BSA 2102 Intermediate Accounting 1 AND 2 PDF

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BSA 2102- INTERMEDIATE ACCOUNTING 1 AND 2MIDTERM DEPARTMENTAL EXAM REVIEWERTHEORIES1. The recoverable amount of an impaired asset is equal to itsa. fair value less cost to sellb. fair value less cost to sell or value in use, whichever is lower.c. value in use.d. fair value less cost to sell or value...

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BSA 2102- INTERMEDIATE ACCOUNTING 1 AND 2 MIDTERM DEPARTMENTAL EXAM REVIEWER THEORIES 1. The recoverable amount of an impaired asset is equal to its a. fair value less cost to sell b. fair value less cost to sell or value in use, whichever is lower. c. value in use. d. fair value less cost to sell or value in use, whichever is higher. 2. Which of the following statements pertaining to the recognition and measurement of an impairment loss is/are valid? I. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. II. After the recognition of an impairment loss, depreciation of the asset for the future periods should be equal to the revised carrying amount less its residual value allocated on a systematic basis over its original life. III. An impairment loss shall be recognized in profit or loss immediately. IV. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. a. b. c. d.

I, II, III and IV I, III and IV I, II and IV II only

3. Which of the following is not considered in making the estimates of future cash flows for the purpose of calculating value in use of an asset? a. Future cash flows for improving or enhancing the asset's performance. b. Cash inflows from the use of the asset. c. Cash outflows incurred to generate cash inflows from the use of the asset. d. Net cash flows from the disposal of the asset. 4. Under IAS 36 Impairment of Assets, the best evidence of an asset's fair value is a. A price in a binding sale agreement in an arm's length transaction. b. the market price of the asset in an active market. c. best estimate between knowledgeable, willing parties in an arm's length transaction. d. the higher between the price in a binding sale agreement and the market price of the asset in an active market.

5. An entity is considering whether to apply an impairment test to an individual asset or to the cash-generating unit to which the asset, belongs. Which of the following statements is true? I. If the individual asset does not generate cash inflows that are largely independent of those from other assets, then the cash generating unit should be identified. II. If the individual asset generates an insignificant proportion of the cash inflows of the entity as a whole, the cash-generating unit should be identified. a. b. c. d.

I only II only Both I and II Neither I nor II

6. Which statement is correct concerning an impairment test for goodwil1? I. A cash-generating unit to which goodwill has been allocated shall be tested for impairment annually and whenever there is an indication of impairment of the unit, by comparing the carrying amount of the unit, including goodwill, with the recoverable amount of the unit. II. If the recoverable amount of the unit exceeds the carrying amount of the unit, including goodwill, the unit and the goodwill allocated to that unit shall be regarded as not impaired. a. b. c. d.

I only II only C. Both I and II Neither I nor II

7. Which of the following is an internal source of information about impairment of asset? a. Significant decline in the market value of the asset b. Significant change in the technological, market, legal or economic environment of the business in which the asset is employed c. Increase in the interest rate or market rate of return on investment, which will likely affect the discount rate in computing value in use d. Obsolescence or physical damage of the asset 8. Which statement is true about the revaluation model for property, plant and equipment? a. The frequency of revaluation depends upon the changes in fair value of the property, plant and equipment. b. Property, plant and equipment with significant and volatile changes in fair value necessitate annual revaluation c. Property, plant and equipment with insignificant changes in fair value may be revalued every three to five years. d. All of these statements are true about the revaluation model.

9. 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? a. Depreciation for the year is based on the average of the depreciation based on cost and on revalued amount of the property b. Depreciation for the entire year is based on cost. c. Depreciation for the entire year is based on revalued amount. d. Depreciation for the first half of the year is based on cost and for the second half on revalued amount 10. 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 a. Replacement cost b. Depreciated replacement cost c. Net realizable value d. Present value of cash inflows from the use of the asset 11. What is the treatment of the accumulated depreciation on the date of revaluation? a. Restated proportionately with the change in the gross carrying amount of the asset b. Eliminated against the gross carrying amount of the assets c. Not adjusted on the date of revaluation asset d. Restated proportionately with the change in the gross carrying amount' of the asset or eliminated against the gross carrying amount of the asset 12. An entity with a fleet of cars and ships decided to revalue the property, plant, and equipment. Which statement is true? a. Revalue only one-half of each class of property, plant and equipment. b. Revalue an entire class of property, plant and equipment. c. Revalue one ship at a time as it is easier than revaluing all ships together d. Since assets are being revalued regularly, there is no need to depreciate. 13. When the revaluation model is used for reporting property, plant and equipment, the gain should be included in a. Retained earnings b. Gain from revaluation in the income statement c. Revaluation surplus as component of other comprehensive income d. An extraordinary gain in the income statement 14. When an entity chooses the revaluation model for property, plant and equipment, which statement is true? a. When an asset is revalued, the entire class of a. property, plant and equipment to which that asset belongs must be revalued. b. Individual asset within a class to which that asset belongs can be revalued.

c. Revaluation must be made every three years. d. Increase in an asset's carrying amount as a result of the revaluation must be recognized in income. 15. An investment property is defined as I. Property (land or building or part of building, or both) held by an owner or by the lessee as a right-of-use asset held to earn rentals or for capital appreciation. II. Property held by an owner or by the lessee as a right-of-use asset for use in the production or for administrative purposes. a. I only b. II only c. Both I and II d. Neither I nor II 16. Which statements are correct concerning investment property? I. If the property Comprises a portion that is held to earn rentals and another portion that is held for use in production of goods and these portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in production of goods. II. When the owner of an office building provides security and maintenance services to the lessees, the office building is an investment property because the ancillary services are insignificant. III. An owner-managed hotel is an investment property rather than owner-occupied property because the services provided to the guests are significant. IV. If a property is leased by a subsidiary to another subsidiary, the property is investment property in the individual financial statements of the subsidiary that owns it but owner-occupied property in the consolidated financial statements of the group.

a. b. c. d.

I, II, III and IV I, II, and III I, II and IV I, III and IV

17. Which of the following statements is are correct under the fair value model of valuing investment property? I. Equipment such as lifts or air-conditioning is often an integral part of a building and is generally included in the fair value of the investment property II. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the, property and does not reflect the related future benefits from this future expenditure. III. The fair value of investment property includes prepaid or accrued operating lease income, because the entity recognizes it as a separate liability or asset

IV.

a. b. c. d.

If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture, because the rental income relates to the furnished office I, II, III and IV I, II and III I, II and IV I, III and IV

18. Which of the following would increase the cost of an investment property? a. Operating losses incurred before the investment property achieves the planned level of occupancy. b. Directly attributable expenditure. c. Start-up costs. d. Abnormal amounts of wasted material, labor or other resources incurred in constructing or developing the property. 19. Which of the following statements are correct under the fair value model of valuing investment property? I. The fair value of investment property shall reflect market conditions at the end of the reporting period. II. The fair value of investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction. III. An entity determines fair value with deduction for transaction costs it may incur on sale or other disposal IV. The fair value of investment property reflects, among other things, rental income from current leases and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental income from future leases in the light of current conditions. a. b. c. d.

I, II, III and IV I, II and III I, II and IV I, III and IV

20. Any gain or loss from the disposal of the investment property shall be determined as the difference between a. the total disposal proceeds and the carrying amount of the asset and shall be recognized in equity. b. the net disposal proceeds and the carrying amount of the asset and shall be recognized in profit or loss. c. the total disposal proceeds and the cost of the asset and shall be recognized in equity.

d. the net disposal proceeds and the cost of the asset and shall be recognized in profit or loss. 21. Which of the following statements is incorrect for disposals of investment property? a. Gains or losses arising from the retirement or disposal of investment property shall be determined as the difference between the net disposal proceeds and the carrying amount. b. Gains or losses arising from the retirement or disposal of investment property shall be recognized in profit or loss. c. Compensation from third parties for investment property that was impaired, lost or given up shall be recognized in profit or loss when the compensation is received. d. The consideration receivable on disposal of an investment property is recognized initially at fair value. 22. Which of the following are within the definition of an intangible asset? I. Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. II. Identifiable nonmonetary asset without physical substance III. A resource controlled by an enterprise as a result of past events IV. A resource from which future economic benefits are expected to flow to the enterprise. a. b. c. d.

II, III and IV I, II and III II and III III and IV

23. Which of the following intangible assets does not have the characteristic of exchangeability? a. Patent b. Goodwill c. Copyright d. Franchise 24. Which of the following is correct? a. The fair value of internally generated intangible assets should be estimated and recorded on the books of the entity that developed the assets even in the absence of a business acquisition. b. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity. c. Managers may value their own companies and recognize goodwill in the company accounts even though an entity has not been acquired in a business acquisition.

d. Goodwill should be recognized in the accounts whenever the value of the firm increases based on current market prices of the firm's share capital. 25. Which statement is correct concerning the amortization of an intangible asset? I. Intangible assets with finite life are amortized over their useful life. II. Intangible assets with indefinite lives are not amortized but tested for impairment at least annually. a. Both I and II b. Neither nor II c. I only d. II only 26. What term is generally used to refer to the systematic allocation of the cost of an intangible asset less any residual value as an expense over the asset's useful life? a. Depreciation b. Realization c. Depletion d. Amortization 27. Which of the following is a research activity? a. Design, Construction, and testing of pre-production or pre-use prototypes and models b. Design, construction and operation of a pilot plant that is not of scale economically feasible for commercial production c. Formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services d. Design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services 28. The cost of purchasing a patent for a product that might otherwise have seriously competed with the purchaser's patented product should be a. expensed in the current period. b. amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the purchaser's product. d. amortized over the remaining useful life of the patent for the product whose market would have been impaired by competition from the newly patented product. 29. Biological assets are measured at a. Cost. b. lower of cost or net realizable value. c. fair value less estimated cost to sell d. net realizable value less normal profit margin.

30. The following provides examples of biological assets, agricultural produce and products that are the result of processing after harvest. Which is a correct combination? a. b. c. d.

Biological asset Plants Dairy cattle Sausage Vines

Agricultural produce Harvested cane Cheese Carcass Wine

Product after harvest Sugar Milk Pig Grapes

31. Which of the following statements is incorrect in determining the fair value of biological assets and agricultural produce? a. Contract prices are not necessarily relevant in determining fair value when entities enter into contracts to sell their biological assets or agricultural produce at a future date, because fair value reflects the current market in which a willing buyer and seller would enter into a transaction. b. If an active market exists for a biological asset or agricultural produce, in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset c. The determination of fair value fora biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes. d. The fair value of a biological asset or agricultural produce adjusted when entities enter into contracts to sell their biological assets or agricultural produce at a future date. 32. How shall the fair value of biological assets physically attached to land be determined? a. The fair value of biological assets may be deducted from the fair value of the combined assets to arrive at fair value of the raw land and land improvements. b. The fair value of raw land and land improvements may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets. c. It cannot be determined. d. The fair value of raw land and land improvements may be added to the fair value of biological assets to arrive at the fair value of the combined assets. 33. It is a component of an entity that that has been disposed of or is classified as held for sale. a. Discontinued operation b. Continued operation c. Noncurrent asset held for sale d. Disposal group held for sale

34. The results of operations of a component of an entity that either has been disposed of or classified as held for sale shall be reported in discontinued operations if I. The operations and cash flows of the component have been or will be eliminated from the on-going operations of the entity as a result of the disposal transaction. II. The entity continues to have a significant continuing involvement in the operations of the component after the disposal transaction. III. The entity outsources the manufacturing operations of a component and sells the manufacturing facility of the component but continues to sell the product formerly manufactured by the facility sold. a. b. c. d.

Only I is true Only II is true I and II are true I, II, and III are all true

35. An entity put back an asset that was previously classified as "Held for Sale" into active use; thus, the criteria for the asset to be classified as Held for Sale" no longer apply. For accounting purposes, the entity shall a. continue to classify the asset as Held for Sale, until such date that the asset is retired or disposed of. b. reclassify the asset into its previous classification at the lower of fair value less cost to sell and its carrying amount when the asset was classified as Held for Sale. c. continue to classify the asset as Held for Sale and resume the depreciation for the asset. d. reclassify the asset into its previous classification, measuring it at the lower between its carrying value had the asset not been classified as Held for Sale and its recoverable amount as determined under IAS 36 Impairment of Assets, and then subject the asset to depreciation or amortization. PROBLEMS 36. Marcus Company operates an oil platform in the sea, Marcus company has provided the amount of P10.000.000 for the financial costs of the restoration of the seabed, which is the present value of such costs. Marcus Company has received an offer to buy the oil platform has received an offer to buy the oil platform for P16,000,000 and the disposal costs would be P2,000,000. The value-in-use of the oil platform is approximately P24,000,000 before the restoration costs. The carrying value of the oil platform is P20,000,00. What amount of impairment loss should Marcus Company recognize related to the oil platform? a. None b. P4,000,000

c. P6,000,000 d. P8,000,000

37. Chester Company has an oil platform in the sea. Chester Company has to decommission the platform at the end of its useful life, and a provision was set up at the commencement of production, the carrying value of the provision is P8,000,000. Chester Company has received an offer of P20,000,000 (selling costs P1,000,000) for the rights to the oil platform, which reflects the fact that the owners have to decommission it at the end of its useful life. The value-in-use of the oil platform is P26,000,000 ignoring the decommissioning costs. The carrying value of the oil platform is P28,000,000. What amount of impairment loss should Chester Company recognize related to the oil platform? a. None b. P1,000,000 c. P2,000,000 d. P9,000,000 38. Coward Company purchased building on January 1, 2010 for a total of P10,000,00. The building has been depreciated using the straight-line method with a 25-year useful life and no residual value. As of January 1,2014, Coward is evaluating the building for possible impairment. The building has a remaining useful life of 15 years and is expected to generate cash inflows P450,000 per year. The estimated recoverable amount of the building on January 1, 2014 is P5,310,000. How much, if any, is the impairment loss t...