate in the manner intended by the management. D. All these forms part of the initial cost of property, plant and equipment. 471Cmte Reviewer in Financial Accounting and Reporting Part 1 Which of the following may not form part of property, plant and directly attributable costs? Su; A. Installation and assembly costs B. Handling costs C. Testing costs D. Maintenance costs Me 6. Which of the following should be expensed outright instead of capita of the property, plant and equipment’s cost? A. Advertising costs B. Relocation cost as part of the company’s operation C. Cost of opening new facility D. All options should be expensed outright Acquisition of property, plant and equipment 7. An entity purchased a property under a deferred payment contract, The age, was to pay P500,000 at the time of purchase and P100,000 at the eng g- a year for the next five years. The property is initially measured at A. 500,000 B. 1,000,000 CC. P1,000,000 plus imputed interest D. P500,000 plus the present value of P100,000 annuity for five years imputed rate. " ang ag 8. When a property is acquired through stock issuance, such property shal measured at what valuation? A. (1) Fair value of shares issued (2) Fair value of the property received, te fair value of the shares issued is not available (3) Par value or stated vated shares issued if both the fair values of shares issued and the property en available. B. (1) Fair value of the property received (2) Par value or stated value of tas issued, if the fair value of the property is not available (3) Fair value of sae issued, if both the fair value of the property received and the par or sail value of shares issued are not available. C. (1) Fair value of the property received (2) Fair value of shares issued i fair value of the property is not available (3) Par value or stated vate 7 shares issued, if both the fair values of the property and the shares ssuel®* not available. D. (1) Par value or stated value of shares issued (2) Fair value of the received, if the par or stated value of shares issuéd is not availabe @) value of shares issued, if both the par or stated value of shares Iss fair value of the property received are not available. 9. Aproperty can also be acquired through issuance of bonds. Which of the foto if is not to be considered in valuing the property acquired through issuance © ‘A. Fair value of the bonds payable, B. Fair value of the property received. C. Face amount of the bonds payable. D. Carrying value of the asset received, E. All these are considered. 47210. il. 12. moogp> 13. 14, Chapter 8: Accounting for Property, Plait and Eguipmeng Which of the following asset exchanges has no commercial substance? Asset exchange with a differential in future cash flows. Asset exchange with no impact in future cash flows. Asset exchange between companies in the same industry. Asset exchange that keeps the entities in substantially the same financial position. B, C, and D m gom> An item of PPE acquired in an exchange with commercial substance is measured at the i Fair value of asset given up. Fair value of asset given up minus cash paid or plus alte received, Fair value of asset given up plus cash paid or minus cash received. Fair value of asset received plus cash paid or minus cash received, Fair value of asset received minus cash paid or plus cash received. mooe> An item of PPE acquired in an exchange with no commercial substance is measured at the Carrying value of asset given up. Carrying value of asset received, Carrying value of asset given up minus cash paid or plus cash received. Carrying value of asset given up plus cash paid or minus cash received. Carrying value of asset received plus cash paid or minus cash received. Which of the following statements are correct regarding the recognition of gain or loss on asset exchange? L If the asset exchange has commercial substance, gain or loss on the exchange is recognized. I. If the asset exchange has commercial substance, gain or loss on the exchange is not recognized. Tl. _If the asset exchange has no commercial substance, gain or loss on the exchange is recognized. If the asset exchange has no commercial substance, gain or loss on the exchange Is not recognized. A. Tand Ill B. Land IV Cc. Mand Il D, and Iv A donated plant asset for which the fait value has been determined and for which directly attributable costs have been incurred is reported at A. Zero or nominal amount. B, Fair value C. Directly attributable costs incurred. D. Fair value plus directly attributable costs incurred. 473Comprchensive Reviewer in Financial Accounting and Reporting Part t 15, Which of the following statements about self-constructed PPE is correct A The cost of a selfconstructed asset is calculated in the same way ty cost of a purchased asset is calculated. at th; B. When calculating the cost of a self-constructed item, any intema| subtracted. Profi The cost of an unusually large amount the asset's cost, D. The statements are all correct. of wasted material is not factory, ty and Ei et is capitalizable to land accout le 3. Which of the following A. Escrow fees B. Unpaid taxes up to the date of acquisition assumed by the buyer C. Land survey costs D. All options are chargeable to land 17. Which of the following costs is not capitalizable as cost of land? Legal fees and other costs for establishing clean title. Fees for registration and transfer of title. Real property taxes after date of acquisition. Cost of permanent improvements such as cost of clearing, cost of grading, levelling and landfil. Special assessments poe> m 18. Costs of fence and sidewalks are A. Capitalizable as cost of land. B. Capitalizable as cost of land improvements. C. Capitalizable as cost of building. D. Reported in profit or loss. 19. Which of the following would affect statement of comprehensive income of te ‘company? A. Demolition cost of an old building to make place for a new one, B. Proceeds from scrap in demolishing an old building to make room for a nen one. C. Demolition cost less proceeds from scrap of an old building demolished make room for a new one. D. None of the above 20. Which of the following would be part of a building that is acquired through construction? ‘A. Unpaid taxes up to the date of purchase acquisition B. Payments to tenants to induce them to vacate the building ~C.- Excavation cost D. Legal fees relevant in purchasing a building 474Chapter 8: Accounting for Praperty, Plant and Eguttnene * construction-related costs of uninsured hazards or claims for uninsured accidents 24. CoM"are Included in the cost of PPE, B, Are charged to profit or loss in the period of incurrence. C._ Are necessary overheads included in the cost of PPE. D. . Ignored for the purpose of financial reporting. 2, All of the following are part of the cost of machinery except: "',, Cost of water consumed by employees in the office B, Insurance while in transit on a purchase transaction C._ Installation cost D. Cost of safety rail and platform surrounding machine 2 23. Before the end of the current’year, Alex Inc. purchased a special machinery from Paris to be put in the new factory premises. How should the freight and interest on the loan to cover the cost of the said machinery be handled? ‘A. Both the freight and the loan interest are to be capitalized. B. Both the freight and the loan interest are to be expensed. C. The freight is to be capitalized but the interest is to be expensed. D. The interest is to be capitalized but the freight is to be expensed. interpretation on Land and Buildin: 24, The single cost of acquiring land and usable old building is. A. Charged to the land only. B, Charged to the building only. , Allocated between land and building based on relative fair value. D, Allocated between land and building based on carrying amount. 25, The single cost of acquiring land and an unusable old building is A. Charged to the land only. B. Charged to the bullding only. C. Allocated between land and building based on relative fair value. D. Allocated between land and building based on carrying amount. 26. When the old building is demolished immediately to make room for construction of a new building: A. Any allocated carrying amount of the usable old building is recognized as a loss if a new building is accounted for as inventory. B. Any allocated carrying amount of the usable old building is recognized as a loss if a new building is accounted for as property, plant and equipment or investment property. C. - Any allocated carrying amount of the usable old building is capitalized as cost of the new building if the new building is accounted for as property, plant and equipment. D. Any allocated carrying amount of the usable old building is capitalized as cost of the new building if the new building is accounted for as investment property. 475Comprehensive Reviewer in Financial Accounting and Reporting Pant t 27, An entity Scqured land with an old bullding. The entity Imm, 28. 29. 30. 31. C. The residual value of an asset shall be reviewed at least at each fina D. All the foregoing the old building so that the land can be at i the constructogt®Y pg should the demolition cost incurred be treat Alt ‘A. The demolition cost should be expensed as incurred, Hy, B, The demolition cost should be added to the cost of the plant, C. The demotion cost should be added to the cost of the ant D. The demolition cost should be recognized as prepaid expense 5 over the useful life of the plant. aNd ato a building is acquired and temporarily used in aay subenuenty demolished in the next period to make place 1 Pty ‘ through construction, which ofthe following is inaccurate? baie A. The carrying amount of the old building Is recognized as a eductig total capitalizable cost of the new building, whether the nex one tong, as property, plant and equipment, investment Property or invento S Clea, ai B. The caying amount ofthe old bullaing is recognized ase fo We new building is classified as property, plant and equipment, Hid property or inventory. 1 ives C. The demolition cost is capitalized as cost of the new building, whi new building is classified as property, plant and equipment, Hid i: Property or inventory. West, D. If the old building is under a contract of lease, any settlements my, tenants to vacate the old building shall be charged to. the COSt of the re building, n Which ofthe following statements most accurately explains the term depreciating A. The deletion of an asset from the statement of financial position, -B. The systematic distribution of an asset's cost less residual value across is Useful life, The amount by which an asset's recoverable value exceeds its carrying ie The amount by which an asset's carrying value exceeds its recoverable vole. yo hich of the following statements about depreciation is correct? A depreciable asset must be depreciated from the date of purchase. The annual depreciation charge must be the same every year. An asset's complete cost must be depreciated at some point, Depreciation is not recognized if the carrying amount of an asset is less ttt Its residual value, Poers hee statement is correct about the residual value? Residual values the estimated net amount currently obtainable thea? Alsposed at the end of the useful life yea B. The residual value of an asset may increase to an amount equal to 0" 9 than carrying amount in which cage the deprecation charge is 270g end and any change is accounted for as a change in accounting estin® statements are correct, 476Chapiter 8: Accounttng far Property, Plant and. Egutpment ‘the useful life of property, plant and equipment is ",, The period of time over which an asset is expected to be used by the entity. B, The number of productioh or similar units expected to be obtained from the asset by the, entity. c. Both A and B. D. Neither A nor B. _ All of the following factors are considered in determining the useful life of an asset, pt A Expected usage of the asset, Expected physical wear and tear. Technical obsolescence. Legal limits for the use of the asset. Residual value. MOOR> . One of the kinds of depreciation is physical depreciation which may include all of - the following except: A. Accidents such as flood, fire or earthquake. B, Wear and tear due to usage. C._ Passage of time even if asset is not being used. D. Inadequacy caused by Increased fs jin the volume of operation making the asset - obsolete. . Economic reasons that can reduce an asset's useful life includes which of the following? A. Wear and tear. B, Obsolescence and inadequacy. C. Deterioration or decay as a result of aging or the passage of time. D. Damage or destruction as a result of fire, flood, earthquake, or other calamity. . Depreciation of an asset begins when the asset _(a) _ and ceases when the asset A. (@) is acquired; (b) is derecognized B. (a) is acquired; (b) Is sold, becomes idle or abandoned C. (a) is available for use; (b) is derecognized D. (a) is available for use; (b) is sold, becomes idle or abandoned On January 1, 2021, Africa Co. placed an order for equipment. The supplier shipped the equipment on January 15, 2021 and was received by Africa on February 1, 2021. Installation and testing were finished on March 1, 2021 and the equipment is available for use on this date, However, Africa started using the equipment only on May 1, 2021. According to IAS 16 Property, plant and equipment, when should Africa start depreciating the said equipment? January 1, 2021 8. January 15, 2021 C. February 1, 2021 D, March 1, 2021 E. May 1, 2021 477Comprchensine Rescuer in Financial Acenunting and Reporting Part 1 38. Which of the following statements is the assumption that straight line epreciatcn is founded on? A. Astime passes, the asset's operating efficiency declines. B. The utility value declines with time rather than utilization. C. The utility value declines due to obsolescence rather than time. D. Physical wear and tear takes precedence over economic obsolescence. 39, When a company has an equipment, with a historical cost of P5,000,000, has useful life of § years and residual value of 500,000 that was purchased at thy start of the year, which of the following is true provided that the company isusng straight-line method of depreciation? A. Annual amount of depreciation fluctuates. B. The carrying amount of the equipment would be P500,000, after recording the 5 depreciation. Once derecognized, the debit side would include accumulated depreciation ¢ 5,000,000. Once derecognized, the credit side would include equipment of P4,500,000, c D. 40. Which of the following ignores residual value in computing for depreciation? A 8. Straight-line C. Double declining balance D. Output method 41. Which of the following pertains to the similarity of double declining balance ang ‘Sum-of-the-years digits (SYD) depreciation method? A. Mathematically increasing amount of annual depreciation. B. Mathematically decreasing amount of annual depreciation. C. Mathematically uniform in amount of annual depreciation. D. Mathematically fluctuating in amount of annual depreciation. 42. The production method of depreciation results in ‘A. Increasing charge over the useful life of the asset. 8, Decreasing charge over the useful life of the asset. C. Constant charge over the useful life of the asset. D. Fluctuating charge based on the actual use or output of the asset. 43, Which of the following depreciation methods is not based on the passage of tim? A, Straight line method B. Sum-of-the-years’ digits method C. 200% declining balance method D. Units of output method 44, Which of the following depreciation methods excludes residual value from ¢s depreciation base? ‘A. Straight line B, Sum of years’ digits C. Double-declining balance D. Output method 47845. 46. 47. 48. 49, 50. Chapter 8: Accounting for Property, Plant and Equtpmene The 150% declining balance method Results in a decreasing depreciation charge. Means residual value is not deducted in computing the depreciation base. Means the carrying amount should not be reduced below residual value. D. All these statements correctly describes the 150% declining balance method. which of the following is accurate statement that pertains to the concept of composite and group depreciation method? ‘A. Composite method is applied when assets are dissimilar in nature while group method is applied when assets are similar in nature. B, Composite method is applied when assets are similar in nature while group method is applied when assets are dissimilar in nature. C. In substance, composite method applies straight line while group method applied the theory of SYD. D. All of the foregoing, ‘An entity using the composite method of depreciation for a fleet of trucks and automobiles disposed one of the trucks and received cash upon disposal. The net carrying amount of these composite asset accounts would be decreased by the A. Cash proceeds received, B. Original cost of truck. C._ Cash proceeds received and original cost of the truck. D. Original cost of the truck less the cash proceeds. According to IAS 16 Property, plant and equipment, which of the following is not an acceptable method of depreciation? A. Depreciation based on usage B. Depreciation based on time CC. Depreciation based on revenue D. Accelerated depreciation Leasehold improvement is depreciated over the A. Useful life of the improvement B, Remaining term of the lease C. Shorter of A and B D. Longer of A and B The carrying amount is A. The cost of an asset, less residual value, or the amount substituted for cost in the financial statements. B, The amount of cash paid or the fair value of the other consideration given to acquire an asset at the time of acquisition or construction. C. The net amount that the entity anticipates to receive for an asset at the end of its useful life after deducting the projected cost of disposal. D, The amount at which an asset is recognized in the statement of financial Position after deducting any accumulated depreciation and impairment loss. 479Comprchiriioe Resitwer ta Financial Accounting and Reporting Part 1 went inditul on PPE 51. Which of the following are the correct statement about subsequent measuremen, for property, plant and equipment? 1. If subsequent costs maintain the standard level of performance of an asset, then these costs should capitalized. TI. __If subsequent costs maintain the standard level of performance of 2 asset, then these costs should expensed. II. _If subsequent costs increase the future service potential of the asset, then these costs should capitalized. IV. __ If subsequent costs increase the future service potential of the asset, then these costs should expensed outright. A Land IT B. Land IV Cc Wand Ill D. Tandiv A machine modification that enhanced the production capacity without exterding the machine's useful life should be A. Expensed immediately. B. Debited to accumulated depreciation. C. Capitalized to the machinery account. D. Charged to machine improvements account. 52. Which of the following would be treated as a capital expenditure rather tana revenue expenditure? ‘A. Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance. The replacement of a major component of a building. ‘An addition to an existing building. Cost of improvement that is expected to provide future economic beneits. B,C, and D 53. monn rT jal re 54. Which of the following is true?” ‘A. Anentity shall choose between cost model or revaluation model in valung its PPE subsequent to its recognition, such accounting policy should’ be plied to entire class of PPE. B. An independent third party shall choose between cost model or revauation model in valuing the PPE of another company subsequent to its recognition, such accounting policy should be applied to entire class of PPE. C. An entity shall choose between cost model or revaluation model in valing its PPE on the initial recognition phase, such accounting policy should be ipplied to entire class of PPE. An entity shall choose between cost model or revaluation model in valiing its PPE subsequent to its recognition, such accounting policy should be ipplied to individual class of PPE, 255 56. 58. 59, 60, Chapter 8: Hecasinting for Property, Plawt and Egutpement which of the following is the basis for the revalued amount of property, plant and equipment? Fair value Replacement cost . Appraised value Sound value Depreciated replacement cost SSBEr Tand V only Tand II 1, I, 1V, and V poe When there is no evidence of fair value due to the specialized nature of the property, the revalued amount shall be based on the A. Replacement cost B. Depreciated replacement cost CC. Present value of future cash inflows derived from the use of the asset. D. Any of the foregoing. If the asset’s carrying amount is increased as a result of a revaluation, the increase shall be A. Credited to revaluation surplus. B. Credited to retained earnings. CC. Recognized in profit or loss. D. Ignored. If the asset's carrying amount is decreased as a result of a revaluation, the decrease shall he A. Recognized in profit o loss. B. Charged to revaluation surplus C. Charged to retained earnings D. Charged to revaluation surplus to the extent of its balance and the excess will be recognized in profit or loss. Revaluations of items of PPE are recorded using the A. Proportional method B, Elimination method C, Replacement method D. AorB The accumulated depreciation account on the revaluation date is A. Restated proportionately with the change in the carrying amount of the asset. B. Eliminated against the gross carrying amount of the asset. C. Not adjusted. D, AandB. 481ng Comprchenive Reviewer in Financial Aecuntng au RaBrend | Part 61. Subsequent to revaluation, the depreciation on the revalued asso, A. B. ic D. 62. The revaluation surplus thats realized due to the usage or disposa, may be transferred to Hy Income . A B. c D. Pi Fair value on revaluation date . ny Carrying amount before the revaluation Historical cost Any of these i Mey by the, oct Retained earnings Share premium Derecognition 63. Which word best illustrates the elimination of property, plant, ang carrying amount from the statement of financial position? “Atipne, 64. 65. A B. c D. Depreciation Derecognition Impairment Write-off When do we remove the carrying amount of property, plant, and equipmen the financial statements? faa A 8. c D. At the time of acquisition of the asset. Upon disposal of the PPE, When no further economic benefits are foreseen from the utilization ot asset. . At the time of disposal and when no further economic benefits are foes from the asset's use. Property, plant and equipment are presented under which section of the statnst of financial position? pomp Current assets ‘Non-current assets Other assets Equity 482Chapter 3, SUGGESTED key angwagg 1A Plat and Equipment 483 ie | epee 2{ D 27[ pe Fett c 3| D 28[-a7) + 2c] 4|_D 29; Bp) -- 23 £ 5|_D 30/-p-] SA ellamiD) ap) Pe 7[_D 32] 35\ 8 8 |_¢ 33} sete Si 7 59 |p io|_E 35108 ate ti | ¢ 361 at 12|D 37|_D ete 13 |B 36/8 ete 14]; D 3918 eile 15{_D 40] c toe 16|D 41|_8 i7[ Cc 42|_D is| 8B 43|_D 19[ B 44|_C -20[¢ 45|_D 21[_B 46|_A 22|_A 47|_A 231m 4s|_c 24 C [49 [¢ 25 A 50Dcompete Rete Foal AO et CIAL ACCOUNTING AND REPORTING THEORIES 1. FINA nich of the following is ie correct definition of borrowing goa... SS ey ty 1. Whict vith IAS 23 Borrowing Costs? ‘oes are interest costs computed under the Fetg ‘A. Borrowing method. : i, Borowing costs are Interest costs computed under the wey method. "ona terest costs that an entity incurs in conn ton Borrowing costs are int borrowing of funds. | . Borrowing costs are interest and other costs that an entity inc with the borrowing of funds. \CUrs in, gy i Borrowing costs include which of the following? 1 interest expense calculated using the effective interest meth Ik. Interest in respect of finance lease liabilities. pa TIL Exchange differences arising from foreign currency borrowings frat they are regarded as an adjustment to interest cost, 9510 theta IV. Cost of equity. | { A. Land II B. 1, Il, and I Cc. MandIV D. 1,1, and IV for Borrowing Ct wing , statements is true concerning the capitalizatin ¢ ‘Accou 3. Which of the follo borrowing costs? L Borrowing costs that are directly attributable to a qualifying ase sl be capitalized as part of the cost of that asset. IL Borrowing costs that are not directly attributable to.a qualifying ast shall be capitalized as part of the cost of that asset. IL Borrowing costs that are directly attributable to a qualifying assed be expensed as incurred. ing ost IV. Borrowing costs that are not directly attributable t0 & qualifing shall be capitalized as part of the cost of that asset shall be exe incurred. aing att V. Borrowing costs, whether or riot directly attributable to ? quell shall be capitalized as part of the cost of that asset. 19 sth i VL Borrowing costs, whether or not directly attributable 9 2 qual shall be expensed as incurred. { A. TandIV } B, Iland I : ? C. Vonly D. VIonly 538 )Chapter 9: Accounting for Borrawing Coste _ Which of the following assets may be treated as a qualifying asset for the purpose of capitalizing borrowing costs? Investments in equity securities 4 Investments in debt securities C._ Investment property, D. Inventory that is manufactured in large quantities on a repetitive basis and takes a substantial period of time to get ready for sale. E. Choices C and D 5, Which of the following may not be considered a qualifying asset? A. Amanufacturing plant that normally takes two years to construct. B. Amachine that will be purchased from a vendor. €. Apower generation facility that normally takes more than a year to construct, D. All of these may be considered a qualifying asset. 6. Ifthe qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to A. Zero. B. Actual borrowing cost incurred. C. Actual borrowing cost incurred up to the completion of the asset. D. Actual borrowing cost incurred up to the completion of the asset minus any investment income from the temporary investment of the borrowing. 7. Ifthe qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal to A. . Actual borrowing cost incurred. B. Actual borrowing cost incurred up to the completion of the asset minus any investment income from.the temporary investment of the borrowing. C. Total expenditures on the asset multiplied by a capitalization rate. D. Average expenditures on the asset multiplied by a capitalization rate or actual .__ borrowing cost incurred, whichever is lower. E, Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is higher. mmen it of Capitalization of Borrowi Costs 8. Capitalization of borrowing costs as part of the cost of a qualifying asset shall begin when the entity A B. c D. Incurs expenditures for the asset. \ Incurs borrowing costs. Undertakes activities that are necessary to prepare the asset for its intended use or sale. All of these conditions must be met. 539| Camprcheasioe Recleer tn lsantlal MeUaing ane Kepering Parg | f Capitalizati rowit 9 Which of the following statements concerning the suspeng, PENSion of borrowing costs is true? ca! ‘A. Capitalization of borrowing costs shall never be susp, a Pilg led, h ql B. Capitalization of borrowing costs shall be suspendeq qv: in which active development of a qualifying asset is FING ext C. Capitalization of borrowing costs can be suspended weed, py is a necessary part of the process of getting an asset ena To % Use or sale, depending on the circumstances, Feady for eg D. Capitalization of borrowing costs may be suspend Sng accounting policy of the entity. led, benny 4 jitalizatior Bor i 10. Capitalization of borrowing costs shall cease when ‘A. Allthe activities necessary to prepare the qualifyi or sale are substantially complete. Gualifying asset for its inten B. No further interest is being incurred. ‘ty C. The asset is abandoned or dispose. D. Inno case capitalization of borrowing costs shall cease, SUGGESTED KEY ANSWERS to foo |\sJorfen}.a us |rs fee > 0 |o]00|a\0|>\a\0Comprehensive Reviewer in Fisancial Accouating and Reporting Pant 1 EXERCISES FINANCIAL ACCOUNTING AND REPORTING THEORIES . PAS 20 Conceptual Definition i. 2 Which of the following gives an accurate definition of government grants under PAS 20? ‘A. Itpertains to assistance by government in the form of transfer of resources ton entity in return for part or future compliance with absolutely no condition, relating to the operating activities of the entity. i B. It pertains to assistance to government in the form of transfer of resources by an entity in return for part or future compliance with certain conditions relating to the operating activities of the entity. C. It pertains to assistance by government in the form of transfer of resources to an entity in return for part or future compliance with certain conditions relating to the operating activities of the entity, D. It pertains to assistance to government in the form of transfer of resources by an entity in return for part or future compliance with absolutely no condition relating to the operating activities of the entity. Which of the following is the most accurate? A. Government grants, including nonmonetary grant at fair value, shall be recognized when there is reasonable assurance that the entity will comply with the conditions attaching to the grant and the grant will be received. B. Government grants, including nonmonetary grant at fair value, shall be recognized when there is reasonable assurance that the entity will comply with the conditions attaching to the grant or the grant will be received. C. Government grants, including nonmonetary grant at fair value, shall be recognized when there is reasonable assurance that the entity will comply with the conditions attaching to the grant. D. Government grants, including nonmonetary grant at fair value, shall be recognized when there is reasonable assurance that the grant will be received. Accounting for Government Grant 3. The grant in recognition of specific expenses shall be A. Recognized as income in,excess of the period of thé related expenses. Recognized as income over the period of the related expenses. Recognized as income shorter than the period of the related expenses. Not be recognized as income. poe Ifa grant is awarded to an entity to perform an obligation which is to purchase a depreciable asset, which of the following is true? ‘A. Income is recognized immediately when the grant is,received. B, Income is recognized proportionate to the amount of depreciation incurred annually. Income is recognized based on the deferred income divided by the useful life of the depreciable asset. 7 . Income is recognized immediately when the asset is purchased. No income shall be recognized in any case, if 560Chapter 10: Acaunting for Government Grants fw much income should be recognized in the year when an entity received a financial support in the form of a government grant with no further related cost? Equal to the half of the amount received, 5, No income should be recognized in this case, C__ Depends on the conditions stated by the donor. . Equal to the, amount received, Government grant related to"non-depreciable asset that requires fulfilment of * certain conditions a, Should be recognized as income immediately. , p, Should be recognized as income over the periods which bear the cost of meeting the conditions. Should be recognized as income over a fixed period of 25 years. p. Should not be recognized as income. , Agovernment grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs ‘A. is.recognized in profit or loss of the period in which it becomes receivable. B, is recognized in the equity of the period in which it becomes receivable. C._ isrecognized in other comprehensive income of the period in which it becomes receivable. D. is recognized directly in the retained earnings of the ‘period in which it becomes receivable. 3. In the case of grant related to an asset, which of following accounting treatment is prescribed? A, Record the grant at a nominal value in the first year and write it 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. Present the grant in the income statement as other income or as a separate line item or deduct it from the related expense. Inthe case of grant related to income, which of the following accounting treatment 's prescribed? A. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset. 8. Present the grant in the income statement as other income or as a separate line item or deduct it from the related expense. Credit the grant to OCI. D. Record the grant at fair value in the first year and take it to income in the subsequent year. 561Comprchensioe Reviewer ix Financial Accounting and Reporting Part 1 Repayment of grant 10. The repayment of government grant is treated as, ‘A. Change in accounting cycle B. Change in accounting policy C. Change in accounting estimate D. Change of heart 11, Repayment of grant related to an asset ‘A. Should be recorded by decreasing the carrying value of the asset or by increasing the deferred income by the amount repayable B, Should be recorded by increasing the carrying value of the asset or by reducing the deferred income by the amount repayable | Should be recorded by increasing the carrying value of the asset only D. Decreasing the deferred income by the amount repayable only 12 Repayment of rantreated to an asset shall be recorded by ‘A. Increasing the carrying amount of the asset if the net method is employed, B, Recognizing as expense the cumulative additional depreciation that woul, have been recorded to date in the absence of the grant if the net method employed. ._Redlucng the deferred income balance to zero if the deferred income approach or gross method is employed. ; D. Allof these are correct about repayment of grant related to asset. 13. Repayment of grant related to income shall be ‘A. Recognized as component of other comprehensive income 3. Charged to retained earnings . Expensed immediately . Applied first against the deferred income balance and any @ ‘excess shall be recognized immediately.as an expense. Government assistance 14. Which of the following best differentiates government grants from government assistance? A. Government assistance are transfers of resources to an entity by government in return for past or future compliance with certain conditions relating to the operating activities of the entity. Government grants is action by government designed to provide an economic benefit that is specific to an entity or range of entities qualifying under certain criteria. : B. Government grants are transfers of resources to an entity by government in return for past or future compliance with certain conditions relating to the Operating activities of the entity. Government assistance is action by government designed to provide an economic benefit that is specific to an entity or range of entities qualifying under certain criteria, ~ Government assistance are transfers of resources from one entity to another entity by government in return for past or future compliance with certain conditions relating to the operating activities of the entity. Government granls is action by government designed to provide an economic benefit that is specific to an entity or range of entities qualifying under certain criteria. poe 2 562ment grants are transfers of rence aut os Gere Gants D+ entity by SNe ‘cum for past or future comma onan Eonditions relating © operating actos me cOMPlance with certain aetance is action by government entity. Government designed to . ea ific to an entity or rar led to provide an economic benefit frat is Pec "YO Fane of ents qualting unr crane ment grants : a excl es te form of grants which cannot Teasonably have a value placed * ypon ne he i p includes the form of grants which cannot Teasonably have a value placed upon th once provided by a government of another country. RG in return for favor that is unconstitutional. D. SUGGESTED KEY ANSWERS 1 Cc ii] B 2[ a“| [a2 3[ 8 13[ 4 Cc 14] B 5 D oie 6| 8B 71_A e| B 9 B tol ¢