RS -The Review School of lecownitoney » Theory of lcconnds May 2019 Batch TAPW - 373 DPER TY, PLANT & EQUIPMENT (PPE) 1 Linder PAS 16, PPE includes all ofthe following, EXCEPT Property held for administrative purposes b. Property used for extraction of minerals, ex or natural gas Property used in production or supply af goods and services 44. Biological assets related to agricultural activity and mineral rights, i assets may properly include: Idle equipment awaiting sale © Land held for undetermined future use b. Property held for investment purposes 4 Self-constructed assets currently in use 3. Apportionment of the purchase price in a lump-sum acquisition of various assets may be based on all of these EXCEPT a. Book values of the assets tothe seller © Tay assessment values, b. Relative market values Appraised values 4 When a closely held corporation issues equity shares in exchange for land, the land should he recorded at the 4. Current market value of the land Current market value of the shares issued bb. Total par value of the shares issued Total book value of the shares issued S. Assets received in donation should 8. Be depreciated based in their fair value atthe time of the donation ', Be depreciated based on their book value atthe time of the donation ©. Should not be depreciated 4. Be expensed upon receipt 6. Discounts given for early payment of credit purchases of operations! assets should be a. Recorded as interest expense at purchase date, b. Capitalized as a cost of the asset acquired and subsequently allocated to depreciation expense. Recorded as interest revenue at purchase di 4. Deducted from the invoice price when deteem 7. When payment for is deferred beyond normal credit terms, the difference between the cash price and total payments is a. Capitalized as cost of PPE ©. Interest expense over the credit period b. Charged to retained earnings 4. Interest expense over the useful life of the asset he cost oF the asset 8. It is permissible to capitalize interest on: & Assets that are not being used in eaming activities of the entity and that are not undergoing the activities necessary to get them ready for such use b. Inventories that routinely manufactured in large quantities ou a repetitive basis, ©. Assets that already are in use or are ready for their intended use in the earning activities on the e 4d. Assets under construction 9 A-company constructed machinery for its own use. A bank loan specifically financed this property both dur after the construction, How much of the interests incurred should be reported as interest expense?” a. Interests incurred before completion cAllinterests incurred b. Interests incurred after completion a Zero 10. Which of the following may NOT be considered a “qualifying asset"? a. A power generation plant that normally takes two years to construct b. An expensive private jet that can be purchased from a focal vendor © A tool bridge that usually takes more than a year to build 4d. A ship that normally takes one to two years to complete 11. Which of the following expenditures subsequent to property acquisition CANNOT be added to asset carrying a9) at a. Costs of modification of an item of property that will extend its useful life b. Costs of upgrading parts to achieve substantial improvements in quality of output € Costs of material repairs that did not increase the asset life nor productive capacity 4. Costs of adopting new production processes that enabled substantial reduction in operating costs 12, In an exchange of assets, an entity received equipment with a fair value equal t0 the carrying amount of eqpnpinn xziven up. The entity also contributed cash, Asa result ofthe exchange, the entity shall recoenize a A loss equal to the cash given up ‘A loss determined by the proportion of cash paid to the toll transaction vale in determined by the proportion of cash paid to the to1al transaction value er yain nor loss b dRSA The Review School of lccowrtancy TAPW-373 PREWEER MATERIALS in THLORY of ACCOUNTS (May 2019 Batch} Pare? 18 4 An improvement made to an old machine increased ity fair market value and its production capacity by 25% without extending the machine’s useful life. The cost of the imrevemert prefetably should be a Expensed Recorded as a loss Capitalized 4 Recorded as a liability An catity installed a new production facility and incurred rumber of expenses at the point of installation. The ‘entity's accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be Deferred and amortized over a reasonable period of time b._Expensed and charged profit ar los statement © Capitalized as part of the cost ofthe plant as a directly attr:vutable cost 4. Taken to retained earnings since it is unreasonable 10 treat it as part of profit oF Hoss inthe in echnical or commerci a Expected us obsolescence arises from fof the asset b. Expected physical wear and tear © Expiry date of related lease of the asset d.__Improvernent in production or change in market de What is the minimum book value to be shown in the balance she: reasonable amount at end of its useful life? a Zero © Salvage value b. Depreciable cost 6 Accenulated depreciation nd for the output of the asse for plant asset which 1s expected to be sold for 2 Accumulated depreciation, as used in accounting, represe Funds set aside to replace assets b. Famings retained in the business that will be used to purchase related asset becomes fully deprecated ©. Anexpense on the income statement 4d The portion of the asset cost written off as an nother operational asset when the expense since the acquisition date A principal objection to the straight-line method of depr a. Provides for the declining productivity of an bok Tends to result in a constant rate of return on a diminisbia: investment base 4d. Gives smaller periodic write-offs hone methiods Ignoring ta effects, accelerated depreciation methoxts a. Provide funds for the earlier replacement ot fived assets bb. Increase funds provided by operations Tend to offset steadily increasing repair and mainte Tend to decrease the fixed assets tumover ratio costs In which of the following situations is the units-of:production method of depreciation most appropriate? a. Anasset’s service potential decline with use b. Am asset's service potential declines with the passage of time € An asset is subject to rapid obsolescence d.Amasset incurs increasing repairs and maintenane wth we css recorded at an amen mpairment of PPE is indicated, any impairment 4. Excess of the carrying amount over the Gur value oF the asset bb. Excess of the recoverable amount over the carrying amount of the asset €. _ Excess of the carrying amount over the recoverable arneunt of the asset 4d. Excess of the carrying amount over the discounted cash flows from the asset The estimates of fature cash flows in calculating value un nse include all of EXCEPT a, Cash inflows from the continuing use of the asset b. Net cash flows from the disposal of the asset at the end oF ity u-eful hfe © Fu ial are expected 10 arise from mproviog oF enhaneing the asset's performance 4d. Cash outflows necessarily incurred to generate the ca Ws froin the continuing use of the cash outflows set ‘When calculating estimates of future cash Mow, for vue a se. which 0! these cash flows should NOT be included a. Cash flows from disposal b. Income tax payments © Cash flows from the sale of assets 4. Cash outflows on the maintenance of the asset Ifa plant asset 1s retired before itis fully depreciated and no salva A gain on disposal oveurs : A loss on disposal occurs a + goin nora loss oceurs ©ReSQ. the Review School of ecowetancy TAPW-373 PRLGULER ATF RIALS on TORY of ACCOUNTS (May 2019 Rate) - Page 25 Which of the following is NOT an indication of possible asset impairme 4. Significant decrease or decline in the market value of the asset ice of obsolescence oF physical dam Wee that the economic performance of an asset will be worse The use of accelerated method for depreciation oF the asset Mn expected areh center) that do not 26 1p oF divisional assets (€., head office building, EDP, equipment or re We cash inflows independently from other assets and that are usually regarded as part of cash generating unit a Corporate assets Service departments b. Subsidiary Xd. Exclusive cash generating unit treatments is prescribed by PAS 20? 27 Inthe cave of a nonmonetary grant, which of the follow unt at a nominal value a Record the asset at replace: b Record the grant &. Record both the g 4. Record only the asset at fair value, do not recognize the fair val ‘ad the ‘ofthe nonmonetary grant ¢ of the grant 28. PAS 16 requires that revaluation surplus resulting from inital revaluation of property. plant and equipment should be {rcated in one of the following ways. Which of the four options mirrors the requirements of PAS 16? a. Credited 10 retained this is an unrealized pain bDeducted from current assets and added to property, plant and equipment € Released to the income statement an amount equal to the difference between the depreciation calculated on historical cost viswi-vis revalued amou plant and equipment that 1s being revalued ‘which is presented under equity d 10 a reserve Financial assets include all of the following, EXCEPT a. Cash in bank ¢ b. Trade accounts and notes receivable 4. Inventories and prepaid ‘of Financial assets? 30. Under PERS 9, which of the following is NOT a eateyor ‘a, Financial assets at amortized cost b. Financial assets at fair value through profit oF loss c. Financial assets at fair value through accumulated profit or loss d. Financial assets a fair value through other comprehensive income 31, The usual factors considered in classifying investments in securities as short term are a. Ready marketability and type of investment b. Ready marketability and management intentions. Type of investment only d. Ready marketability only 32. How docs PFRS 9 distinguish between the measurement methods to be used” ‘a. By reviewing the business model and the risks and rewards of the transaction, b. By reviewing the realizability of th Is of ownership ¢. By reviewing the realizability and the contractual cash flow characteris d. By reviewing the business model and the contractual cash flow ch strument and risks snd ics of the instrument teristics ofthe instrument 33. A trading security (TS) is a. A security which has been purchased recently b. A security held in the account of a brokerage firm €. A security which is held for resale in the near future 4. A security which will be ransferred in exchange for another security 34. For investments in TS, which of the following market value changes are recognized a. Realized gains only ¢ Unrealized losses only b. Realized losses only 4 Realized and unrealized gains and losses 35. (OLD) A security available forsale (AFS) is 4 Asecurity whichis currently held for resale b. debt security nt intended to beheld to maturity fc. Adebt security but not an equity eeu 4. Asecurity accounted for by the fair value method but is nota trading security 36. (OLD) For investment in AES, which of the following market value changes are ecoxnized in earninus? a. Realized losses only € Unrealized and realized gains and losses b. Realized gains and losses only 4. Unrealized and realized losses onlyReSQ. The Review School of liccowntoney TAPW-373 PREWEEK MATERIALS THEORY of ACCOUNTS (May 2019 Baten) = Page 40 4 2 44 45. 46. 47, (OLD) The statement of financial position presentation of an unrealized loss on an available-for-sale security is similar to the statement presentation of a Treasury shares Bonds payable © Aifowance for doubtful accounts dd. Prepaid expenses value in oui comprofiensive income ts applicable only 10 The irrevocable eleetion to present changes in a Investment in equity insti b. Investment in equity instrument that is held for train ©. Financial asset measured at amortized cost dF Cash dividends declared out of current earings were distributed to an investor, How will ty account be affected by those dividends under each of the folowing wecowating methods? wancial asset measured at fair value. Cost Fair Value Method Eeuaty Method a Decrease No effect b No effect Deereaye « Decrease Decrease 4 No effect No effect A debt investment shall be measured at fair value through other compreliensive income ‘a. When the debt investment is held for trading, 'b. When the debt investment is not held for teading 4 By irrevocable designation When the business model is to collect contractual cash flows that are solely payments of principal and interest and also to sell the financial asset would be highest if the A bond is purchased on January |. The investor's curving value at th: end of the first ye bond was purchased at a 4. Discount and amortized by the straight-line method b. Discount and amortized by the effects niterest © Premium and amortized by the straight-line meihod 4. Premium and amortized by the effective interest method Which of the following would NOT be reported as investment property” a. Real estate held for an undetermined future us b. Property held by the entity to be weased cut uader one or More operating leases ‘cProperty owned by the entity and leased out under on or more operating leases 4 Property ovned by the entity and leased ou to another eatity ender a finance Fease {A gain or loss arising from a change inthe fait valu of investment property shall a. Be recognized inthe profit or loss tov the peted in shi it arises b. Be recognized directly to equity inthe period in which Mt arises Be recognized as an adjustment to retained earnines st the beginning of the year 4d. Not be recognized in the accounts Which of the Following generally provides the best evidence of fair value of an svestment property? a. Discounted cash flow projections based on retiadie estimates of future cash flows b Recent prices on less active markets with adjustments te reffee* changes in economic conditions Current prices far properties of a wiffezent mature or subject ta differcvt conditions. 4. Current prices in an active matket for similar pr p2"y in the same toeation and condition Transfers from investment property to properts, plant ard equipment are appropriate b. Based on the entity's discretion. Only when the entity adopts the fair value model under 1AS 38 4. The entity can never transfer property into another ciis-affention on the balance sheet once it is classified as investment property Dereeognition of investment property will NOT be requited when a. It becomes the subject of an operating iease b. Itissold. c.It becomes the subject ofa sale and leaseback deal d_ It becomes the subject ofa finance fesse: The initial cost of a property held under a lease ain classified 9s an investment property shall be a. The fair value of the property b. The present value of the minimum lease pi ©The lower of fair value of the property and present value of mipimum lease payn a The higher of air value of the property and present value of minimum lease payinSC The Review School of Uecowrdoney TAPW-373 REWER MATERIALS i THEORY of ACCOUNTS May 2019 Batch] - Page 48. Ifan inventory is transferred to investment property that will be carried at fair value, remeasurement to fair value is a Included in equity © Charged to profit b+ Accounted for as revaluation of inventory d._—_ Charged to accumulated profit INTANGIBLE ASSETS 49 Jdernifiubility vs seen as the characteristic that conceptually distinguishes other intangible assets from a Copyright © Goodwill b. Franchise Patent 50. The following expenditures should be expensed as incurred, EXCEPT Expenditures on advertising and promotional activities Payments for organization expense € Expenditures in relocating or reorganizing part or all of the enterprise 4. Payment in advance of delivery of goods or services. 51. Which of the following items qualify as an intangible asset under PAS 38° a. Advertising and promotion on the launch of a huze product. b College tuition fees paid to employees who decide to enroll in an executive MBA program while working with the company Operating losses during the initial stages of the project. d. Legal costs paid to intellectual property lawyers to register a patent 52. Under PAS 38, intangible assets should be carried at a. Cost less accumulated depreciation b. Revalued amount less accumulated depreciation ©. Cost plus a notional increase in fai value since the intangible asset ss acquired 4d. Cost less accumulated amortization and/or accumulated impairment 53. Amortization of specific intangible assets results primarily tzom application of the a. Full-disclosure principle ‘© Matching principle b Revenue principle 4. Cost principle 54. Under PAS 38, which of the following methods of amortization is normally NOT recommended for intangible assets” ‘a. Units of production method © Effective interest method b. Declining balance method Straight-line method 55. A purchased patent has a remaining legal life of 8 years. It should be ‘a, Expensed in the year of acquisition b. Amortized over a period of 10 or 20 years ¢. Amortized over its useful life. if less than 8 years 4d. Afiortized over 8 years regardless ofthe useful life 56. An intangible asset with an indefinite life is one where ‘a. There is no foreseeable limit on the period over which the asset will generate cash flows b. The length of life is over 20 years The directors feel that the intangible asset will not lose valu d. There isa contractual of legal arrangement that lasts for a period in excess of five in the foresceable future 57. An intangible asset with an indefinite life is accounted for as follows: ‘2. No amortization but tested for impairment annually b. Amortized and impairment tests annually €. Amortized and tested for impairment if the 4d, Amortized and no impairment test is a “trigger even 58, Which of the following confers exclusive right to conduct business in a particular territory” a. Franchise Leasehold improvement b Trademark 4d. Patent-copyright 59. Which ofthese is expensed as incurred by the franchisce for a franchise with an estimated useful life often ‘Lega fees paid tothe franchise's lawyers to obtain the franchise bb Periodic payments to the franchisor based on the franchisees revenues ‘Initial amount paid to the franchisor forthe franchise <4. Any initial direct costs incurred in obtaining the franchise 60. Costs incurred by a company that may develop its own goodwill internally should be Capitalized and amortized as the company profits increased b. Capitalized and amortized over the useful life of the goodwill. . _ Expensed in the period incurred 4. Capitalized and amortized over a period not to exceed 40 yearsReSQ- The Review School of Ucconntoncy TAPW-373 PREWEFK MATERIALS n THEORY of ACCOUNTS [May 2018 Baten) Page 61 Goodwill, when properly recognized. should be written off By systematic charges to expense over the peti! benefited, but not more than 20 years b. Assoon as possible against retained eaminy © Assoon as possible ay an ordinary item When im 62 Which of the follow ing is most likely NOT to be amortized over the retiods of esumated benefit” 4 Development cqsts that resulted in a successtul yroduct b. Lease rights paid to owner of property fi the usutruct Costs incurred in organizing a corporation Patent right purchased from an inventor 63. Goodwill should properly appear in the statement of financial p sition of 2 company which a. Has purchased an entity © Consistently reports above-normal profits b. Consistently operates profitably «| Meets aff of the conditions 64. A newly set up dot-com entity h highly publicized research and development projects and secks vour advice on the accuracy of the following, made by one of its stakcholders. Which of the follossing ««ivements is accurate? a. Costs incurred during the “tes apitalized b. Costs incurred during the “development phuse” can be capitalized it eri feasibility of the project being established are met ¢ Training costs of technicians used in research cam be capitalized 4. Designing the jigs and tools qualify as research activities. engaged you as ity nancial advise. The entity has recently completed one of its ch phase car ia such as techni controlled 65. A compyter software purchased as an operating system for the hardware or as an integral part of a comp ‘machine tool that cannot operate without the spectfie software sill be treated a 4. Intangible assets © Inventor b. Property. plant and equipment © Espen 66. Which of the following costs related to computer sotts sre ¥ expitslized to an intangible asset account? a. Cost to duplicate dises and manuais tor sale Development costs preceding technological easibiity & Coding and testing costs incurred after technological feasibility but before completing the produ master d. Cost of customer service onputer software product is wg treatment for the costs incurred in creatine il the software is sold 67. The proper accout a, Tocapitalize all costs b To charge research and development expense established for the product cc Toccharge research and development expense: 4 Toccapitalize all costs sit n incurred until technological feasibility has. been omputer software has alternative fit esign or working model 1s created 68. Which ofthe following is a correct statement concerning rescarch and development (R&D) costs? a AN R&D costs, without exception, must be charged to expense when incurred b. R&D can only be amortized over a life of 40 years or moze € Almost any treatment 1s acceptable for handling R&D ee Notes to the financial statements must disclose total ammount af RED costs expensed during the period 69. Which of the following is most likely mncluded in research and development expense in 2018 a. The fotal cost of a building (useful life 2S years completed laruary 1, 2018) to be wsed i various rescarch and development projects b Depreciation in 2018 of the building used for research and development € The cost incurred in 2018 to ensure quality contre! for exving production processes The cost incurred in 2018 of research activites performed by another firm: the project 6 expected to be completed in 2019 20. fc note disclosures is NOT required by PAS 38? ible assets tractual commitments for the acquis Reconciliation of carrying amount atthe beymniag an the end af the ySO. The Review School of Cacowedlomiy TAPW-373 PREWEEK MATERIA in THLORY af ACCOUNTS (Muy 20:9 Gateh! 630 BRI 23 4 42 ADDITIONAL QUESTIONS (with suggested an: 1 D Lop “ oD 6D 2D i 2D 2 ROA 8 aA 638 408 a 4407 a B SA Dd 45.4 6s. B 6 oD A 48 66. € 7 ¢ ¢ 7 ¢ 7 8B & oD D BO 6D OB > 9 ¢ 6. B to. B ‘ Db 7. B oc 8 D OA dD D BOB Ros c WB an) c Is. D 3. Ob ‘ ec 3 A nop 7A A iB 380A A ine 39 OB B 2. A 40D c E_EXPLANATIONS/CLARIFICA LIONS 79 SELECTED [LEMS Under PAS 36, the eash flows used to micasure the value Huse" of a property must be expressed hefore tax Under the effective interest method (scientitic method), the periodic amortization of premium is lowest in the First period but it increases over tke subsequent peri A property /eased in under finance (capital) lease and (eased our under operating lease qualifies as an investment Property. A property leased am under finance lease + not cousidered as an investment property cr) ‘Accounting for tangible operational assets is peamatly in conformity withthe: 2. Matching principle b. Historical cost principle ¢ Matching principle and reetization pri 4. Matching principle and historical eos principle Capitalization of construction period interest ba:ed primarily upon the: a Comparability principle ©. Fullsdisclosure principle b Matching principle 4 Revenue principle ‘An asset has a nine-year useful life and is to be deprectated under the sum of the years’ digits method. ‘The annual depreciation expense would be the same as that under the straight line method in the a. Third year Seventh year b Fifth year Ninth year It is the assistance by government in the form of transiers of resources to an entity in retum for past or future ‘compliance with certain conditions relating tothe operat activities ofthe enterprise a Government grants © Government discounts b. Government warnings 4. Government interventions These are government grants whose priinary cond or otherwise acquire long-term assets a. Grants related 10 asset © Government gift Grants related to incom Government appropriation Under PAS 20, government grants related to depreciable assets should be recognized as income a. Immediately b. Over useful life on a straight line basis ¢ Over useful life in proportion to the depreciation of the related assets dd. In proportion to the compliance uf the conditions st for the government grant In the case of grants related to an assct, which of these treatments 1 prescribed by PAS 20? a. Record the grant at a nominal “slue 1n the fist year and write it off in the subsequent year b. Either set up the grant as deferred incom or deduct itn arriving al the carrying amount of the asset Record the grant at fair value in the first year and take it 0 income in the subsequent year dd. Take it tothe income statement and disclose st as an extraordinary gain n i that an entity qualifying for them should purchase, constructReSlh- The Review School of Uecourtaney, TAPW-373 DPREWEEK MATERIALS n THEORY of ACCOUNTS May 2019 Nath) Page 2 B % 10, Under PAS 20, governme should be recognized as income urants related 10 numdepreciaMle assets that require fulfillment of certain conditions tb When the grants are received © When the related assets are sold 4 Over the periods that bear the costs of mecting the conditions In the ease of grants relat to incre, which of these treatments i prescribed by PAS 20° a. Credit the grant to “general ieserve" ynder shescholles” equity bb Present the gran onme Statement as “eae income" oF asa separate line item, or ded the related expenses he grant to “retained earning.’ or te hakunce sheet the grant to sales or ther +-veras thera uperations in te income statement Jn case of non-monetary grant, which ofthe soiowing is preseribed by PA: Record the grant ata value estimated by tb Record the asset at replacement cost and th & Record both the grant and the asset at fair valve ofthe non-monetary asset 4. Record only the asset at fair value and not recounize the fair value of the grant Which of the following is NOT specifically excteded from the purview of PAS 20 on government grants? 2. Goverment assistance provided inthe form of ta benefits b. Government participation in ownership ithe vatity Government prant covered by PAS 41 ‘ 4 Forgivable loan from the goverment The mernal sources of information upairment include all of the following, EXCEPT a. Evidence of obsolescence ar physical damage ofthe asset b. Evidence that the economie performance of an asset will be worse than expected Significant change inthe manneriextent in which the asset is used with an adverse effect onthe entity 4. Significant deerease or decline i the market value of he asset The ewernaf sources of information indicating possibe impairment include ll ofthe following, EXCEPT 2. Significant value in the techrological. markt, legal cr veonemie environment ofthe business in which the asset is employed An increase in the interest rate oF market rate ot retuen or investment which will ikely affect the discount rate used in calculating value in use €. The carrying amount ofthe not assets ofthe 4. Significant decline in budgeted net cash flows oF sis the asset ‘On January 1, 2018, ABC Company capitalized cost for a new computer software product with an economic life of five years. Sales for 2018 were 30° of expected total sales of the software and the pattern of future sales CAN be teasured reliably. At December 31, 2018, the software had a net realizable value equal 10 90% of the capitalized icauing possible tity 5 more than its market capitalization ificant increase in budgeted loss flowing from cost. What percentage of the original capitalized cost should be as the net amount on the December 31, 2018 balance sheet?” a 70% c 80% b. 72% d 50% On January 1, 2018, ABC Co. capitalized cost for » new computer software product with an economic life of five years, Sales for 2018 were 30% of expecied total sales of the software. However, the patiern of future sales CANNOT be measured reliably. At Deccmiber 31, 2018, the software had a net realizable value equal to 90% of the capitalized cost. What percentage of the ori alized cost should be as the net amount on the December 31 2018 balance sheet? a 70% 80% b. 72% a 90% Under PFRS 11, what are the two types of joint arrangements (i.e. contractual arrangement where two or mare parties have joint control”? a. Joint venture and joint agreement ©. Joint forces and joint venture Joint venture and joint operation 4. Joint forees and joint agreement The particular relationship between parties that signaies the existence of a joint venture is 2. Significant influence by one party over :he other party b. Joint control by the partes over the act.vvies of an operation Control over the operating policies of one party by another pany d. Shared influence by two parties over th. activities of another party Under PFRS 11, what is the method of accounting for investment in joint venture? a. Cost method © Fair value method b. Equity method 4. Consolidation method OPN De