SAN CARLOS COLLEGE
COLLEGE OF ACCOUNTANCY
ACCOUNTING EHANCEMENT 2025
MIDTERM EXAMINATION – LONG TEST
1. A machine with a 4-year useful life and a 15% salvage value was acquired on January
1, 20x2. The increase in accumulated depreciation for 20x3 using the double-declining
balance method would be
A. initial cost x 85% x 50%
B. initial cost x 85% x 50% x 50%
C. initial cost x 50%
D. initial cost x 50% x 50%
2. An asset has a nine-year useful life and is to be depreciated under the sum-of-the-
years’ digits method. The annual depreciation expense would be the same as that under
the straight-line depreciation method in
A. the third year in the life of the asset
B. the fifth year of the life of the asset
C. the seventh year of the life of the asset
D. the ninth year of the life of the asset
3. When an appraised property is retired, the revaluation surplus pertaining to such
asset may be handled
A. revaluation surplus which can be subsequently transferred to unappropriated retained
earnings
B. revaluation surplus which can be subsequently transferred to other appraised property
not retired
C. revaluation surplus which can be subsequently transferred to other properties not
revalued
D. revaluation surplus which cannot be subsequently transferred to unappropriated
retained earnings
4. Under relating to PAS 16 Property, plant, and equipment, which of the following non-
current assets should be capitalized?
(1) Replacement of a building's roof every 15 years
(2) Maintenance of an asset on a three-monthly basis
(3) Installation and assembly costs
(4) Replacement of small spare parts annually
A. (1) and (3)
B. (1) only
C. (3) only
D. (3) and (4)
5. The sale of a depreciable asset resulting in a gain, indicates that the proceeds from
the sale were
A. greater than cost
B. greater than carrying amount
C. less than carrying amount
D. less than cost
6. Assets received in donation should
A. Be expensed upon receipt
B. Should not be depreciated
C. Be depreciated based in their fair value at the time of the donation
D. Be depreciated based on their book value at the time of the donation
7. The carrying amount of a property is increased as a result of revaluation. Assuming
no revaluation was made before, the increase should be credited to
A. Accumulated depreciation
B. Revaluation gain, shown as a component of income
C. Revaluation surplus, shown as a component of equity
D. Retained earnings, shown under equity section of the balance sheet
8. Statement 1: The single cost of acquiring land and an unusable old building is allocated
between land and building based on relative fair values.
Statement 2: The carrying amount of an existing old building demolished to make room for
the construction of a new building should be capitalized as cost of the new building
Statement 3: When land with an old building is purchased as a future building site, the
cost of removing the old building is part of the cost of the new building
A. False, false, false
B. True, true, false
C. False, false, true
D. True, false, true
9. Depreciation is best described as a method of
A. Cost allocation
B. Asset valuation
C. Current value allocation
D. Useful life determination
10. The excess of the gross price over the cash price equivalent of an asset acquired
on a deferred payment plan is treated as
A. part of the cost of the asset
B. finance cost over the life of the asset
C. finance cost over the credit term
D. finance cost in the period of acquisition
11. The diminishing balance method of depreciation results in
A. constant charge over the useful life of the asset if the residual value does not
change.
B. decreasing charge over the useful life of the asset.
C. increasing charge over the useful life of the asset.
D. variable charge based on the expected use or output.
12. Revaluation surplus may be computed as
A. Replacement cost minus Carrying amount
B. Appraised value or Depreciated replacement cost minus Carrying amount
C. Replacement cost minus Observed depreciation
D. Accumulated depreciation divided by Historical cost multiplied by Replacement cost
13. Statement 1: If a nonmonetary exchange lacks commercial substance, and cash is
received, a partial gain or loss is recognized.
Statement 2: Assets classified as Property, Plant, and Equipment can be either
acquired for use in operations, or acquired for resale.
Statement 3: Assets classified as Property, Plant, and Equipment must be both
long-term in nature and possess physical substance
A. True, true, false
B. False, false, true
C. False, true, false
D. True, false, true
14.If the cost of land includes the costs of site dismantlement, removal and
restoration, that portion of the land asset is
A. Depreciated in a manner that reflects the benefits to be derived from land.
B. Depreciated on a straight-line basis over the expected life of the land.
C. Depreciated over the period of benefits obtained by incurring those costs.
D. Not depreciated
15. Which of the following is/are not subject to depreciation?
I. Land held to be used as a future plant site
II. Machinery classified as held for sale
III. Building classified as investment property under fair value model
A. I only
B. I and III
C. II and III
D. I, II and III
16.Which of the following statement is incorrect regarding depreciation?
A. Depreciation commences when the asset is actually used and brought into
operations.
B. Depreciation of an item of PPE ceases when it is derecognized or becomes available
for sale whichever is earlier.
C. When there is a change either in the asset’s useful life, residual value or
depreciation method, future depreciation changes.
D. PAS 16 requires management to choose the method that best reflects the expected
pattern of consumption of the future economic benefits embodied on the asset.
Problem 1
The following data were compiled prior to preparing the balance sheet of the Conviction Corporation as of
December 31, 2024:
Authorized common stock, P100 par value P4,000,000
Cash dividends payable 160,000
Donated capital 800,000
Gain on sale of treasury stock 80,000
Net unrealized loss on available for sale securities 96,000
Premium on capital stock 320,000
Premium on bonds payable 240,000
Reserve for bond sinking fund 400,000
Reserve for depreciation 600,000
Revaluation surplus on property 800,000
Retained earnings, unappropriated 720,000
Subscribe capital stock 480,000
Stock subscriptions receivables 120,000
Stock warrants outstanding 200,000
Treasury stock, at cost 144,000
Unissued common stock 800,000
REQUIRED:
A B C D
17. Common stock issued 4,000,000 3,200,000 3,056,000 3,680,000
18. Additional paid-in capital (APIC) 320,000 1,400,000 1,320,000 1,200,000
19. Appropriated retained earnings 400,000 544,000 1,000,000 -
20. Total stockholders’ equity 6,760,000 6,640,000 6,480,000 6,240,000
Problem 2
In connection with your audit of Cuyapo Company’s financial statements for the year 2024, you noted the following
transactions affecting the property and equipment items of the company:
Jan. 1 Purchased real property for P5,026,000, which included a charge of P146,000 representing property tax for
2024 that had been prepaid by the vendor; 20% of the purchase price is deemed applicable to land and the
balance to buildings. A mortgage of P3,000,000 was assumed by Cuyapo on the purchase. Cash was paid for the
balance.
Jan. 15 Previous owners had failed to take care of normal maintenance and repair requirements on the buildings,
necessitating current reconditioning at a cost of P236,800.
Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on the lumber salvage.
The company proceeded to construct a warehouse. The cost of such warehouse was P540,800, which was
P90,000 less than the average bids made on the construction by independent contractors. Upon completion of
construction, city inspectors ordered extensive modifications to the building as a result of failure on the part of the
company to comply with building safety code. Such modifications, which could have been avoided, cost P76,800.
Mar. 1 The company exchanged its own shares with a fair value of P320,000 (par P24,000) for a patent and a new
equipment. The equipment has a fair value of P200,000.
Apr. 1 The new machinery for the new building arrived. In addition, a new franchise was acquired from the
manufacturer of the machinery. Payment was made by issuing bonds with a face value of P400,000 and by paying
cash of P144,000. The value of the franchise is set at P160,000, while the machine’s fair value is P360,000.
May 1 The company contracted for parking lots and waiting sheds at a cost P360,000 and P76,800, respectively.
The work was completed and paid for on June 1.
Dec. 31 The business was closed to permit taking the year-end inventory. During this time, required
redecorating and repairs were completed at a cost of P60,000.
Reuired:
Based on the above and the result of your audit, determine the cost of the following:
21. Land
a. P 940,000 c. P 976,000
b. P1,005,200 d. P1,052,800
22. Buildings
a. P4,645,600 c. P4,762,400
b. P5,005,600 d. P4,681,600
23. Machinery and equipment
a. P360,000 c. P576,615
b. P560,000 d. P659,692
24. Land improvements
a. P360,000 c. P436,800
b. P 76,800 d. P 0
25. Total property, plant and equipment
a. P6,764,400 c. P6,718,092
b. P6,731,200 d. P6,618,400
Problem 3
You noted during your audit of the Carranglan Company that the company carried out a number of transactions
involving the acquisition of several assets. All expenditures were recorded in the following single asset account,
identified as Property and equipment:
Property and equipment
Acquisition price of land and building P 960,000
Options taken out on several pieces of property 16,000
List price of machinery purchased 318,400
Freight on machinery purchased 5,000
Repair to machinery resulting from damage during shipment 1,480
Cost of removing old machinery 4,800
Driveways and sidewalks 102,000
Building remodeling 400,000
Utilities paid since acquisition of building 20,800
P1,828,480
Based on property tax assessments, which are believed to fairly represent the relative values involved, the building
is worth twice as much as the land. The machinery was subject to a 2% cash discount, which was taken and
credited to Purchases Discounts. Of the two options, P6,000 is related to the building and land purchased and
P10,000 related to those not purchased. The old machinery was sold at book value.
Required:
Based on the above and the result of your audit, determine the adjusted balance of the following:
26. Land
a. P644,000 c. P326,000
b. P322,000 d. P424,000
27. Building
a. P 644,000 c. P1,044,000
b. P1,040,000 d. P 722,000
28. Machinery
a. P317,032 c. P323,400
b. P318,512 d. P321,832
Problem 4
Your audit of Llanera Corporation for the year 2024 disclosed the following property dispositions:
Cost Acc. Dep. Proceeds Fair value
Land P4,800,000 - 3,720,000 3,720,000
Building 1,800,000 - 288,000 -
Warehouse 8,400,000 1,320,000 8,880,000 8,880,000
Machine 960,000 384,000 108,000 864,000
Delivery truck 1,200,000 570,000 564,000 564,000
Land
On January 15, a condemnation award was received as consideration for the forced sale of the company’s land
and building, which stood in the path of a new highway.
Building
On March 12, land and building were purchased at a total cost of P6,000,000, of which 30% was allocated to the
building on the corporate books. The real estate was acquired with the intention of demolishing the building, and
this was accomplished during the month of August. Cash proceeds received in September represent the net
proceeds from demolition of building.
Warehouse
On July 4, the warehouse was destroyed by fire. The warehouse was purchased on January 2, 2004. On December
12, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of
P7,200,000.
Machine
On December 15, the machine was exchanged for a machine having a fair value of P756,000 and cash of P108,000
was received.
Delivery Truck
On November 13, the delivery truck was sold to a used car dealer.
Required
Based on the above and the result of your audit, compute the gain or loss to be recognized for each of the following
dispositions:
29. Land
a. P3,720,000 gain c. P4,800,000 loss
b. P1,080,000 loss d. P 0
30. Building
a. P 432,000 gain c. P1,368,000 loss
b. P2,232,000 loss d. P 0
31. Warehouse
a. P1,800,000 gain c. P5,400,000 loss
b. P 480,000 gain d. P 0
32. Machine
a. P36,000 gain c. P288,000 gain
b. P27,000 gain d. P 0
33. Delivery truck
a. P636,000 loss c. P66,000 loss
b. P636,000 gain d. P66,000 gain
