PHINMA UNIVERSITY OF PANGASINAN

BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2

3 N D PERIODICAL EXAMINATION
SET A

Name: ______________________________________________ Date: ______________

Year & Section: ___________________________ Score: _____________

PART 1: GENERAL INSTRUCTION: MULTIPLE CHOICE. Choose the best answer. Kindly use the PART 1 answer
sheet provided. No Solution, No point .
1. What is the correct treatment for all eligible borrowing costs under IAS 23?
A. Expensed
B. Capitalized (All eligible borrowing costs must be capitalized under IAS 23-Borrowing Costs)
C. Both a and b
D. None of these
E. Either a and b
2. Borrowing cost include which of the following?
I. Interest expense on borrowings calculated using the effective interest method
II. Finance charge with respect to finance lease
III. Exchange difference arising from foreign currency borrowing that is regarded as an adjustment to the interest cost
A. I and II only
B. I and III only
C. II and III only
D. I, II and III only
E. No Answer
3. Which of the following statements is true concerning capitalization of borrowing cost?
I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to be capitalized as cost of the
asset
II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be expensed as incurred
A. I only
B. II only
C. Both I and II
D. Neither I nor II
E. No Answer
4. An asset is being constructed for an entity's own use. The asset has been financed with a specific new borrowing. The interest
cost incurred during the construction period as a result of expenditures for the asset is
A. Interest expense in the construction period
B. A prepaid asset to be written off over the estimated useful life of the asset
C. A part of the historical cost of acquiring the asset to be allocated over the term of the borrowing used to finance the
construction of the asset
D. Both A and B
E. No Answer
5. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
A. The total interest cost actually incurred
B. A cost of capital
C. That portion of total interest cost which would not have been incurred if expenditures for asset construction bad not been
made
D. That portion of average accumulated expenditures on which no interest cost was incurred
E. No Answer
6. In the case of a nonmonetary grant, which of the following accounting treatments is prescribed by PAS 20?
A. Record the asset at replacement cost and the grant at a nominal value.
B. Record the grant at a value estimated by management
C. Record both the grant and the asset at fair value of the nonmonetary asset.
D. Record only the asset at fair value; do not recognize the fair value of the grant.
E. No Answer
7. In relation to a benefit included in the term ‘government assistance’, are the following statements true or false according to
PAS 20 Government grants and government assistance?
Statement 1: The provision of infrastructure in developing areas is a benefit.
Statement 2: The imposition of trading constraints on competitors is a benefit.
A. Both statements are false.
B. Statement 1 is false; Statement 2 is true.
C. Statement 1 is true; Statement 2 is false.
D. Both statements are true.
E. No Answer
8. Which statement is incorrect when a government provides an interest-free loan to an entity?
A. No interest expense is recognized.
B. The loan payable is initially reported at the present value.
C. The interest element is amortized over the term of the loan using the effective interest method.
D. The deferred grant income is amortized over the term of the loan using the straight-line method.
E. No Answer
9. Which statement is true regarding the accounting for government grant related to an asset?
A. Depreciation is higher and net income lower if the grant is recorded as deferred income.
B. Depreciation is higher and net income lower if the grant is accounted for as an adjustment to the asset.
C. Depreciation is higher if the grant is recorded as deferred income, but net income is the same under the deferred income
approach and deduction from asset approach.
D. Depreciation is higher if the grant is recorded as an adjustment to the asset.
E. No Answer
10. It is an action by a government designed to Provide an economic benefit specific to an entity and for which the government
cannot reasonably place a value.
A. Government grant
B. Government assistance
C. Government takeover
D. Subvention
E. No Answer
11. According to PAS 23, borrowing costs are capitalized when
A. they relate directly to the acquisition, construction or production of a qualifying assets.
B. the entity chooses to capitalize them.
C. they are material and are expected to be incurred over more than one reporting period.
D. All of these
E. No Answer
12. Which of the following is a qualifying asset?
A. Investment property measured at fair value
B. Building that is ready for its intended use upon purchase
C. Inventories that are routinely produced in large quantities on a continuous basis
D. An application software (intangible asset) that takes 3 years to develop.
E. No Answer
13. An entity starts the capitalization of borrowing costs to the costs of a qualifying asset when
A. Expenditures for the asset are being incurred.
B. Borrowing Costs are being incurred.
C. activities necessary to prepare the asset for its intended use or sale are being undertaken
D. all of the above considered are met.
E. No Answer
14. In which of the following instances is the capitalization of borrowing costs under PAS 23 would most likely be suspended?
A. Construction is temporarily stopped for the curing of concrete.
B. Active development is stopped to give time for the engineers to reevaluate a design flaw.
C. The construction of a bridge is disrupted by troubled waters.
D. The construction of building is discontinued because it is condemned by the government. The resumption of development
is uncertain.
E. No Answer
15. Government assistance includes all the following except
A. Free technical advice
B. Provision of guarantee
C. Government procurement policy that is responsible a portion of the entity's sales
D. Improved irrigation water system for the benefit of an entire local community.
E. No Answer
16. Which is included in government assistance?
A. The construction of infrastructure in developing areas
B. The Imposition of trading constraints on competitors
C. Improvement to the general transport and communication network
D. None of these can be included
E. No Answer
17. A forgivable loan from a government or the benefit of a government loan at NIL or below market interest rate is accounted for
as
A. Government grant
B. Government assistance
C. Both government grant and government assistance
D. Neither government grant nor government assistance
E. No Answer
18. The amount of benefit in a zero-interest government loan measured as the difference between
A. Face amount and present value of loan
 B. Face amount and fair value of loan
C. Fair value and present value of loan
D. Fair value and face amount of loan
E. No Answer
19. 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 it to income in the subsequent year.
D. Take it to the income statement and disclose it as an extraordinary gain.
E. No Answer
20. A property that is held by a lessee, under an operating lease, may be held as an investment property, but only if:
A. The operating lease exceeds 20 years.
B. It is a hotel.
C. The lessee uses the fair value model.
D. None of the above.
E. No Answer
21. Which of the following does not define investment property?
A. Property held to earn rentals.
B. Property held for capital appreciation.
C. Property used in the production or supply of goods or services.
D. A and C.
E. No Answer
22. Which of the following statements is true with regards to an investment property?
A. An investment property generates cash flows largely independently of the other assets held by an entity.
B. The value in use of investment property is significantly higher than of owner- occupied property.
C. An investment property unlike owner-occupied property shall not be depreciated over its useful life.
D. An investment property unlike owner-occupied property shall always be measured at its historical cost.
E. No Answer
23. An investment property shall be measured initially at its
A. Cost
B. Fair value
C. Deemed cost
D. Value in use
E. No Answer
24. If property held under an operating lease is classified as investment property:
A. All investment property will be accounted for using the fair value model.
B. Depreciation will no longer be charged.
C. All property held under operating leases are classified as investment properties.
D. None of the above.
E. No Answer
25. If a property is partly an investment property, and partly owner-occupied, the company should account for the property:
A. As owner-occupied.
B. Each portion should be accounted for separately.
C. As investment property.
D. As inventory.
E. No Answer
26. PAS 41 is applicable to which of the following items?
A. Land used for farming
B. Agricultural produce after the point of harvest
C. Unconditional government grant related to bearer plants
D. Unconditional government grant related to consumable living animals measured at fair value less cost to sell
E. No Answer
27. Which of the following is considered as a biological asset under PAS 41?
A. Carcass
B. Ham
C. Pig
D. Piggy bank
E. No Answer
28. Which of the following is considered as an agricultural produce under PAS 41?
A. Eggs to be hatched into chicks
B. Condensed milk
C. Dairy cow
D. Felled trees
 E. No Answer
29. Which of the following is considered as inventory to be accounted for under PAS 2?
A. Harvested cotton
B. Harvested cane
C. Tea
D. Picked leaves
E. No Answer
30. Which of the following is considered a bearer plant to be accounted for under PAS 16
A. Palm oil
B. Corn oil
C. Vegetable oil
D. Oil palm
E. No Answer
31. If a firm provides significant ancillary services to tenants in its property:
A. The service fees should be capitalized.
B. It may have to be classified as investment property, rather than as owner- occupied.
C. It may have to be classified as owner-occupied, rather than an investment property.
D. None of the above.
E. Either A and B
32. A parent company leases a property to its subsidiary. It may be classified as an investment property in the:
A. Parent company's individual financial statements.
B. Subsidiary's accounts.
C. Consolidated accounts.
D. Combined financial statements.
E. No Answer
33. Repairs and maintenance costs are normally:
A. Expensed in the statement of profit or loss as incurred.
B. Capitalized.
C. Recorded as deferred expenses.
D. None of the above.
E. Either A and B
34. If the costs of a major repair such as replacement of walls are capitalized:
A. They must be shown as a separate asset.
B. The board of directors must be notified immediately.
C. Any remaining costs of a previous inspection must be written off.
D. All of the above.
E. No Answer
35. Which of the following is considered an agricultural activity under PAS 41?
A. Fishing in the open seas
B. Illegal logging
C. Floriculture
D. Farming in the cell phone
E. No Answer
36. PAS 41 is applicable to which of the following
A. Expensive plants used for beautification
B. Living animal used as transportation vehicle by a company executive
C. Fishes in the fishpond being grown to be sold to consumers
D. All of these
E. No Answer
37. Biological assets are measured as follows
I. Initial Fair value less cost to sell
II. Subsequent Fair value less cost to sell
A. Both True
B. No.1 is True and No. 2 is False
C. No.1 is False and No. 2 is True
D. Both are False
E. No Answer
38. Which of the following is most likely an acceptable measurement for agricultural produce
I. Initial Fair value less cost to sell
II. Subsequent Lower of cost and NRV
A. Both True
B. No.1 is True and No. 2 is False
 C. No.1 is False and No. 2 is True
D. Both are False
E. No Answer
39. During 20x1, ABC Co. received a piece of land from the government. The land shall be used for farming annual crops measured
at fair value less costs to sell. As of December 31, 20x1, ABC Co. has not yet complied with the condition attached to the gr ant.
Which of the following is the correct accounting treatment for the grant?
A. Debit the grant at fair value less costs to sell and credit a liability for the same amount
B. Credit the grant at fair value less costs to sell and credit a liability for the same amount
C. Debit the grant at fair value less costs to sell and debit a liability for the same amount
D. Credit the grant at fair value less costs to sell and debit a liability for the same amount
E. No Answer
40. Which of the following is not one of the common features of agricultural activities
A. Accounting change
B. Capability to change
C. Management of change
D. Measurement of change
E. No Answer
41. At the beginning of current year, Sagada Company received a grant of P25,000,000 from the American government in order to
defray safety and environmental costs within the area where the entity is located. The safety and environmental costs are
expected to be incurred over four years, respectively, P2,000,000, P4,000,000, P6,000,000 and P8,000,000. What amount of
grant income should be recognized for the current year?
A. 25,000,000
B. 2,000,000
C. 2,500,000
D. 6,250,000
E. No Answer
42. At the beginning of the current year, Vangie Company received a grant of P10,000,000 from the Australian government for the
construction of a laboratory and research facility with an estimated cost of P15,000,000 and useful life of 5 years. The labo ratory
and research facility were completed and ready for the intended use at the end of the current year. What amount of grant
income should be included in the income statement for the current year?
A. P10,000,000
B. 2,000,000
C. 1,500,000
D. 0
E. No Answer

ITEMS 43-44: BABY KALMA Company purchases an investment property on January 1, 2021 for P2,200,00. The property had a
useful life of 40 years and on December 31, 2023 had a fair value of P3,000,000. On December 31, 2023, the property was sold for
net proceeds of P2,900,000. The entity used the cost model to account for the investment property.

43. What amount of gain or loss should be recognized for 2023 regarding the disposal of the property?
A. 865,000 gains
B. 810,000 gains
C. 100,000 losses
D. 700,000 gains
E. No Answer
44. What is the carrying amount of the investment property on December 31, 2019?
A. 2,350,000
B. 2,035,000
C. 2,503,000
D. 2,305,000
E. No Answer
45. BELEN Company acquired a building on January 1, 2023 for P9,000,000. At the date, the building had a useful life of 30 years.
On December 31, 2023. On December 31, 2023, the fair value of the building was P9,600,000 and on December 31, 2024, the
fair value was P9,900,000. The building was classified as an investment property and accounted for under the cost model. What
is the carrying amount of the investment property on December 31, 2024?
A. 8,400,000
B. 9,000,000
C. 9,900,000
D. 9,570,000
E. No Answer
46. Sun Company was constructing an asset that qualified for interest capitalization. The entity had outstanding notes payable
during the entire year of construction comprising P6,000,000 8% interest and P9,000,000 9% interest. None of the borrowings
were specified for the construction of the qualified asset. What interest rate should be used to calculate capitalized interest on
the construction?
A. 9.00%
B. 8.50%
C. 8.00%
D. 8.60%
E. No Answer

ITEM 47-48: BSA AKO Company provided the ff. assets in a forest plantation and farm:

Freestanding trees P 5,000,000

Land under trees 400,000
Road in forest 350,000
Animals related to
recreational activities 1, 000, 000
Bearer plants 1, 500, 000
Bearer animals 2, 000, 000
Agricultural produce
growing on bearer plants 800, 000
Agricultural produce
harvested 1, 200, 000
Plants with dual use 1, 400, 000

REQUIREMENT:
47. Total amount should be reported as biological assets?
A. 9,000,000
B. 9,200,000
C. 9,400,000
D. 9,600,000
E. No Answer
48. Total amount should be included in property, plant, and equipment?
A. 3,000,000
B. 3,250,000
C. 3,800,000
D. 4,200,000
E. No Answer
49. On January 1, 2015. Hamlet Company borrowed P6,000,000 at an annual interest rate of 10% to finance specifically the cost
of building an electricity generating plant. Construction commenced on January 1, 2015 with a cost P6,000,000. Not all the
cash borrowed was used immediately, so interest income of P80,000 was generated by temporarily investing some of the
borrowed funds prior to use. The project was completed on November 30, 2015. What is the carrying amount of the plant on
November 30. 2015?
A. 6,000,000
B. 6,470,000
C. 6,520,000
D. 6,550,000
E. No Answer
50. SARA COMPANY is engaged in raising dairy livestock. Information regarding activities relating to the dairy livestock during
the current year is as follows:

Carrying amount on January 1 5,000,000

Increase due to purchases 2,000,000

Gain arising from change in fair value less cost of disposal attributable to 400,000
price change

Gain arising from change in fair value less cost of disposal attributable to 600,000
physical change

Decrease due to sales 800,000

Decrease due to harvest 200,000

 REQUIREMENT: What is the carrying amount of the biological asset on December 31?
A. 4,000,000
B. 5,000,000
C. 6,000,000
D. 7,000,000
E. No Answer
51. Under PAS 36 Impairment of Assets, which of the following statements best describes “value in use”?
A. The present value of estimated future cash flows is expected to arise from an asset's continuing use and its ultimate
disposal.
B. The amount of cash or cash equivalents that could be obtained by selling an asset in an orderly disposal.
C. The net amount an entity expects to obtain for an asset at the end of its useful life.
D. The amount at which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
E. No Answer
52. Under PAS 36 Impairment of Assets, which of the following terms best describes the higher of an asset's fair value less costs
of disposal and its value in use?
A. Recoverable amount
B. Revalued amount
C. Depreciable amount
D. Carrying amount
E. No Answer
53. Under PAS 36 Impairment of assets, which of the following statements best describes the term 'impairment loss'?
A. The removal of an asset from an entity's statement of financial position
B. The amount by which the carrying amount of an asset exceeds its recoverable amount
C. The systematic allocation of an asset's cost less residual value over its useful life
D. The amount by which the recoverable amount of an asset exceeds its carrying amount
E. No Answer
54. According to PAS 36 Impairment of Assets, which of the following terms is defined as: "The smallest identifiable group of ass ets
that generates cash inflows that are largely independent of the cash inflows from other assets"?
A. Non-current assets
B. A cash-operating unit
C. An operating segment
D. A cash-generating unit
E. No Answer
55. PAS 36 Impairment of assets should be applied in accounting for the impairment of which of the following types of asset?
A. Assets arising from construction contracts
B. Investment properties measured at fair value
C. Non-current assets held for sale
D. Non-current assets measured at cost
E. No Answer
56. According to PAS 36 Impairment of assets, which of the following are relevant in determining a non-current asset's 'value in
use'?
I. The expected future cash flows from the asset
II. The carrying amount of the asset
III. The future annual depreciation expense in respect of the asset
IV. The time value of money
A. I, II, III
B. I, IV
C. I, II, IV
D. II, III, IV
E. No Answer
57. An entity is considering whether to apply an impairment test to an individual asset or to the cash -generating unit to which
that asset belongs. Are the following statements true or false, according to PAS 36 Impairment of assets?
1) If the individual asset does not generate cash inflows that are largely independent of those from other assets, then the c ash-
generating unit should be identified.
2) If the individual asset generates an insignificant proportion of the cash inflows of the entity as a whole, then the cash -
generating unit should not be identified.
Statement (1) Statement (2)
A. False False
B. False True
C. True False
D. True True
E. No Answer
58. The SHOPPEN Company has determined that it needs to recognize an impairment loss on each of two non -current assets;
plant and land. The relevant amounts are as follows:
 Plant Land
Original cost P700,000 P1,400,000
Previous revaluations Nil P450,000
Existing carrying amount P700,000 P1,850,000
Impairment loss to be
recognized in year P200,000 P 300,000
According to PAS 36 Impairment of Assets, how should each of the impairment losses be recognized?
Plant Land
A. In profit or loss In profit or loss
B. In profit or loss In other comprehensive income
C. In other comprehensive income In profit or loss
D. In other comprehensive income In other comprehensive income
E. No Answer
59. On 1 January 20X2 ZALADA Company acquired a non-current asset with an estimated useful life of 8 years for P320,000.
Non-current assets are accounted for under the cost model and depreciation is charged by the straight -line method. On 1
January 20X7 an impairment review identified an impairment loss of P10,000 and the remaining useful life was revised to
four years. Are the following statements true or false, according to PAS 36 Impairment of Assets?

1) Future depreciation expenses should be measured by reference to the carrying amount after
deducting the impairment loss.
2) Future depreciation expenses should be measured by reference to the new estimate of the remaining useful life.
Statement (1) Statement (2)
A. False False
B. False True
C. True False
D. True True
E. No Answer
60. In testing a cash generating unit (CGU) for impairment the, bottom-up test means that 10
A. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable amount of the CGU is less
than the carrying amount, including the allocated goodwill.
B. goodwill can be allocated to the CGU's and an impairment loss occurred if the recoverable amount of the CGU is less than
its carrying amount, excluding the allocated goodwill
C. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable amount of the CGU is more
than the carrying amount, including the allocated goodwill.
D. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable amount of the CGU is more
than its carrying amount, excluding the allocated goodwill.
E. No Answer
61. PAS 36 applies to which of the following assets?
A. Financial assets within the scope of PFRS 9
B. Inventories
C. Non-current assets held for sale
D. Intangible assets
E. No Answer
62. PAS 36 does not apply to which of the following assets?
A. Investment in associate
B. Investment property that is measured using the cost model
C. Property, plant, and equipment that are measured using the revaluation model
D. Biological assets measured at fair value less costs to sell
E. No Answer
63. Under PAS36 Impairment of assets, which ONE of the following statements best describes the term 'impairment loss'?
A. The removal of an asset from an entity's statement of financial position
B. The systematic allocation of an asset's cost less residual value over its useful life
C. The amount by which the recoverable amount of an asset exceeds its carrying amount
D. The amount by which the carrying amount of an asset exceeds its recoverable amount
E. No Answer
64. The recoverable amount is
A. The amount at which an asset is recognized after deducting accumulated depreciation (amortization) and accumulated
impairment losses thereon.
B. The price that would be received to sell an asset in an orderly transaction between market participants at the measurement
date less incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs
and income tax expense.
C. The present value of the future cash flows expected to be derived from an asset or cash generating unit.
D. The higher of an asset's fair value less costs of disposal and its value in use.
E. No Answer
65. Costs of disposal are incremental costs directly attributable to the disposal of an asset or cash generating unit. Examples of
such costs include
 A. Finance costs
B. Income tax expense
C. Termination benefits (as defined in PAS 19)
D. Direct incremental costs to bring an asset into condition for its sale
E. No Answer
66. Costs of disposal do not include
A. Legal costs
B. Stamp duty and similar transaction taxes
C. Costs of removing the asset
D. Both A and B
E. Costs associated with reducing or reorganizing a business following the disposal of an asset
67. Which of the following is incorrect regarding identifying an asset that may be impaired?
A. At the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be
impaired.
B. If there is an indication that an asset may be impaired, then the asset's recoverable amount must be calculated.
C. An indication that an asset may be impaired may indicate that the asset's useful life, depreciation method, or residual
value may need to be reviewed and adjusted.
D. Both A and B
E. Only internal indicators of impairment should be considered.
68. External sources of information indicating that an asset may be impaired include
A. Significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place
in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used.
B. The carrying amount of the net assets of the entity is more than its market capitalization.
C. Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse
than expected.
D. Market interest rates have decreased during the period and are likely to affect the discount rate used in calculating an
asset's value in use.
E. No Answer
69. Significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in
the near future, in the extent to which, or manner in which, an asset is used or is expected to be used include
I. The asset becoming idle.
II. Plans to discontinue or restructure the operation to which an asset belongs.
III. Plans to dispose of an asset before the previously expected date.
IV. Reassessing the useful life of an asset as finite rather than indefinite
A. I, II and III only
B. II, III and IV only
C. I, II and IV only
D. I, III only
E. I, II, III and IV
70. Internal sources of information indicating that an asset may be impaired include
A. There are observable indications that the asset's value has declined during the period significantly more than would be
expected as a result of the passage of time or normal use.
B. Significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near
future, in the technological, market, economic or legal environment in which the entity operates or in the market to which
an asset is dedicated.
C. Evidence is available of obsolescence or physical damage of an asset.
D. Market interest rates or other market rates of return on investments have increased during the period, and those increases
are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amoun t
materially.
E. No Answer
71. Evidence from internal reporting that indicates that an asset may be impaired includes the existence of:
I. Cash flows for acquiring the asset, or subsequent cash needs for operating or maintaining it, that are significantly highe r
than those originally budgeted.
II. Actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted .
III. A significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowin g from
the asset.
IV. Operating losses or net cash outflows for the asset, when current period amounts are aggregated with budgeted amounts
for the future.
A. I, II and III only
B. II, III and IV only
C. I, II and IV only
D. II, III only
E. I, II, III and IV
72. When deciding on the discount rate that should be used, which factors should be taken into account?
A. Pretax rates
B. The time value of money
 C. Risks that relate to the asset for which future cash flow estimates have not been adjusted
D. A and B only
E. All of these.
73. When calculating the estimates of future cash flows, which of the following cash flows should not be included?
A. Income tax payment
B. Cash flows from the sale of assets produced by the asset
C. Cash outflows on the maintenance of the asset
D. Cash flows from disposal
E. No Answer
74. The recoverable amount of asset to be disposed of is
A. Fair value less costs of disposal
B. Value in use
C. The higher of a and b
D. The lower of a and b
E. No Answer
75. The intangible asset shall be tested for impairment
A. Annually, if there is any indication of impairment.
B. Annually, irrespective of whether there is any indication of impairment.
C. Annually, irrespective of whether there is any indication of impairment when the asset is already available for use.
D. The intangible asset is not subject to impairment since it is not yet available for use.
E. No Answer
76. Which statement is incorrect regarding the recognition and measurement of an impairment loss?
A. An impairment loss shall be recognized immediately in profit or loss unless the asset is carried at revalued amount in
accordance with another Standard.
B. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard.
C. After the recognition of an impairment loss, the depreciation (amortization) charge for the asset shall be adjusted in future
periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its
remaining useful life.
D. All of these
E. None of these.
77. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. If this is the case,
A. Recoverable amount is determined for the cashgenerating unit to which the asset belongs.
B. Recoverable amount is the value-in-use.
C. Recoverable amount is the fair value less costs of disposal.
D. Recoverable amount is the carrying value.
E. No Answer
78. What is a 'cash generating unit' as defined in PAS 36?
A. The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets.
B. Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the
rest of the entity.
C. A group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly
associated with those assets that will be transferred in the transaction.
D. Assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other
cash-generating units.
E. No Answer
79. Which statement is incorrect regarding impairment of goodwill in accordance with PAS 36?
A. To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating units, or groups of cash-
generating units, that are expected to benefit from the synergies of the combination.
B. A cash-generating unit to which goodwill has been allocated shall be tested for impairment at least annually by comparing
the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit.
C. Reversal of an impairment loss for goodwill is prohibited.
D. All are correct
E. None of these.
80. Which statement is incorrect regarding the allocation of an impairment loss in a cash-generating unit in accordance with PAS
36?
A. First, reduce the carrying amount of any goodwill allocated to the cash-generating unit.
B. Then, reduce the carrying amounts of the other assets of the unit pro rata on the basis of the carrying amount of each
asset in the unit.
C. The carrying amount of an asset should not be reduced below the highest of its fair value less costs of disposal (if
determinable), its value in use (if determinable), and zero.
D. all are correct
E. None, all the statements are correct.
PART 2: GENERAL INSTRUCTION: MULTIPLE CHOICE. Choose the best answer. Kindly use the PART
2 answer sheet provided. No Solution, No point.
1. Which of the following items would qualify as an intangible asset?
A. Advertising and promotion on the launch of a huge product.
B. College tuition fees paid to employees who decide to enroll in an executive M.B.A
program at Harvard University while working with the entity.
C. Operating losses during the initial stages of the project.
D. Legal costs paid to intellectual property lawyers to register a patent.
E. No Answer
2. Which of the following disclosures is not required with respect to intangible assets?
A. Useful lives of the intangible assets.
B. Reconciliation of carrying amount at the beginning and the end of the year.
C. Contractual commitments for the acquisition of intangible assets.
D. Fair value of similar intangible assets used by competitors.
E. No Answer
3. The reason goodwill is referred to as a master valuation account is that
A. It represents the purchase price of a business that is about to be sold.
B. It is the difference between the fair value of the net identifiable assets as compared with the purchase price of the acquired
business.
C. The value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master
valuation.
D. It is the only account in the financial statements that is based estimated value.
E. No Answer
4. Which of the following is not one of the criteria which must be met before development costs can be capitalized?
A. The entity has sufficient financial resources to complete the project.
B. The entity intends to complete the project and either use or sell the intangible asset.
C. The entity can reliably identify the research costs incurred to bring the project to economic feasibility.
D. The project has achieved technical feasibility.
E. No Answer
5. Which of the following accurately describes the appropriate accounting for goodwill acquired through a business combination?
A. It should be recorded at cost and amortized over 40-year period
B. It should be recorded at cost and amortized over a 10-year period
C. It should be recorded at cost and tested for impairment every three years
D. It should be recorded at cost and tested for impairment on an annual basis and more often if certain events occur
E. No Answer
6. Which of the following is a research and development cost?
A. Research and development performed under contract for others
B. Development or improvement of techniques and processes
C. Offshore oil exploration that is the primary activity of an entity
D. Market research related to a major product for the entity
E. No Answer
7. Which of the following statements is incorrect regarding internal-use software?
A. The application and development costs should be amortized on a straight line basis unless another systematic and rational
basis is more appropriate.
B. Internal-use software is considered to be software that is marketed as a separate product or as part of a product or process.
C. The costs of testing and installing computer hardware should be capitalized as incurred.
D. The costs of training and application maintenance should be expensed as incurred.
E. No Answer
8. Rigor Corporation incurred the following costs in 2017:
Acquisition of R&D equipment with a useful life of 4 years in R&D projects P600,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production stage 400,000
(economic viability not achieved)
What amount should Camille record as research & development expense in 2017?
A. 550,000
B. 740,000
C. 1,000,000
D. 1,140,000
E. No Answer
9. Marites Company incurred P900,000 of research and development cost to develop a product for which a patent was granted on
January 2, 2017. Legal fees and other costs associated with the registration of the patent totaled P200,000. On July 31, 2017,
Kuyab paid P400,000 for legal fees in a successful defense of the patent. The total amount capitalized for this patent through
July 31, 2017 should be:
A. 1,500,000
 B. 1,100,000
C. 600,000
D. 200,000
E. No Answer
10. Laguna Company acquired three patents in January 2017. The patents have different lives as indicated in the following
schedule:
Cost Remaining useful life Remaining legal life
Patent A 2,000,000 10 8
Patent B 3,000,000 5 10
Patent C 6,000,000 Indefinite 15
Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2017, the company
successfully defended its right to Patent B. Legal fees of P800,000 were incurred in this action. The company’s policy is to
amortize intangible assets by the straight-line method to the nearest half year. The company reports on a calendar-year
basis. The amount of amortization that should be recognized for 2017 is:
A. 1,330,000
B. 1,250,000
C. 2,050,000
D. 950,000
E. No Answer
11. Nagcarlan Company purchased a patent on January 1, 2002, for P3,570,000. The patent was being amortized over its
remaining legal life of 15 years expiring on January 1, 2017. During 2005 Nagcarlan determined that the economic benefits of
the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the balance
sheet as patent, net of accumulated amortization, at December 31, 2005?
A. 2,618,000
B. 2,520,000
C. 2,448,000
D. 2,142,000
E. No Answer
12. On January 2, 2017, San Pedro Company purchased a patent for a new consumer product for P3,000,000. At the time of
purchase, the patent was valid for 15 years. However, the patent’s useful life was estimated to be only 10 years due to the
competitive nature of the product. On December 31, 2020, the product was permanently withdrawn from sale under
governmental order because of a potential health hazard in the product. What amount should San Pedro charge against income
during 2020, assuming amortization is recorded at the end of such year?
A. 1,800,000
B. 2,400,000
C. 2,100,000
D. 300,000
E. No Answer
13. On January 1, 2017, Mambusao Company bought a trademark from Panitan Company for P6,000,000. Mambusao retained an
independent consultant who estimated the trademark’s life to be indefinite. Its carrying amount in Panitan’s accounting
records was P4,000,000. In Mambusao’s December 31, 2017 balance sheet, what amount should be reported as trademark?
A. 6,000,000
B. 5,700,000
C. 3,800,000
D. 3,600,000
E. No Answer
14. On January 1, 2017, Calamba Company signed an agreement to operate as a franchise of Bay Company for an initial franchise
fee of P30,000,000. Of this amount, P10,000,000 was paid when the agreement was signed and the balance is payable in equal
annual payment of P5,000,000 beginning December 31, 2017. The agreement provides that the down payment is not refundable
and no future services are required of the franchisor. Calamba’s credit rating indicates that it can borrow money at 12% for a
loan of this type. Information on present value factors at 12% for 4 period is:
Present value of 1 0.64
Present value of an ordinary annuity of 1 3.04
A. 30,000,000
B. 15,200,000
C. 25,200,000
D. 21,600,000
E. No Answer
15. Liliw Company engaged your services to compute the goodwill in the purchase of Calauan Company which provided the
following:
Net income Net assets
2017 1,400,000 6,000,000
2018 1,600,000 8,000,000
2019 2,000,000 8,800,000
2020 2,200,000 9,200,000
It is agreed that goodwill is measured by capitalizing excess earnings at 25% with normal
 return on average net assets at 15%. How much is the purchase price for Calauan Company?
A. 11,600,000
B. 10,400,000
C. 11,200,000
D. 11,000,000
E. No Answer
16. Panay Company is negotiating to acquire Sapian Company. Panay manufactures and sells wood burning stoves and Sapian
Company produces parts that are required to manufacture stoves. Sapian enjoys an exceptional reputation and Panay
management believes it can continue Sapian’s level of income and satisfy its own need for parts. Under the contemplated
arrangement, Panay will negotiate for the acquisition of the net assets of Sapian Company. The recorded amounts and current
values of the assets and liabilities of Sapian are:
Assets Liabilities
Recorded amounts 20,000,000 8,000,000
Current values 25,000,000 5,000,000
Sapian’s earnings for the past 5 years averaged P5,000,000. This is believed to be the a reasonable estimate of future
income. The level of income normally experienced by enterprises similar to Sapian is 15%. Panay and Sapian agreed to capitalize
average excess earnings at 25% in estimating the value of goodwill. How much should Panay pay in acquiring Sapian?
A. 20,000,000
B. 28,000,000
C. 32,000,000
D. 20,500,000
E. No Answer
17. The owners of Majayjay Company are planning to sell the business to new interests. The cumulative net earnings for the past
5 years was P9,000,000 including casualty loss of P500,000. The current value of net assets of Majayjay Company was
P20,000,000. Goodwill is determined by capitalizing average earnings at 8%. What is the amount of goodwill?
A. 1,900,000
B. 1,700,000
C. 3,750,000
D. 1,250,000
E. No Answer
18. On January 1, 2017, Carmona purchased Topaz Company at a cost that resulted in recognition of goodwill of P5,000,000 having
an expected benefit period of 10 years. During January of 2017, Carmona spent an additional P2,000,000 on expenditures
designed to maintain goodwill. Due to these expenditures, at December 31, 2017, Carmona estimated that the benefit period
of goodwill was indefinite. In its December 31, 2017 balance sheet, what amount should Carmona report as goodwill?
A. 5,000,000
B. 7,000,000
C. 4,750,000
D. 4,500,000
E. No Answer
19. Sta. Rosa Company has been experiencing significant losses in prior years. On December 31, 2017, the assets and liabilities
are:
Cash 10,000,000
Accounts receivable 20,000,000
Inventory 30,000,000
Property, plant and equipment 50,000,000
Goodwill 5,000,000
Liabilities 40,000,000
On December 31, 2017, the fair value of the net assets of Sta. Rosa is P62,000,000. How much is the impairment loss applicable
to goodwill?
A. 13,000,000
B. 8,000,000
C. 5,000,000
D. 0
E. No Answer
20. Luzon Company purchased Jolo Company for P100,000,000. The net assets of Jolo Company on the date of acquisition
amounted to P80,000,000. Thus, there is a goodwill of P20,000,000. Jolo Company has three segments, each of which is
considered a cash generating unit. The goodwill is allocated respectively to segments One, Two and Three, P5,000,000,
P6,000,000 and P9,000,000. On December 31, 2017, Segment One suffered significant losses and its recoverable amount is
P30,000,000. On December 31, 2017, the carrying amounts are as follows:
Segment One 28,000,000
Segment Two 50,000,000
Segment Three 67,000,000
Goodwill 20,000,000
In its 2017 income statement, Luzon Company should report impairment loss at:
A. 3,000,000
B. 5,000,000
 C. 2,000,000
D. 1,000,000
E. No Answer
21. On January 1, 2017, Paete Company signed a 12-year lease for a building. Paete has an option to renew the lease for an
additional 8-year period on or before January 1, 2021. During January 2019, Paete made substantial improvements to the
building. The cost of the improvements was P3,600,000, with an estimated useful life of 15 years. At December 31, 2019, Paete
intended to exercise the renewal option. Paete has taken a full year’s amortization on this improvement. In the December 31,
2019, balance sheet, the carrying amount of this leasehold improvement should be:
A. 3,240,000
B. 3,360,000
C. 3,400,000
D. 3,300,000
E. No Answer
22. On January 1, 2018, Puntavedra Company signed an eigth-year lease for office space. Puntavedra has the option to renew the
lease for an additional six-year period on or before January 1, 2024. During January 2020, Puntavedra incurred the following
costs:
General improvements to the leased premises with useful life of 10 years 5,400,000
Office furniture and equipment with useful life of 8 years 2,400,000
Moveable assembly line equipment with useful life of 5 years 1,800,000
At December 31, 2020, Puntavedra’s intention as to the exercise of the renewal option is uncertain. A full depreciation of
leasehold improvement is taken for year 2020. In Puntavedra’s December 31, 2020 balance sheet, accumulated depreciation of
leasehold improvement should be:
A. 1,200,000
B. 1,300,000
C. 540,000
D. 900,000
E. No Answer
23. Maayon Company begins construction of a new facility. Following are some of the costs incurred in conjunction with the start-
up activities of the new facility:
Production equipment 1,500,000
Travel costs of salaried employees 400,000
License fees 50,000
Training of local employees for production and maintenance operations 1,300,000
Advertising costs 100,00
What portion of the organizational costs will be expensed?
A. 1,700,000
B. 1,850,000
C. 3,350,000
D. 1,300,000
E. No Answer
24. Siniloan Company incurred research and development costs in 2017 as follows:
Equipment acquired for use in various R&D projects 6,000,000
Depreciation on the above equipment 1,200,000
Materials used 3,000,000
Compensation costs of personnel 4,000,000
Outside consulting fees 1,500,000
Indirect costs appropriately allocated 1,300,000
The 2017 total research and development expense should be:
A. 11,000,000
B. 15,800,000
C. 9,700,000
D. 9,800,000
E. No Answer
25. Biñan Company incurred the following costs during 2017:
Design of tools, jigs, molds and dies involving new technology 2,500,000
Modification of the formulation of a process 3,200,000
Trouble shooting in connection of breakdowns during
commercial production 2,000,000
Adaptation of an existing capability to a particular customer’s
need as part of a continuing commercial activity 2,200,000
In its 2017 income statement, Biñan should report research and development expense of:
A. 2,500,000
B. 3,200,000
C. 4,700,000
D. 5,700,000
E. No Answer
26. Dumalag Company provided the following information relevant to the research and development expenditures for the year
2017:
Current period depreciation on the building housing R and D activities 1,500,000
Cost of market research study 1,000,000
Current period depreciation on a machine used in R and D activities 500,000
Salary of R and D director 1,200,000
Salary of Vice-President who spends ¼ of his time overseeing
R and D activities 2,400,000
Pension costs for salary of R and D director 50,000
Pension costs for salary of Vice-President 100,000
The R&D expense for the current period should be:
A. 3,875,000
B. 4,875,000
C. 5,750,000
D. 3,800,000
E. No Answer
27. Biñan Company made the following expenditures relating to Product X:
* Legal costs to file a patent on Product X. Production of the finished
product would not have been undertaken without the patent. 500,000
* Special equipment to be used solely for development of Product X. The
equipment has no other use and has an estimated useful life of four years. 4,000,000
* Labor and material costs incurred in producing a prototype model 3,000,000
* Cost of testing the prototype 2,000,000
What is the total amount of costs that will be expensed when incurred?
A. 9,000,000
B. 9,500,000
C. 6,000,000
D. 5,000,000
E. No Answer
28. On January 1, 2017, Caliraya Company had capitalized cost of P10,000,000 for a new computer software product with an
economic life of 4 years. Sales for 2017 for the software product amounted to P4,000,000. The total sales of the software over
its economic life are expected to be P20,000,000. However, the pattern of the future sales from the computer software cannot
be determined reliably. In its 2017 income statement, Caliraya should record amortization of computer software at:
A. 2,500,000
B. 5,000,000
C. 2,000,000
D. 0
E. No Answer
For items 29 and 30: During 2017, Jamindan Company incurred costs to develop and produce a routine, low-risk computer software
product as follows:
Completion of detail program design 1,500,000
Cost incurred for coding and testing to establish technological feasibility 500,000
Other coding costs after establishment of technological feasibility 2,500,000
Other testing costs after establishment of technological feasibility 2,000,000
Costs of producing product masters for training materials 3,000,000
Duplication of computer software and training materials from
product master 4,000,000
Packaging product 1,000,000
29. In the December 31, 2017 balance sheet, what amount should be capitalized as software cost subject to amortization?
A. 7,500,000
B. 4,500,000
C. 9,500,000
D. 8,000,000
E. No Answer
30. In the December 31, 2017 balance sheet, what amount should be reported as inventory?
A. 5,000,000
B. 7,000,000
C. 4,000,000
D. 6,500,000
E. No Answer
31. An entity shall choose either the cost model or revaluation model as its accounting policy in measuring intangible asset. Which
statement is correct?
a. The cost model means that an intangible asset shall be carried at cost less any accumulated amortization and any
accumulated impairment loss.
b. The revaluation model means that an intangible asset shall be carried at revalued amount less any subsequent
accumulated amortization and any subsequent accumulated impairment loss.
 A. I only
B. II only
C. Both I and II
D. Neither I nor II
E. No Answer
ITEMS 32-35. MAINAR Company acquired some of the assets from REPUDAS Company, with corresponding fair values through
a basket purchase price of P4,000,000:
Carrying Amount Fair Value
Land P1,000,000 P2,000,000
Patent P1,200,000 P2,400,000
Trademark P300,000 P600,000

32. What is the allocated cost of land?

A. P1,920,000 B. P1,600,000 C. P4,000,000 D. P480,000 E. No Answer

33. What is the allocated cost of patent?

A. P1,920,000 B. P1,600,000 C. P4,000,000 D. P480,000 E. No Answer

34. What is the allocated cost of trademark?

A. P1,920,000 B. P1,600,000 C. P4,000,000 D. P480,000 E. No Answer

35. What is the total allocated cost?

A. P1,920,000 B. P1,600,000 C. P4,000,000 D. P480,000 E. No Answer

36. Which is incorrect concerning the recognition and measurement of an intangible asset?
A. If an intangible asset is acquired separately, the cost comprises its purchase price, including import duties and taxes and
any directly attributable expenditure of preparing the asset for its intended use.
B. If an intangible asset is acquired in a business combination that is an acquisition, the cost is based on its fair value at the
date of acquisition.
C. If an intangible asset is acquired free of charge or by way of government grant, the cost is equal to its fair value.
D. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the total payments over the
credit period.
E. No Answer
37. The appropriate method of amortizing intangible asset is best described by which of the following?
A. The straight-line method, unless the pattern in which the asset’s economic benefits are consumed by the enterprise can be
determined reliably.
B. The double declining balance in all circumstances
C. Management can make a subjective amount of periodic amortization without regard to any particular method
D. The straight-line method in all circumstances
E. No Answer
ITEMS 38-40. Mr. Salazar decided to have an online presence and started the development of its website. This website will contain
the information about the entity and will also allow the customers to place their orders. In connection with this, the follow ing costs
were incurred:
Costs of meeting with interested developers P1,000,000
Costs of evaluating the alternative developers 1,500,000
Costs of procuring domain name 3,000,000
Costs of developing codes 1,200,000
Costs of designing the site's appearance 1,600,000
Amounts paid to photographer and digital artist for
the contents to be displayed in the site 900,000
Training costs for employees who will monitor the website 400,000
Purchase cost of web server 4,000,000
Costs of updating the website's contents three months
after the website became live 800,000
Costs of stress testing the site 1,100,000
Cost of availing connectivity services of internet provider 600,000

38. What is the total cost shall be accounted in capitalized as Website asset?
A. P7,800,000 B. P4,000,000 C. P4,300,000 D. P0 E. No Answer

39. What is the total cost shall be accounted in capitalized as PPE?

A. P7,800,000 B. P4,000,000 C. P4,300,000 D. P0 E. No Answer

40. What is the total cost shall be accounted in expense outright?

A. P7,800,000 B. P4,000,000 C. P4,300,000 D. P0 E. No Answer
41. The best definition of useful life of an intangible asset is:
A. The legal life of the intangible.
B. The period over which management believes the intangible asset will contribute to the revenue-producing process.
C. Twenty years.
D. The period over which the cost of the asset can be deducted for income tax purposes.
E. No Answer
42. Which of the following factors should not be considered in estimating the useful life of intangible asset?
A. Legal, regulatory or contractual provision
B. Expected action by competitors or potential competitors
C. Residual value
D. Typical product life cycle of the asset
E. No Answer
43. The residual value of an intangible asset should be presumed zero, unless
I. There is a commitment by a third party to purchase the asset at the end of its useful life.
II. There is an active market for the asset and residual value can be determined by reference to that market and it is probable
that such market will exist at the end of the asset’s useful life.
A. Both I and II
B. Neither I nor II
C. II only
D. I only
E. No Answer
44. Characteristics of intangible asset include the following, except
A. Identifiable
B. Monetary asset
C. Provides economic benefits
D. Lacks physical substance
E. None of the above
45. An intangible asset is identifiable as
A. It is separable
B. Arises from contractual or other legal rights
C. Either a or b
D. Both a or b
E. None of the above
46. Which of the following is considered as marketing-related intangible asset?
A. Trademark
B. Goodwill
C. Copyright
D. Patent
E. None of the above
47. Which of the following is considered as technology-related intangible asset?
A. Patent
B. Customer list
C. License
D. Trademark
E. None of the above
48. Which one of the following is not a component of the cost of internally generated intangible asset?
A. Cost of materials and services used or consumed in generating the intangible asset.
B. Cost of employee benefits arising from the generation of the intangible asset.
C. Fees to register a legal right
D. Expenditure on training staff to operate the asset.
E. No Answer
49. Which statement is incorrect concerning internally generated intangible asset?
A. To assess whether an internally generated intangible asset meets the criteria for recognition, an enterprise classifies the
generation of the asset into a research phase and a development phase.
B. The cost of an internally generated asset comprises all directly attributable costs necessary to create, produce and prepare
the asset for its intended use.
C. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance should not be
recognized as intangible assets.
D. Internally generated goodwill may be recognized as an intangible asset.
E. No Answer
50. The following expenditures should be expensed when incurred, except
A. Advance payment for delivery of goods or rendering of services
B. Relocation costs
 C. Advertising and promotion costs
D. Organization and other startup costs
E. No Answer
51. A lessee incurred costs to construct office space in a leased warehouse. The estimated useful life of the office is 10 years. The
remaining term of the nonrenewable lease is 15 years. The cost should be
A. Capitalized as leasehold improvement and depreciated over 15 years.
B. Capitalized as leasehold improvement and depreciated over 10 years.
C. Capitalized as leasehold improvement and expensed in the year in which the lease expires
D. Expensed as incurred
E. No Answer
52. Research is:
I. Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and
understanding.
II. Application of research finding or other knowledge to a plan or design for the production of new or substantially
improved material, device, product, process, system or service, prior to the commencement of commercial production or use.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
E. No Answer
ITEMS 53-55: On December 31, 2023, CARPIÑO Company subjected to impairment assessment its equipment with original cost
of P4,000,000 that was acquired on January 1, 2021. Estimated useful life of the equipment is eight years.
In connection with this, the equipment is expected to receive annual net cash inflow of P480,000. Relevant discount rate is 6 %
(round-off present value factors to two decimal places). In addition, the equipment's fair value is P2,400,000 with the costs of
disposal amounting to P200,000.

Required: From the given information, determine the following:

53. Impairment loss as of December 31, 2023.
a. P 300,000 b. P 200,000
c. P 100,000 d. P 400,000
54. Depreciation expense for the year 2024.
a. P 400,000 b. P 410,000
c. P 440,000 d. P 420,000
55. Carrying amount of the equipment as of December 31, 2024
a. P 1,670,000 b. P 1,760,000
c. P 1,067,000 d. P 1,706,000
56. If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory
building is matched against earnings as:
A. Research and development expense in the period of construction
B. Depreciation deducted as part of research and development cost
C. Depreciation or immediate write-off depending on company policy
D. An expense at such time as productive research has been obtained from the facility
E. No Answer
57. A research and development activity for which the cost should be expensed as incurred is
A. Engineering follow-through in early phase of commercial production
B. Design, construction, and testing of preproduction prototypes and models
C. Trouble shooting in connection with breakdowns during commercial production
D. Periodic design changes to existing products
E. No Answer
58. On January 1, 2005, Haze Company had capitalized costs for a new computer software product with an economic life of five
years. Sales for 2005 were 30 percent of expected total sales of the software and the pattern of future sales can be measured
reliably. At December 31, 2005, the software had a net realizable value equal to 90 percent of the capitalized cost. What
percentage of the original capitalized cost should be reported as the net amount on the December 31, 2005 balance sheet?
A. 70%
B. 72%
C. 80%
D. 90%
E. No Answer
ITEMS 59-60: On January 1, 20x1, PASADO SIYA Co. acquired a building for 4,000,000. The asset is depreciated using the straight-
line method over an estimated useful life of 10 years.
On January 1, 20x6, the building was estimated to have recoverable amount of P1,600,000. Consequently, impairment loss was
recognized on that date. There was no change in the estimated useful life.
On January 1, 20x9, the building was estimated to have a new recoverable amount ofP2,400,000 and a remaining useful life of 3
years. The building is measured under the revaluation model.

59. How much of the impairment reversal is recognized in profit or loss?

 A. 160,000
B. 1,760,000
C. 1,600,000
D. 0
E. None of the above
60. How much of the impairment reversal is recognized in equity?
A. 160,000
B. 1,760,000
C. 1,600,000
D. 0
E. None of the above

61. On December 31, 20x1, HELLO LOVE AGAIN Inc. identified that its building with a carrying amount of P2,400,000 has been
impaired. In estimating the recoverable amount, HELLO LOVE AGAIN has determined that the fair value less costs of disposal
of the asset is 1,600,000.
In estimating the value in use, HELLO LOVE AGAIN determined the following:
Yr Future cash inflows Future cash inflows
20x1 1,200,000 400,000
20x2 1,120,000 400,000
20x3 1,040,000 320,000

Additional information:
● Each year's estimated future cash flows include P40,000 representing cash outflows from future restructuring not yet
committed and P20,000 representing cash outflows on planned improvement and enhancement of the asset.
● Not included in the estimated future cash flows are costs of day-to-day servicing of the asset amounting to P8,000 per year.
The discount rate is 10%.
How much is the impairment loss?
A. 407,424
B. 456,773
C. 365,472
D. 412,365
E. None of the above
62. On January 1, 20x1, JOSE MARI CHAN Co. acquired a piece of equipment for 2,000,000. The equipment is depreciated using
the straight-line method over an estimated useful life of 10 years and residual value of P200,000.
On January 1, 20x6, JOSE MARI CHAN Co. determined that the equipment is impaired. Fair value less costs of disposal is
P560,000. Projected future net cash flows from revenues produced by the equipment is P200,000 annually. The revised
estimated useful life is 4 years and the new estimated residual value is P40,000. The appropriate discount rate is 10%. How
much is the depreciation expense in 20x6?
A. 156,732
B. 155,323
C. 155,132
D. 0
E. None of the above
63. Which condition must exist in order for an impairment loss to be recognized?
A. The carrying amount is less than fair value.
B. The carrying amount of the asset is not recoverable.
C. The carrying amount is less than value in use.
D. The carrying amount is recoverable.
E. None of the above
64. The impairment rules for long-lived assets apply to all, except
a. Building currently used in business
b. financial instrument
c. Land
d. Computer used to run a production process
65. Estimates of future cash flows normally would cover projections over a maximum of
A. Five years
B. Ten years
C. Fifteen years
D. Twenty years
E. None of the above

66. The proper accounting for the costs incurred in creating computer software products is to
A. Capitalize all costs until the software is sold.
B. Charge research and development expense when incurred until technological feasibility has been established for the
product.
 C. Charge research and development expense only if the computer software has alternative future use.
D. Capitalize all costs as incurred until a detailed program design or working model is created.
E. No Answer
67. Which statement is correct regarding the proper accounting treatment for internal-use software costs?
I. Preliminary costs should be capitalized as incurred.
II. Application and development costs should be capitalized as incurred.
A. I only
B. II only
C. Both I and II
D. Neither I and II
E. No Answer
68. Which following statements is correct regarding the treatment of start-up activities related to the opening of the new facility?
I. Cost of raising capital should be expensed as incurred.
II. Costs of acquiring or constructing long-lived assets and getting them ready for their intended use should be expensed as
incurred.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
E. No Answer
69. Operating losses incurred during the start-up years of a new business should be
A. Accounted for and reported like the operating losses of any other business
B. Written off directly against retained earnings
C. Capitalized as a deferred charge and amortized over 5 years.
D. Capitalized as an intangible asset and amortized over 5 years.
E. No Answer
70. In accordance with the new international accounting standard, which statement is correct?
I. Intangible assets with finite life are amortized over their useful life.
II. Intangible assets with indefinite life are not amortized but tested for impairment at least annually.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
E. No Answer

ITEMS 71-80: Shade letter A if the Statement is TRUE and Shade letter B if the Statement is False.
71. Costs incurred during research phase may be capitalized upon meeting all of the capitalization criteria.
72. Amounts previously expensed during research phase shall be included in the cost of the related intangible asset, if the proje ct
proves to be successful.
73. Effectively, revaluation model allows the revaluation of intangible assets that have not previously been recognized as assets .
74. Similar to PPEs, the revenue method of depreciation cannot be applied to all of intangible assets
75. Costs of successfully defending a patent shall be capitalized since it preserved the integrity of the related patent.
76. Generally, an asset is considered impaired if it carrying amount is more than its recoverable amount.
77. If the asset’s FVLCD is already higher than it carrying amount, the entity is not required to determine the asset’s value in use.
78. Goodwill shall be subjected to annual impairment assessment even in the absence of impairment indicators.
79. If a depreciable asset becomes impaired, future depreciation amounts will be affected.
80. Cost of disposal to be deducted from the fair value to arrive at FVLCD are those not yet recorded by the entity.

“The future belongs to those who believe in the beauty of their dreams.”
– Eleanor Roosevelt,

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