CHAPTER 17

Problem 17-11 Multiple choice (PAS 23)

1. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is
equal to
a. Actual borrowing cost incurred
b. Actual borrowing cost incurred up to completion of asset
c. Actual borrowing cost incurred up to completion of asset minus any investment income
from the temporary investment of the borrowing
d. Zero
2. Which of the following could be treated as qualifying asset for the purpose of capitalizing
borrowing cost?
a. Investment property
b. Financial asset at fair value
c. Inventory that is manufactured in large quantity
d. Biological asset
3. If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is
equal to
a. Actual borrowing cost incurred
b. Total expenditures on the asset multiplied by a capitalization rate
c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing
cost incurred, whichever is lower
d. Zero
4. Which is not a condition that must be satisfied before interest capitalization can begin on a
qualifying asset?
a. Interest is being incurred.
b. Expenditures for the asset have been made.
c. The interest rate is equal to the bank prime rate.
d. Activities necessary to get the asset ready for the intended use are in progress.
5. Capitalization of interest ends when
a. The asset is substantially complete and ready for the intended use.
b. No further interest is being incurred.
 c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset ready for the intended use have begun.

Problem 17-12 Multiple choice (IFRS)

1. Which is required for borrowing costs incurred directly attributable to a qualifying asset?
a. Recognize as an expense in the period incurred
b. Capitalize as part of the cost of the asset
c. Either recognize as an expense in the period incurred or capitalize as part of the cost of
the asset
d. Recognize as a deferred charge
2. Which should not be considered a qualifying asset?
a. A power generation plant that takes two years to construct
b. An expensive jet that can be purchased from a vendor
c. A toll bridge that usually takes more than a year to build
d. A ship that normally takes one to two years to complete
3. Interest income on specific borrowing for qualifying asset
a. Reduces the cost of the qualifying asset.
b. Reduces interest expense reported in the income statement.
c. Increases equity.
d. Must be credited to interest income.
4. Which is the approach in accounting for interest incurred in financing specifically construction
of property?
a. Capitalize only the actual interest incurred during construction
b. Charge construction with all costs of funds employed
c. Capitalize no interest during construction
d. Capitalize interest equal to the prime interest rate
5. Which is not a disclosure requirement in relation to borrowing cost?
a. Accounting policy adopted for borrowing cost
b. Borrowing cost capitalized during the period
c. Segregation of qualifying asset from other assets
d. Capitalization rate used to determine the amount of borrowing cost eligible for
capitalization

CHAPTER 18
Problem 18-11 Multiple choice (IFRS)

1. It is an entity over which the investor has significant influence.

a. Associate
b. Investee
c. Venture capital organization
 d. Mutual fund
2. Which statement best describes significant influence?
a. The holding of a significant proportion of the share capital in another entity
b. The contractually agreed sharing of control over an economic entity
c. The power to participate in the financial and operating policy decisions of an entity
d. The mutual sharing in the risks and benefits
3. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
a. Investor sells the investment
b. Investee declares a dividend
c. Investee pays dividend
d. Earnings are reported by the investee
4. When the investor uses the equity method to account for investment in ordinary shares, cash
dividends received by the investor from the investee are recorded as
a. Dividend income
b. A deduction from the investment income
c. A deduction from the investment account
d. A deduction from the shareholder’s equity
5. When an investor uses the equity method to account for investment in ordinary shares, the
investment account shall be increased when the investor recognizes
a. A proportionate interest in the net income of the investee.
b. B. a cash dividend received from the investee.
c. Noncahs dividend received from the investee.
d. A share dividend received from the investee.

Problem 18-12 Multiple choice (IAA)

1. Goodwill arising from an investment in associate is

a. Included in the carrying amount of the investment and amortized over the useful life.
b. Included in the carrying amount of the investment and not amortized.
c. Charged to retained earnings.
d. Expensed immediately.
2. When an entity holds between 20% and 50% of the voting power of an investee, which
statement is true?
a. The investor must use the equity method.
b. The investor should use the equity method unless circumstances indicate that it is unable
to exercise significant influence over the investee.
c. The investor must use the cost method.
d. The investor must use the fair value method.
3. An investor shall discontinue the equity method when
a. The investor ceases to have significant influence over the associate.
 b. The associate operates under severe restrictions.
c. The investor ceases to have control over the associate.
d. The activities of investor and associate are dissimilar.
4. When an investment ceases to be an associate, the fair value of the investment is regarded as
its
a. Cost on initial recognition as a financial asset.
b. Fair value on initial recognition as a financial asset.
c. Fair value on initial recognition as a financial liability.
d. Amortized cost on initial recognition as an investment.
5. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary.
b. The investor’s equity and debt instruments are not traded.
c. The investor is in the process of filing financial statements with SEC for the purpose of
issuing debt and equity instruments in a public market.
d. The ultimate parent of the investor produces consolidated financial statements.

CHAPTER 19
Problem 19-8 Multiple choice (IFRS)

1. Which statement best describes impairment loss?

a. The removal of an asset from the statement of financial position
b. The amount by which the carrying amount of an asset exceeds the recoverable
amount.
c. The systematic allocation of cost of an asset less residual value over the useful
life.
d. The amount by which the recoverable amount of an asset exceeds the carrying
amount.
2. What is the recoverable amount of an asset?
a. Fair value less cost of disposal
b. Value in use
c. Fair value less cost of disposal or value in use, whichever is higher
d. Fair value less cost of disposal or value in use, whichever is lower
3. What is the fair value of an asset?
a. The price that would be received to sell an asset in an orderly transaction between
market participants.
b. The price that would be received to sell an liability in an orderly transaction
between market participants.
c. The discounted value of future cash flows.
d. The undiscounted value of future cash flows.
4. Which statement best describes value in use?
 a. The present value of estimated future cash flows expected to arise from the
continuing use of an asset and from the ultimate disposal.
b. The amount of cash that could currently be obtained by selling an asset in an
orderly disposal.
c. The amount which an entity expects to obtain for an asset at the end of the useful
life.
d. Undiscounted future net cash flows.
5. If the fair value less cost of disposal cannot be determined
a. The asset is not impaired.
b. The recoverable amount is the value in use.
c. The net realizable value is used.
d. The carrying amount of the asset remains the same.
6. If an asset is to be disposed of
a. The recoverable amount is the fair value less cost of disposal.
b. The recoverable amount is the value in use.
c. The asset is not impaired.
d. The recoverable amount is the carrying amount.
7. The estimates of the future cash flows in calculating value in use include all the
following, except
a. Cash inflows from the the continuing use of the asset
b. Cash outflows incurred to generate the cash inflows from the continuing use of
the asset
c. Net cash flows from the disposal of the asset at the end of the useful life.
d. Income Tax payment
8. Which if the following is not relevant in determining value in use?
a. The expected future cash flows from the asset
b. The carrying amount of the asset
c. Expectation about possible variation in the amount and timing of future cash
flows
d. The time value of money
9. An asset is reviewed for impairment
a. Every three years at the end of the reporting period.
b. When the asset is fully depreciated.
c. When circumstances indicate that the carrying amount of an asset might not be
recoverable.
d. Every year at the end of the reporting period.
10. Which of the following conditions must exist in order for an impairment loss to be
recognized?
a. The carrying amount is less than fair value.
b. The carrying amount of the asset is not recoverable.
c. The carrying amount is less than the value in use.
 d. The carrying amount is less than the recoverable amount.

Problem 19-9 multiple Choice (IFRS)

1. Impairment loss is reported
a. As direct deduction from retained earnings
b. As a component of discounted operation
c. As a component of income from continuing operations
d. As a change in accounting estimate
2. What is a cash generating unit?
a. The smallest business segment
b. Any group of assets that generate cash flows
c. Any group of assets reported separately to management
d. The smallest group of assets that generate independent cash flows from
continuing use

3. What is the allocation of an impairment loss recognized for a cash generating unit?
a. Across the assets of the unit based on carrying amount.
b. Across the assets of the unit based on fair value.
c. First, to any goodwill and the balance to the other assets prorata based on fair value.
d. First, to any goodwill and the balance to the other assets prorata based on carrying
amount.
4. Costs of disposal include all of the following, except
a. Legal cost
b. Stamp and similar transaction tax
c. Cost of removing the asset
 d. Finance cost
5. Which of the following is not relevant in determining value in use?
a. The expected future cash flows from the asset
b. The carrying amount of the asset
c. Expectation about possible variation in the amount and timing of future cash flows
d. The time value of money

CHAPTER 20
Problems 20-11 Multiple Choice (IAA)

1. Which would be considered research and development?

a. Routine effort to refine an existing product.
b. Periodic alteration to existing production line
c. Marketing research to promote a new product
d. Construction of prototype.
2. Which of the following costs should be excluded from research and development
expenses?
a. Modification of the design of a product
b. Acquisition of research and development equipment for use on a current project
only
c. Cost of marketing research for a new product
d. Engineering cost required to advance the design of a product to the manufacturing
stage
3. Which of the following is not one of the criteria which must be met before development
cost can be capitalized?
a. The entity has sufficient funding to complete the project.
b. The entity intends to complete the project.
c. The entity can reliably identify the research costs.
d. The project has achieved technical feasibility.
4. Which of the following costs should be capitalized?
a. Acquisition cost of equipment for current project only
b. Engineering cost incurred to advance the product to the full production stage
c. Cost of research a market for the product
d. Salaries of research staff
5. Which statement is true about development cost?
a. Development cost must be expensed.
b. Development cost is always deferred.
c. Development cost may be capitalized as an intangible asset in very restrictive
situations.
d. Development cost is charged to retained earnings.
Problems 20-12 Multiple Choice (IFRS)

1. Which statement is the most accurate about R and D?

a. Cost during the research phase can be capitalized.
b. Costs incurred during the development phase can be capitalized if certain criteria
are met.
c. Training costs during research can be capitalized.
d. Design of jigs and tools would qualify as research.
2. Which best describes the accounting for R and D cost?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
3. A research and development activity for which the cost would be expensed as incurred is
a. Design, construction and testing of pre production prototype or model
b. Quality control during commercial production
c. Periodic design changes to existing product
d. Adaptation of an existing capability to a particular requirement or customer need
4. Which is a research and development cost?
a. Research and development performed under contract for others
b. Development or improvement of technique and process
c. Offshore oil exploration that is the primary activity
d. Market research related to a major product
5. Which research and development cost should be capitalized and amortized over current
and future periods?
a. Labor and material cost incurred in constructing a prototype or model
b. Cost of testing equipment that will also be used in another research and
development project
c. Administrative salaries allocated to research
d. Research findings purchased from another entity to aid a particular research
project in progress

CHAPTER 21
Problems 21-9 Multiple Choice (IFRS)

1. Which statement regarding investment property is correct?

a. If the entity elects the fair value model, no depreciation is taken.
b. Gain or loss from fair value adjustment is reported in the income statement.
c. If the entity elects the cost model, depreciation should be recognized.
d. All of these statements are correct regarding investment
 e. Property.
2. Which disclosure must be made when the cost model is used for investment property?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property
3. Which of the following disclosures shall be made when the fair value model has been
adopted?
a. Depreciation method used
b. The amount of impairment loss recognized
c. Useful life
d. Net gains or losses from fair value adjustments
4. Gain or loss from disposal of investment property shall be determined as the difference
between the
a. Net disposal proceeds and carrying amount.
b. Gross disposal proceeds and carrying amount.
c. Fair value and carrying amount of the asset.
d. Gross disposal proceeds and fair value of the asset.
5. Transfers from investment property to property, plant and equipment are appropriate
a. When there is change of use.
b. Based on the discretion of management.
c. Only when the entity adopts the fair value model.
d. The entity can never transfer property into another classification once it is
classified as investment property

Problems 21-8 Multiple Choice (IFRS)

1. Subsequent to initial recognition, the investment property shall be measured using

a. Fair value model or revaluation model
b. Fair value through profit or loss model
c. Cost model or fair value model
d. Cost model or revaluation model
2. If the entity uses the fair value model for the investment property, changes in fair value
are
a. Recognized in profit or loss
b. Recognized in retained earnings
c. Recognized in other comprehensive income
d. Not recognized
3. If the entity uses the fair value model for investment property, which statement is true?
 a. The entity should value the property at cost less accumulated depreciation and
impairment.
b. The entity should report the increase in fair value in other comprehensive income
for the period.
c. The entity depreciates the investment property.
d. The entity does not record depreciation.
4. Under IFRS, assets classified as investment property are
a. Held for rental income
b. To be sold for a quick profit
c. Held for rental income or to be sold for a quick profit
d. Held for sale in the ordinary course of business
5. An investment property is derecognized when
a. It is disposed to a third party.
b. It is permanently withdrawn from use.
c. No future economic benefits are expected from the disposal.
d. In all of these cases