Investment Property

Galore Co. ventured into construction of a condominium in Makati which is rated as the largest state-of-
the-art structure. The entity’s board of directors decided that instead of selling the condominium, the
entity would hold this property for purposes of earning rentals by letting out space to business executives
in the area.
The construction of the condominium was completed and the property was placed in service on January 1,
2023. The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and
its residual value is P5,000,000. An independent valuation expert provided the following fair value at
each subsequent year-end:
December 31, 2023 55,000,000
December 31, 2024 53,000,000
December 31, 2025 60,000,000
1. Under the cost model, what amount should be reported as depreciation of investment property for
2023?
a. 1,800,000 c. 2,200,000
b. 2,000,000 d. 0

2. Under the fair value model, what amount should be recognized as gain from change in fair value
in 2013?
a. 5,000,000 c. 7,000,000
b. 3,000,000 d. 0

3. Bona Company purchased an investment property on January 1, 2021 for P2,200,000. The
property had a useful life of 40 years and on December 31, 2023 had a fair value of P3,000,000.
On December 31, 2023, the property was sold for net proceeds of P2,900,000. The entity used the
cost model to account for the investment property. What is the gain or loss to be recognized for
the year ended December 31, 2023 regarding the disposal of the property?
a. 865,000 gain c. 100,000 loss
b. 810,000 gain d. 700,000 gain

4. Crosswind Co. owned a single investment property which had an original cost of P5,800,000 on
January 1, 2021. On December 31, 2023, the fair value was P6,000,000 and on December 31,
2024, the fair value was P5,900,000. On acquisition, the property had a useful life of 40 years.
What is the expense to be recognized in profit or loss for the year ended December 31, 2024
under the fair value model and cost model?
Fair value model Cost model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500

Property Plant and Equipment

5. At the beginning of the current year, Town Co. purchased for P5,400,000, including appraiser’s
fee of P50,000, a warehouse building and the land on which it is located. The following data were
available concerning the property:
Current appraised value Seller’s original cost
Land 2,000,000 1,400,000
Warehouse building 3,000,000 2,800,000
5,000,000 4,200,000
===============================
What is the initial measurement of the land?
a. 2,140,000 c. 2,000,000
b. 1,800,000 d. 2,160,000

6. On December 31, 2023, Bart Co. purchased a machine in exchange for a noninterest bearing note
requiring eight payments of P200,000. The first payment was made on December 31, 2023 and
the others are due annually on December 31. At date of issuance, the prevailing rate of interest for
this type of note was 11%. Present value factors are as follows:
PV of an ordinary annuity of 1 at 11% for 8 periods 5.146
PV of an annuity of 1 in advance at 11% for 8 periods 5.712
What amount should be recorded as initial cost of the machine?
a. 1,600,000 c. 1,400,000
 b. 1,029,200 d. 1,142,400

7. Lax Co. recently acquired two items of equipment. The transactions are described as follows:
- Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was
taken. Costs of the freight and insurance during shipment were P50,000 and installation cost
amounted to P200,000.
- Acquired a welding machine an invoice price of P2,000,000 subject to a 10% cash discount
which was not taken. Additional welding supplies were acquired at a cost of P100,000.
What is the total increase in the equipment account as a result of the transactions?
a. 4,900,000 c. 5,100,000
b. 5,000,000 d. 5,200,000

8. Figaro Co. acquired land and paid in full by issuing P600,000 of its 10 percent bonds payable and
40,000 ordinary shares with par value of P10. The share was selling at P19 and the bonds were
trading at 102. What amount should be recorded as cost of the land?
a. 988,000 c. 1,372,000
b. 1,000,000 d. 1,387,200

9. Jazz Co. purchased land with a current market value of P2,400,000. The carrying amount of the
land was P1,305,000. In exchange for the land, the entity issued 20,000 ordinary shares with par
value of P100 and market value of P140 per share. The shares are traded in an established stock
exchange. What amount should be recorded as cost of the land?
a. 1,305,000 c. 2,400,000
b. 2,000,000 d. 2,800,000

10. In October of the current year, Ewing Co. exchanged an old packing machine, which cost
P1,200,000 and was 50% depreciated, for another used machine and paid a cash difference of
P160,000. The fair value of the old packaging machine was determined to be P700,000. What is
the cost of the machine acquired in the exchange?
a. 860,000 c. 760,000
b. 700,000 d. 540,000

11. The Knight Co. imported an equipment at a peso equivalent to P330,000. The company has to
pay additional cost of importing the asset such as P10,000 import duties and P15,000 non-
refundable purchase taxes. Costs of bringing and preparing the asset for its intended use include
P2,000 transportation cost, P4,000 installation and testing and trial run costs. How much is the
initial cost of the new machine?
a. 330,000 c. 346,000
b. 336,000 d. 361,000

12. Light Co. has recently purchased a computer system for its office. The following information was
gathered in relation to the acquisition of the unit:
List price P 152,000
Trade discount and rebates taken 56,000
Installation and assembly cost 3,200
Initial delivery and handling cost 6,400
Purchase discount 2%
What is the acquisition cost of the new computer?
a. 94,080 c. 105,680
b. 103,680 d. 160,600

13. On August 1 2019, Bright Co. purchased a new machine on a deferred payment basis. A down
payment of P100,000 was made and 4 monthly installments of P250,000 each are to be made
beginning on August 1, 2019. The terms of the agreement is not considered normal. The cash
equivalent price of the machine was P950,000. Bright incurred and paid installation costs
amounting to P30,000. How much should be capitalized as cost of the machine?
a. 950,000 c. 1,110,000
b. 980,000 d. 1,130,000

14. Night Co. bought a new machine and agreed to pay for it in equal annual installments of
P500,000 at the end of the next five years. Assume that the present value of a prevailing interest
rate at 15% for five periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for five
 periods is 6.74. The present value of at % for five periods is 0.5. how much should Night record
as the cost of the machine?
a. 1,250,000 c. 2,500,000
b. 1,675,000 d. 3,370,000

15. On March 31, 2019, Mr. Right Enterprises traded in an old machine having a carrying amount of
P1,600,000 and paid a cash difference of P600,000 for a new machine having a total cash price of
P2,000,000. On March 31, 2019 what amount of loss should Mr. Right recognize on this
exchange?
a. None c. 400,000
b. 200,000 d. 600,000

16. On October 1, 2019, Jet Corp. issued 10,000 shares of the P25 pat treasury ordinary share for a
parcel of land to be held for a future plant site. The treasury shares were acquired by Jet at a cost
of P30 per share. Jet’s ordinary share had a fair market value of P40 per share on October 1,
2019. Jet received P50,000 from the sale of scrap when an existing structure on the site was
razed. At what amount should the land be carried?
a. 250,000 c. 350,000
b. 300,000 d. 400,000
On October 2019, Ship Co. exchanged a used packaging machine having a book value of
P240,000 for a new machine and paid a cash difference of P30,000. The market value of the used
packaging machine was determined to be P280,000.
17. In its profit or loss for the year ended December 31, 2019, how much gain should Ship recognize
on this exchange, assuming the exchange is considered with commercial substance?
a. None c. P30,000
b. P10,000 d. P40,000

18. On the date of exchange, what amount should Ship Co. recognize as the cost of the asset received,
assuming the exchange is considered not lacking in commercial substance?
a. P200,000 c. P280,000
b. P250,000 d. P310,000

Star Co. owns a tract of land which it purchased in 2011 for P3,000,000. The land is held as
future plant site and has a fair market value of P4,800,000 on March 1, 2014. Struck Co. also
owns a tract of land held as future plant site. Struck paid P4,200,000 for the land in 2010 and the
land has a fair market value of P6,000,000 on March 1, 2014. On this date, Star exchanged its
land and paid P1,200,000 cash for the land owned by Struck. As a result of this transaction, the
entity’s specific value was not affected by the above exchange.
19. How much should Star record the land acquired in the exchange?
a. 4,200,000 c. 5,400,000
b. 4,800,000 d. 6,000,000

20. What amount of gain should Star Co. recognize on the exchange?
a. None c. P120,000
b. P80,000 d. 180,000

21. Faith Inc. has a fiscal year ending April 30. In May 1, 2018, Faith borrowed P10,000,000 at 15%
to finance construction of its own building. Repayments of the loan are to commence on the
month following completion of the building. During the year ended, April 30, 2019, expenditures
for the partially completed structure totaled P6,000,000. These expenditures were incurred evenly
throughout the year. Interest earned on the unexpended portion of the loan amount to P400,000
for the year. How much should be shown as capitalized interest on faith’s financial statements at
April 30, 2019?
a. None c. P450,000
b. P50,000 d. P1,100,000

22. During 2019, Torch Co. had the following transactions pertaining to its new office building:
Purchase price- Land P 420,000
Legal fees for contracts to purchase land 14,000
Architect’s fee 56,000
Demolition of old building on site 35,000
Sale of scrap from old building 21,000
 Construction cost of new building (fully completed) 2,450,000
At what amount should the cost of land and cost of building be shown in Torch December 31,
2019 statement of financial position?
Land Building
a. P420,000 P2,520,000
b. P434,000 P2,520,000
c. P448,000 P2,506,000
d. P455,000 P2,354,000
23. On January 1, 2019, Shaw Co. purchased a machine for P504,000 that was placed in service on
March 1, 2019. Additional costs incurred to bring the asset to its location and prepare for its
intended use were: shipping, P4,000 and installation and testing cost, P6,000. The estimated
useful life of the asset was 10 years and has an estimated salvage value of P34,000. What amount
of depreciation should be recognized for the year ended December 31, 2019?
a. 40,000 c. 44,000
b. 42,000 d. 48,000

24. On May 1, 2018, Nonfat Co. purchased a new machinery for P2,700,000. The machinery has an
estimated useful life of 7 years and depreciation is computed using the sum-of-years’-digit
method. Estimated salvage value of the machine is P180,000. What is the total accumulated
depreciation on December 31, 2019?
a. 900,000 c. 990,000
b. 960,000 d. 1,170,000

25. Dreamer Co. purchased on October 1, 2018 an equipment for P800,000. The equipment had an
estimated useful life of 8 years. The estimated salvage value was estimated at P50,000 at the end
of its useful life. The equipment is being depreciated using the double-declining balance method.
What is the amount of depreciation to be charged against 2019 income?
a. 140,625 c. 175,781
b. 175,000 d. 187,500

26. On December 31, 2019, Purple Co. sold a building, receiving as consideration a P4,000,000 non-
interest bearing note due in three years. The building costs P3,800,000 and the accumulated
depreciation was P1,600,000 at the date of sale. The prevailing rate of interest for a note of this
type was 12%. The present value of P1 for three periods at 12% is 0.71. In its December 31,
2019, how much gain or loss should Purple report on the derecognition of its asset?
a. 200,000 gain c. 960,000 loss
b. 640,000 gain d. 1,800,000 gain

London Co. owned a building on January 1, 2023 with historical cost of P40,000,000. The
property is depreciated over 40 years on a straight line basis with no residual value. The entity
adopted a policy of revaluation of property. The building has so far been revalued twice at fair
value as follows:
January 1, 2024 46,800,000
January 1, 2026 55,500,000
27. What is the revaluation surplus on January 1, 2024
a. 7,800,000 c. 5,800,000
b. 6,800,000 d. 4,800,000

28. What is the increase in revaluation surplus to be recognized as component of other

comprehensive income on January 1, 2026?
a. 15,500,000 c. 8,700,000
b. 11,100,000 d. 9,900,000

29. What is the revaluation surplus to be reported in the statement of changes in equity for the year
ended December 31, 2026?
a. 18,200,000 c. 18,900,000
b. 18,000,000 d. 18,500,000

On January 1, 2018, Boston Co. purchased a new building at a cost of P6,000,000. Depreciation
was computed on the straight line basis at 4% per year. On January 1, 2023, the building was
revalued at a fair value of P8,000,000.
30. What is the depreciation for 2023?
 a. 320,000 c. 100,000
b. 400,000 d. 240,000

31. What is the revaluation surplus on December 31, 2023?

a. 3,072,000 c. 3,040,000
b. 1,900,000 d. 1,920,000

Intangible Asset
Listen Co. is a mining company, which acquires a drilling rig to be used for drilling of core
samples for the purpose of analysis as part of its E & E activities in a new area (Area F) it has
recently acquired the rights to explore. The following transactions occurred during 2011-2012.

On July 1, 2011, the company acquired the rig at a cost of P2,800,000 and capitalized as a
tangible E&E asset with an estimated useful life of 14 years. The drilling rig is used solely for the
purposes of drilling core samples in Area F, as expected. Listen Co’s financial year ends every
June 30.

32. What is the carrying value of the Equipment (drilling rig) as of June 30, 2012?
a. None c. 2,600,000
b. 200,000 d. 2,800,000

33. What amount should be recognized as intangible asset as of June 30, 2012?
a. None c. 300,000
b. 200,000 d. 400,000

34. Neglected Corp. purchased land for P6,000,000. The company expected to extract 1 million tons
of mine from this land over the next 20 years at which time, residual value shall be zero. During
the first 2 years of the mine’s operations, 30,000 tons were mined each year and sold for P80 per
ton. The estimate of the total remaining lifetime capacity of the mine was raised to 1,200,000 tons
at the start of the third year and the residual value was estimated to be P480,000. During the third
year, 50,000 tons were mined and sold for P85 per ton. How much would be the depletion for the
third year?
a. 215,000 c. 225,000
b. 227,500 d. 235,000

35. Super Value Co. quarries marble at two locations and sells it to be used in construction of
buildings. The company provides for a depletion rate of 5%. The quarry is leased on a year-to-
year basis with the company paying a royalty of P0.05 per ton of marble quarried. Other data
relevant to the requirements are:
Estimated total reserves, tons 60,000,000
Tons quarried through December 31, 2018 4,000,000
Tons quarried, 2019 1,600,000
Sales, 2019 P1,200,000
How much would be the depletion for 2019 for financial reporting purposes?
a. None c. 80,000
b. P60,000 d. 300,000

Coward Co. purchased a building on January 1, 2010 for a total of P10,000,000. The building has
been depreciated using the straight-line method with a 25-year useful life and no residual value.
As of Jan. 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 of P450,000 per year.
The estimated recoverable amount of the building on January 1, 2014 is P5,310,000.
36. How much, if any, is the impairment loss that should be recognized on January 1, 2014?
a. None c. 3,090,000
b. 2,100,000 d. 5,200,000

37. What is the amount of depreciation to be recognized in year 2014?

a. 340,000 c. 400,000
b. 354,000 d. 560,000
 Maiden Co. has two cash-generating units, Yellow and Blue. There is no goodwill within the
units’ carrying values. The carrying values are Yellow P10,000,000 and Blue P15,000,000.
Maiden Co. has an office building that has not been included in the above rules and can be
allocated to the units on the basis of their carrying values. The office building has a carrying
value of P5,000,000. The recoverable amounts are based on value-in-use of P9,000,000 for
Yellow and P19,000,000 for Blue.
38. What amount of impairment loss should Maiden Co. recognize on the cash-generating unit
Yellow?
a. None c. 2,000,000
b. P1,000,000 d. 3,000,000

39. What amount of impairment loss should Maiden Co. recognize on the cash-generating unit Blue?
a. None c. 2,000,000
b. P1,000,000 d. 3,000,000

40. On January 2, 2014, Beige Co. has completed the construction of a building for a total cost of
P10,000,000. The building is to be depreciated on a straight-line basis over its estimated useful
life of 40 years. On January 2, 2019, Beige converted the building into a commercial
establishment with only minor renovation costs incurred. In consultation with an appraiser, the
building’s fair value as of Jan. 1, 2019 was P11,970,000. On January 1, 2021, due to sudden
change in the economic environment, Beige is evaluating possible impairment and determined
that the recoverable value of the building was P7,000,000. What is the amount of impairment
loss, if any, on January 1, 2021?
a. 1,050,000 c. 3,500,000
b. 1,250,000 d. 4,286,000

41. On October 1, 2018, Jupiter Inc. exchanged 2,000 shares of its P500 par value ordinary shares
held in treasury for a patent owned by Mars Co. the treasury shares were acquired in 2017 at a
cost of P800,000. At the time of exchange, Jupiter’s ordinary share was quoted at P550 per share
and the patent had a net carrying value on Mar’s books of P900,000. At what amount should
Jupiter record the patent?
a. 800,000 c. 1,000,000
b. 900,000 d. 1,100,000

42. Moon Co. purchased Patent A for P600,000 and Patent B for P900,000. Moon also paid indirect
costs of P75,000 for Patent A and P105,000 for Patent B. Both patents were challenged in legal
actions. Moon paid P300,000 in legal fees in successful defense of Patent A and P450,000 in
legal fees in an unsuccessful defense of Patent B. What amount should Moon capitalize for
patents?
a. 675,000 c. 1,680,000
b. 975,000 d. 2,430,000

43. On January 2, 2019, Earth Co. bought a trademark from Mars Co. for P600,000. Earth retained an
independent consultant, who estimated the trademark’s remaining life to be 20 years. Its
amortized cost on Mars’ accounting records was P456,000. At what amount should the trademark
be initially recorded?
a. 456,000 c. 585,000
b. 570,000 d. 600,000

44. On January 1, 2015, Better Co. bought a trademark for P400,000, having an estimated remaining
useful life of 6 years. After 16 years, revenues expected from this intangible will be zero. In
January 2019, Better paid P60,000 for legal fees in a successful defense of the trademark. What
amount of expense should Better Co. recognize and charge against income during 2019?
a. 15,000 c. 30,000
b. 25,000 d. 85,000

45. General Products Co. bought Special Products Division in 2015 and appropriately recorded
P500,000 of goodwill related to the purchase. On December 31, 2016, the fair value of Special
Products Division is P4,000,000 and it is carried on General Product’s books for a total of
P3,400,000, including the goodwill. An analysis of Special Products Division’s assets indicates
that goodwill of P400,000 exists on December 31, 2016. What goodwill impairment should be
recognized by General Products in 2016?
a. None c. 200,000
b. 50,000 d. 300,000