Chapter 30: Financial Assets at Fair Value

1. Which of the following is not a category of financial assets?

Financial assets held for sale
2. All of the following financial assets shall be measured at fair value through profit or loss, except
Financial assets at amortized cost
3. Which of the following is not a characteristic of a financial asset held for trading?
It is a derivative that is designated as an effective hedging instrument.
4. Transaction costs include
Fees and commission paid to agent, levies by regulatory authorities, transfer taxes and duties
5. As a rule, transaction costs that are directly attributable to the acquisition of a financial asset shall be
Capitalized as cost of the financial asset
6. If the financial assets is measured at fair value through profit or loss, transaction costs directly attributable to the acquisition
shall be
Expensed immediately when incurred
7. Depending on the business model for managing financial assets, an entity shall classify financial assets subsequent to initial
recognition at
All of these are used in measuring financial assets (Fair value through profit or loss, Amortized cost, Fair value
through other comprehensive income)
8. A financial asset shall be measured subsequently at amortized cost,
When the business model is to collect contractual cash flows that are solely payments of principal and interest.
9. Financial asset held for trading are reported at
Fair value
10. Which of the following statements is true concerning recognition o unrealized gains and losses?
Unrealized gains and losses on financial assets held for trading shall be included in profit or loss.
Unrealized gains and losses on financial assets measured at amortized cost are not recognized.
Unrealized gains and losses on financial assets at fair value through other comprehensive income are not recognized
in the income statement.
11. On derecognition of a financial asset, the difference between the consideration received and the carrying amount of the
financial asset shall be
Recognized in profit or loss for financial asset measured at fair value through profit or loss.
12. The irrevocable election to present subsequent changes in fair values in other comprehensive income is applicable only to
Investment in equity instrument that is not held for trading
13. When an entity reclassifies a financial asset at amortized cost to financial asset at fair value through profit or loss the fair
value is determined at the reclassification date, and the difference between the previous carrying amount and fair value
Is included in profit or loss
14. What is the “reclassification date” for purposes of reclassifying financial assets?
First day of the next reporting period following the change in business model.
15. What financial assets are assessed for impairment?
Financial assets at amortized cost and debt investments at fair value through other comprehensive income
16. What is the best evidence of fair value of a financial instrument?
The quoted price, if an active market exists for the financial instrument
17. Which of the following is not precluded from classification as financial asset at amortized cost?
An investment in a quoted debt instrument
18. An entity purchased equity shares in another entity with the intention of holding this investment over the long term. What is
the most appropriate classification of this equity investment?
At fair value through profit or loss
19. An entity acquired listed equity shares representing a small percentage for the purpose of selling or repurchasing them in the
near term. What is the appropriate classification of this investment?
Financial assets held for trading
20. An entity purchased government bonds. The entity’s business model in managing financial assets is achieved by collecting
contractual cash flows that are solely payments of principal and interest on the principal amount outstanding and by selling
the financial assets. Which of the following is the most appropriate classification for the investment in bonds?
At fair value through other comprehensive income
21. Under IFRS, the presumption is that equity investments are
Held for trading and held to profit from price changes
22. Equity investments irrevocably accounted at fair value through other comprehensive income are
Nontrading investments where an entity has holdings of less than 20%
23. Unrealized gains and losses on trading investments are reported in
Net income
24. Entities are required to measure financial asset based on all of the following, except
Whether the financial asset is a debt or an equity investment.
25. Debt investments that meet the business model and contractual cash flow tests are reported at
Amortized cost
 26. Debt investments not held for collection are reported at
Fair value
27. Debt investments held for collection are reported at
Amortized cost
28. An impairment loss is the excess of the carrying amount of the investment over the
Present value of the expected cash flows
29. Reclassifications of investments between categories are accounted for
Prospectively, at the beginning of the period after the change in the business model.
30. Transfers of investments between categories
are accounted for at fair value for all transfers.
31. Fair value of an asset should be based upon
The price that would be received to sell the asset at the measurement date.
32. Which of the following describes a principal market for establishing fair value of an asset?
The market that has the greatest volume and level of activity for the asset.
33. Which of the following is true for measuring an asset at fair value?
The price should be adjusted for transportation cost to transport the asset to the principal market.
34. Which of the following would meet the qualifications as market participants?
An independent entity that is knowledgeable about the asset.
35. Which of the following is an assumption used in fair value measurement?
The asset is in highest and best use.
36. The fair value at initial recognition is
The price paid to acquire the asset.
37. Which of the following is not a valuation technique used in fair value measurement?
Residual value approach
38. Valuation techniques for fair value that include the Black-Scholars formula, a binomial model, or discounted cash flow are
examples of which valuation technique?
Income approach
39. The market approach for measuring fir value requires which of the following?
Prices and other relevant information of transactions from identical or comparable assets.
40. Which of the following should be considered observable input used for fair value measurement?
Bank prime rate and default rate on loan

Chapter 31: Investment in Equity Securities

1. It is the date on which the stock and transfer book of the entity is closed for registration. Only those shareholders registered
as of this date are entitled to receive dividends.
Date of record
2. At which of the following dates has the shareholder theoretically realized income from dividend?
The date the dividend is declared
3. Property dividends are recorded
As dividend income at fair value of the property
4. Liquidating dividends are credited to
Investment account
5. What is the effect of stock dividend of the same class?
No effect on investment account but decrease in cost per share
6. When stock dividends of different class are received
A new investment account is debited and the original investment account is credited
7. Shares received in lieu of cash dividend are recorded as
Income at fair value of the shares received
8. Cash received in lieu of stock dividends is accounted for as
If the stock dividends are received and subsequently sold at the cash received and gain or loss is recognized.
9. What is the effect of share split up?
Increase in number of shares and decrease in cost per share
10. An investor owns 10% of the ordinary shares of an investee throughout the year. The investee has no preference shares
outstanding. What is the right of the investor?
To receive dividend equal to 10% of the total dividend paid by the investee for the year to shareholders

Chapter 37: Government Grant

1. This is defined “assistance by government in the form of transfer of resources to an entity in return for past or future
compliance with certain conditions relating to the operating activities of the entity”.
Government grant
2. Government grant shall be recognized when there is reasonable assurance that
The Entity will comply with the conditions of the grant and the grant will be received
 3. It is a government grant whose primary conditions is that an entity qualifying for it should purchase, construct or otherwise
acquire long-term asset.
Grant related to asset
4. Government grant in recognition of specific costs is recognised as income.
Over the same period as the relevant expense
5. Government grant related to depreciable asset is usually recognized as income.
Over the useful life of the asset and in proportion to the depreciation of the asset
6. Government grant related to nondepreciable asset that requires fulfilment of certain conditions.
Should be recognized as income over the periods which bear the cost of meeting the conditions
7. A government grant that becomes receivable as compensation for expense or losses already incurred or for the purpose of
giving immediate financial support to the entity with no future related costs should be recognized as income
Of the period in which it becomes receivable
8. A government grant that becomes repayable shall be accounted for as
Change in accounting estimate
9. Repayment of grant related to income shall be
Applied first against the deferred income balance and any excess shall be recognized immediately as an expense
10. Repayment of grant related to an asset shall be recorded by
- Increasing the carrying amount of the asset if the deduction approach is used
- Recognizing as expense the cumulative additional depreciation that would have been recorded to date in the
absence of the grant if the deduction approach is used.
- Reducing the deferred income balance to zero if the deferred income is used.
11. It is an action by a government designed to provide an economic benefit specific to an entity or a range of entities qualifying
under certain criteria.
Government assistance
12. Government assistance includes all the following, except
Improved irrigation water system for the benefits of an entire local community.
13. Which of the following is included in government assistance?
None of these can be included in government assistance
14. A forgivable loan from a government or the benefit of a government loan at NIL or below market interest rate is accounted
for as
Government grant
15. The amount of benefit in a zero-interest government loan is measured as the difference between
Face amount and present value of loan
16. In the case of a nonmonetary grant, which of the following accounting treatment is prescribed?
Record both the grant and the asset at fair value of the nonmonetary asset
17. In the case of grant related to an asset, which of following accounting treatment is prescribed?
Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset

18. In the case of grant related to income, which of the following accounting treatment is prescribed?
Present the grant in the income statement as other income or as a separate line item, or deduct it from the related
expense.
19. Which disclosure is not required in relation to government grant?
The name of the government agency that gave the grant along with the date of sanction of the grant by the
government agency and the date when cash was received in case of monetary grant.
20. At the beginning of the current year, an entity received Grant One to give financial assistance to the entity for start-up costs
already incurred, and the Grant Two to subsidize the cost of purchasing computer software over a 5-year period. Which of the
following statements concerning recognition of income from the two government grants is true?
Grant One should be recognized as income in the current year and Grant Two should be amortized as income over 5
years
21. The deferred grant income is classified as
A noncurrent liability
22. If the cost of the asset is recorded net of the grant
Asset is understated
23. Which of the following statements is true in relation to government grant?
Assets required through government grant must be accounted for using the income approach
24. Which of the following statements is incorrect when a government provides an interest-free loan to an entity?
The deferred grant income is amortized over the term of the loan using the straight line method
25. Which of the following statements is true regarding the accounting for government grant related to an asset?
Depreciation is higher if the grant is recorded as deferred income but net income is the same under the deferred
income approach and deduction from asset approach.

Chapter 38: Borrowing Costs

1. Borrowing costs are defined as

Interest and other costs that an entity incurs in connection with borrowing of funds
2. Which of the following statement is true concerning capitalization of borrowing cost?
I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to be capitalized as cost
of the asset.
II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be expensed as incurred.
Both I and II
 3. If the qualifying asset is financed by specific borrowing the capitalizable borrowing cost is equal to
Actual borrowing cost incurred up to completion of asset minus any investment income form the temporary
investment of the borrowing
4. For purposes of capitalization of borrowing cost, which of the following is not a qualifying asset?
Asset that is ready for the intended use or sale
5. If the qualifying asset is financed by general borrowing the capitalizable borrowing cost is equal to
Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is
lower
6. Which of the following may not be considered a qualifying asset?
An expensive private jet that can be purchased form a local vendor.
7. Which of the following costs may not be eligible for capitalization as borrowing cost?
Imputed cost of equity
8. Capitalization of borrowing cost
Shall be suspended only during extended period of delay in which active development is delayed
9. Which of the following is a disclosure requirement in relation to borrowing cost?
Borrowing cost capitalized during the period and capitalization rate used to determine borrowing cost to be
capitalized
10. Which of the following assets could be treated as qualifying asset for purpose of capitalizing borrowing cost?
Investment property
11. An asset is being constructed for an entity’s own use. The asset has been financed with a specific new borrowing. The
interest cost incurred during the construction period as a result of expenditures for the asset is
A part of the historical cost of acquiring the asset to be allocated over the estimated useful life of the asset
12. When computing the amount of interest cost to be capitalized, the concept of “avoidable interest” refers to
That portion of total interest cost which would not have been incurred of expenditure for asset construction had not
been made
13. Which of the following statements about the capitalization of borrowing cost as part of thye cost of a qualifying asset is true?
If funds come from general borrowings, the amount to be capitalized is based on the weighted average amount of
expenditures
14. Which of the following is required for borrowing cost incurred that is directly attributable to the construction of a qualifying
asset?
I. Recognize as an expense in the period incurred.
II. Capitalize as part of the cost of the asset.
II only
15. An entity is commencing a new construction project which is to be financed be borrowing.
May 15 Loan interest relating to the project starts to be incurred.
June 15 Technical site planning commences.
June 30 Expenditures on the project start to be incurred.
July 15 Construction work commences.
The entity can commence the capitalization of borrowing cost from what date?
June 30
16. Which of the following is the correct approach in accounting for interest incurred in financing the construction of property,
plant and equipment?
Capitalize only the actual interest incurred during construction.
17. Assets that qualify for interest capitalization include
Asset under construction for an entity’s use
18. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
The interest rate is equal to or greater than the cost of capital
19. The period of time during which interest must be capitalized ends when
The asset is substantially complete and ready for the intended use.
20. Interest revenue earned on specific borrowing for qualifying asset
Reduces the cost of the qualifying asset

Chapter 39: Land and Land Improvements

1. When an entity acquired land with an old building and immediately demolished so that the land can be used for the
construction of a plant, the cost incurred to demolish the old building should be
Added to the cost of the plant
2. If an entity purchased a lot and old building and demolished the old building and used the property as a parking lot, the
proper accounting treatment of the carrying amount of the old building would depend on
The intention of management for the property when the land and old building were acquired
3. An entity purchased land to be used as an investment property. Timber was cut from the site so development of the land
could begin. The proceeds from the sale of the timber should be
Deducted from the cost of the land
4. Land was purchased to be used as the site for the construction of a new building. An old building on the property was sold
and removed by the buyer so that construction on the new building could begin immediately. The proceeds from the sale of
the old building in excess of demolition cost should be
Deducted from the cost of the new building
 5. An entity’s forest land was condemned for use as a national park. Compensation for the condemnation exceeded the forest
land’s carrying amount. The entity purchased similar but larger, replacement forest land for an amount greater than the
condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of
forest land reported in the statement of financial position?
The amount is increased by the excess of the replacement forest land’s cost over condemned land’s carrying amount
6. The single cost of acquiring land and usable old building is
Allocated between land and building based on relative fair value
7. The single cost of acquiring land and unusable old building is
Charged to the land only
8. The cost of demolishing an old building to make room for the construction of a new building should be
Charged to the new building
9. When land and an old building are acquired, the cost of immediately demolishing the old building to prepare the land for the
intended use as investment property should be
Charged to the land
10. The carrying amount of an existing old building demolished to make room for the construction of a new building should be
Accounted for as loss
11. The cost of building usually includes all if the following except
Expenditure for movable equipment and fixture
12. The cost of land usually includes all of the following except
Property tax after date of acquisition
13. The cost of land typically includes all of the following except
Private driveway and parking lot
14. Fence and parking lot are reported as
Land improvements
15. An entity purchased land and a hotel with the plan to tear down the hotel and build a new hotel. The allocated cost of the old
hotel should be
Written off as loss in the year the hotel is torn down

Chapter 41: Depreciation

1. Which of the following statements best describes the term “depreciation”

The systematic allocation of the cost of an assert less residual value over useful life
2. The useful life of property, plant and equipment is
The period of time over which an asset is expected to be used by the entity
The number of production or similar units exposed to be obtained from the asset by the entity.
3. Carrying amount is
Amount at which an asset is recognized in the statement of financial position after deducting any accumulated
depreciation and accumulated impairment loss.
4. Which of the following statements is incorrect with respect to depreciation?
The depreciation method used shall not reflect the pattern in which the asset’s economic benefits are consumed by the
entity.
5. All of the following factors need to be considered in determining the useful life of an asset, except
Residual Value
6. The production method of depreciation results in
Charge based on the expected use or output of the asset.
7. Which of the following statements is incorrect concerning the residual value of property, plant, and equipment?
The depreciable amount is determined without deducting the residual value of the asset.
8. The useful life of property, plant and equipment shall be reviewed periodically and if expectations are significantly different
from previous estimate, the depreciation charge for the
Current and future periods shall be adjusted
9. The depreciation method applied to property, plant and equipment shall be reviewed periodically, and if there has been a
significant charge in the expected pattern of consumption of economic benefits from those assets, the change
Shall be accounted for as a change in accounting estimate
10. Technical obsolescene arises from
Change or improvement in production or change in the market demand for the product output of the asset
11. Which of the following terms best describes the cost or an amount substituted for cost of an asset less than residual value?
Depreciable amount
12. Which of the following statements best describes residual value?
The estimated net amount currently obtainable if the asset is at the end of the useful life.
13. Which of the following statements is true?
Property, plant and equipment are depreciated even if the fair value exceeds carrying amount.
14. Which of the following statements regarding depreciation is true?
If the carrying amount of an asset is less than the residual value, depreciation is not charged.
15. A private jet is expected to be used over a period of 7 years. The engine of the jet has a useful life of 5 years. The tires are
replaced every 2 years. The private jet shall be depreciated using the straight line method over
 5 years useful life of the engine, 2 years useful life of the tires, and 7 years useful life applied to the balance cost of the
jet.
16. Which of the following statements is the assumption on which straight line depreciation is based?
Service value declines as a function of time rather than use.
17. The straight line method of depreciation is not appropriate for
Equipment on which maintenance and repairs increase substantially with age.
18. The principal objection to the straight line method of depreciation is that it
Ignores variation in the rate of asset use
19. In which of the following situations is the production method of depreciation most appropriate?
An asset’s service potential declines with use
20. Which of the following provides the best theoretical support for accelerated depreciation?
Assets are more efficient in early years and initially generate more revenue.
21. A depreciable asset has an estimated residual value. At the end of the estimated useful life, the accumulated depreciation
would equal the original cost of the asset under which of the following depreciation methods?
None of these
22. The composite depreciation method
Does not recognize gain or loss on the retirement of single asset in the group
23. An entity using the composite depreciation method for a fleet of trucks, cars and campers retired one of the trucks and
received cash from a salvage entity. The net carrying amount of these composite asset accounts would be decreased by the
Cash proceeds received
24. A machine with a four-year estimated useful life and an estimated 15% residual value was acquired at the beginning of the
current year. The increase in accumulated depreciation for the second year using the double declining balance method would
be
Original cost x 50% x 50%
25. A machine with a 5-year estimated useful life and an estimated residual value was acquired at the beginning of the current
year. At the end of the fourth-year, accumulated depreciation using the sum of years’ digits method would be
Original cost less residual value multiplied by 14/15
26. As a generally used in accounting, what is depreciation?
It is an accounting process which systematically allocates long-lived asset cost to accounting periods.
27. Which of the following uses straight line depreciation?
Bothe group depreciation and composite depreciation
28. Which depreciation method applies a uniform depreciation rate each period to the carrying amount of an asset?
Declining balance
29. A method which exclude residual value from the base for the depreciation calculation is
Double declining balance
30. An asset has a nine-year useful life and is to be depreciated under the sum of years’ digits method. The annual depreciation
expense would be the same as that under the straight line method in the
Fifth year
31. Depreciation is best described as a method of
Cost allocation
32. Which of the following depreciation methods is not based on the passage of time?
Sum of units method
33. In which of the following depreciation methods is residual value not a factor in determining depreciation charge in the early
years of the life of an asset?
Declining balance
34. Which of the following depreciation methods is not appropriate for the situations involving a large number of similar items,
each having a small peso cost?
Composite method
35. In other to calculate the depreciation of an asset for the third year using the sum of years’ digits method, which of the
following must be known about the asset?
Acquisition cost, Residual value, Useful life
36. What factor must be present to use the production method of depreciation?
Total unites to be produced can be estimated
37. An addition that is an integral part of an older asset normally would be depreciated over
The useful life of the addition or the original asset, whichever is shorter
38. Which of the following statements is incorrect concerning the depreciation methods?
First-year depreciation under the double declining balance method is computed as the depreciable amount multiplied
by double the straight line rate.
39. If there is a change from double declining balance to straight line method
The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the remaining life
using the straight line.
40. An entity acquired equipment and used the straight line depreciation with a useful life of 15 years and no residual value.
After 4 years of using the asset, the remaining life of the equipment was six years with no residual value. How should this
change be accounted for?
Revising future depreciation annually to equal the carrying amount after 4 years divided by six.
 41. Which of the following statements is true about depreciation?
It is not a matter of valuation.
It is a part of matching expenses with revenue.
It retains funds by reducing income tax and dividend.
42. Depreciation is normally computed on the basis of the nearest
Full moth and nearest centavo
43. The sum of years’ digits method
Means the carrying amount should not be reduced below residual value.
44. Economic factors that shorten the service life of an asset include
Obsolescence, supersession and inadequacy
45. The major difference between the service life of an asset and the physical life is that
Service life refers to the time an asset would be used by an entity and physical life refers to how long the asset would
last.

Chapter 42: Depletion

1. Exploration and evaluation expenditures are incurred

When the legal rights to explore a specific area have been obtained but the technical feasibility and commercial
viability of extracting a mineral resource are not yet demonstrable.
2. When is an entity required to recognize exploration and evaluation, expenditure as an asset?
When required by the entity’s accounting policy for recognizing exploration and evaluation asset.
3. Which of the following expenditures would never qualify as an exploration and evaluation asset?
Expenditures related to the development of mineral extracting a mineral resource.
4. Which measurement model applies to exploration and evaluation asset subsequent to initial recognition?
Either the cost model or the revaluation model
5. Which type of expenditure is included in exploration and evaluation of mineral resources?
None of these should be included in exploration and evaluation expenditures.

Chapter 43: Revaluation

1. What is the revalued amount of property plant and equipment?

Fair value and depreciated replacement cost
2. When there is no evidence of fair value because of the specialized nature of the property, plant and equipment, the estimate
of fair value is
Depreciation replacement cost
3. What is the treatment of the accumulated depreciation on the date of revaluation?
Restated proportionately with the change in the gross carrying amount of the asset or eliminated against the gross
carrying amount of the asset.
4. Which of the following is not considered a separate class of property, plant and equipment?
Ship and aircraft
5. When assets’ carrying amount is increased as a result of revaluation, the increase is credited to
Revaluation surplus as a component of other comprehensive income
6. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is
Recognized in profit or loss
7. The revaluation surplus that is realized because of the use of the asset or disposal of the asset may be transferred directly to
Retained earnings
8. An entity which had a fleet of cars and ships decided to revalue the property, plant, and equipment. Which of the following
statements is true?
Revalue an entire class of property, plant and equipment.
9. Which of the following statements is true about the revaluation model for property, plant and equipment?
The frequency of revaluation depends upon the changes in fair value of the property, plant and equipment.
Property, plant and equipment with significant and volatile changes in fair value necessitate annual revaluation.
Property, plant and equipment with insignificant changes in fair value may be revalued every three to five years.
10. If an entity has a calendar year-end and a depreciable property is revalued at the middle of the current year, how is the
depreciation expense for the year determined?
Depreciation for the first half of the year is based on cost and for the second half on revalued amount.
11. When accounting for property, plant and equipment, an entity
May elect to use the cost model or the revaluation model on any asset class.
12. Which of the following statements is true about the revaluation model for valuing plant, property, and equipment?
There is no rule for the frequency or date of revaluation.
13. Under the revaluation model for accounting for property, plant and equipment
There is no rule regarding the frequency of revaluation
14. When the revaluation model is used for reporting property, plant and equipment, the gain should be included in
A revaluation surplus as component of other comprehensive income
15. When an entity chooses the revaluation model as the accounting policy for measuring property, plant and equipment, which
of the following statements is true?
When an asset is revalued, the entire class of property, plant and equipment to which the asset belongs must be
revalued.