‭CHIPS: Crunching on Accounting‬

‭Intermediate Accounting 2‬

‭Theoretical - Part 1. Multiple Choice Questions. 26 items.‬

‭1.‬ ‭PFRS 6 applies to expenditures incurred‬

‭a.‬ ‭When‬ ‭a‬ ‭specific‬ ‭area‬ ‭is‬ ‭being‬ ‭developed‬ ‭and‬ ‭preparations‬ ‭for‬
‭commercial extraction are being made‬
‭b.‬ ‭In‬‭extracting‬‭mineral‬‭resources‬‭and‬‭processing‬‭the‬‭resource‬‭to‬‭make‬
‭it marketable or transportable‬
‭c.‬ ‭When‬ ‭searching‬ ‭for‬ ‭an‬ ‭area‬ ‭that‬ ‭may‬ ‭want‬ ‭detailed‬ ‭exploration,‬
‭even‬ ‭though‬ ‭the‬ ‭entity‬ ‭has‬ ‭not‬ ‭yet‬ ‭obtained‬ ‭the‬ ‭legal‬ ‭rights‬ ‭to‬
‭explore a specific area‬
‭d.‬ ‭When‬‭the‬‭legal‬‭rights‬‭to‬‭explore‬‭a‬‭specific‬‭area‬‭have‬‭been‬‭obtained,‬
‭but‬ ‭the‬ ‭technical‬ ‭feasibility‬‭and‬‭commercial‬‭viability‬‭of‬‭extracting‬‭a‬
‭mineral resource are not yet demonstrated‬
‭2.‬ ‭Which‬ ‭of‬ ‭the‬ ‭following‬ ‭expenditures‬ ‭would‬ ‭never‬‭qualify‬‭as‬‭an‬‭exploration‬
‭and evaluation asset?‬
‭a.‬ ‭Expenditure for exploratory drilling‬
‭b.‬ ‭Expenditure for acquisition of rights to explore‬
‭c.‬ ‭Expenditures related to the development of mineral resources‬
‭d.‬ ‭Expenditures‬ ‭for‬ ‭activities‬ ‭in‬ ‭relation‬ ‭to‬ ‭evaluating‬ ‭the‬ ‭technical‬
‭feasibility and commercial viability of extracting mineral resources‬
‭3.‬ ‭Does‬ ‭PFRS‬ ‭6‬ ‭require‬ ‭an‬ ‭entity‬ ‭to‬ ‭recognize‬ ‭exploration‬ ‭and‬ ‭evaluation‬
‭expenditures as assets?‬
‭a.‬ ‭No, such expenditure is always expensed in profit or loss incurred‬
‭b.‬ ‭Yes,‬ ‭but‬ ‭only‬ ‭to‬ ‭the‬ ‭extent‬‭such‬‭expenditure‬‭is‬‭recoverable‬‭in‬‭future‬
‭periods‬
‭c.‬ ‭Yes,‬‭but‬‭only‬‭to‬‭the‬‭extent‬‭required‬‭by‬‭the‬‭entity’s‬‭accounting‬‭policy‬
‭for recognizing exploration and evaluation of assets‬
‭d.‬ ‭Yes,‬ ‭but‬ ‭only‬ ‭to‬ ‭the‬ ‭extent‬ ‭the‬ ‭technical‬ ‭feasibility‬ ‭and‬‭commercial‬
‭viability‬ ‭of‬ ‭extracting‬ ‭the‬ ‭associated‬ ‭mineral‬ ‭resources‬ ‭have‬ ‭been‬
‭demonstrated‬
‭4.‬ ‭Which‬ ‭measurement‬ ‭model‬ ‭applies‬ ‭to‬ ‭exploration‬ ‭and‬ ‭evaluation‬ ‭assets‬
‭subsequent to initial recognition?‬
‭a.‬ ‭The cost model‬
‭b.‬ ‭The revaluation model‬
‭c.‬ ‭The recoverable amount model‬
‭d.‬ ‭Either the cost model or the revaluation model‬
‭5.‬ ‭Of‬ ‭the‬ ‭following‬ ‭costs‬ ‭related‬ ‭to‬ ‭the‬ ‭development‬ ‭of‬ ‭mineral‬ ‭resources,‬
‭which one should not be included in the depletable cost?‬
‭a.‬ ‭Acquisition cost of the mineral resource deposit‬
‭b.‬ ‭Exploration cost‬
‭c.‬ ‭Tangible‬‭equipment‬‭cost‬‭associated‬‭with‬‭machinery‬‭used‬‭to‬‭extract‬
‭the mineral resource‬
‭d.‬ ‭Intangible development cost such as drilling cost, tunnel, and shaft‬
‭6.‬ ‭Depletion expense‬
‭a.‬ ‭Is usually part of cost of goods sold‬
‭b.‬ ‭Includes tangible equipment cost in the depletion base‬
‭c.‬ ‭Excludes intangible equipment cost from the depletion base‬
‭d.‬ ‭Excludes restoration cost from the depletion base‬
‭7.‬ ‭An‬ ‭entity‬ ‭is‬ ‭required‬ ‭to‬ ‭consider‬ ‭which‬ ‭of‬ ‭the‬ ‭following‬ ‭in‬ ‭developing‬
‭accounting policy for exploration and evaluation activities?‬
‭a.‬ ‭Recent pronouncements of standard-setting bodies‬
‭b.‬ ‭Whether‬‭the‬‭accounting‬‭policy‬‭results‬‭in‬‭information‬‭that‬‭is‬‭relevant‬
‭and reliable‬
‭c.‬ ‭The‬ ‭requirements‬ ‭and‬ ‭guidance‬ ‭in‬ ‭PFRS‬ ‭dealing‬ ‭with‬ ‭similar‬ ‭and‬
‭related issues‬
‭d.‬ ‭The‬ ‭definitions,‬ ‭recognition‬ ‭criteria,‬ ‭and‬ ‭measurement‬ ‭concepts‬ ‭or‬
‭assets,‬ ‭liabilities,‬ ‭income‬ ‭and‬ ‭expenses‬ ‭in‬ ‭the‬ ‭Conceptual‬
‭Framework‬
‭8.‬ ‭The‬‭most‬‭common‬‭method‬‭of‬‭recording‬‭depletion‬‭for‬‭accounting‬‭purposes‬
‭is the‬
‭a.‬ ‭Percentage of depletion method‬
‭b.‬ ‭Straight line‬
‭c.‬ ‭Production or output method‬
 ‭d.‬ ‭Decreasing charge method‬
‭9.‬ ‭Which‬‭of‬‭the‬‭following‬‭is‬‭not‬‭a‬‭disclosure‬‭required‬‭in‬‭relation‬‭to‬‭exploration‬
‭and evaluation expenditures?‬
‭a.‬ ‭Information about commercial reserve quantities‬
‭b.‬ ‭Accounting‬ ‭policies‬ ‭for‬ ‭exploration‬ ‭and‬ ‭evaluation‬ ‭expenditures‬
‭including the recognition of exploration and evaluation assets‬
‭c.‬ ‭Information‬ ‭that‬ ‭identifies‬ ‭and‬ ‭explains‬ ‭the‬ ‭amounts‬ ‭recognized‬ ‭in‬
‭the‬ ‭financial‬ ‭statements‬ ‭arising‬ ‭from‬ ‭the‬ ‭exploration‬ ‭of‬ ‭mineral‬
‭resources‬
‭d.‬ ‭The‬ ‭amounts‬ ‭of‬ ‭assets,‬ ‭liabilities,‬ ‭income‬ ‭and‬ ‭expenses‬ ‭and‬
‭operating‬ ‭and‬‭investing‬‭cash‬‭flows‬‭arising‬‭from‬‭the‬‭exploration‬‭and‬
‭evaluation of mineral resources‬
‭10.‬ ‭Which‬ ‭is‬ ‭not‬ ‭a‬ ‭characteristic‬ ‭of‬ ‭the‬ ‭“full‬ ‭cost”‬ ‭method‬ ‭in‬ ‭the‬ ‭oil‬ ‭and‬ ‭gas‬
‭industry?‬
‭a.‬ ‭All‬ ‭costs‬ ‭incurred‬ ‭in‬ ‭exploring‬ ‭within‬ ‭a‬ ‭defined‬ ‭cost‬ ‭center‬ ‭are‬
‭capitalized and amortized‬
‭b.‬ ‭Costs‬‭are‬‭capitalized‬‭even‬‭if‬‭a‬‭specific‬‭project‬‭in‬‭a‬‭cost‬‭center‬‭was‬‭a‬
‭failure‬
‭c.‬ ‭Costs of unsuccessful exploration activities are charged to expense‬
‭d.‬ ‭Exploration‬‭and‬‭evaluation‬‭asset‬‭is‬‭classified‬‭either‬‭as‬‭tangible‬‭or‬‭an‬
‭intangible asset‬
‭11.‬ ‭Under‬ ‭the‬ ‭revaluation‬ ‭model‬ ‭for‬ ‭accounting‬ ‭for‬ ‭property,‬ ‭plant‬ ‭and‬
‭equipment‬
‭a.‬ ‭Asset must be revalued quarterly‬
‭b.‬ ‭Asset must be revalued annually‬
‭c.‬ ‭Asset must be revalued bi-annually‬
‭d.‬ ‭There is no rule regarding the frequency of Revaluation‬
‭12.‬ ‭When‬ ‭the‬ ‭revaluation‬ ‭model‬ ‭is‬ ‭used‬ ‭for‬ ‭reporting‬ ‭property,‬ ‭plant‬ ‭and‬
‭equipment, the gain or loss should be included in‬
‭a.‬ ‭When‬‭the‬‭revaluation‬‭model‬‭is‬‭used‬‭for‬‭reporting‬‭property,‬‭plant‬‭and‬
‭equipment, the gain or loss should be included in‬
‭b.‬ ‭Gain from revaluation in the income statement‬
‭c.‬ ‭An extraordinary gain or loss in the income statement‬
 ‭d.‬ ‭A revaluation surplus account in other comprehensive income‬
‭13.‬ ‭An asset is impaired when‬
‭a.‬ ‭Its recoverable amount exceeds its carrying amount‬
‭b.‬ ‭Its carrying amount exceeds its recoverable amount‬
‭c.‬ ‭Its fair value less costs to sell is less than its value in use‬
‭d.‬ ‭Its net selling price is less than its value in use‬
‭14.‬ ‭Value in use of an asset is equal to the:‬
‭a.‬ ‭Undiscounted future net cash flows from the use of the asset‬
‭b.‬ ‭Undiscounted‬ ‭future‬ ‭net‬ ‭cash‬ ‭flows‬ ‭from‬ ‭the‬ ‭use‬ ‭and‬ ‭eventual‬
‭disposition of the asset‬
‭c.‬ ‭Discounted future net cash flows from the use of the asset‬
‭d.‬ ‭Discounted‬ ‭future‬ ‭net‬ ‭cash‬ ‭flows‬ ‭from‬ ‭the‬ ‭use‬ ‭and‬ ‭eventual‬
‭disposition of the asset‬
‭15.‬ ‭An‬ ‭entity‬ ‭has‬ ‭determined‬ ‭that‬ ‭the‬ ‭fair‬ ‭value‬ ‭of‬ ‭a‬ ‭cash‬ ‭generating‬ ‭unit‬
‭exceeds‬‭the‬‭carrying‬‭amount.‬‭Which‬‭of‬‭the‬‭following‬‭statements‬‭is‬‭correct‬
‭concerning this test of impairment?‬
‭a.‬ ‭Goodwill should be written down as impaired‬
‭b.‬ ‭Goodwill should be retested at the entity level‬
‭c.‬ ‭Impairment is not indicated, and no additional analysis is necessary‬
‭d.‬ ‭The‬ ‭assets‬ ‭and‬‭liabilities‬‭should‬‭be‬‭valued‬‭to‬‭determine‬‭if‬‭there‬‭has‬
‭been an impairment of goodwill‬
‭16.‬ ‭When‬‭an‬‭entity‬‭chooses‬‭the‬‭revaluation‬‭model‬‭as‬‭the‬‭accounting‬‭policy‬‭for‬
‭measuring‬ ‭property,‬ ‭plant‬ ‭and‬ ‭equipment,‬ ‭which‬ ‭of‬ ‭the‬ ‭following‬
‭statements is correct?‬
‭a.‬ ‭Revaluation‬‭of‬‭property,‬‭plant‬‭and‬‭equipment‬‭must‬‭be‬‭made‬‭at‬‭least‬
‭every three years.‬
‭b.‬ ‭When‬ ‭an‬ ‭asset‬ ‭is‬ ‭revalued,‬ ‭the‬ ‭entire‬ ‭class‬ ‭of‬ ‭property,‬ ‭plant‬ ‭and‬
‭equipment to which that asset belongs must be revalued‬
‭c.‬ ‭Increase‬ ‭in‬ ‭an‬ ‭asset’s‬ ‭carrying‬ ‭amount‬ ‭as‬ ‭a‬ ‭result‬ ‭of‬ ‭the‬ ‭first‬
‭revaluation must be recognized as a component of profit or loss‬
‭d.‬ ‭When‬‭an‬‭asset‬‭is‬‭revalued,‬‭individual‬‭asset‬‭within‬‭a‬‭class‬‭of‬‭property,‬
‭plant and equipment to which that asset belongs can be revalued‬
‭17.‬ ‭Which‬ ‭statement‬ ‭is‬ ‭incorrect‬ ‭concerning‬ ‭the‬ ‭class‬ ‭of‬ ‭property,‬ ‭plant‬ ‭and‬
‭equipment to be revalued?‬
‭a.‬ ‭When‬ ‭an‬ ‭item‬ ‭of‬ ‭property,‬ ‭plant‬ ‭and‬ ‭equipment‬ ‭is‬ ‭revalued,‬ ‭the‬
‭entire‬ ‭class‬ ‭property,‬ ‭plant‬ ‭and‬ ‭equipment‬ ‭to‬ ‭which‬ ‭that‬ ‭asset‬
‭belongs shall be revalued‬
‭b.‬ ‭A‬‭class‬‭of‬‭property,‬‭plant‬‭and‬‭equipment‬‭is‬‭a‬‭grouping‬‭of‬‭assets‬‭of‬‭a‬
‭similar nature and use in an entity’s operation‬
‭c.‬ ‭The‬ ‭items‬ ‭within‬ ‭a‬ ‭class‬ ‭of‬ ‭property,‬ ‭plant‬ ‭and‬ ‭equipment‬ ‭are‬
‭revalued selectively‬
‭d.‬ ‭A‬ ‭class‬ ‭of‬ ‭assets‬ ‭may‬ ‭be‬ ‭revalued‬ ‭on‬ ‭a‬ ‭rolling‬ ‭basis‬ ‭provided‬
‭revaluation‬ ‭of‬‭the‬‭class‬‭of‬‭assets‬‭is‬‭completed‬‭within‬‭a‬‭short‬‭period‬
‭of time and provided the revaluations are kept up to date‬
‭18.‬ ‭Which statement is incorrect in determining the recoverable amount?‬
‭a.‬ ‭If‬‭the‬‭carrying‬‭amount‬‭is‬‭less‬‭than‬‭fair‬‭value‬‭less‬‭costs‬‭to‬‭sell‬‭or‬‭value‬
‭in use, it is not necessary to calculate the other amount‬
‭b.‬ ‭If‬‭fair‬‭value‬‭less‬‭costs‬‭to‬‭sell‬‭cannot‬‭be‬‭determined,‬‭then‬‭recoverable‬
‭amount is value in use‬
‭c.‬ ‭For‬ ‭assets‬ ‭to‬ ‭be‬ ‭disposed‬ ‭of,‬ ‭recoverable‬ ‭amount‬ ‭is‬ ‭fair‬ ‭value‬ ‭less‬
‭costs to sell‬
‭d.‬ ‭None of the above‬
‭19.‬ ‭What is the best evidence of fair value less cost of disposal?‬
‭a.‬ ‭An asset trading in an active market‬
‭b.‬ ‭The price in a binding sale agreement‬
‭c.‬ ‭Information about the disposal value of an asset‬
‭d.‬ ‭The carrying amount of the asset‬
‭20.‬‭Which 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
‭21.‬ ‭Which‬‭condition‬‭must‬‭exist‬‭in‬‭order‬‭for‬‭an‬‭impairment‬‭loss‬‭to‬‭be‬‭recognized‬
‭for an asset?‬
 ‭a.‬ ‭The carrying amount is less than fair value‬
‭b.‬ ‭The carrying amount is not recoverable‬
‭c.‬ ‭The carrying amount is less than value in use‬
‭d.‬ ‭The carrying amount is recoverable‬
‭22.‬‭Generally,‬ ‭an‬ ‭entity‬ ‭computes‬ ‭for‬ ‭an‬ ‭asset’s‬ ‭recoverable‬ ‭amount,‬ ‭and‬
‭consequently for any impairment loss,‬
‭a.‬ ‭Only if there is an indication that the asset may be impaired‬
‭b.‬ ‭At each reporting date‬
‭c.‬ ‭At least annually even if there are no indications for impairment‬
‭d.‬ ‭At‬‭any‬‭time‬‭during‬‭the‬‭annual‬‭period‬‭provided‬‭it‬‭is‬‭performed‬‭at‬‭the‬
‭same time every year‬
‭23.‬‭The‬‭revaluation‬‭surplus‬‭realized‬‭because‬‭of‬‭the‬‭use‬‭or‬‭disposal‬‭of‬‭the‬‭asset‬
‭is transferred directly to‬
‭a.‬ ‭Retained earnings‬
‭b.‬ ‭Income‬
‭c.‬ ‭Share capital‬
‭d.‬ ‭Share premium‬
‭24.‬‭Fair value less cost to sell is‬
‭I.‬ ‭The‬ ‭amount‬ ‭obtainable‬ ‭from‬ ‭the‬ ‭sale‬ ‭of‬ ‭an‬ ‭asset‬ ‭in‬ ‭an‬ ‭arm’s‬ ‭length‬
‭transaction between knowledgeable, willing parties less cost of disposal‬
‭II.‬ ‭The‬ ‭present‬ ‭value‬ ‭of‬ ‭future‬ ‭cash‬ ‭flows‬ ‭expected‬ ‭to‬ ‭be‬ ‭derived‬ ‭from‬ ‭an‬
‭asset‬
‭a.‬ ‭I only‬
‭b.‬ ‭II only‬
‭c.‬ ‭Both I and II‬
‭d.‬ ‭Neither I nor II‬
‭25.‬‭If‬‭a‬‭depreciable‬‭property‬‭is‬‭revalued‬‭at‬‭the‬‭middle‬‭of‬‭the‬‭current‬‭year,‬‭how‬
‭is‬ ‭the‬‭depreciation‬‭expense‬‭for‬‭the‬‭year‬‭determined‬‭when‬‭the‬‭entity‬‭has‬‭a‬
‭calendar year-end?‬
‭a.‬ ‭Depreciation‬ ‭for‬ ‭the‬ ‭year‬ ‭is‬ ‭based‬ ‭on‬ ‭the‬ ‭average‬ ‭of‬ ‭the‬
‭depreciation based on cost and on revalued amount‬
‭b.‬ ‭Depreciation for the entire year is based on cost‬
‭c.‬ ‭Depreciation for the entire year is based on revalued amount‬
 ‭d.‬ ‭Depreciation‬‭for‬‭the‬‭first‬‭half‬‭of‬‭the‬‭year‬‭is‬‭based‬‭on‬‭cost‬‭and‬‭for‬‭the‬
‭second half on revalued amount‬
‭26.‬‭Which‬ ‭statement‬ ‭is‬ ‭true‬ ‭about‬ ‭the‬ ‭revaluation‬ ‭model‬ ‭for‬ ‭property,‬ ‭plant,‬
‭and equipment?‬
‭a.‬ ‭The‬‭frequency‬‭of‬‭revaluation‬‭depends‬‭upon‬‭the‬‭changes‬‭in‬‭fair‬‭value‬
‭of the property, plant and equipment‬
‭b.‬ ‭Property,‬ ‭plant‬‭and‬‭equipment‬‭with‬‭significant‬‭and‬‭volatile‬‭changes‬
‭in fair value necessitate annual revaluation‬
‭c.‬ ‭Property,‬ ‭plant‬ ‭and‬ ‭equipment‬ ‭with‬ ‭insignificant‬ ‭changes‬ ‭in‬ ‭fair‬
‭value may be revalued only every three to five years‬
‭d.‬ ‭All of these statements are true about the revaluation model‬

‭Theoretical - Part 2. True or False. 14 items.‬

‭1.‬ ‭The‬‭carrying‬‭amount‬‭of‬‭an‬‭asset‬‭shall‬‭not‬‭be‬‭reduced‬‭below‬‭the‬‭highest‬‭of:‬
‭its fair value less costs of disposal, its value in use, and zero.‬
‭2.‬ ‭An‬ ‭impairment‬ ‭loss‬ ‭recognized‬ ‭for‬ ‭goodwill‬ ‭shall‬ ‭be‬ ‭reversed‬ ‭in‬ ‭a‬
‭subsequent period.‬
‭3.‬ ‭Cost‬‭of‬‭disposal‬‭is‬‭an‬‭incremental‬‭cost‬‭directly‬‭attributable‬‭to‬‭the‬‭disposal‬
‭of‬‭an‬‭asset‬‭or‬‭cash‬‭generating‬‭unit,‬‭excluding‬‭the‬‭finance‬‭cost‬‭and‬‭income‬
‭tax expense.‬
‭4.‬ ‭After‬‭the‬‭recognition‬‭of‬‭an‬‭impairment‬‭loss,‬‭the‬‭depreciation‬‭charge‬‭for‬‭the‬
‭asset‬ ‭shall‬ ‭be‬ ‭adjusted‬ ‭in‬ ‭future‬ ‭periods‬ ‭to‬ ‭allocate‬ ‭the‬ ‭revised‬ ‭carrying‬
‭amount‬‭less‬‭residual‬‭value‬‭on‬‭a‬‭systematic‬‭basis‬‭over‬‭the‬‭remaining‬‭useful‬
‭life.‬
‭5.‬ ‭The‬‭increased‬‭carrying‬‭amount‬‭is‬‭the‬‭carrying‬‭amount‬‭had‬‭no‬‭impairment‬
‭loss been recognized or the recoverable amount, whichever is higher.‬
‭6.‬ ‭If‬ ‭there‬ ‭is‬ ‭an‬ ‭indication‬ ‭that‬ ‭goodwill‬ ‭may‬ ‭be‬ ‭impaired,‬ ‭a‬ ‭recoverable‬
‭amount is determined for the CGU to which goodwill belongs.‬
‭7.‬ ‭A‬ ‭revaluation‬ ‭decrease‬ ‭shall‬ ‭be‬ ‭charged‬ ‭directly‬ ‭against‬ ‭any‬ ‭revaluation‬
‭surplus‬‭to‬‭the‬‭extent‬‭that‬‭the‬‭decrease‬‭is‬‭a‬‭reversal‬‭of‬‭a‬‭previous‬‭revolution‬
‭and the balance is charged to expense.‬
‭8.‬ ‭Depreciation‬ ‭on‬‭cost‬‭less‬‭depreciation‬‭on‬‭appreciation‬‭is‬‭the‬‭depreciation‬
‭on revalued amount/sound value.‬
‭9.‬ ‭Carrying‬ ‭amount‬ ‭is‬ ‭the‬ ‭difference‬ ‭between‬ ‭the‬ ‭historical‬ ‭cost‬ ‭of‬‭an‬‭asset‬
‭and its residual value.‬
‭10.‬ ‭The‬ ‭proportional‬ ‭approach‬ ‭in‬ ‭recording‬ ‭the‬ ‭revaluation‬ ‭is‬ ‭the‬ ‭preferable‬
‭method because it preserves the gross and net amounts after revaluation.‬
‭11.‬ ‭Revaluation‬ ‭surplus‬ ‭is‬ ‭the‬ ‭excess‬ ‭of‬ ‭the‬ ‭replacement‬ ‭cost‬ ‭over‬ ‭the‬
‭historical cost.‬
‭12.‬ ‭The‬ ‭depreciation‬ ‭of‬ ‭equipment‬ ‭used‬ ‭in‬‭mining‬‭operations‬‭is‬‭based‬‭on‬‭the‬
‭useful‬‭life‬‭of‬‭the‬‭equipment‬‭or‬‭the‬‭useful‬‭life‬‭of‬‭the‬‭wasting‬‭asset,‬‭whichever‬
‭is shorter.‬
‭13.‬ ‭The‬ ‭cost‬ ‭of‬ ‭wasting‬ ‭assets‬ ‭includes‬ ‭acquisition‬ ‭cost,‬ ‭capitalizable‬
‭exploration‬‭costs,‬‭capitalizable‬‭development‬‭costs,‬‭and‬‭restoration‬‭cost‬‭at‬
‭present value.‬
‭14.‬ ‭Exploration‬ ‭and‬ ‭evaluation‬ ‭expenditures‬ ‭include‬ ‭expenditures‬ ‭incurred‬
‭before‬‭an‬‭entity‬‭has‬‭obtained‬‭the‬‭legal‬‭right‬‭to‬‭explore‬‭a‬‭specific‬‭area‬‭and‬
‭before‬ ‭the‬ ‭technical‬ ‭feasibility‬ ‭and‬ ‭commercial‬ ‭viability‬ ‭of‬ ‭extracting‬ ‭a‬
‭mineral resource are demonstrable.‬
‭Computation - 10 Items‬

‭Use the following information for the next three (3) items:‬
‭On‬ ‭January‬ ‭1,‬ ‭2025,‬ ‭ABC‬ ‭Company‬ ‭reported‬ ‭the‬ ‭following‬ ‭account‬ ‭balances‬
‭relating to property, plant and equipment:‬

‭Assets‬ ‭have‬ ‭been‬ ‭carried‬ ‭at‬ ‭cost‬ ‭since‬ ‭acquisition.‬ ‭All‬ ‭assets‬ ‭were‬ ‭acquired‬ ‭on‬
‭January‬ ‭1,‬ ‭2015.‬ ‭The‬ ‭straight‬ ‭line‬ ‭method‬ ‭is‬ ‭used.‬ ‭On‬ ‭January‬ ‭1,‬ ‭2025,‬ ‭the‬ ‭entity‬
‭decided‬ ‭to‬ ‭revalue‬‭the‬‭property,‬‭plant‬‭and‬‭equipment.‬‭On‬‭such‬‭date,‬‭competent‬
‭appraisers submitted the following:‬

‭1.‬ ‭What is the revaluation surplus on January 1, 2025?‬

‭a.‬ ‭P15,000,000‬
‭b.‬ ‭P11,500,000‬
‭c.‬ ‭P30,000,000‬
‭d.‬ ‭P8,500,000‬
‭2.‬ ‭What is the depreciation for the current year?‬
‭a.‬ ‭P531,250‬
‭b.‬ ‭P875,000‬
‭c.‬ ‭P525,000‬
‭d.‬ ‭P625,000‬
‭3.‬ ‭What is the revaluation surplus on December 31, 2025?‬
‭a.‬ ‭P11,075,000‬
‭b.‬ ‭P11,150,000‬
 ‭c.‬ ‭P11,050,000‬
‭d.‬ ‭P10,850,000‬

‭4.‬ ‭At‬ ‭the‬ ‭beginning‬ ‭of‬ ‭the‬ ‭current‬ ‭year,‬ ‭BSA‬ ‭Company‬ ‭purchased‬ ‭a‬ ‭mineral‬
‭mine for P26,400,000 with removable ore estimated at 1,200,000 tons.‬

‭After‬‭it‬‭has‬‭extracted‬‭all‬‭the‬‭ore,‬‭the‬‭entity‬‭will‬‭be‬‭required‬‭by‬‭law‬‭to‬‭restore‬
‭the‬ ‭land‬ ‭to‬ ‭the‬ ‭original‬ ‭condition‬ ‭at‬ ‭an‬ ‭estimated‬ ‭cost‬ ‭of‬ ‭P2,400,000.‬ ‭The‬
‭present‬ ‭value‬ ‭of‬ ‭the‬ ‭estimated‬ ‭restoration‬ ‭cost‬ ‭is‬ ‭P1,800,000.‬ ‭The‬ ‭entity‬
‭believed it would be able to sell the property afterwards for P3,000,000.‬

‭During‬ ‭the‬ ‭current‬ ‭year,‬ ‭the‬ ‭entity‬ ‭incurred‬ ‭P3,600,000‬ ‭of‬ ‭development‬
‭costs‬‭preparing‬‭the‬‭mine‬‭for‬‭production‬‭and‬‭removed‬‭80,000‬‭tons‬‭and‬‭sold‬
‭60,000 tons of ore.‬

‭What amount should be reported as depletion for the current year?‬

‭a.‬ ‭P1,920,000‬
‭b.‬ ‭P1,440,000‬
‭c.‬ ‭P1,940,000‬
‭d.‬ ‭P1,455,000‬

‭5.‬ ‭On‬‭January‬‭1,‬‭2025,‬‭XYZ‬‭Company‬‭purchased‬‭land‬‭with‬‭valuable‬‭natural‬‭ore‬
‭deposits‬ ‭for‬ ‭P10,000,000.‬ ‭The‬ ‭residual‬ ‭value‬ ‭of‬ ‭the‬ ‭land‬ ‭was‬‭P2,000,000.‬‭At‬
‭the‬ ‭time‬ ‭of‬ ‭purchase,‬‭a‬‭geological‬‭survey‬‭estimated‬‭a‬‭recoverable‬‭output‬
‭of 4,000,000 tons.‬

‭Early‬ ‭in‬ ‭2025,‬ ‭roads‬ ‭were‬ ‭constructed‬ ‭on‬ ‭the‬ ‭land‬ ‭to‬ ‭aid‬ ‭in‬ ‭the‬ ‭extraction‬
‭and‬‭transportation‬‭of‬‭the‬‭mined‬‭ore‬‭at‬‭a‬‭cost‬‭of‬‭P1,600,000.‬‭In‬‭2025,‬‭500,000‬
‭tons‬ ‭were‬ ‭mined‬ ‭and‬ ‭sold.‬ ‭A‬ ‭new‬ ‭survey‬ ‭at‬ ‭the‬ ‭end‬ ‭of‬ ‭2026‬ ‭estimated‬
‭4,200,000‬‭tons‬‭of‬‭ore‬‭available‬‭for‬‭mining.‬‭In‬‭2026,‬‭800,000‬‭tons‬‭were‬‭mined‬
‭and sold.‬

‭What amount should be recognized as depletion for 2026?‬

 ‭a.‬ ‭P1,344,000‬
‭b.‬ ‭P1,920,000‬
‭c.‬ ‭P1,200,000‬
‭d.‬ ‭P1,600,000‬

‭6.‬ ‭At‬ ‭the‬ ‭current‬ ‭year-end,‬ ‭Sylveon‬ ‭Co.‬ ‭has‬ ‭undertaken‬ ‭impairment‬‭tests‬‭on‬
‭three equipment. The following information is relevant:‬

‭The‬ ‭amount‬ ‭of‬‭impairment‬‭loss‬‭on‬‭the‬‭equipment‬‭that‬‭Sylveon‬‭Co.‬‭should‬

‭be reported is:‬
‭a.‬ ‭P90,000‬
‭b.‬ ‭P110,000‬
‭c.‬ ‭P130,000‬
‭d.‬ ‭P140,000‬

‭7.‬ ‭An‬ ‭entity‬ ‭reported‬ ‭an‬ ‭impairment‬ ‭loss‬ ‭of‬ ‭P500,000‬ ‭in‬ ‭2021‬ ‭related‬ ‭to‬ ‭an‬
‭equipment‬ ‭acquired‬ ‭on‬ ‭January‬ ‭1,‬ ‭2013‬ ‭for‬ ‭P4,000,000‬ ‭with‬ ‭no‬ ‭residual‬
‭value.‬‭Straight‬‭line‬‭annual‬‭depreciation‬‭was‬‭recorded‬‭at‬‭P160,000‬‭until‬‭2021.‬
‭Depreciation‬‭for‬‭2022‬‭was‬‭computed‬‭based‬‭on‬‭the‬‭recoverable‬‭amount‬‭on‬
‭December‬ ‭31,‬ ‭2021.‬ ‭The‬ ‭entity‬ ‭decided‬ ‭to‬ ‭measure‬ ‭the‬ ‭asset‬ ‭using‬ ‭the‬
‭revaluation‬‭model‬‭on‬‭December‬‭31,‬‭2024.‬‭On‬‭such‬‭date,‬‭the‬‭asset‬‭had‬‭a‬‭fair‬
‭value of P3,300,000.‬

‭Statement I: Depreciation for the year 2022 is P160,000.‬

‭Statement II: The gain on reversal of impairment in 2024 is P406,250‬
‭Statement III: The revaluation surplus on December 31, 2024 is P1,220,000.‬

‭a.‬ ‭All statements are true.‬

‭b.‬ ‭Statements I and II are true.‬
 ‭c.‬ ‭Statements I and III are true.‬
‭d.‬ ‭Statements II and III are true.‬

‭Use the following information for the next two (2) items:‬
‭On‬‭January‬‭2,‬‭2023,‬‭Train‬‭Inc.‬‭purchased‬‭office‬‭equipment‬‭costing‬‭P1,880,000‬‭with‬
‭a‬ ‭useful‬ ‭life‬ ‭of‬ ‭4‬ ‭years.‬ ‭The‬ ‭company‬ ‭is‬ ‭using‬ ‭a‬ ‭straight-line‬ ‭method‬ ‭of‬
‭depreciation.‬ ‭On‬ ‭December‬ ‭31,‬ ‭2023,‬ ‭and‬ ‭December‬ ‭31,‬ ‭2024,‬ ‭the‬ ‭company‬
‭determined‬ ‭that‬ ‭impairment‬ ‭indicators‬ ‭are‬ ‭present.‬ ‭The‬ ‭following‬ ‭information‬ ‭is‬
‭available for impairment testing at each year end:‬

‭No changes were made in the asset's estimated useful life.‬

‭8.‬ ‭The company's 2023 income statement will report:‬
‭a.‬ ‭Depreciation Expense of P470,000‬
‭b.‬ ‭Depreciation‬ ‭Expense‬ ‭of‬ ‭P470,000‬ ‭and‬ ‭Loss‬ ‭on‬ ‭Impairment‬ ‭of‬
‭P20,000.‬
‭c.‬ ‭Depreciation‬ ‭Expense‬ ‭of‬ ‭P470,000‬ ‭and‬ ‭a‬ ‭Recovery‬‭of‬‭Impairment‬‭of‬
‭P90,000.‬
‭d.‬ ‭Loss on impairment of 380,000.‬
‭9.‬ ‭The company's 2024 income statement will report:‬
‭a.‬ ‭Depreciation Expense of P470,000.‬
‭b.‬ ‭Depreciation‬ ‭Expense‬ ‭of‬ ‭P500,000‬ ‭and‬ ‭Loss‬ ‭on‬ ‭Impairment‬ ‭of‬
‭P110,000.‬
‭c.‬ ‭Depreciation‬ ‭Expense‬ ‭of‬ ‭P470,000‬ ‭and‬ ‭a‬ ‭Loss‬ ‭on‬ ‭Impairment‬ ‭of‬
‭P50,000.‬
‭d.‬ ‭Loss on impairment of P140,000.‬

‭10.‬ ‭Balcom‬‭Corporation‬‭acquires‬‭a‬‭coal‬‭mine‬‭at‬‭a‬‭cost‬‭of‬‭P500,000.‬‭Intangible‬
‭development‬ ‭costs‬ ‭total‬ ‭P120,000.‬ ‭After‬ ‭extraction‬ ‭has‬ ‭occurred,‬
‭Balcom‬ ‭must‬ ‭restore‬ ‭the‬ ‭property‬ ‭(estimated‬ ‭present‬ ‭value‬ ‭of‬ ‭the‬
‭obligation‬ ‭is‬ ‭P60,000),‬ ‭after‬ ‭which‬ ‭it‬ ‭can‬ ‭be‬ ‭sold‬ ‭for‬ ‭P170,000.‬ ‭Balcom‬
 ‭estimates‬ ‭that‬ ‭5,000‬ ‭tons‬ ‭of‬ ‭coal‬ ‭can‬ ‭be‬ ‭extracted.‬ ‭If‬ ‭900‬ ‭tons‬ ‭are‬
‭extracted‬ ‭the‬ ‭first‬ ‭year,‬ ‭which‬ ‭of‬ ‭the‬ ‭following‬ ‭would‬ ‭be‬ ‭included‬ ‭in‬ ‭the‬
‭journal entry to record depletion?‬
‭a.‬ ‭Debit to Accumulated Depletion for P91,800‬
‭b.‬ ‭Debit to Depletion Expense for P91,800‬
‭c.‬ ‭Credit to Inventory for P90,000‬
‭d.‬ ‭Credit to Accumulated Depletion for P153,000‬

‭Sources:‬
‭Valix, C. T., Peralta, J. F., & Valix, C. A. M. (2023).‬‭Intermediate Accounting‬‭(2023‬
‭revised ed., Vol. 1). GIC Enterprises.‬
‭Valix, C. T., & Valix, C. A. M. (2021).‬‭Practical‬‭Financial Accounting‬‭(2021 revised ed.,‬
‭Vol. 1). GIC Enterprises.‬
‭Pinnacle Review School. (2023).‬‭Pinnacle Handouts‬‭.‬
‭Review School of Accountancy. (2024).‬‭RESA FAR Preweek‬‭.‬