GEN 009

Mock CFE Expenditures on the building were made as follows:

[Link] the letter of the best answer.

1. According to PAS 20, government grants are presented in the financial

statements using
a. a gross presentation. c. a or b
b. a net presentation. d. a functional presentation
2. On January 1, 20x1, Entity A received land with fair of ₱200,000 from the
government conditioned on the construction of a building on the lot. 12. What interest rate should be used to calculate capitalized borrowing
Entity A started immediately the construction and it was completed on cost? a. 10.625% b. 10.00% c. 12.00% d. 10.67%
December 31, 20x1 for a total cost of ₱1,000,000. The building has an
estimated useful life of 10 years and zero residual value. 3. How much 13. What is the amount of capitalized borrowing cost?
is the income from government grant in 20x1 and 20x2, respectively? a. 212,500 b. 112,500 c. 425,000 d. 150,000
a. 20x1:0 | 20x2:200,000 b.20x1: 200,000| 20x2: 0
c. 20x1:0 | 20x2:20,000 d. 20x1: 20,000| 20x2: 20,00 14. On January 1, 2015, Cruise Company borrowed P30,000,000evidenced
3. How much is the carrying amount of the building on December 31, 20x2 by a 3-year 10% note payable and began construction of a cruise ship. Annual
under the Gross presentation? payments of principal and interest in the amount P13,000,000 are due every
a. 1,000,000 b. 900,000 c. 800,000 d. 640,000 December31. The entity used all proceeds as down payment for
4. How much is the carrying amount of the building on December 31, 20x2 construction. What amount should be reported as interest expense related
under the Net presentation? to the note in the income statement for 2016?
a. 800,000 b. 720,000 c. 640,000 d, 533,333 a. 3,000,000 b. 2,000,000 c. 1,000,000 d. 0
5. How much is the depreciation expense recognized in 20x3 under the
Gross method? [Link] costs that are directly attributable to the acquisition,
a. 100,000 b. 80,000 c. 72,000 d. 0 construction or production of a qualifying asset are
6. How much is the depreciation expense recognized in 20x3 under the Net A. Capitalized; other borrowing costs are expensed
Method? B. Expensed; other borrowing costs are capitalized
a. 100,000 b. 80,000 c. 72,000 d. 0 C. Capitalized; other borrowing costs are also capitalized.
7. This is defined as assistance by government in the form of transfer of D. Expensed; other borrowing costs are also expensed
resources to an entity in return for past or future compliance with certain
condition relating to the operating activities of the entity. 16. For purposes of capitalization of borrowing cost, which of the following is
a. Government grant not a qualifying asset?
b. Government assistance A. Manufacturing plant
c. Government donation B. Power generation facility
d. Government aid C. Investment property
8. Government grant shall be recognized when there is reasonable D. Asset that is ready for its intended use or sale
assurance that
a. The entity will comply with the conditions of the grant. 17. If the qualifying asset is financed by general borrowings, the capitalizable
b. The grant will be received. borrowing cost is equal to
c. The entity will comply with the conditions of the grant and the A. Actual borrowing cost incurred.
grant will be received. B. Total expenditures on the asset multiplied by a capitalization rate.
d. The grant must have been received C. Average expenditures on the asset multiplied by a capitalization rate or
9. It is a government grant whose primary condition is that an entity actual borrowing cost incurred, whichever is lower.
qualifying for it should purchase, construct or otherwise acquire long-term D. Average expenditures on the asset multiplied by a capitalization rate or
asset. actual borrowing cost incurred, whichever is higher
a. Grant related to asset
b. Grant related to income 18. If the qualifying asset is financed by specific borrowing, the capitalizable
c. Government gift borrowing cost is equal to
d. Government appropriation A. Actual borrowing cost incurred
10. An entity received a grant of a large tract of land in Baguio City from the B. Actual borrowing cost incurred up to completion of asset.
Philippine Government. The land has a fair value of P25,000,000. The grant C. Actual borrowing cost incurred up to completion of asset minus any
required the entity to construct a factory building and employ only personnel investment income from the temporary investment of the borrowing.
residing in Baguio. The cost of the factory is P40,000,000 with a useful life of D. Zero.
20 years.
Statement I: Government grant related to nondepreciable assets shall be 19. An entity started construction of an office building for its own use on
recognized as income over the periods which bear the cost of meeting the January 1, 2024 at a cost of P5,200,000.
conditions. The construction of the building was completed on December 31, 2024. The
Statement II: Grant income for the current year is P2,000,000. entity has the following debt outstanding during the construction period:
a. All statements are true. c. Statement II is false. Construction loan – 12% interest payable annually, issued December 31,
b. Statement I is false. d. All statements are false. 2023 = 2,000,000
Long-term loan – 10% interest payable annually, and principal payable on
11. On January 1, 2015, Hamlet Company borrowed P6,000,000 at an annual May 30, 2027 = 1,600,000
interest rate of 10% to finance specifically the cost of building an electricity Long-term loan – 17.8% interest payable annually, and principal due on
generating plant. Construction commenced on January 1, 2015 with a cost January 1, 2028 = 1,000,000
P6,000,000. Not all the cash borrowed was used immediately, so interest The following expenditures were made during 2024:
income of P80,000 was generated by temporarily investing some of the January 1, P1,000,000; April 1, P1,500,000; July 1, P2,000,000; October 1,
borrowed funds prior to use. The project was completed on November 30, P700,000. Excess funds from the construction loan were invested during the
[Link] is the carrying amount of the plant on November 30,2015? period and earned P20,000 of investment income. What amount of borrowing
a. 6,000,000 b. 6.470,000 c. 6.520,000 d. 6,550,000 cost should be capitalized in 2024?
a. 578,000
12 to 13 ABC Company had the following general borrowings during2015 b. 389,000
which were used to finance the construction of a newbuilding: c. 624,000
d. 409,000

20. An entity starts the capitalization of borrowing costs to the cost of a

qualifying asset when
A. expenditures for the asset are being incurred.
B. borrowing costs are being incurred.
The construction began on January 1, 2015 and the building was completed C. activities necessary to prepare the asset for its intended use or sale are
on December 31, [Link] the first phase of the construction, there were idle being undertaken.
funds which the entity invested and earned interest income ofP100,000. D. all of the above conditions are met.
21. Forester Company on adoption of PAS 41 has reclassified certain a. Statements I, III and IV are true.
assets as biological assets. The total value of the forest assets is b. Statements I, II and IV are true.
P6,OOO,000 which comprises: c. Statements I and III are true.
d. Statement IV is true.
Freestanding trees 5,100,000
Land under trees 600,000 31. It is defined as property (land or building or part of building or both) by an
Roads in forests _ 300,000 owner or finance lessee to earn rentals or for capital appreciation or both.
6,000,000
a. Investment property c. Owner-occupied property
b. Mining property d. Rental property
In Forester Company's statement of financial portion, how much of
the forest assets shall be classified as biological assets?
a. 5,100,000 c. 5,400,000 32. Investment property includes all of the following except
b. 5,700,000 d. 6,000,000 a. Land held for long-term capital appreciation
b. Land held for currently undetermined use
22. Colombia Company is a producer of coffee. The entity is considering the c. Building owned by the reporting entity or held by a finance lessee leased
valuation of its harvested coffee beans. Industry practice is to value the out under one or more operating leases.
coffee beans at market value and uses as reference a local publication d. Property held for sale in the ordinary course of business or in
"Accounting for Successful Farms". On December 31, 2018, the entity has the process of construction for such sale.
harvested coffee beans costing P3,000,000 and with fair value less cost to
sell of P3,500,000 at the point harvest. Because of long aging and maturation 33. If an entity owns and manages a hotel, services provided to guests are
process after harvest, the harvested coffee beans were still on hand on significant component of the arrangement as a whole. In such case, the hotel
December 31,2018. On such date, the fair value less cost to sell is is classified as
P3,900,000 and the net realizable value is P3,200,000. a. Investment property
b. Owner-occupied property
The coffee beans inventory shall be measured at c. Partly investment property and partly owner-occupied property
a. 3,000,000 c. 3,200,000 d. Neither investment property nor owner-occupied property
b. 3,500,000 d. 3,900,000
34. Which statement is correct if the property is partly investment and partly
23 and 24 Use the following information for the next two questions. owner-occupied?
Joan Company provided the following data: I. If the investment and owner-occupied portions could be sold or leased out
• Value of biological asset at acquisition cost on December separately, the portions shall be accounted for separately as investment
31,2017, P 600,000 property and owner-occupied property.
• Fair valuation surplus on initial recognition at fair value on II. If the investment and owner-occupied portions could not be sold or leased
December 31, 2017, 700,000 out separately, the property is investment property if only an
• Change in fair value to December 31, 2018 due to growth and price insignificant portion is held for manufacturing or administrative purposes.
fluctuation, 100,000 a. I only b. II only c. Both I and II d. Neither I or II
• Decrease in fair value due to harvest, 90,000
23. What is the carrying amount of the biological asset on December 31, 35. Which of the statement is incorrect concerning initial measurement of
2018? an investment property?
a. 1,400,000 c. 1,300,000 a. The investment property shall be measured initially at fair value.
b. 1,310,000 d. 1,490,000 b. The cost of the purchased investment property includes its
purchase price and any directly attributable expenditure.
24. What is the gain from change in fair value of biological asset that should c. The initial cost of a property interest held under a lease and classified as
be shown in the 2018 income statement? an investment property shall be the lower of the fair value of the property and
a. 100,000 c. 710,000 the present value of the minimum lease payments.
b. 800,000 d. 10,000 d. If payment for an investment property is deferred, its cost is the cash price
equivalent
25. Which of the following is considered as a biological asset under PAS 41?
a. Carcass b. Ham 36. On January 1, 2024, an entity acquired land at a total cost of P6,000,000.
c. Pig d. Piggy bank The land is properly classified as investment property and the entity elected
to use the fair value model to account for all investment properties. The fair
26. Which of the following is considered as an agricultural produce under values of the land on December 31, 2024 and December 31, 2025 are
PAS 41? P7,000,000 and P7,800,000 respectively. On January 1, 2026, the entity
a. Eggs to be hatched into chicks c. Condensed milk decided use the land as a future plant site.
b. Dairy cow d. Felled trees Statement I: The gain from change in fair value in 2024 is P1,000,000.
27. of the following is considered as inventory to be accounted for under PAS Statement II: The gain from change in fair value in 2025 is P1,800,000.
2? Statement III: The land remains to be investment property on January 1, 2026.
a. Harvested cotton c. Harvested cane a. Statements I and III are true.
b. Tea d. Picked leaves b. Statements I and II are true.
28. Which of the following is considered an agricultural activity under PAS c. Statements II and III are true.
41? d. Statement I is true.
a. Fishing in the open seas c. Illegal logging
b. Floriculture d. Farming in the cellphone 37. Transfers from investment property to owner-occupied property are
appropriate:
29. PAS 41 is applicable to which of the following a. When there is a change of use.
a. Expensive plants used for beautification b. Based on the entity’s discretion.
b. Living animal used as transportation vehicle by a company c. Only when the entity adopts the fair value model.
executive d. Only when the entity adopts the cost model.
c. Fishes in the fishpond being grown to be sold to consumers
d. All of these Showman Company’s accounting policy with respect to investment
30. On January 1, 2024, an entity acquired milking cows for P3,500,000. properties is to measure them at fair value at the end of each reporting
During 2024, the fair value less cost of disposal of the cows increased by period. One of its investment properties was measured at P 8,000,000 on
P450,000 due to growth and price changes. However, the fair value less cost December 31, 2024. The property had been acquired on January 1, 2024, for
of disposal decreased by P230,000 due to harvest. Milk was harvested at fair a total of P 7,600,000, made up of P 6,900,000 paid to the vendor, P 300,000
value less cost of disposal of P700,000. Towards the end of 2024, all of the paid to the local authority as a property transfer tax and P 400,000 paid to
milk was sold for P850,000. professional advisers. The useful life of the property is 40 years.
Statement I: Biological assets are measured at fair value less cost of
disposal. 38. What is the amount of gain to be recognized in other comprehensive
Statement II: Bearer plants are classified as biological assets. income in the year ended December 31, 2024, in respect of the investment
Statement III: The entity shall report a net income of P1,070,000 for the year property is?
2024. a. P0 b. P100,000 c. P400,000 d. P700,000
Statement IV: The entity shall report biological assets at P3,720,000 on
December 31, 2024.
39. In the case of an exchange of assets, if the acquired asset cannot be 47. When a previous impairment loss was recognized on an intangible asset
valued: and subsequently the recoverable amount is higher that it’s carrying value,
A. The carrying value of the asset given up is used. the proper accounting treatment should be:
B. The residual value is used. a. recognized a gain on recovery up to the extent of impairment loss
C. The asset cannot be capitalized. recognized in the previous year and any excess to revaluation surplus
D. The asset should be measured at fair value (revaluation model); recognized a gain on recovery up to the extent of the
impairment loss recognized in the previous year and any excess is ignored
40. .Compensation from third parties for items impaired, lost or sequestrated (cost model)
should be recorded as income: b. recognized a gain on recovery up to the extent of unrecovered impairment
A. When the cash is received. loss as of the date of recovery and any excess to revaluation surplus
B. When the compensation is receivable. (revaluation model); recognized a gain on recovery up to the extent of
C. When the item is lost. unrecovered impairment loss as of the date of recovery and any excess is
D. When paid ignored (cost model)
c. recognized the entire amount as revaluation surplus (revaluation model);
41. Which characteristic is not possessed by intangible assets? recognized the entire amount as impairment loss (cost model)
a. Physical existence. d. recognized the entire amount as impairment loss (revaluation model);
b. Short-lived. recognized the entire amount as impairment loss (cost model)
c. Result in future benefits.
d. Expensed over current and/or future years. 48. n accordance with the new international accounting standard, which
statement is correct?
42. Which of the following costs incurred with developing computer software I. Intangible assets with finite life are amortized over their useful life.
for internal uses should be capitalized? II. Intangible assets with indefinite life are not amortized but tested for
a. Evaluation of alternatives. impairment atleast annually.
b. Coding. a. I only b. II only c. Both I and II d. Neither I nor II
c. Training.
d. Maintenance. 49. Which of the following should be reported under the “Other Expenses and
Losses” section of the income statement?
43. Lynne Corporation acquired a patent on May 1, 2010. Lynne paid cash of a. Goodwill impairment losses.
$30,000 to the seller. Legal fees of $1,000 were paid related to the b. Trade name amortization expense.
acquisition. What amount should be debited to the patent account? c. Patent impairment losses
a. $1,000 b. $29,000 c. $30,000 d. $31,000 d. None of the above

44. ELO Corporation purchased a patent for $90,000 on September 1, 2008. 50. On January 1, 2024, a patent was acquired for P1,500,000 with a useful
It had a useful life of 10 years. On January 1, 2010, ELO spent $22,000 to life of 10 years. On December 31, 2025, because of reduced demands for
successfully defend the patent in a lawsuit. ELO feels that as of that date, certain products protected by the patent, a possible impairment may have
the remaining useful life is 5 years. What amount should be reported for occurred. The expected future cash flows from the patent from December
patent amortization expense for 2010? 31, 2026 to December 31, 2028 were P20,000 for each period. The discount
a. $20,600. b. $20,000. c. $18,800. d. $15,600 rate is 10% and the PV of an ordinary annuity of 1 at 10% for 3 periods is 2.49.
What is the carrying amount of the patent on December 31, 2025 after
The accounting record of Sterling Corp. which was organized in 2023 considering any impairment?
includes only one account for all intangible assets. The following is a a. 1,500,000
summary of the items debited to the said account in 2023 and 2024: b. 1,200,000
c. 49,800
d. 60,000

45. Using the information of Sterling Corp:

Statement 1: The total carrying value of intangible assets – net in its
December 31, 2024 Statement of Financial Position is P4,732,000.
Statement 2: The total expenses reported in the Income Statement for the
year ending December 31, 2024 is P851,500.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false

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

a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
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.
2.

3.

4.

5.

6.

10.

11. .

12&13.
14.

19.

30.

36.

38.

45& 46

50.