1. A. PAS 16.

15 provides that an item of property, plant and equipment should initially be

recorded at cost. Cost includes all costs necessary to bring the asset to working condition for
its intended use.

4
Answer: D.
PAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition,
construction or production of a 'qualifying asset' (one that necessarily takes a substantial period
of time to get ready for its intended use or sale) are included in the cost of the asset.

6
ANSWER: A.
The calculation of value in use should reflect the following elements: [PAS 36.30]
 an estimate of the future cash flows the entity expects to derive from the asset
 expectations about possible variations in the amount or timing of those future cash flows
 the time value of money, represented by the current market risk-free rate of interest
 the price for bearing the uncertainty inherent in the asset
 other factors, such as illiquidity, that market participants would reflect in pricing the
future cash flows the entity expects to derive from the asset

9
Answer: C.
Statement 1: TRUE. The allocated cost of the old building shall not form part of the cost of the
new building. Also, since the old building will not be used, hence, no further economic benefits
are expected from its use, the allocated cost of the old building should be de-recognized as
required under PAS 16.67 and the loss arising from de- recognition is included in profit or loss as
required under PAS 16.68.
Statement 2: FALSE. PAS 23.8 provides that borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset form part of the cost of that asset
and, therefore, should be capitalized. Other borrowing costs are recognized as an expense.
Statement 3: FALSE. Where funds are part of a general pool, the eligible amount is determined
by applying a capitalization rate to the expenditure on that asset. The capitalization rate will be
the weighted average of the borrowing costs applicable to the general pool. The amount
capitalized should not exceed the actual borrowing cost.

10
Answer: D.
Statement 1: TRUE. The grant is recognized as income over the period necessary to match them
with the related costs, for which they are intended to compensate, on a systematic basis. [PAS
20.12]
Statement 2: FALSE. The grant should not be credited to Donated Capital but to Government
Grant or as an income. If the PPE is donated by a stockholder, then it becomes a donated capital.
Statement 3: TRUE. A grant receivable as compensation for costs already incurred or for
immediate financial support, with no future related costs, should be recognized as income in the
period in which it is receivable. [PAS 20.20]

16
Answer: A.
The impairment loss is recognized as an expense (unless it relates to a revalued asset where the
impairment loss is treated as a revaluation decrease). [PAS 36.60]

17
Answer: C
PAS 36 defines Recoverable amount as the higher of an asset's fair value less costs of disposal*
(sometimes called net selling price) and its value in use.

26
Answer: C
Average Expenditures 475,000
Less: Specific Borrowing 400,000
Expenditures for Gen Bor. 75,000
General Borrowing Rate x 12%
Capitalized Gen Borr 9,000
Specific Borr (400,000 x10%) 40,000
Capitalized Borr 49,000

27
Answer: B
Depn Percentage: 1/5 x 2 = 40%
CA Jan 1, 2006 50,000 x (1-40%) x (1-40%) 18,000
Remaining useful life (5 yrs – 2 yrs) /3
Depn 6,000

Initial CA 50,000
CA Dec 31, 2006 18,000 – 6,000 12,000
Accum Dep’n 38,000

28
ANSWER: B
Cost of Wasting Asset:
Purchase Price 3,640,000
Restoration Cost 180,000
Development Cost 360,000
Residual Value (300,000)
Total: 2,880,000
Divided by Tons to be Extracted 1,200,000
Depletion cost per ton 2.4
Multiplied by Tons sold 60,000
Depletion Cost to be presented in COS 144,000

29
Answer: C
Impairment Loss = FVLCD - CA
Fair Value 6,000,000
Plus Impairment Loss 2,200,000
CA Before Impairment (12/31/05) 8,200,000

Computation of Depn per year:

CA 12/31/05 8,200,000
Less: Residual Value 200,000
Depreciable amount 8,000,000
Divided by Remainder of Life (10-2) 8
Depn per year 1,000,000

CA Before Impairment 8,200,000

Plus: 2 yrs Depreciation 2,000,000
Original Cost 10,200,000

30
Answer: B
Leasehold improvements are depreciated over the useful life of the improvement or remaining
lease term whichever is shorter.
Useful Life Remaining Lease Term Useful Life for Depn
From date of completion
Office 10 yrs 9.5 yrs 9.5 yrs
Storeroom 5 yrs 9.25 yrs 5 yrs

Depn Expense
Office = [(285,000 -35,000)/ (9.5 x12)] x 12 = 26,316
Storeroom = (75,000/ 5 ) x 9/12 = 11,250
TOTAL 37,566

31
Answer: C
Initial CA = 300,000 + 20,000 + 10,000 +5,000 = 335,000
Depreciable Amount = 335,000 -23,000 = 312,000
CA = 312,000 x 75% +23,000 = 257,000