Multiple Choice - Theory

1. Statement 1: When property, plant and equipment are revalued, the entire class should be
revalued.
Statement 2: The assets within a class of property, plant and equipment are revalued
simultaneously in order to meet selective revaluation of assets and the reporting of amounts
which are a mixture of cost and value at different dates.
a. True:False c. True:True
b. False:True d. False:False

2. The fair value is determined by appraisal normally undertaken by?

a. Professional qualified surveyors c. Professional qualified valuers
b. Brokers d. Estate brokers

3. It is used when market value is not available.

a. Depreciated replacement cost c. Historical cost
b. Carrying amount d. None of the above

4. Statement 1: The frequency of revaluation depends upon the changes in cost of property,
plant and equipment being revalued.
Statement 2: When the fair value of a revalued asset differs materially from the carrying
amount, no further revaluation is necessary.
a. True:False c . False:True
b. False:False d. True:True

5. The revalued amount of property, plant and equipment is based on:

I. Fair value which is the current purchase price of the property, plant and
equipment.
II. Depreciated replacement cost which is the sound value of the asset.
a. I only c. II only
b. Both I and II d. Neither I nor II

6. Statement 1: Carrying amount is equal to historical cost plus the corresponding accumulated
depreciation.
Statement 2: Fair value is the current purchase price of the property, plant and equipment.
Statement 3: Replacement cost is the price that would be received to sell an asset.
a. True:False:True c. False:True:True
b. False:True:False d. False:False:False

7. After recognition as an asset, an item of property, plant and equipment whose fair value can
be measured reliably can be carried at:
a. Historical Cost c. Carrying amount
b. Replacement Cost d. Answer not given
8. The fair value or depreciated replacement cost minus the carrying amount of the property,
plant and equipment.
a. Revaluation increment c. Sound Value
b. Replacement cost d. Carrying amount

9. It is the excess of the revalued amount over the historical cost.

a. Gain on revaluation c. Loss on revaluation
b. Revaluation decrease d. Appreciation

10. These are the two approaches in recording the revaluation:

a. Cost / Revaluation c. Proportional/ Elimination
b. Cost/ Proportional d. Cost/ Elimination

11. Statement 1: Cost approach is not an approach in recording revaluation.

Statement 2: Proportional approach is preferable because it preserves the gross and net
amounts after revaluation
a. Only statement 1 is correct c. Both statements are correct
b. Only statement 2 is correct d. Both statements are wrong

12. The revaluation surplus is allocated or realized over the remaining useful life of the asset and
reclassified through __________?
a. Income c. Share capital
b. Retained earnings d. Share premium

13. Initially, an item of property, plant, and equipment that qualifies for recognition shall be
measured at:
a. Fair value c. cost
b. Fair value less transaction costs d. present value

14. After recognition, an entity shall choose either_____ as an accounting policy and shall apply
that policy in an entire class of property, plant, and equipment:
a. Cost Model/ Revaluation Model c. Revaluation Model/ Fair Value Model
b. Cost Model/ Fair Value Model d. Revaluation Model/ Impairment Model

15. The measurement of revaluation model is at:

a. Fair value at the date of acquisition less any subsequent accumulated depreciation and
subsequent accumulated impairment losses
b. Fair value at the date of the revaluation less any depreciation expense and subsequent
accumulated impairment loss
c. Fair value at the date of the revaluation at the date of the revaluation less any
subsequent accumulated depreciation
d. Fair value at the date of the revaluation less any subsequent accumulated depreciation
and subsequent accumulated impairment loss
16. I- An entity shall choose neither the cost model or revaluation model as an accounting policy.
II- After recognition as an asset, an item of property, plant, and, equipment whose fair
value can be measured reliably can be carried at revalued amount.
a. Statement I is only true c. both statements are true
b. Statement II is only true d. both statements are false

17. A further revaluation is necessary when:

a. When the acquisition cost differs materially from the carrying amount.
b. When the fair value of a revalued asset differs materially from the carrying amount
c. When the acquisition cost differs immaterially from the carrying amount
d. None of the above

18. I- When property, plant, and equipment are revalued, the entire class of property, plant, and
equipment should be revalued
II- The assets within a class of property, plant, and equipment are revalued retroactively
in order to avoid selective revaluation of assets
a. Statement I is only true c. Both statements are true
b. Statement II is only true d. Both statements are false

19. The revalued amount of property, plant, and equipment is based on the following except:
a. Fair Value c. Net Realizable Value
b. Depreciated replacement cost d. Answer not given

20. It is the fair value or depreciated replacement cost of the item of property, plant, and
equipment?
a. Fair Value c. Revalued amount
b. Depreciated replacement cost d. Net Realizable Value

21. If the elimination approach is applied in recording the revaluation, what is the correct journal
entry to offset the gross carrying amount of the machinery?
a. Debit Accumulated Depreciation c. Credit Accumulated Depreciation
b. Debit PPE d. Credit PPE

22. Among the approaches in recording the revaluation, what is the preferable method?
a. Fair Value Approach c. Elimination Approach
b. Proportional Approach d. Cost Approach

23. It is the current “purchase price” of the property, plant, and equipment
a. Depreciated replacement cost c. Revaluation surplus
b. Carrying amount d. Replacement cost
24. It is equal to the fair value or depreciated replacement cost minus the carrying amount of
PPE.
a. Depreciated replacement cost c. Revaluation surplus
b. Carrying amount d. Replacement cost

25. It is also known as the sound value of an asset

a. Depreciated replacement cost c. Revaluation surplus
b. Carrying amount d. Replacement cost

26. What is the treatment of Revaluation surplus?

a. Debited as revaluation surplus
b. Debited to revaluation surplus as component of OCI
c. Credited to revaluation surplus
d. Credited to revaluation surplus as component of OCI

Multiple Choice – Problem Solving

For Questions 1-3
On January 1, 2015, Guiamalon Company reported the following account balances relating to
property, plant, and equipment:
Land 2,000,000
Building 15,000,000
Accumulated Depreciation 3,750,000
Machinery 3,000,000
Accumulated Depreciation 1,500,000
Assets have been carried at cost since acquisition. All assets were acquired on January 1, 2009.
The straight line method is used.
On January 1, 2015, the entity decided to revalue the property, plant, and equipment.
On such date, competent appraisers submitted the following:
Replacement Cost
Land 5,000,000
Building 25,000,000
Machinery 5,000,000
1. What is the revaluation surplus on January 1, 2015
a. 15,000,000 c. 30,000,000
b. 11,500,000 d. 8,500,000
2. What is the depreciation for the current year?
a. 531,250 c. 525,000
b. 875,000 d. 625,000
 3. What is the revaluation surplus on December 31, 2015
a. 11,075,000 c. 11,050,000
b. 11,150,000 d. 10,850,000
Solutions:
Question 1
Building
Original Cost Replacement Cost Increase
15,000,000 25,000,000 10,000,000
3,750,000 6,250,000 2,500,000
11,250,000 18,750,000 7,500,000
Machinery
Original Cost Replacement Cost Increase
3,000,000 5,000,000 2,000,000
1,500,000 2,500,000 1,000,000
1,500,000 2,500,000 1,000,000
Land
Original Cost Replacement Cost Increase
2,000,000 5,000,000 3,000,000
11,500,000
Question 2
Dep. Of Building= 3,750,000/15,000,000= 25% Dep. Of Machinery= 15/30= 50%
10yrs/25%= 40 years – 10 years= 30 years life 10yrs/50%= 20yrs-10 years= 10 years life
18,750,000/30= 625,000 2,500,000/10= 250,000
625,000+250,000= 875,000
Question 3
Revaluation Surplus- beg 11,500,000
Revaluation Allocation Building (7,500,000/30) (250,000)
Revaluation Allocation Machine (1,000,000/10) (100,000)
11,150,000
For Questions 4-6
On January 1, 2018, Raj Company provided the following information related to the land and
building:
Land 50,000,000
Building 450,000,000
Accumulated depreciation-building 75,000,000
There were no additions or disposals during the current year. Depreciation is computed using
straight line over 15 years for building.
On June 30,2018 the land and building were revalued.
Replacement Cost Sound Value
Land 65,000,000 65,000,000
Building 600,000,000 480.000,000
4. What is the revaluation surplus on June 30, 2018
a. 135,000,000 c. 120,000,000
b. 125,000,000 d. 160,000,000
5. What is the depreciation of the building for the current year?
a. 30,000,000 c. 40, 000,000
b. 35,000,000 d. 32,000,000
6. What is the revaluation surplus on December 31, 2018
a. 125,000,000 c. 123,750,000
b. 130,000,000 d. 115,000,000
Solutions for questions 4-6
Building
Original Cost Replacement Cost Increase
450,000,000 600,000,000 150,000,000
90,000,000 120,000,000 30,000,000
360,000,000 480,000,000 120,000,000
Land
Original Cost Replacement Cost Increase
50,000,000 65,000,000 15,000,000
135,000,000
450,000,000/15=30,000,000*3years= 90,000,000
Question 5
450,000,000/15yrs- 30,000,000, depreciation expense per year
75/30=2.5 years +.5 year= 3 years
15yrs-3yrs= 12 years of depreciable life
480,000,000/12yrs= 40,000,000
Question 6
Revaluation Surplus- beg 135,000,000
Allocation of Revaluation (120,000,000/12) (10,000,000)
125,000,000
For Questions 7-10
On December 31, 2019, Clandestine Company reported the following information related to
equipment:
Equipment at cost 5,000,000
Accumulated Depreciation 1,750,000
The equipment was measured using the cost model and depreciated on a straight line basis over a
10-year period
On December 31, 2019 the entity decided to change the basis of measuring the equipment from
the cost model to the revaluation model.
On the revaluation date, the equipment had a fair value of 4,550,000 with an expected remaining
useful life of 5 years
7. What is included in the journal entry to record the revaluation on December 31, 2019?
a. Debit Machinery 1,300,000
b. Credit accumulated depreciation 2,450,000
c. Credit Accumulated Depreciation 700,000
d. Debit Revaluation Surplus 1,300,000

8. What is the depreciation for 2019?

a. 500,000 c. 250,000
b. 150,000 d. 300,000
9. What is the depreciation for 2020?
a. 910,000 c. 455,000
b. 500,000 d. 650,000
10. What is the revaluation surplus on December 31, 2020
a. 1,300,000 c. 1,170,000
b. 1,040,000 d. 3,640,000
Solution for questions 7-10
Equipment
Original Cost Replacement Cost Increase
5,000,000 7,000,000 2,000,000
1,750,000 2,450,000 700,000
3,250,000 4,550,000 1,300,000
Machinery 2,000,000
Accumulated Depreciation 700,000
Residual Value 1,300,000
Question 8
Original Cost 5,000,000/10yrs= 500,000
Question 9
Fair Value of 4,550,000/5years= 910,000
Question 10
Residual Value Beg. 1,300,000
Revaluation Surplus Allocation (1,300,000/5) (260,000)
1,040,000
For Problems 11-13
On January 1, 2019 Mat Company acquired a building at cost of P10,000,000. The building has
been depreciated on the basis of a 20-year life.
On January 1, 2024, an appraisal of the building showed replacement cost at P16,000,000 with
no change in useful life.
11. Before income tax, what amount should be credited to revaluation surplus on January 1,
2024?
a. 6,000,000 c, 8,500,000
b. 4,500,000 d. 12,000,000
12. What is the depreciation for 2024?
a. 500,000 c. 800,000
b. 300,000 d. 600,000
13. What is the revaluation surplus that should be reported in the December 31, 2024
statement of financial position?
a. 4,200,000 c. 1,850,000
b. 2,250,000 d. 2,800,000

Solution for questions 11-13

Question 11
Original Cost Replacement Cost Increase
Building 10,000,000 16,000,000 6,000,000
Accumulated Depreciation 2,500,000 4,000,000 1,500,000
7,500,000 12,000,000 4,500,000
Percentage of accumulated depreciation (5/20) 25%
Question 12
Depreciation (12,000,000/15yrs) 800,000
Question 13
Revaluation Surplus-beg 4,500,000
Realization in 2018 (4,500,000/15) (300,000)
4,200,000
For Questions 14-15
On June 30, 2009, Datu Kennedy Jr, Company reported the following information:
Equipment at Cost 2,500,000
Accumulated Depreciation 750,000
The equipment was measured using the cost model and depreciated on a straight line basis over a
10-year period.
On December 31, 2009, the management decided to change the basis of measuring the
equipment from the cost model to the revaluation model.
The equipment had a fair value of P2,275,000 with remaining useful life of 5 years on December
31, 2009
14. What is the carrying amount of the asset on December 31, 2009?
a. 1,625,000 c. 1,700,000
b. 1,650,000 d. 1,675,000
15. What amount should be reported as pretax revaluation surplus on December 31, 2009?
a. 525,000 c. 750,000
b. 650,000 d. 1,000,000
16. What is the depreciation of the equipment for 2010?
a. 250,000 c. 227,500
b. 455,000 d. 325,000
Solutions for questions 14-16
Question 14
Cost- June 30, 2009 2,500,000
Accumulated Depreciation (750,000)
Carrying Amount- June 30 1,750,000
Depreciation from July 1 to Dec.31
(2,500,000/10 *6/12) (125,000)
Carrying amount- Dec 31 1,625,000
Question 15
Fair value- December 31,2009 2,275,000
Carrying amount -Dec 31 (1,625,000)
650,000
Question 16
Depreciation (2,275,000/5) 455,000
For items 17-19
Panda Company presented the following account balances relating on property, plant and
equipment on January 01, 2017:
Land 5,000,000
Building 30,000,000
Accumulated Depreciation 7,500,000
Machinery 4,000,000
Accumulated Depreciation 2,000,000
Assets have been carried at cost since their acquisition. All assets were acquired 5 years ago. The
straight line method is used.
On January 1, 2017, Panda Company revalued the property, plant and equipment. On such date,
competent appraisers submitted the following:
Land 10,000,000
Building 35,000,000
Machinery 6,000,000
17. What is the depreciation for 2017?
a. 3,530,000 c. 2,950,000
b. 2,350,000 d. 1,775,000

18. What is the revaluation surplus on January 1, 2017?

a. 9,750,000 c. 12,000,000
b. 21,500,000 d. 27,500,000

19. What is the revaluation surplus on December 31, 2017?

a. 11,550,000 c. 11,750,000
b. 9,550,000 d. 9,300,000
Solution for Question 17-19
Question 17
Building (35,000,000 x .75 / 15 years remaining) 1,750,000
Machinery (6,000,000 x.75/ 5 years remaining) 600,000
Total P2,350,000
Question 18
Percentage of accumulated depreciation
Building (7,500,000/30,000,000) 25%
Machinery (2,000,000/4,000,000) 50%

Useful life
Building (5 years expired/25%) 20 years
Machinery (5 years expired/50%) 10 years
Sound Value Carrying amount Revaluation Surplus
Land 10,000,000 5,000,000 5,000,000
Building (3,500,000 x.75) 26,250,000 22,500,000 3,750,000
Machinery (6,000,000x.50) 3,000,000 2,000,000 1,000,000
P9,750,000
Question 19
Revaluation surplus – Jan.1, 2017 9,750,000
Piecemeal realization in 2017:
Building (3,750,000/15) 250,000
Machinery (1,000,000/5) 200,000 (450,000)
Revaluation surplus- Dec.31, 2017 P9,300,000
For questions 20-22
On January 1, 2019, Iniwan Co, owned an equipment costing P7, 700,000 with residual
value of P700,000. The life of the asset is 10 years and was depreciated using the straight line
method. On such date, the equipment has a replacement cost of P11, 000,000 with a residual
value of P500, 000 and the age of the asset is 4 years. The appraisal of the equipment showed a
total revised useful life of 12 years and the entity decided to carry the equipment at revalued
amount.
20. What amount should be reported as pretax revaluation surplus on January 1, 2019?
a. 1,900,000 c. 2,100,000
b. 1,800,000 d. 2,000,000

21. What amount should be reported as pretax revaluation surplus on December 31, 2019?
a. 1,662,500 c. 1,862,500
b. 1,762,500 d. 1,962,500

22. What is annual depreciation subsequent to revaluation?

a. 787,500 c. 1,050,000
b. 550,000 d. 650,000
Solution 20-22
Question 20
Cost Replacement Cost Appreciation
Equipment 7,700,000 11,000,000 3,300,000
Residual Value ( 500,000) ( 500,000) -

Depreciable amount 7,200,000 10,500,000 3,300,000

Accumulated Depreciation
(40% x 7,000,000 ) 2,800,000
(40% x 10,500,000) 4,200,000 1,400,000
Balance 4,400,000 6,300,000 P1,900,000
Percentage of accumulated depreciation (4 years expired / 10 years original life) 40%
Question 21
Revaluation surplus – January 1, 2019 1,900,000
Realized in 2019 (1,900,000/8) ( 237,500)
Revaluation surplus – December 31, 2019 P1,662,500
Revised useful life 12 years
Age of asset 4 years
Remaining revised life 8 years
Question 22
Subsequent annual depreciation (6,300,000/8) P787,500

For questions 23-25

On January 1, 2015, Raj Malakas Company reported the following account balances:
Cost Accumulated Depreciation
Land 25,000,000

Building 100,000,000 20,000,000

The land and building were revalued on January 1, 2015 and the revaluation revealed the
following sound value:
Land 50,000,000
Building 120,000,000
There were no additions or disposals during 2015. Depreciation is computed on the straight line.
The estimated life of the building is 20 years.
23. What amount should be recognized as pretax revaluation surplus on January 1, 2015?
 a. 85,000,000 c. 45,000,000
b. 65,000,000 d. 55,000,000
24. What is the depreciation for 2015?
a. 7,500,000 c. 5,000,000
b. 4,000,000 d. 6,000,000

25. What amount should be recognized as pretax revaluation surplus on December 31, 2015?
a. 52,500,000 c. 47,500,000
b. 42,500,000 d. 63,500,000
Solution for 7-9
Question 7
Sound Value Carrying amount Revaluation surplus
Land 50,000,000 25,000,000 25,000,000
Building 120,000,000 80,000,000 40,000,000
Total 170,000,000 105,000,000 P65, 000,000
Question 8
Percentage of accumulated depreciation (20,000,000/100,000,000) 20%
Remaining useful life (80% x 20 years) 16 years
Subsequent annual depreciation (120,000,000/16 years) P7,500,000
Question 9
Revaluation surplus – January 1, 2015 65,000,000
Realization of revaluation surplus on building (40,000,000/16years) ( 2,500,000)
Revaluation surplus – December 31, 2015 P62,500,000