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2.5 PRETEST - Borrowing Costs

1) A machinery that can be purchased from a local manufacturer is not considered a qualifying asset for capitalization of borrowing costs. The period of time during which interest must be capitalized ends when the asset is substantially complete and ready for the intended use. 2) The amount of interest that should be capitalized for a company in 2020 is P212,640. 3) For a government grant related to an asset, repayment shall be recorded by increasing the carrying amount of the asset. Grant in recognition of specific expenses shall be recognized as income over the period of the related expense. The amount of government grant income that should be allocated for 2021 is P2,700,000.

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132 views4 pages

2.5 PRETEST - Borrowing Costs

1) A machinery that can be purchased from a local manufacturer is not considered a qualifying asset for capitalization of borrowing costs. The period of time during which interest must be capitalized ends when the asset is substantially complete and ready for the intended use. 2) The amount of interest that should be capitalized for a company in 2020 is P212,640. 3) For a government grant related to an asset, repayment shall be recorded by increasing the carrying amount of the asset. Grant in recognition of specific expenses shall be recognized as income over the period of the related expense. The amount of government grant income that should be allocated for 2021 is P2,700,000.

Uploaded by

Shania Angela Moya
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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2.

5 PRETEST - Borrowing costs


Question 1
One of the following items is not considered a qualifying asset. Which one?
A.  A toll bridge that usually takes more than a year to build.
B.  A manufacturing plant that normally takes at least one year to complete.
C.  A machinery that can be purchased from a local manufacturer.
D.  A power generation facility that normally takes at least two years to complete.!

 C
  
Question 2
Which of the following statements is correct?
I. If the qualifying asset is financed by general borrowing, the capitalizable borrowing
cost is equal to total expenditures of the asset multiplied by a capitalization rate.
II. The period of time during which interest must be capitalized ends when the asset is
substantially complete and ready for the intended use.!

Only the second statement is correct


 
 
Question 3
During 2020, the company constructed a factory building P3,372,000. The weighted
average accumulated expenditures on the asset during the current year amounted to
P3,120,000. The company borrowed P1,600,000 at 7.5% to fund the construction on
January 1, 2020. Funds not needed for construction were temporarily invested in short-
term securities and earned P47,200. in interest revenues.
In addition to the construction loan, the entity has two other notes outstanding during
the year:
P1,200,000, 10 year, 10% note payable dated October 1, 2019
P800,000, 8% note payable dated November 2, 2019
Required: Compute the amount of interest that should be capitalized during 2020.

212,640
 
Question 4
On February 1, 2020, the company commenced construction of a new plant. The cost of
P13,500,000 was paid in full to the contractor on February 1, 2020 and was funded by
existing general borrowings. The construction was completed on September 30, 2020.
The borrowings outstanding during the current year are as follows:
6% loan from bank A                                   6,000,000
6.6% loan from bank B                                7,500,000
7% loan from bank C                                 22,500,000
Required: What amount of borrowings should be capitalized? 

  607,500
 
2.5 PRETEST - Government grants
Question 1
Which of the following statements is correct?
Statement 1: Repayment of a grant related to an asset shall be recorded by increasing
the carrying amount of the asset.
Statement 2: Grant in recognition of specific expenses shall be recognized as income
over the period of the related expense

  Both statements are correct


 
 
Question 2
I. A government grant that becomes receivable as compensation for expenses or losses
already incurred should be recognized as income of the period in which it becomes
receivable.
II. Government grant related to nondepreciable asset that requires fulfillment of certain
conditions should not be recognized as income.
III. Government grant related to depreciable asset is usually recognized as income
immediately.!

  True, false, false


 
 
Question 3
The company purchased a machine for P4,950,000 on January 1, 2019 and received a
government grant of P450,000 toward the asset cost. The accounting policy is to treat
the grant as a reduction in the cost of the asset. The machines is to be depreciated on a
straight line basis over ten years with a residual value of P375,000.
On January 1, 2021, the grant became fully repayable because of noncompliance with
conditions.
Required: Compute the depreciation for 2021.Correct!

  547,500
 
 
Question 4
The company received a grant of P9,000,000 from the local government of Cebu City
for the purpose of defraying safety and environmental expenses over the period of three
years. The safety and environmental expenses that will be incurred by the company are
as follows:
Year 2020                                1,200,000
Year 2021                                1,800,000
Year 2022                                3,000,000
Total                                         6,000,000
 Required: How much should be allocated as income for 2021? 

  2,700,000

2.3 PRETEST – Revaluation


Question 1
Which of the following statements is correct?
I. Under proportional approach, the accumulated depreciation is eliminated against the
gross carrying amount of the asset and the net amount restated to the revalued amount
of the asset.
II. Revalued amount is the fair value or depreciated replacement cost of the item of
property, plant and equipment.

  Only the second statement is correct


 
 
Question 2
2 / 2 pts
Is the replacement cost of the property , plant and equipment minus the corresponding
accumulated depreciation.

  Sound value
 
Question 3
On June 30, 2020, the entity reported the following related to machinery:
Machinery at cost                                                4,000,000
Accumulated depreciation                                  1,200,000
The machinery was measured using the cost model and depreciated on a straight line
basis over a 10-year period. On December 31, 2020, the entity decided to change the
basis of measuring the equipment from the cost model to the revaluation model.
On revaluation date, the equipment had a fair value of P3,640,000 with an expected
remaining life of 5 years.
Required: What is the depreciation for 2021?

  728,000
 
 
Question 4
On June 30, 2020, the entity reported the following related to machinery:
Machinery at cost                                4,000,000
Accumulated depreciation                  1,200,000
The machinery was measured using the cost model and depreciated on a straight line
basis over a 10-year period. On December 31, 2020, the entity decided to change the
basis of measuring the equipment from cost model to the revaluation model.
On the date of revaluation, the equipment had a fair value of P3,640,000 with an
expected remaining life of 5 years
Required: What is the revaluation surplus on December 31, 2021?

  832,000
 

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