1. Ifrs Ch10 Acquisition and Disposition of Property Plant and Equipment for Distribution

7/25/2019 1. Ifrs Ch10 Acquisition and Disposition of Property Plant and Equipment for Distribution

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CHAPTER 10

ACQUISITION AND DISPOSITION OFPROPERTY, PLANT, AND EQUIPMENT

TRUE-FALSE—Conceptu!

1. Assets classifed as Property, Plant, and Equipment can be either acquired or usein operations, or acquired or resale.

2. Assets classifed as Property, Plant, and Equipment must be both long-term innature and possess physical substance.

3. hen land !ith an old building is purchased as a uture building site, the cost o remo"ing the old building is part o the cost o the ne! building.

#. $nsurance on equipment purchased, !hile the equipment is in transit, is part o the cost o the equipment.

%. &pecial assessments or local impro"ements such as street lights and se!ersshould be accounted or as land impro"ements.

'. (ariable o"erhead costs incurred to sel-construct an asset should be included inthe cost o the asset.

). *ompanies should assign no portion o f+ed o"erhead to sel-constructed assets.

. hen capitaliing interest during construction o an asset, an imputed interestcost on stoc fnancing must be included.

/. Assets under construction or a company0s o!n use do not qualiy or interestcost capitaliation.

1. A"oidable interest is the amount o interest cost that a company couldtheoretically a"oid i it had not made e+penditures or the asset.

11. hen a company purchases land !ith the intention o de"eloping it or aparticular use, interest costs associated !ith those e+penditures qualiy orinterest capitaliation.

12. Assets purchased on long-term credit contracts should be recorded at the present "alue o the consideration e+changed.

13. *ompanies account or the e+change o nonmonetary assets on the basis o the

air "alue o the asset gi"en up or the air "alue o the asset recei"ed.

1#. $ a nonmonetary e+change lacs commercial substance, and cash is recei"ed, apartial gain or loss is recognied.

1%. hen a company e+changes nonmonetary assets and a loss results, the companyrecognies the loss only i the e+change has commercial substance.

1'. *osts incurred subsequent to the acquisition o an asset are capitalied i theypro"ide uture benefts.



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1). $mpro"ements are oten reerred to as betterments and in"ol"e the substitution o a better asset or the one currently used.

1. hen an ordinary repair occurs, se"eral periods !ill usually beneft.

1/. *ompanies al!ays treat gains or losses rom an in"oluntary con"ersion as

e+traordinary items.

2. $ a company scraps an asset !ithout any cash reco"ery, it recognies a loss equalto the asset0s boo "alue.

MULTIPLE CHOICE—Conceptu!

21. Plant assets may properly includea. deposits on machinery not yet recei"ed.b. idle equipment a!aiting sale.c. land held or possible use as a uture plant site.d. none o these.

22. hich o the ollo!ing is not a maor characteristic o a plant asseta. Possesses physical substanceb. Acquired or resalec. Acquired or used. 4ields ser"ices o"er a number o years

23. hich o these is not a maor characteristic o a plant asseta. Possesses physical substanceb. Acquired or use in operationsc. 4ields ser"ices o"er a number o yearsd. All o these are maor characteristics o a plant asset.

2#. *otton 5otel *orporation recently purchased Emporia 5otel and the land on!hich it is located !ith the plan to tear do!n the Emporia 5otel and build a ne!lu+ury hotel on the site. 6he cost o the Emporia 5otel should bea. depreciated o"er the period rom acquisition to the date the hotel is scheduled

to be torn do!n.b. !ritten o7 as an e+traordinary loss in the year the hotel is torn do!n.c. capitalied as part o the cost o the land.d. capitalied as part o the cost o the ne! hotel.

2%. 6he cost o land does not includea. costs o grading, flling, draining, and clearing.b. costs o remo"ing old buildings.

c. costs o impro"ements !ith limited li"es.d. special assessments.

2'. 6he cost o land typically includes the purchase price and all o the ollo!ingcosts e+cepta. grading, flling, draining, and clearing costs.b. street lights, se!ers, and drainage systems cost.c. pri"ate dri"e!ays and paring lots.d. assumption o any liens or mortgages on the property.

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Acquisition and 8isposition o Property, Plant, and Equipment

2). $ a corporation purchases a lot and building and subsequently tears do!n thebuilding and uses the property as a paring lot, the proper accounting treatmento the cost o the building !ould depend ona. the signifcance o the cost allocated to the building in relation to the

combined cost o the lot and building.b. the length o time or !hich the building !as held prior to its demolition.

c. the contemplated uture use o the paring lot.d. the intention o management or the property !hen the building !as acquired.

2. 6he debit or a sales ta+ properly le"ied and paid on the purchase o machinerypreerably !ould be a charge toa. the machinery account.b. a separate deerred charge account.c. miscellaneous ta+ e+pense 9!hich includes all ta+es other than those on

income:.d. accumulated depreciation--machinery.

2/. ;ences and paring lots are reported on the balance sheet as

a. current assets.b. land impro"ements.c. land.d. property and equipment.

&3. 5istorical cost is the basis ad"ocated or recording the acquisition o property,plant, and equipment or all o the ollo!ing reasons excepta. at the date o acquisition, cost re<ects air maret "alue.b. property, plant, and equipment items are al!ays acquired at their original

historical cost.c. historical cost in"ol"es actual transactions and, as such, is the most reliable

basis.d. gains and losses should not be anticipated but should be recognied !hen the

asset is sold.

&31. 6o be consistent !ith the historical cost principle, o"erhead costs incurred by anenterprise constructing its o!n building should bea. allocated on the basis o lost production.b. eliminated completely rom the cost o the asset.c. allocated on an opportunity cost basis.d. allocated on a pro rata basis bet!een the asset and normal operations.

32. hich o the ollo!ing costs are capitalied or sel-constructed assetsa. =aterials and labor onlyb. >abor and o"erhead only

c. =aterials and o"erhead onlyd. =aterials, labor, and o"erhead

33. hich o the ollo!ing assets do not qualiy or capitaliation o interest costsincurred during construction o the assetsa. Assets under construction or an enterprise?s o!n use.b. Assets intended or sale or lease that are produced as discrete proects.c. Assets fnanced through the issuance o long-term debt.d. Assets not currently undergoing the acti"ities necessary to prepare them or

their intended use.

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3#. Assets that qualiy or interest cost capitaliation includea. assets under construction or a company?s o!n use.b. assets that are ready or their intended use in the earnings o the company.c. assets that are not currently being used because o e+cess capacity.d. All o these assets qualiy or interest cost capitaliation.

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3%. hen computing the amount o interest cost to be capitalied, the concept o @a"oidable interest@ reers toa. the total interest cost actually incurred.b. a cost o capital charge or stocholders? equity.c. that portion o total interest cost !hich !ould not ha"e been incurred i

e+penditures or asset construction had not been made.

d. that portion o a"erage accumulated e+penditures on !hich no interest cost!as incurred.

3'. 6he period o time during !hich interest must be capitalied ends !hena. the asset is substantially complete and ready or its intended use.b. no urther interest cost is being incurred.c. the asset is abandoned, sold, or ully depreciated.d. the acti"ities that are necessary to get the asset ready or its intended use

ha"e begun.

3). hich o the ollo!ing statements is true regarding capitaliation o interesta. $nterest cost capitalied in connection !ith the purchase o land to be used as

a building site should be debited to the land account and not to the buildingaccount.b. 6he amount o interest cost capitalied during the period should not e+ceed

the actual interest cost incurred.c. hen e+cess borro!ed unds not immediately needed or construction are

temporarily in"ested, any interest earned should be o7set against interestcost incurred !hen determining the amount o interest cost to be capitalied.

d. 6he minimum amount o interest to be capitalied is determined bymultiplying a !eighted a"erage interest rate by the amount o a"erageaccumulated e+penditures on qualiying assets during the period.

3. *onstruction o a qualiying asset is started on April 1 and fnished on 8ecember1. 6he raction used to multiply an e+penditure made on April 1 to fnd !eighted-

a"erage accumulated e+penditures isa. .b. 12.c. /12.d. 1112.

3/. hen unds are borro!ed to pay or construction o assets that qualiy orcapitaliation o interest, the e+cess unds not needed to pay or construction maybe temporarily in"ested in interest-bearing securities. $nterest earned on thesetemporary in"estments should bea. o7set against interest cost incurred during construction.b. used to reduce the cost o assets being constructed.

c. multiplied by an appropriate interest rate to determine the amount o interestto be capitalied.

d. recognied as re"enue o the period.

#. $nterest cost that is capitalied shoulda. be !ritten o7 o"er the remaining term o the debt.b. be accumulated in a separate deerred charge account and !ritten o7 equally

o"er a #-year period.c. not be !ritten o7 until the related asset is ully depreciated or disposed o.d. none o these.

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&#1. hich o the ollo!ing is not a condition that must be satisfed beore interestcapitaliation can begin on a qualiying asseta. $nterest cost is being incurred.b. E+penditures or the assets ha"e been made.c. 6he interest rate is equal to or greater than the company?s cost o capital.

d. Acti"ities that are necessary to get the asset ready or its intended use are inprogress.

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&#2. hich o the ollo!ing is the recommended approach to handling interestincurred in fnancing the construction o property, plant and equipmenta. *apitalie only the actual interest costs incurred during construction.b. *harge construction !ith all costs o unds employed, !hether identifable or

not.c. *apitalie no interest during construction.

d. *apitalie interest costs equal to the prime interest rate times the estimatedcost o the asset being constructed.

&#3. hich o the ollo!ing nonmonetary e+change transactions represents aculmination o the earning processa. E+change o assets !ith no di7erence in uture cash <o!s.b. E+change o products by companies in the same line o business !ith no

di7erence in uture cash <o!s.c. E+change o assets !ith a di7erence in uture cash <o!s.d. E+change o an equi"alent interest in similar producti"e assets that causes the

companies in"ol"ed to remain in essentially the same economic position.

&

##. hen boot is in"ol"ed in an e+change ha"ing commercial substance.a. gains or losses are recognied in their entirely.b. a gain or loss is computed by comparing the air "alue o the asset recei"ed

!ith the air "alue o the asset gi"en up.c. only gains should be recognied.d. only losses should be recognied.

&#%. 6he cost o a nonmonetary asset acquired in e+change or another nonmonetaryasset and the e+change has commercial substance is usually recorded ata. the air "alue o the asset gi"en up, and a gain or loss is recognied.b. the air "alue o the asset gi"en up, and a gain but not a loss may be

recognied.c. the air "alue o the asset recei"ed i it is equally reliable as the air "alue o

the asset gi"en up.d. either the air "alue o the asset gi"en up or the asset recei"ed, !hiche"er one

results in the largest gain 9smallest loss: to the company.

P#'. Bingler *orporation e+changes one plant asset or a similar plant asset and gi"escash in the e+change. 6he e+change is not e+pected to cause a material change inthe uture cash <o!s or either entity. $ a gain on the disposal o the old asset isindicated, the gain !illa. be reported in the Cther Be"enues and Dains section o the income statement.b. e7ecti"ely reduce the amount to be recorded as the cost o the ne! asset.c. e7ecti"ely increase the amount to be recorded as the cost o the ne! asset.d. be credited directly to the o!ner?s capital account.

#). Plant assets purchased on long-term credit contracts should be accounted or ata. the total "alue o the uture payments.b. the uture amount o the uture payments.c. the present "alue o the uture payments.d. none o these.

#. hen a plant asset is acquired by issuance o common stoc, the cost o the plantasset is properly measured by thea. par "alue o the stoc.

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b. stated "alue o the stoc.c. boo "alue o the stoc.d. air "alue o the stoc.

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#/. hen a closely held corporation issues preerred stoc or land, the land shouldbe recorded at thea. total par "alue o the stoc issued.b. total boo "alue o the stoc issued.c. total liquidating "alue o the stoc issued.d. air "alue o the land.

%. Accounting recognition should be gi"en to some or all o the gain realied on anonmonetary e+change o plant assets except !hen the e+change hasa. no commercial substance and additional cash is paid.b. no commercial substance and additional cash is recei"ed.c. commercial substance and additional cash is paid.d. commercial substance and additional cash is recei"ed.

%1. ;or a nonmonetary e+change o plant assets, accounting recognition should not begi"en toa. a loss !hen the e+change has no commercial substance.b. a gain !hen the e+change has commercial substance.

c. part o a gain !hen the e+change has no commercial substance and cash ispaid 9cash paidrecei"ed is less than 2% o the air "alue o the e+change:.d. part o a gain !hen the e+change has no commercial substance and cash is

recei"ed 9cash paid or recei"ed is less than 2% o the air "alue o thee+change:.

%2. hen an enterprise is the recipient o a donated asset, the account credited maybe aa. paid-in capital account.b. re"enue account.c. deerred re"enue account.d. all o these.

%3. A plant site donated by a to!nship to a manuacturer that plans to open a ne!actory should be recorded on the manuacturer?s boos ata. the nominal cost o taing title to it.b. its air "alue.c. one dollar 9since the site cost nothing but should be included in the balance

sheet:.d. the "alue assigned to it by the company?s directors.

%#. $n order or a cost to be capitalied 9capital e+penditure:, the ollo!ing must bepresentFa. 6he useul lie o an asset must be increased.b. 6he quantity o assets must be increased.

c. 6he quality o assets must be increased.d. Any one o these.

%%. An impro"ement made to a machine increased its air "alue and its productioncapacity by 2% !ithout e+tending the machine?s useul lie. 6he cost o theimpro"ement should bea. e+pensed.b. debited to accumulated depreciation.c. capitalied in the machine account.d. allocated bet!een accumulated depreciation and the machine account.

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%'. hich o the ollo!ing is a capital e+penditurea. Payment o an account payableb. Betirement o bonds payablec. Payment o ;ederal income ta+esd. Gone o these

%). hich o the ollo!ing is not a capital e+penditurea. Bepairs that maintain an asset in operating conditionb. An additionc. A bettermentd. A replacement

P%. $n accounting or plant assets, !hich o the ollo!ing outlays made subsequent toacquisition should be ully e+pensed in the period the e+penditure is madea. E+penditure made to increase the e7iciency or e7ecti"eness o an e+isting

assetb. E+penditure made to e+tend the useul lie o an e+isting asset beyond the

time rame originally anticipatedc. E+penditure made to maintain an e+isting asset so that it can unction in the

manner intendedd. E+penditure made to add ne! asset ser"ices

&%/. An e+penditure made in connection !ith a machine being used by an enterpriseshould bea. e+pensed immediately i it merely e+tends the useul lie but does not impro"e

the quality.b. e+pensed immediately i it merely impro"es the quality but does not e+tend

the useul lie.

c. capitalied i it maintains the machine in normal operating condition.d. capitalied i it increases the quantity o units produced by the machine.

&'. hen a plant asset is disposed o, a gain or loss may result. 6he gain or loss!ould be classifed as an e+traordinary item on the income statement i itresulted roma. an in"oluntary con"ersion and the conditions o the disposition are unusual

and inrequent in nature.b. a sale prior to the completion o the estimated useul lie o the asset.c. the sale o a ully depreciated asset.d. an abandonment o the asset.

'1. 6he sale o a depreciable asset resulting in a loss indicates that the proceedsrom the sale !erea. less than current air "alue.b. greater than cost.c. greater than boo "alue.d. less than boo "alue.

'2. hich o the ollo!ing statements about in"oluntary con"ersions is false? a. An in"oluntary con"ersion may result rom condemnation or fre.

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b. 6he gain or loss rom an in"oluntary con"ersion may be reported as ane+traordinary item.

c. 6he gain or loss rom an in"oluntary con"ersion should not be recognied!hen the enterprise rein"ests in replacement assets.

d. All o these.

MULTIPLE CHOICE—Coputt.on!

U"e t/e o!!o.n2 .no3t.on o3 4ue"t.on" )& n5 )'6

ilson *o. purchased land as a actory site or P,. ilson paid P, to teardo!n t!o buildings on the land. &al"age !as sold or P%,#. >egal ees o P3,# !erepaid or title in"estigation and maing the purchase. Architect?s ees !ere P31,2. 6itleinsurance cost P2,#, and liability insurance during construction cost P2,'.E+ca"ation cost P1,##. 6he contractor !as paid P2,%,. An assessment made bythe city or pa"ement !as P',#. $nterest costs during construction !ere P1),.

'3. 6he cost o the land that should be recorded by ilson *o. isa. P,#.b. P',.c. P/,.d. P/',2.

'#. 6he cost o the building that should be recorded by ilson *o. isa. P2,%3,.b. P2,%#,#.c. P2,%13,2.d. P2,%1#,2#.

'%. Cn ;ebruary 1, 21', Gelson *orporation purchased a parcel o land as a actorysite or P2%,. An old building on the property !as demolished, andconstruction began on a ne! building !hich !as completed on Go"ember 1,21'. *osts incurred during this period are listed belo!F

8emolition o old building P 2, Architect?s ees 3%,>egal ees or title in"estigation and purchase contract %,*onstruction costs 1,2/,9&al"aged materials resulting rom demolition !ere sold or P1,.:

Gelson should record the cost o the land and ne! building, respecti"ely, asa. P2)%, and P1,31%,.b. P2', and P1,33,.c. P2', and P1,32%,.

d. P2'%, and P1,32%,.

''. orthington *handler *ompany purchased equipment or P12,. &ales ta+ onthe purchase !as P. Cther costs incurred !ere reight charges o P2,repairs o P3% or damage during installation, and installation costs o P22%.hat is the cost o the equipmenta. P12,b. P12,c. P13,22%d. P13,%)%

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'). ;ogelberg *ompany purchased equipment or P1%,. &ales ta+ on the purchase!as P/. Cther costs incurred !ere reight charges o P2#, repairs o P#2 ordamage during installation, and installation costs o P2). hat is the cost o theequipmenta. P1%,.

b. P1%,/.c. P1',#1.d. P1',3.

'. 8uring sel-construction o an asset by &amuelson *ompany, the ollo!ing !ereamong the costs incurredF

;i+ed o"erhead or the year P1,,Portion o P1,, f+ed o"erhead that !ould

be allocated to asset i it !ere normal production %, (ariable o"erhead attributable to sel-construction 3%,

hat amount o o"erhead should be included in the cost o the sel-constructed

asseta. P --b. P3%,c. P%,d. P%,

'/. 8uring sel-construction o an asset by Bichardson *ompany, the ollo!ing !ereamong the costs incurredF

;i+ed o"erhead or the year P1,,Portion o P1,, f+ed o"erhead that !ould

be allocated to asset i it !ere normal production ', (ariable o"erhead attributable to sel-construction )%,

hat amount o o"erhead should be included in the cost o the sel-constructedasseta. P --b. P ',c. P )%,d. P13%,

). =endenhall *orporation constructed a building at a cost o P1,,. A"erageaccumulated e+penditures !ere P#,,, actual interest !as P',, anda"oidable interest !as P#,. $ the sal"age "alue is P,, and the useullie is # years, depreciation e+pense or the frst ull year using the straight-linemethod is

a. P2#,.b. P2#%,.c. P2',.d. P3#,.

)1. =essersmith *ompany is constructing a building. *onstruction began in 21'and the building !as completed 123112. =essersmith made payments to theconstruction company o P1,%, on )1, P3,1%, on /1, and P3,,on 1231. A"erage accumulated e+penditures !erea. P1,%3),%.

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b. P1,,.c. P#,'%,.d. P),'%,.

)2. 5u7man *orporation constructed a building at a cost o P2,,. A"erage

accumulated e+penditures !ere P,,, actual interest !as P1,2,, anda"oidable interest !as P,. $ the sal"age "alue is P1,',, and theuseul lie is # years, depreciation e+pense or the frst ull year using thestraight-line method isa. P#,.b. P#/,.c. P%2,.d. P',.

)3. Dutierre *ompany is constructing a building. *onstruction began in 21' andthe building !as completed 123112. Dutierre made payments to theconstruction company o P2,, on )1, P#,#, on /1, and P#,,

on 1231. A"erage accumulated e+penditures !erea. P2,1,.b. P2,#'','').c. P',#,.d. P1,#,.

)#. Cn =ay 1, 21', Doodman *ompany began construction o a building.E+penditures o P2#, !ere incurred monthly or % months beginning on =ay1. 6he building !as completed and ready or occupancy on &eptember 1, 21'.;or the purpose o determining the amount o interest cost to be capitalied, thea"erage accumulated e+penditures on the building during 21' !erea. P2,.b. P2#,.c. P/',.d. P1,2,.

)%. 8uring 21', Himmel *o. incurred a"erage accumulated e+penditures o P', during construction o assets that qualifed or capitaliation o interest.6he only debt outstanding during 21' !as a P)%,, 1, %-year note payabledated Ianuary 1, 21#. hat is the amount o interest that should be capitalied

by Himmel during 21'a. P.b. P1%,.c. P',.d. P)%,.

)'. Cn =arch 1, ;elt *o. began construction o a small building. Payments o P1', !ere made monthly or three months beginning =arch 1. 6he building!as completed and ready or occupancy on Iune 1. $n determining the amount o

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interest cost to be capitalied, the !eighted-a"erage accumulated e+pendituresarea. P#,.b. P,.c. P1',.d. P32,.

)). Cn =arch 1, $mho7 *o. began construction o a small building. Payments o P2#, !ere made monthly or our months beginning =arch 1. 6he building!as completed and ready or occupancy on Iune 1. $n determining the amount o interest cost to be capitalied, the !eighted-a"erage accumulated e+pendituresarea. P12,.b. P2#,.c. P#,.d. P/',.

Jse the ollo!ing inormation or questions ) through .

Cn =arch 1, 21', Ge!ton *ompany purchased land or an o7ice site by payingP/, cash. Ge!ton began construction on the o7ice building on =arch 1. 6heollo!ing e+penditures !ere incurred or constructionF

8ate E+penditures=arch 1, 21' P ',

April 1, 21' #,=ay 1, 21' 1,%,

Iune 1, 21' 2,#,

6he o7ice !as completed and ready or occupancy on Iuly 1. 6o help pay orconstruction, P1,2, !as borro!ed on =arch 1, 21' on a /, 3-year note payable.

Cther than the construction note, the only debt outstanding during 21' !as aP%,, 12, '-year note payable dated Ianuary 1, 21'.

). 6he !eighted-a"erage accumulated e+penditures on the construction proectduring 21' !erea. P'#,.b. P#,/,.c. P%2,.d. P1,1',.

)/. 6he actual interest cost incurred during 21' !asa. P1%,.b. P1',.

c. P#,.d. P1#,.

. Assume the !eighted-a"erage accumulated e+penditures or the constructionproect are P),. 6he amount o interest cost to be capitalied during 21' isa. P13,%.b. P13,.c. P1%,.d. P1',.

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1. 8uring 21', Kass *orporation constructed assets costing P2,,. 6he!eighted-a"erage accumulated e+penditures on these assets during 21' !asP',. 6o help pay or construction, P, !as borro!ed at 1 on

Ianuary 1, 21', and unds not needed or construction !ere temporarily

in"ested in short-term securities, yielding P1, in interest re"enue. Ctherthan the construction unds borro!ed, the only other debt outstanding during the

year !as a P1,,, 1-year, / note payable dated Ianuary 1, 21. hat isthe amount o interest that should be capitalied by Kass during 21'a. P12,.b. P',.c. P11',.d. P1,.

Jse the ollo!ing inormation or questions 2 through %.

Cn Ianuary 2, 21', $ndian Bi"er Dro"es began construction o a ne! citrus processing

plant. 6he automated plant !as fnished and ready or use on &eptember 3, 21).E+penditures or the construction !ere as ollo!sF

Ianuary 2, 21' P3,&eptember 1, 21' /,8ecember 31, 21' /,=arch 31, 21) /,&eptember 3,21)

',

$ndian Bi"er Dro"es borro!ed P1,'%, on a construction loan at 12 interest on Ianuary 2, 21'. 6his loan !as outstanding during the construction period. 6he

company also had P',, in / bonds outstanding in 21' and 21).

2. hat !ere the !eighted-a"erage accumulated e+penditures or 21'a. P,b. P)%,c. P',d. P1,%,

3. 6he interest capitalied or 21' !asFa. P2),b. P)2,c. P22,d. P/,

#. hat !ere the !eighted-a"erage accumulated e+penditures or 21) by the endo the construction perioda. P%%,b. P2,#%2,%c. P2,/)/,d. P2,)/,

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%. 6he interest capitalied or 21) !asFa. P1),11b. P1)),#%c. P 3,'1

d. P 1#,%

Jse the ollo!ing inormation to ans!er questions ' - /.

Arlington *ompany is constructing a building. *onstruction began on Ianuary 1 and !ascompleted on 8ecember 31. E+penditures !ere P#,, on =arch 1, P3,3, on

Iune 1, and P%,, on 8ecember 31. Arlington *ompany borro!ed P2,, on Ianuary 1 on a %-year, 12 note to help fnance construction o the building. $n addition,the company had outstanding all year a 1, 3-year, P#,, note payable and an11, #-year, P),%, note payable.

'. hat are the !eighted-a"erage accumulated e+penditures

a. P),3,b. P%,2%,333c. P12,3,d. P',1%,

). hat is the !eighted-a"erage interest rate used or interest capitaliationpurposesa. 11b. 1.%c. 1.%d. 1.'%

. hat is the a"oidable interest or Arlington *ompany

a. P2#,b. P))3,13c. P2)3,2d. P%),12

/. hat is the actual interest or Arlington *ompanya. P1,#'%,b. P1,#%,c. P1,22%,d. P%),12

/. hat amount o interest should be charged to e+pense

a. P'3),/)b. P1,22%c. P)),/)d. P'/1,/)

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/1. 8odson *ompany traded in a manual pressing machine or an automated pressingmachine and ga"e P1', cash. 6he old machine cost P1', and had a netboo "alue o P1#2,. 6he old machine had a air "alue o P12,.

hich o the ollo!ing is the correct ournal entry to record the e+change

a. Equipment 13',>oss on 8isposal 22,

Accumulated 8epreciation ##,Equipment 1',*ash 1',

b. Equipment 13',Equipment 12,*ash 1',

c. *ash 1',Equipment 12,>oss on 8isposal 22,

Accumulated 8epreciation ##,Equipment 22,

d. Equipment 2#', Accumulated 8epreciation ##,Equipment 1',*ash 1',

U"e t/e o!!o.n2 .no3t.on to n"e3 4ue"t.on" % 7 &6Kelo! is the inormation relati"e to an e+change o assets by &tanton *ompany. 6hee+change lacs commercial substance.

O!5 E4u.pent

Koo (alue ;air (alue *ash Paid*ase $ P22%, P22%, P#%,*ase $$ P1%, P13%, P21,

/2. hich o the ollo!ing !ould be correct or &tanton to record in *ase $

Becord Equipment atF Becord a gain o 9loss:oF

a. P2), Pb. P3, P3,c. P22%, P91%,:d. P2), P3,

/3. hich o the ollo!ing !ould be correct or &tanton to record in *ase $$

Becord Equipment atF Becord a gain o 9loss:oF

a. P1)1, P1%,b. P1%, P',c. P1%', P91%,:d. P1%, P9',:

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Te"t #n$

U"e t/e o!!o.n2 .no3t.on o3 4ue"t.on" ' n5 (6

Dlen $nc. and Armstrong *o. ha"e an e+change !ith no commercial substance. 6he assetgi"en up by Dlen $nc. has a boo "alue o P#, and a air "alue o P',. 6he assetgi"en up by Armstrong *o. has a boo "alue o P, and a air "alue o P)',. Kooto P1', is recei"ed by Armstrong *o./#. hat amount should Dlen $nc. record or the asset recei"ed

a. P',b. P'#,c. P)',d. P,

/%. hat amount should Armstrong *o. record or the asset recei"eda. P',

b. P'#,c. P)',d. P,

/'. 5ardin *ompany recei"ed P', in cash and a used computer !ith a air "alueo P1, rom Page *orporation or 5ardin *ompany?s e+isting computerha"ing a air "alue o P2#, and an undepreciated cost o P22%, recordedon its boos. 6he transaction has no commercial substance. 5o! much gainshould 5ardin recognie on this e+change, and at !hat amount should theacquired computer be recorded, respecti"elya. P and P1'%,b. P1,1%3 and P1'',1%3c. P1%, and P1,d. P', and P22%,

U"e t/e o!!o.n2 .no3t.on to n"e3 4ue"t.on" * 7 +6

Iamison *ompany purchased the assets o Kooer *ompany at an auction orP2,,. An independent appraisal o the air "alue o the assets is listed belo!F

>and P/%,Kuilding 1,#,Equipment 1,%,6rucs 1,),

/). Assuming that specifc identifcation costs are impracticable and that Iamison

allocates the purchase price on the basis o the relati"e air "alues, !hat amount!ould be allocated to the 6rucsa. P/33,333b. P1,#,c. P1,',d. P1,),

/. Assuming that specifc identifcation costs are impracticable and that Iamisonallocates the purchase price on the basis o the relati"e air "alues, !hat amount!ould be allocated to the Kuilding

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a. P1,%/,#'b. P1,#,c. P2,%%,d. P)','2)

//. Cn 8ecember 1, =iser *orporation e+changed 3, shares o its P2% par "aluecommon stoc held in treasury or a parcel o land to be held or a uture plantsite. 6he treasury shares !ere acquired by =iser at a cost o P# per share, andon the e+change date the common shares o =iser had a air "alue o P% pershare. =iser recei"ed P/, or selling scrap !hen an e+isting building on theproperty !as remo"ed rom the site. Kased on these acts, the land should becapitalied at

a. P111,.b. P12,.c. P1#1,.d. P1%,.

1. &torm *orporation purchased a ne! machine on Cctober 31, 21'. A P3,'do!n payment !as made and three monthly installments o P1, each are tobe made beginning on Go"ember 3, 21'. 6he cash price !ould ha"e beenP3#,. &torm paid no installation charges under the monthly payment plan buta P' installation charge !ould ha"e been incurred !ith a cash purchase. 6heamount to be capitalied as the cost o the machine on Cctober 31, 21' !ouldbea. P3','.b. P3',.c. P3%,#.d. P3#,.

11. 5orner *ompany buys a deli"ery "an !ith a list price o P#%,. 6he dealergrants a 1% reduction in list price and an additional 2 cash discount on the netprice i payment is made in 3 days. &ales ta+es amount to P' and the companypaid an e+tra P#% to ha"e a special de"ice installed. hat should be therecorded cost o the "ana. P3),#%.b. P3,#'.c. P3,%3%.

d. P3,%.

12. Cn August 1, 21', 5ayes *orporation purchased a ne! machine on a deerredpayment basis. A do!n payment o P/, !as made and # monthly installmentso P),% each are to be made beginning on &eptember 1, 21'. 6he cashequi"alent price o the machine !as P3',. 5ayes incurred and paidinstallation costs amounting to P1,%. 6he amount to be capitalied as the costo the machine isa. P3',.b. P3),%.

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c. P3/,.d. P#,%.

13. Cn April 1, =ooney *orporation purchased or P1,)1, a tract o land on!hich !as located a !arehouse and o7ice building. 6he ollo!ing data !erecollected concerning the propertyF

*urrent Assessed (aluation (endor0s Criginal *ost>and P', P%',arehouse #, 3',C7ice building , ',

P1,, P1,',

hat are the appropriate amounts that =ooney should record or the land,!arehouse, and o7ice building, respecti"elya. >and, P%',L !arehouse, P3',L o7ice building, P',.b. >and, P',L !arehouse, P#,L o7ice building, P,.c. >and, P%/,%L !arehouse, P3#,)%L o7ice building, P3'3,3)%.d. >and, P%),L !arehouse, P3,L o7ice building, P)',.

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1#. Cn August 1, 21', =ende *orporation purchased a ne! machine on a deerredpayment basis. A do!n payment o P2, !as made and # annual installments o P1, each are to be made beginning on &eptember 1, 21'. 6he cashequi"alent price o the machine !as P'/,. 8ue to an employee strie, =endecould not install the machine immediately, and thus incurred P/ o storage costs.

*osts o installation 9e+cluding the storage costs: amounted to P2,#. 6he amountto be capitalied as the cost o the machine isa. P'/,.b. P)1,#.c. P)2,3.d. P),.

1%. &iegle *ompany e+changed ' shares o Duinn *ompany common stoc, !hich&iegle !as holding as an in"estment, or equipment rom =ayo *ompany. 6heDuinn *ompany common stoc, !hich had been purchased by &iegle or P% pershare, had a quoted maret "alue o P% per share at the date o e+change. 6heequipment had a recorded amount on =ayo?s boos o P31,%. hat ournal

entry should &iegle mae to record this e+changea. Equipment .................................................................. 3,

$n"estment in Duinn *o. *ommon &toc ............ 3,b. Equipment .................................................................. 31,%

$n"estment in Duinn *o. *ommon &toc ............ 3,Dain on 8isposal o $n"estment .......................... 1,%

c. Equipment .................................................................. 31,%>oss on 8isposal o $n"estment .................................. 3,3

$n"estment in Duinn *o. *ommon &toc ............ 3#,d. Equipment .................................................................. 3#,

$n"estment in Duinn *o. *ommon &toc ............ 3,Dain on 8isposal o $n"estment .......................... #,

1'. Cn Ianuary 2, 21', Bapid 8eli"ery *ompany traded in an old deli"ery truc or ane!er model. 6he e+change laced commercial substance. 8ata relati"e to theold and ne! trucs ollo!F

Cld 6ruc Criginal cost P3',

Accumulated depreciation as o Ianuary 2, 21' 2#, A"erage published retail "alue 11,

Ge! 6ruc >ist price P',*ash price !ithout trade-in %#,*ash paid !ith trade-in #%,

hat should be the cost o the ne! truc or fnancial accounting purposesa. P#%,.b. P%#,.c. P%),.d. P',.

1). Cn 8ecember 1, 21', Helso *ompany acquired ne! equipment in e+change orold equipment that it had acquired in 2/. 6he old equipment !as purchased orP), and had a boo "alue o P2','. Cn the date o the e+change, the oldequipment had a air "alue o P2,. $n addition, Helso paid P/1, cash or

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the ne! equipment, !hich had a list price o P12',. 6he e+change lacedcommercial substance. At !hat amount should Helso record the ne! equipmentor fnancial accounting purposesa. P/1,.b. P11),'.c. P11/,.

d. P12',.

Jse the ollo!ing inormation or questions 1 and 1/.

A machine cost P3',, has annual depreciation o P',, and has accumulateddepreciation o P2), on 8ecember 31, 21'. Cn April 1, 21), !hen the machinehas a air "alue o P2,%, it is e+changed or a machine !ith a air "alue o P#%,and the proper amount o cash is paid. 6he e+change laced commercial substance.1. 6he gain to be recorded on the e+change is

a. P.b. P),% loss.c. P1%, gain.

d. P#%, gain.1/. 6he ne! machine should be recorded at

a. P322,%.b. P3'),%.c. P3/),%.d. P#%,.

Jse the ollo!ing inormation or questions 11 and 111.

Equipment that cost P, and has accumulated depreciation o P#, ise+changed or equipment !ith a air "alue o P'#, and P1', cash is recei"ed. 6hee+change laced commercial substance.

11. 6he gain to be recognied rom the e+change isa. P',# gain.b. P, gain.c. P2#, gain.d. P32, gain.

111. 6he ne! equipment should be recorded ata. P'#,.b. P#,.c. P#,.d. P3,#.

Jse the ollo!ing inormation or questions 112 through 11#.

6!o independent companies, 5ager *o. and &ha! *o., are in the home buildingbusiness. Each o!ns a tract o land held or de"elopment, but each !ould preer to buildon the other?s land. 6hey agree to e+change their land. An appraiser !as hired, androm her report and the companies? records, the ollo!ing inormation !as obtainedF

5ager?s >and &ha!?s >and*ost and boo "alue P%)', P3',;air "alue based upon appraisal )2, '3,

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6he e+change !as made, and based on the di7erence in appraised air "alues, &ha!paid P/, to 5ager. 6he e+change laced commercial substance.

112. ;or fnancial reporting purposes, 5ager should recognie a pre-ta+ gain on thise+change o

a. P.b. P1,.c. P/,.d. P1##,.

113. 6he ne! land should be recorded on 5ager?s boos ata. P%#,.b. P%)',.

c. P'3,.d. P)2,.

11#. 6he ne! land should be recorded on &ha!?s boos ata. P3',.b. P#%,.c. P'3,.d. P)2,.

11%. 6immons *ompany traded machinery !ith a boo "alue o P2#, and a air "alue o P#,. $t recei"ed in e+change rom >e!is *ompany a machine !ith aair "alue o P3', and cash o P#,. >e!is0s machine has a boo "alue o P3,. hat amount o gain should 6immons recognie on the e+changea. P --b. P1',c. P#,d. P1',

11'. >e!is *ompany traded machinery !ith a boo "alue o P%), and a air "alueo P%#,. $t recei"ed in e+change rom 6immons *ompany a machine !ith aair "alue o P',. >e!is also paid cash o P', in the e+change.6immons0s machine has a boo "alue o P%),. hat amount o gain or lossshould >e!is recognie on the e+changea. P', gainb. P --.

c. P3, lossd. P3, loss

11). 8urler *ompany traded machinery !ith a boo "alue o P%#, and a air "alueo P/,. $t recei"ed in e+change rom 5oyle *ompany a machine !ith a air

"alue o P1, and cash o P/,. 5oyle0s machine has a boo "alue o P%%,. hat amount o gain should 8urler recognie on the e+changea. P --b. P3',c. P/,

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Te"t #n$

d. P3',

11. 5oyle *ompany traded machinery !ith a boo "alue o P%), and a air "alueo P%#,. $t recei"ed in e+change rom 8urler *ompany a machine !ith a air

"alue o P',. 5oyle also paid cash o P', in the e+change. 8urler0smachine has a boo "alue o P%),. hat amount o gain or loss should 5oyle

recognie on the e+changea. P', gainb. P --c. P3, lossd. P3, loss

11/. Peterson *ompany purchased machinery or P#, on Ianuary 1, 213.&traight-line depreciation has been recorded based on a P3, sal"age "alueand a %-year useul lie. 6he machinery !as sold on =ay 1, 21) at a gain o P/,. 5o! much cash did Peterson recei"e rom the sale o the machinerya. P'/,b. P1,

c. P//,d. P12/,

12. &utherland *ompany purchased machinery or P'#, on Ianuary 1, 213.&traight-line depreciation has been recorded based on a P#, sal"age "alueand a %-year useul lie. 6he machinery !as sold on =ay 1, 21) at a gain o P12,. 5o! much cash did &utherland recei"e rom the sale o the machinerya. P/2,.b. P1,.c. P132,.d. P1)2,.

121. Ecer *ompany purchased a ne! machine on =ay 1, 2 or P2'#,. At the

time o acquisition, the machine !as estimated to ha"e a useul lie o ten yearsand an estimated sal"age "alue o P12,. 6he company has recorded monthlydepreciation using the straight-line method. Cn =arch 1, 21), the machine !assold or P3',. hat should be the loss recognied rom the sale o themachinea. P.b. P%,#.c. P12,.d. P1),#.

122. Cn Ianuary 1, 2, =ill *orporation purchased or P3#,, equipment ha"inga useul lie o ten years and an estimated sal"age "alue o P1',. =ill has

recorded monthly depreciation o the equipment on the straight-line method. Cn8ecember 31, 21', the equipment !as sold or P%',. As a result o this sale,=ill should recognie a gain o a. P.b. P11,2.c. P2),2.d. P%',.

MULTIPLE CHOICE—CPA A5pte5

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123. Cn 8ecember 1, 21', 5ogan *o. purchased a tract o land as a actory site orP/,. 6he old building on the property !as raed, and sal"aged materialsresulting rom demolition !ere sold. Additional costs incurred and sal"ageproceeds realied during 8ecember 21' !ere as ollo!sF

*ost to rae old building P),>egal ees or purchase contract and to record o!nership 1,6itle guarantee insurance 1',Proceeds rom sale o sal"aged materials ,

$n 5ogan ?s 8ecember 31, 21' balance sheet, !hat amount should be reportedas landa. P/2',.b. P/'2,.c. P/,.d. P//',.

12#. >and !as purchased to be used as the site or the construction o a plant. A building on the property !as sold and remo"ed by the buyer so that constructionon the plant could begin. 6he proceeds rom the sale o the building should bea. classifed as other income.b. deducted rom the cost o the land.c. netted against the costs to clear the land and e+pensed as incurred.d. netted against the costs to clear the land and amortied o"er the lie o the

plant.

12%. A company is constructing an asset or its o!n use. *onstruction began in 21'.

6he asset is being fnanced entirely !ith a specifc ne! borro!ing. *onstructione+penditures !ere made in 21' and 21) at the end o each quarter. 6he totalamount o interest cost capitalied in 21) should be determined by applying theinterest rate on the specifc ne! borro!ing to thea. total accumulated e+penditures or the asset in 21' and 21).b. a"erage accumulated e+penditures or the asset in 21' and 21).c. a"erage e+penditures or the asset in 21).d. total e+penditures or the asset in 21).

12'. *olt ;ootball *o. had a player contract !ith atts that is recorded in its boos atP#,, on Iuly 1, 21'. 8ay ;ootball *o. had a player contract !ith Hurtthat is recorded in its boos at P',, on Iuly 1, 21'. Cn this date, *olt

traded atts to 8ay or Hurt and paid a cash di7erence o P',. 6he air "alue o the Hurt contract !as P),2, on the e+change date. 6he e+changehad no commercial substance. Ater the e+change, the Hurt contract should berecorded in *olt?s boos ata. P%,#,.b. P',,.c. P',',.d. P),2,.

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12). 5u7 *o. e+changed nonmonetary assets !ith &ayler *o. Go cash !as e+changedand the e+change had no commercial substance. 6he carrying amount o theasset surrendered by 5u7 e+ceeded both the air "alue o the asset recei"ed and&ayler?s carrying amount o that asset. 5u7 should recognie the di7erencebet!een the carrying amount o the asset it surrendered anda. the air "alue o the asset it recei"ed as a loss.

b. the air "alue o the asset it recei"ed as a gain.c. &ayler?s carrying amount o the asset it recei"ed as a loss.d. &ayler?s carrying amount o the asset it recei"ed as a gain.

12. *hase *ounty o!ned an idle parcel o real estate consisting o land and a actorybuilding. *hase ga"e title to this realty to Patton *o. as an incenti"e or Patton toestablish manuacturing operations in the *ounty. Patton paid nothing or thisrealty, !hich had a air maret "alue o P2%, at the date o the grant. Pattonshould record this nonmonetary transaction as aa. memo entry only.b. credit to *ontribution Be"enue or P2%,.c. credit to E+traordinary $ncome or P2%,.

d. credit to 8onated *apital or P2%,.

12/. Cn &eptember 1, 21', Iens *o. incurred the ollo!ing costs or one o itsprinting pressesF

Purchase o attachment P'%,$nstallation o attachment %,Beplacement parts or reno"ation o press 1,>abor and o"erhead in connection !ith reno"ation o press ),

Geither the attachment nor the reno"ation increased the estimated useul lie othe press. 5o!e"er, the reno"ation resulted in signifcantly increasedproducti"ity. hat amount o the costs should be capitalieda. P.

b. P)),.c. P,.d. P/%,.

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13. Cn Ianuary 2, 21', 4or *orp. replaced its boiler !ith a more e7icient one. 6heollo!ing inormation !as a"ailable on that dateF

Purchase price o ne! boiler P1),*arrying amount o old boiler 1,

;air "alue o old boiler #,$nstallation cost o ne! boiler 2,

6he old boiler !as sold or P#,. hat amount should 4or capitalie as thecost o the ne! boilera. P1/,.b. P1',.c. P1,.d. P1),.

IFRS QUESTIONS

T3ue8F!"e

1. Jnder international accounting standards, historical cost is the preerred treatmentor property, plant, and equipment.

2. Becently changes to $;B& require companies to capitalie borro!ing costs related toqualiying assets.

3. Jnder $;B&, interest costs incurred during construction o a plant asset cannot becapitalied.

#. Jnder $;B&, i a company uses the re"aluation model or f+ed assets, companiesmust re"alue the class o assets regularly.

%. Jnder $;B&, assets that qualiy or interest capitaliation are assets that are in useor ready or their intended use.

Mu!t.p!e C/o.ce

1. Jnder $;B&, &ampson *ompany, !ho has a non-current asset !hich has beenclassifed as held-or-sale, shoulda. test the asset?s "alue monthly or impairment.b. "alue the asset at its depreciated historical cost.c. depreciate the asset o"er its remaining lie.d. not depreciate the asset.

2. =iller *ompany, a company !ho uses $;B& reporting standards, sells a non-current

asset classifed as held-or-sale. hich o the ollo!ing statements is true regardingthe treatment o a gain on a subsequent increase in the air "alue less costa. 6he gain should not be recognied.b. 6he gain should be recognied in ull in the income statement.c. 6he gain should be recognied but only in retained earnings.d. 6he gain should be recognied to the e+tent that it is not in e+cess o the

cumulati"e impairment loss that has been recognied.

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Te"t #n$

3. 8anson *ompany, a company !ho uses $;B& reporting standards, has a non-currentasset that has been classifed as held-or-sale. hen the asset no longer meets thisdefnition, 8anson shoulda. remo"e the asset rom the statement o fnancial position.b. remeasure the asset at air "alue.c. measure the asset at the lo!er o its carrying "alue beore it !as classifed as

held-or-sale and its reco"erable amount at the date !hen the company decidednot to sell it.

d. lea"e the non-current asset on the fnancial statements at the current carrying "alue.

#. Elton $ndustries, a company !ho uses $;B& reporting standards, has assets andliabilities o a disposal group classifed as held-or-sale sho!n on its statement ofnancial position. hich o the ollo!ing presents the best treatment or thesea. 6hese assets and liabilities should be netted and presented as a single amount -

either a current asset or a current liability on the statement o fnancial position.b. Cn the balance sheet, the disposal group assets should be sho!n separately rom

other assets, !hile the disposal group liabilities should be sho!n separately rom

other liabilities.c. 6he assets and liabilities should be netted and presented as a deduction rom

equity on the statement o fnancial position.d. 6here should be no separate disclosure o these assets and liabilities on the

statement o fnancial position.

%. oodson *ompany, a company !ho uses $;B& reporting standards, has identifed agroup o plant assets or disposal. Cn Ianuary 1, 21', the carrying "alue o theseassets !asP1).% million. 6he assets !ere re"alued to P1'.% million on Ianuary %, 21', !henthey !ere identifed as property or the disposal group. $n addition, oodson thinsthat it !ill costP1.% million to sell these assets. hat carrying amount should these assets re<ect

or year-end fnancial statements to be prepared on Ianuary 1, 21'a. P1).% millionb. P1'.% millionc. P1'. milliond. P1%. million

'. 6homas *ompany, a company !ho uses $;B& reporting standards, is disposing o aplant asset. 6he amount o gain or loss rom this disposal isa. reported as the di7erence bet!een the sales proceeds and the carrying amount

o the asset.b. not reported.

c. reported as the air "alue less the reco"erable amount.d. reported as the di7erence bet!een the net cash <o!s o the producti"e years o

the asset and its carrying "alue.

). Cn Ianuary 1, 21', Iacson *ompany has a building !ith a carrying "alue oP%, and a remaining useul lie % years that !as recently "alued at P1%,.

Assuming that the company uses straight-line depreciation, $;B& !ould sho! thedepreciation asa. P1,b. P3,

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c. P2,d. =ore than one o these ans!ers could be correct.

. 6ram $ndustries, a company !ho uses $;B& reporting standards, is installing a ne!plant. 6he company has incurred the ollo!ing costs

1. Cperating losses beore commercial productionP 2,2. *ost o the plant 1,%,3. $nitial deli"ery and handling charges 3,#. *ost o site preparation 1)%,

hich o these costs can 6ram capitalie in accordance !ith $;B&a. 1, 2, 3, M #b. 2 M #c. 2, 3, M #d. 1, 2, M #

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/. $con $ndustries, a company !ho uses $;B& reporting standards, is installing a ne!plant. 6he company has incurred the ollo!ing costs1. *onsultants used or ad"ice on the acquisition o the plant P2#%,2. $nterest charges paid to the supplier o plant or deerred credit P2)%,3. Estimated dismantling cost to be incurred ater years P#,#. *ost o the plant P2,3,

hich o these costs can 6ram capitalie in accordance !ith $;B&a. 1, 2, 3, M #b. # onlyc. 1 M #d. 1, 3, M #

1.All o the ollo!ing are true regarding the re"aluation model allo!ed under $;B&e+cepta. once selected, the re"aluation policy applies to an entire class o property, plant

and equipment.b. re"aluations must be made regularly to ensure that the carrying "alue is not

materially di7erent rom air "alue.c. ater initial recognition, the re"alued amount is air "alue less subsequent

depreciation and impairment losses.d. !hen an asset is re"alued, any increase in carrying amount is reported as

miscellaneous re"enue.

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Documents

1. Ifrs Ch10 Acquisition and Disposition of Property Plant and Equipment for Distribution