FINANCIAL ACCOUNTING AND REPORTING

FAR: PROPERTY, PLANT AND EQUIPMENT

Use the following information for the next two (2) questions:
On April 1, 2022, Pacific Corporation purchased for P2,700,000 a tract of land, a warehouse and an office building. The
following data were collected regarding the property.
Appraised values Vendors’ book value
Land 875,000 700,000
Warehouse 375,000 400,000
Office building 1,000,000 975,000
1) What are the appropriate amounts that Pacific should record for the land, warehouse and office building, respectively?
Land Warehouse Office building Land Warehouse Office building
A. 700,000 400,000 900,000 C. 945,000 540,000 1,215,000
B. 875,000 375,000 1,000,000 D. 1,050,000 450,000 1,200,000
2) Assume an estimated useful life of 10 years for the warehouse & office building and an estimated salvage value of 10%,
what is the depreciation expense for the warehouse and office building in 2022 under sum-of-years’ digits method?
Warehouse Office building Warehouse Office building
A. 81,818 218,182 C. 73,636 196,364
B. 61,364 290,909 D. 55,227 147,273
Use the following information for the next two (2) questions:
On May 1, Black Racer Company purchased factory machinery having an installment price of P5,000,000 and a list price of
P4,500,000. The company made a P1,000,000 down payment and issued a 4-year, P4,000,000 non interest bearing note
payable P1,000,000 every May starting next year. The prevailing interest rate for similar note is at 6%.
The present value factor of P1 ordinary annuity of 6% for 4 periods 3.4651
3) How much should be the factory machinery be initially recognized?
A. 3,465,100 B. 4,465,100 C. 4,500,000 D. 5,000,000
4) Assuming an estimated useful life of 5-years with a 10% salvage value based on cost, what is the depreciation expense
for the first year under the 150% declining balance method?
A. 1,350,000 B. 1,339,530 C. 900,000 D. 893,020

5) Doug Airlines sold used jet aircraft to Adele Company for P800,000, accepting a five-year 6% note for the entire
amount. Adele’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to
be P189,930. The aircraft could have been sold at an estimated cash price of P651,460. The present value of an
ordinary annuity of P1 at 8% for five periods is 3.99. The air craft should be capitalized on Adele’s books at
A. 949,650 B. 800,000 C. 757,820 D. 651,460

Use the following information for the next two (2) questions:
Below is the information relative to an exchange of asset by Mimz Bernanz Company. The exchange has commercial
substance in Case 1 and without commercial substance in Case 2:
Old Equipment
Book value Fair value Cash paid
Case 1 75,000 85,000 15,000
Cash 2 50,000 75,000 7,000
6) Which of the following would be correct for Mimz Bernanz to record in Case 1?
Record Equipment at Record a gain or loss of Record Equipment at Record a gain or loss of
A. 90,000 Nil C. 75,000 5,000 loss
B. 100,000 10,000 gain D. 90,000 10,000 gain
7) Which of the following would be correct for Mimz Bernanz to record in Case 2?
Record Equipment at Record a gain or loss of Record Equipment at Record a gain or loss of
A. 90,000 Nil C. 75,000 5,000 loss
B. 100,000 10,000 gain D. 90,000 10,000 gain

Use the following information for the next two (2) questions:
On July 1, 2017, Banded Water Company traded in an old machine with a carrying amount of P10,000 for a similar new
machine having a cash price of P32,000, and paid a cash difference of P19,000.

8) How much should the property be initially recognized?

A. 32,000 B. 29,000 C. 22,000 D. 19,000
9) How much is the gain or loss from the trade in transactions?
A. None B. 3,000 C. 7,000 D. 10,000
Use the following information for the next two (2) questions:
On February 1, 2017, Exile Company traded in an old machine with a book value of P8,000 for a similar new machine
having a cash price of P35,000 and a list price of P40,000. Exile paid P25,000 as a result of trade-in. The fair value of the
asset given up is not determinable.

10) How much should the new machine be initially recognized?

A. 35,000 B. 40,000 C. 60,000 D. 25,000
11) How much is the gain or loss from the trade in transaction?
A. Nil B. 2,000 C. 7,000 D. 17,000

Use the following information for the next three (3) questions:
On July 1, 2017, Bonnie Bailey Incorporated accepted several office equipment from a shareholder with original cost of
P2,000,000. On the same date, the items had aggregate market value totaling to P1,500,000. No entry has been made by
Bonnie Bailey since no consideration was given up for these items. Moreover, cost incurred to recondition the donated
items amounted to P100,000 and were charged to operations during the period.

12) How much should the property be initially recognized?

A. 0 B. 1,500,000 C. 1,600,000 D. 2,000,000
13) The entries to record the donation involves a net credit to:
A. Donated capital at P2,000,000 C. Donated capital at P1,500,000
B. Donated capital at P1,400,000 D. Gain from grants at P1,500,000
14) Assuming an estimated useful life of 5 years with a 10% salvage value, what is the depreciation expense for the first
year under SYD?
A. 240,000 B. 225,000 C. 250,000 D. 266,666

15) A schedule of plant assets owned by Bobtail Corporation is presented below:

Cost Residual Value Depreciable cost Useful life Annual Depreciation
Building 2,200,000 200,000 2,000,000 20 years 100,000
Machinery 800,000 80,000 720,000 15 years 48,000
Equipment 160,000 --- 160,000 5 years 32,000
Total 3,160,000 280,000 2,880,000 180,000
Bobtail computes depreciation on the straight line method. The composite life of the asset should be:
A. 19.80 B. 18.00 C. 17.56 D. 16.00

16) On January 1, 2017, Wirehair Company signed an eight-year lease for office space. Wirehair has the option to renew
the lease for an additional six-year period on or before January 1, 2023. During January 2017, Wirehair incurred the
following costs:
General improvement to the lease 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, 2017, Wirehair’s intention as to the exercise of the renewal option is uncertain. A full year depreciation
of leasehold improvement is taken for year 2017. In Wirehair’s December 31, 2017 statement of financial position,
accumulated depreciation of leasehold improvement should be:
A. 1,200,000 B. 540,000 C. 1,300,000 D. 900,000

Use the following information for the next two (2) questions:
The cost of leasehold amounting to P1,000,000 was recorded initially on January 1, 2015. The original lease term is 8 years
while the leasehold improvements were completed on December 31, 2016 amounting to P500,000 with an estimated
useful life of 10 years. The related lease, which would have expired on December 31, 2022, was renewable for an additional
6-year term. You noted that the cost of leasehold was considered to be material.

17) Assuming the renewable option is highly probable/certain, how much is the correct depreciation expense to be
recognized for the year 2017?
A. 35,714 B. 62,500 C. 50,000 D. 41,667
18) Assuming the renewal option is uncertain, how much is the depreciation expenses to be recognized for the year 2017?
A. 62,500 B. 83,333 C. 50,000 D. 41,667

19) On January 1, 2018, Bengal Company purchased machinery for P4,000,000. On the date of installation, it was
estimated that the machinery has a 10-year useful life and P400,000 residual value. At the beginning of 2022, Bengal
revised its useful life to 8 years from acquisition date and increased the residual value by P60,000. What is the
depreciation of the machinery in 2022?
A. 360,000 B. 450,000 C. 525,000 D. 900,000

FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 2 OF 9
20) Birman Company purchased equipment on January 1, 2020 for P9,000,000. The equipment had a useful life of 5 years
and residual value of P600,000. The company’s policy is to depreciate the assets using the 200% declining balance
method for the first two years and then switch to straight life. In its December 31, 2022 balance sheet, what amount
should Birman report as accumulated depreciation?
A. 6,640,000 B. 6,384,000 C. 5,400,000 D. 5,040,000

21) On January 1, 2020, Japanese Bobtail Company acquired equipment to be used in its manufacturing operations. The
equipment has an estimated useful life of 10 years and an estimated residual value of P50,000. The depreciation
applicable to this equipment was P240,000 for 2022 computed under the sum-of-years’ digit. What was the acquisition
cost of the equipment?
A. 1,650,000 B. 1,700,000 C. 2,400,000 D. 2,450,000

Use the following information for the next two (2) questions:
On June 1, Thick Company acquired a real property by issuing 35,360 shares of its P100 par value ordinary shares. The
shares were selling on the same date at P125. A mortgage of P4,000,000 was assumed by Thick on the purchase.
Moreover, the company paid P180,000 of real property taxes in the prior years. Twenty percent of the purchase price
should be allocated to the land and the balance to the building.

In order to make the building suitable for the use of Thick, remolding costs had to be incurred in the amount of P900,000.
This however necessitated the demolition of a portion of the building, which resulted in recovery of salvage material sold for
P30,000.

Parking lot cost the company a total of P320,000 while repairs in the main hall were incurred at P45,000 prior to its use.

22) The correct cost of the land should be

A. 1,664,000 B. 1,720,000 C. 2,040,000 D. 2,400,000
23) The correct cost of the building should be
A. 6,330,000 B. 7,795,000 C. 7,750,000 D. 7,570,000

Use the following information for the next two (2) questions:
Beastheart Corporation incurred the following expenditures which it had charged to property, plant and equipment account
at the beginning of 2022:
Cash paid on purchase of land 220,000
Demolition of a building erected on the purchased land 100,000
Legal fees for the land acquisition 25,000
Interest on loan for construction 27,000
Labor and materials for construction of the building 500,000
Architect’s fees for the building 37,000
Excavation expense 45,000
Fixed overhead charged to the building 100,000
Cost of temporary safety fence 50,000
Insurance on building during the construction 10,000
Payment to squatters to vacate the premises 30,000
Mortgage assumed on the land purchased 80,000
Cost of temporary quarters for construction crew 50,000
Property taxes on land covering the period 2019 – 2022 80,000
Mortgage assumed on the land purchased 140,000
Special assessments 25,000
Cost of option paid to buy the land 15,000
Landscaping cost 40,000
Cost of paving driveway and parking lot 20,000
Proceeds from sale of salvage materials 30,000
Profit on construction, equal to the difference between the appraised value and actual construction costs 120,000
24) What is the correct land balance for 2022?
A. 565,000 B. 585,000 C. 605,000 D. 625,000
25) What is the correct building balance for 2022?
A. 919,000 B. 949,000 C. 869,000 D. 819,000

26) Balinese Inc. acquired an asset that had a cost of P130,000. The asset is being depreciated over a 5-year period using
sum-of-years’ digit method. It has a salvage value estimated at P10,000. The loss/gain if the asset is sold for P38,000
at the end of third year is
A. 4,000 gain B. 20,000 loss C. 68,000 loss D. 92,000 loss




FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 3 OF 9
Use the following information for the next three (3) questions:
Marissa incurred the following cost during the current year in relation to the property, plant and equipment:
Cash paid for purchase of land 2,500,000
Mortgage assumed on the land purchased, including interest accrued 1,000,000
Realtor commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land to make room for construction of new building 200,000
Salvage value of the old building demolished 50,000
Cost of fencing the property after completion of construction 110,000
Amount paid to the contractor for the building constructed 5,000,000
Building permit fee 50,000
Excavation fee 50,000
Architect fee 200,000
Interest that would have been earned had the money used during the period of constructed been invested 150,000
Invoice cost of machine acquired 2,000,000
Freight unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation, paid to foreign technicians during installation and test run of machine 400,000
27) What amount should be capitalized as cost of land?
A. 3,950,000 B. 4,100,000 C. 3,850,000 D. 3,800,000
28) What amount should be capitalized as cost of building
A. 5,300,000 B. 5,410,000 C. 5,450,000 D. 5,560,000
29) What amount should be capitalized as cost of machine?
A. 2,600,000 B. 2,000,000 C. 2,200,000 D. 2,560,000

30) On January 1, 2021, Viaja Company took out a loan of P26,000,000 in order to finance the renovation of a building. The
renovation work started on the same date. The loan carried interest at 10%. Work on the building was substantially
completed on October 31, 2021. The loan was repaid on December 31, 2021 and P180,000 investment income was
earned in the period to October 31 on those parts of the loan not yet used for the renovation. According to PAS 23 –
Borrowing costs, total amount of borrowing costs to be included in the cost of the building is
A. 2,600,000 B. 2,420,000 C. 2,166,667 D. 1,986,667

31) All-American Rejects Company had the following borrowings during 2022. The borrowings were made for general
purposes but the proceeds were used in part to finance the construction of a new building:
Principal Interest
12% bank loan 10,000,000 1,200,000
15% long-term loan 20,000,000 3,000,000
The construction began on Jan. 1, 2022 and was completed on Dec. 31, 2022. Expenditures on the building were:
January 1 8,000,000
June 30 8,000,000
December 31 4,000,000
The capitalized borrowing cost is
A. 1,680,000 B. 1,400,000 C. 4,200,000 D. 1,620,000

Use the following information for the next two (2) questions:
Arclight Company self-constructed an asset for its own use. Construction started on January 1, 2017 and the asset was
completed on December 31, 2017. The company had a two-year, 18% loan of P500,000, specifically obtained to finance
the asset construction. Funds not yet needed during the construction were temporarily invested in a short-term debt
securities yielding a P10,000 interest revenue. The company also had a general borrowings amounting to P600,000, 5-year
term with interest of 20% and P1,000,000, 10-year term with interest of 18% were used in part in the self-construction.
Cost incurred during the year were as follows:
January 1 – P400,000 April 1 – P500,000
August 1 – P480,000 December 1 – P180,000
32) What is the average accumulated expenditures for the self-constructed asset?
A. 1,560,000 B. 990,000 C. 870,000 D. 780,000
33) How much is the total capitalized interest?
A. 171,875 B. 165,000 C. 80,000 D. 91,875
34) How much interest should be recognized as interest expense?
A. 0 B. 208,125 C. 300,000 D. 135,000

FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 4 OF 9
35) During 2017, Reticulated Company constructed a new manufacturing facility at a cost of P30,000,000. The
expenditures for this building, which was finished late in 2017, were incurred evenly during the year. The entity had the
following loans outstanding at December 31, 2017.
• 10% note to finance specifically construction of the manufacturing facility, dated January 1, 2017, P10,000,000.
Unpaid as of December 31, 2017. Investments were made on the proceeds from this loan and income of
P100,000 was realized in 2017.
• 12%, 20-years bonds payable issued at face value on April 30, 2016, P30,000,000.
• 8%, 5-years payable, dated March 1, 2016, P10,000,000.

What amount of interest is capitalized as cost of the new building?

A. 1,550,000 B. 1,450,000 C. 1,400,000 D. 1,500,000

Use the following information for the next two (2) questions:
Dumb Company constructed its own factory building. The company had a P1,000,000 two-year 12% loan specifically
obtained to finance the asset construction. The construction began on January 1, 2021 and the building was completed on
December 30, 2022. Expenditures on the building were made as follows:
January 1, 2021 – P800,000 April 30, 2021 – P300,000 November 1, 2021 – P600,000

March 1, 2022 – P600,000 September 30, 2022 – P400,000

Dumb has the following outstanding loans:
General borrowings:
10% note issued prior to construction of new building; term, 10 years 1,500,000
12% note issued prior to construction of new building; term, 15 years 2,500,000
36) How much is total initial cost of the building?
A. 2,992,266 B. 2,112,266 C. 2,112,266 D. 3,224,766
37) How much is the finance cost that should be recognized in profit or loss for the year 2022?
A. 288,984 B. 408,984 C. 528,984 D. 0
38) Maker Company purchased a varnishing machine for P450,000 on January 1, 2023. The company received a
government grant of P40,500 in respect of this asset. Company policy was to depreciate the asset over 4 years on a
straight line basis and to treat the grant as deferred income. Under PAS 20 – Government Grant and Government
Assistance, what should be the carrying amount of the machine and the deferred income balance at December 31,
2024 of Maker Company?
CA of Machine Balance of Grant CA of Machine Balance of Grant
A. 225,000 20,250 C. 245,250 20,250
B. 337,500 30,375 D. 225,000 40,500
39) Secret Company purchased a jewel polishing machine for P360,000 on April 1, 2023 and received a government grant
of P50,000 towards the capital cost. Company policy is to treat the grant as a reduction in the cost of the asset. The
machine was to be depreciated on a straight-line basis over 8 years and was estimated to have a residual value of
P5,000 at the end of this period. Under PAS 20 – Government Grants and Government Assistance, what should be the
depreciation expense in respect of the machine for the year ended December 31, 2023?
A. 38,750 B. 76,250 C. 38,125 D. 28,594
40) Famine Company purchased equipment for P15,000,000 on January 1, 2019. The entity received a government grant
of P5,000,000 in respect of this asset and treated the grant as a deduction from the cost of the asset. The equipment
has a useful life of 5 years and the double declining balance method of depreciation is used. On January 1, 2021, the
entity violated some conditions and returned the grant. What is the depreciation for 2021?
A. 2,160,000 B. 6,000,000 C. 5,360,000 D. 1,440,000
41) On January 1, 2022, Humble Yourself Company received a government grant of P60,000,000 to compensate for costs
to be incurred in planting trees over a period of 5 years. The entity will incur such costs at P2,000,000 for 2022,
P4,000,000 for 2023, P6,000,000 for 2024, P8,000,000 for 2025, and P10,000,000 for 2026

What amount of income from the government grant is recognized for 2022?
A. 12,000,000 B. 8,000,000 C. 6,000,000 D. 4,000,000
42) On January 1, 2023, the city government provided Swerte Company a zero interest, P6,000,000 loan with a 4-year
term. The prevailing market rate of interest for this type of loan is 8%. What is included in the entries on December 31,
2024? (PVF 3 decimals)
A. Debit interest expense P352,800 C. Credit income from grant P381,024
B. Credit income from grant P352,800 D. Credit interest expense P381,024

FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 5 OF 9
43) On January 1, 2021, Hakdog Company received cash of P4,000,000 from the government to be used in constructing
a building. The construction was completed on December 31, 2021 for a total cost of P10,000,000. The building is
depreciated over 20 years. On January 1, 2024, the government demanded repayment of the P4,000,000 grant given
as grant in 2021. What is the amount of loss on repayment of government grant to be reported in 2024?
A. Nil B. 600,000 C. 400,000 D. 3,400,000

Use the following information for the next two (2) questions:
On January 2, 2023, Faster Company receives a government loan of P2,000,000 paying a coupon interest of 2% per year.
The loan is repayable on December 31, 2026. Faster Company’s borrowing cost is 10% per annum. The below-market
interest is provided by the government to enable Faster Company to bear cost of 2% per annum on the nominal value of
the loan.

44) What amount of deferred income should Faster report in the statement of financial position as of December 31, 2023?
A. 145,455 B. 277,686 C. 377,231 D. 397,896
45) The amount of realized grant should the company report in its Dec. 31, 2023 statement of comprehensive income is
A. 109,282 B. 120,210 C. 132,231 D. 397,896

46) On January 1, 2023, the city government provided Swerte Company a zero interest, P6,000,000 loan with a 4-year
term. The prevailing market rate of interest for this type of loan is 8%. What is included in the entries on December 31,
2024? (PVF 3 decimals)
A. Debit interest expense P352,800 C. Credit income from grant P381,024
B. Credit income from grant P352,800 D. Credit interest expense P381,024

47) During December 2022, Bombay Company determined that there had been a significant decrease in market value of its
machinery. At December 31, 2022, Bombay presented the following information concerning the machinery:
Original cost 20,000,000
Accumulated depreciation 12,000,000
Expected undiscounted net future cash inflows from continued use and eventual disposal 7,000,000
Expected discounted net future cash inflows from continued use and eventual disposal 5,000,000
Fair value less cost to sell 6,500,000
What is the impairment loss that should be reported in the 2022 income statement?
A. 2,000,000 B. 1,500,000 C. 1,000,000 D. 0

Use the following information for the next two (2) questions:
Piano owns P2,000,000 of specialized equipment used in the production of video display terminals (VDTs). The equipment
was purchased and installed din January 2010 and has an expected useful life of 20 years and residual value of P200,000.
Piano uses straight-line method of depreciation. In January 2020, one of Piano’s competitors completed the development
of a reduced-radiation VDT. The demand for Piano’s VDTs immediately declined by 90 percent.

As a result of the change in market conditions, the asset is reviewed for impairment. Piano estimates that present value of
the total remaining future net cash inflows from operating the equipment to be P400,000. The equipment may be sold at
P450,000 after incurring costs of disposal amounting to P75,000. The equipment is expected to have no residual value and
will be used only during the five remaining years that older model VDTs are manufactured.

48) What is the impairment loss to be recognized on the asset in 2020?

A. 750,000 B. 500,000 C. 250,000 D. 0
49) What is the depreciation expense to be recorded in 2020?
A. 90,000 B. 80,000 C. 75,000 D. 70,000

Use the following information for the next two (2) questions:
On January 1, 2023, Dreamt Company purchased patent with cost of P11,000,000, useful life of 11 years and no residual
value. On December 31, 2023 and December 31, 2024, Dreamt determined that impairment indicators are present
December 31, 2023 December 31, 2024
Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,650,000 8,100,000
50) What is the impairment loss for 2023?
A. 1,900,000 B. 1,350,000 C. 2,350,000 D. 0
51) What is the gain on reversal of impairment for 2024?
A. 1,215,000 B. 515,000 C. 315,000 D. 0

FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 6 OF 9
 52) Burmilla purchased an equipment on January 1, 2020 at a cost of P10,000,000. This equipment was depreciated over
its useful life of 10 years with a residual value of 10%. On Dec. 31, 2021, Burmilla determined that the recoverable
amount of the equipment was only P5,000,000 with no residual value and appropriately recognized an impairment loss.
However on Dec. 31, 2022, the fair value had increased to P7,000,000 and the management of Burmilla deemed to
reverse impairment that was previously recorded. The gain on impairment to be shown on 2022 income statement is
A. 2,500,000 B. 2,625,000 C. 2,925,000 D. 3,000,000

53) On December 31, 2020, Selkirk Company had an equipment with the following data:
Equipment 10,000,000
Accumulated depreciation 5,000,000
Due to obsolescence and damage, the equipment was found to be impaired. On December 31, 2020, the fair value
less cost of disposal was P4,500,000 and the value in use was P4,000,0000. It was also determined that the useful life
on acquisition date is 20 years and the remaining life of the asset is 10 years on December 31, 2020. On December 31,
2022 the fair value less cost of disposal of the equipment had risen to P5,500,000. What amount should be recognized
on reversal of impairment in 2022?
A. 1,900,000 B. 400,000 C. 500,000 D. 0

Use the following information for the next two (2) questions:
On January 1, 2023, Elise Co. had an equipment costing P3,250,000, with residual value of P250,000 and useful life of 12
years. The equipment was acquired on January 1, 2021. On January 1, 2023, the equipment was revalued with
replacement cost of P4,600,000 and residual value of P100,000. The useful life of the asset did not change.

54) What is the depreciation for 2023?

A. 265,000 B. 450,000 C. 375,000 D. 110,000
55) What is the pretax revaluation surplus on December 31, 2023?
A. 1,100,000 B. 1,125,000 C. 1,215,000 D. 990,000

56) LaPerm Company reported the following account balances on December 31, 2021
Land 15,000,000
Building 120,000,000
Accumulated depreciation 40,000,000
Property, plant, and equipment have been carried using the cost model since acquisition. The land was acquired 15
years ago while the building’s construction was completed on January 1, 2012. The straight line method for
depreciation is used. The total life of the building is 30 years. On January 1, 2022, the entity adopted the revaluation
model. It was determined that the land’s current fair value is P25,000,000 and the building’s current replacement cost
is P150,000,000 on such date. What is the revaluation surplus on December 31, 2022?
A. 29,000,000 B. 30,000,000 C. 28,500,000 D. 19,500,000

Use the following information for the next five (5) questions:
On January 1, 2017, RIP Isabel Granada Company purchased a machinery for P600,000, with an estimated economic
useful life of 12 years. Straight line method of depreciation is to be used. On December 31, 2020, it was properly
determined that the fair value less cost of disposal is P235,000, while the value in use is P240,000. On January 1, 2023, it
was properly computed that the recoverable amount of the asset is P250,000.

57) How much is the impairment loss on December 31, 2020?

A. 0 B. 110,000 C. 165,000 D. 160,000
58) How much is the maximum recoverable amount/limit on recovery on January 1, 2023?
A. 120,000 B. 70,000 C. 180,000 D. 250,000
59) How much is impairment recovery should be reported on January 1, 2023?
A. 50,000 B. 70,000 C. 120,000 D. 0
60) Assuming the recoverable value on January 1, 2023 is P330,000, how much is the recovery from impairment and
revaluation surplus, respectively, on January 1, 2023 using the cost model.
61) Recovery from Revaluation Recovery from Revaluation
impairment Surplus impairment Surplus
A. 120,000 150,000 C. 120,000 30,000
B. 120,000 0 D. 150,000 0
62) Assuming the recoverable value on January 1, 2023 is P330,000, how much is the recovery from impairment and
revaluation surplus, respectively, on January 1, 2023 using the revaluation model?
63) Recovery from Revaluation Recovery from Revaluation
impairment Surplus impairment Surplus
A. 120,000 150,000 C. 120,000 30,000
B. 120,000 0 D. 150,000 0


FAR_05: PROPERTY, PLANT AND EQUIPMENT PAGE 7 OF 9


Use the following information for the next three (3) questions:
Coachwhip Corporation purchased a machinery on January 1, 2022 for P5,000,000. The same had an expected useful life
of 8 years. Straight line depreciation method is in place for similar items. On January 1, 2024, the asset is appraised as
having a sound value of P4,500,000. On January 1, 2027, the asset had a recoverable value of P1,375,000.

64) How much is credited to the revaluation surplus as a result of the revaluation in 2024?
A. 1,500,000 B. 1,250,000 C. 1,000,000 D. 750,000
65) What is the correct depreciation to be recognized in 2024?
A. 750,000 B. 1,000,000 C. 1,250,000 D. 1,500,000
66) How much is the loss on impairment should be recognized on January 1, 2027?
A. 750,000 B. 500,000 C. 250,000 D. 0

Use the following information for the next two (2) questions:
Cornish Company finished construction of building on January 1, 2018 at a total cost of P25,000,000. The building was
depreciated over the estimated useful life of 20 years using the straight-line method with no residual value. The building was
subsequently revalued on December 31, 2021 and the revaluation report showed that the asset had a replacement cost of
P32,000,000 and was determined to to have no change in the useful life. On January 1, 2023, the building was tested for
impairment and the fair value was P18,000,000 on same date, with no change on the remaining useful life. (assume the
revaluation model is being used)

67) What amount of revaluation surplus should be recognized on December 31, 2021?
A. 5,600,000 B. 7,000,000 C. 1,400,000 D. 5,250,000
68) What is the impairment loss for 2023?
A. 6,000,000 B. 400,000 C. 750,000 D. 0
69) What amount of depreciation should be recognized in 2023?
A. 1,125,000 B. 1,600,000 C. 1,800,000 D. 1,200,000

70) At the beginning of current year, Elise Company purchased a mineral mine for P26,400,000 with removable ore
estimated at 1,200,000 tons. After it has extracted all the ore, the entity will be required by law to restore that land to
the original condition at an estimated cost of P2,400,000. The present value of the estimated restoration cost is
P1,800,000.
The entity believed it will be able to sell the property afterwards for P3,000,000. During the current year, the entity
incurred P3,600,000 of development costs preparing the mine for production and removed 80,000 tons and sold
60,000 tons of ore. What amount should be reported as depletion for the current period?
A. 1,920,000 B. 1,440,000 C. 1,940,000 D. 1,455,000

71) KLSP Company acquired property in 2021 which contains mineral deposit. The acquisition cost of the property was
P20,000,000. After acquisition, the following costs were incurred:
Exploration cost 13,000,000
Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000
For P2,000,000, KLSP is legally required to restore the land to condition appropriate for resale. It is estimated that the
property can be sold for P5,000,000 following mineral extraction. Geological estimates indicate that 5,000,000 tons of
mineral may be extracted.
The company extracted 600,000 tons of the mineral in 2021 and sold 450,000 tons. In the 2021 income statement,
what amount of depletion is included in cost of sales?
A. 4,800,000 B. 5,400,000 C. 3,600,000 D. 4,050,000
72) In 2022, Newman Company paid P5,000,000 to purchase land containing total estimated 800,000 tons of extractable
mineral deposit. The estimated value of the property after the mineral has been removed is P1,000,000. Extraction
activities began in 2023, and by the end of the year, 100,000 tons had been recovered and sold. In 2024, geological
studies indicated that the total amount of mineral deposit had been underestimated by 125,000 tons. During 2024,
150,000 tons were extracted and 140,000 tons were sold. What is the depletion rate per ton in 2024?
A. 4.24 B. 4.32 C. 4.85 D. 5.19
73) Deepside Company purchased in 2019 a property that contained mineral deposit for P4,500,000. Estimated recovery
was 1,000,000 metric tons of deposits. Development costs P150,000 were also incurred in the same year. The mining
property was expected to be worth P600,000 after the mineral deposits had all be removed. During 2020, the company
extracted and sold 100,000 metric tons of mineral. Further development costs of P75,000 were incurred in 2021, and
the estimate of total recoverable deposits (including the amount extracted in 2020) was revised to 925,000 metric tons.
During 2021, the company recovered 150,000 metric tons. The depletion for the year 2021 is
A. 603,658 B. 618,750 C. 676,500 D. 750,000

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74) Double Chin Company purchased a tract of resource land in 2020 for P39,600,000. The content of the tract was
estimated at 1,200,000 units. When the resource has been exhausted, it is estimated that the land will be worth
P1,200,000. Fixed installations were set up at a cost of P9,600,000. Mining equipment was purchased on January 2,
2021 for P12,400,000. The life of the fixed installations is 8 years and the equipment, 4 years. In 2021, 120,000 units
have been extracted. This was one half of the annual extraction which can be expected following the first year of
operations. Double Chin Company should record total depreciation for 2021 at
A. 4,060,000 B. 3,100,000 C. 2,200,000 D. 960,000
Use the following information for the next two (2) questions:
On April 1, 2020, Shakira Mining Company purchased a mineral mine for P5,400,000 with removal ore estimates by
geographical surveys at 2,100,000 tons. Shakira expects to extract 60,000 tons per quarter. The property has an estimated
value of P810,000 after the ore has been extracted. Shakira Company incurred P1,080,000 of development costs in
preparing the property for extraction of ore.
Shakira also purchased a new equipment on the same date costing P3,970,000 with a useful life of 10 years. However,
after all the resources are remove, the equipment will be of no use and will be sold for P295,000.
75) If production conformed to expectations, what amount of total depletion should the company recognized in 2020?
A. 486,000 B. 162,000 C. 1,458,000 D. 1,944,000
76) If production conformed to expectations, what amount of total depreciation should the company recognized in 2020?
A. 945,000 B. 315,000 C. 1,260,000 D. 275,625
77) 2Beat1 Mining Company constructed a building costing P2,800,000 on the mine property. Its estimated residual value
will not benefit the company and will be ignored for purposes of computing depreciation. The building has an estimated
life of 10 years. The total estimated recoverable units from the mine is 500,000 tons. The company’s production of the
first year years of operations was:
First year 100,000 tons Third year Shut down, no output
Second year 100,000 tons Fourth year 100,000 tons
What is the depreciation for the fourth year?
A. 490,000 B. 560,000 C. 210,000 D. 336,000
78) On July 1, 2021, Taurotron Company purchased a coal mine for P2 million. The estimated capacity of the mine was
700,000 tons. During 2021, the company mines 10,000 tons of coal per month and sells 9,000 tons per month. The
selling price is P30 per ton and production cost (excluding depletion and depreciation) are P8 per ton. At the end of the
mine’s life it is expected that it will cost P200,000 to restore the land, after which it can be sold for P100,000. The
company also purchased some temporary housing for the miners at a cost of P150,000. The housing has an expected
life of 10 years but is expected to be sold for P10,000 at the end of the mine’s life.

In January 2022, a new estimate indicated that the capacity of the mine was only 500,000 tons at that time. The
company mines and sells 10,000 tons per month in 2022. Assuming the company uses the FIFO cost flow assumption,
compute the company’s expenses included on the 2022 statement of comprehensive income.
A. 1,451,520 B. 1,446,480 C. 1,397,960 D. 1,344,000
79) During 2023, Mimzee incurred P7,000,000 in exploration cot for each of 15 oil wells drilled in 2023. Of the 15 wells
drilled, 10 were dry holes. The entity used the successful effort method of accounting. The entity depleted 30% of the
oil discovered in 2023. What is the carrying amount of the exploration asset on December 31, 2023?
A. 105,000,000 B. 73,500,000 C. 35,000,000 D. 24,500,000

80) Valera Company provided the following balances at the end of the current year:
Wasting asset, at cost 80,000,000
Accumulated depletion 20,000,000
Capital liquidated 15,000,000
Retained earnings 10,000,000
Depletion based on 100,000 units extracted at P50 per unit 5,000,000
Inventory of resource deposit (20,000 units) 2,000,000
Valera Company declared the maximum dividend for the period. What is the balance of the Capital Liquidated account
at the end of the current year?
A. 19,000,000 B. 15,000,000 C. 14,500,000 D. 7,000,000

END – PROPERTY, PLANT AND EQUIPMENT (INCLUDING OTHER NON-OPERATING ASSET)

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