Intermediate Accounting 1&2

BSA 2102-INTERMEDIATE ACCOUNTING 1 & 2 FINAL DEPARTMENTAL EXAM REVIEWER TOPIC COVERAGE:  PAS 38: Intangible Assets   PAS 41: Agriculture THEORIES 1. Intangible assets are said to be without physical listed below is not an intangible asset? a. patent b. leasehold

PFRS 5: Noncurrent Assets Held for Sale substance. Which of the following items c. goodwill d. marketable securities

2. Research and development costs, under prevailing practice, may be accounted for as follows: a. b. c. d.

R and D costs related to successful projects should be capitalized; others expensed. R and D costs related to unsuccessful projects should be capitalized; others expensed. R and D costs should be expensed as incurred. R and D costs should be allocated between successful and unsuccessful projects.

3. Deferred charges: a. are cash received or other assets recognized for goods and services that will be supplied in future periods. b. are payments made for services that will be utilized by the business. c. represent those portions of expenditures for services, made prior to the balance sheet date but not consumed at the balance sheet and will be utilized or consumed in the future normal operating cycles. d. are prepayments for services or benefits that will be received over a number of periods. 4. Development activities involve the application of research findings to develop a product, service or process. Which is not considered a development activity? a. b. c. d.

design, construction and testing of preproduction prototype and model design of tools, jigs, molds and dies involving new technology design, construction and operation of a pilot plant laboratory research aimed at discovery of new knowledge

5. A consideration in determining the useful life of an intangible asset is not the: a. b. c. d.

legal, regulatory or contractual provision initial acquisition expected action of competitors effect of obsolescence, demand, competition and other economic factor

6. Which of the following is correct? a. The fair value of internally generated intangible assets should be estimated and recorded on the books of the entity that developed the assets even in the absence of a business acquisition. b. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity. c. Managers may value their own companies and recognize goodwill in the company accounts even though an entity has not been acquired in a business acquisition. d. Goodwill should be recognized in the accounts whenever the value of the firm increases based on current market prices of the firm's share capital. 7. What is the proper time or time period over which to match the cost of an intangible asset with revenue if it is likely that the benefit of the asset will last for an indeterminate period of time? a. 50 years b. 40 years

c. 20 years d. 5 years

8. Macky has two patents that have allegedly been infringed by competitors. After investigation, legal counsel informed Macky that it had a weak case on patent A and a strong one in regard to patent B. Macky incurred additional legal fees to stop infringement on patent B. Both patents have a remaining legal life of 8 years. How should Macky account for these legal costs incurred relating to the two patents? a. b. c. d.

expense costs for patent A and capitalize cost for patent B. expense costs for both patents. capitalize costs for both patents. capitalize costs for patent A and expense costs for patent B.

9. Which of the following is a research activity? a. Design, Construction, and testing of pre-production or pre-use prototypes and models b. Design, construction and operation of a pilot plant that is not of scale economically feasible for commercial production c. Formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services d. Design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services 10. Goodwill should be amortized: a. b. c. d.

as soon as possible against retained earnings. as soon as possible as an extraordinary item. by systematic charges against retained earnings over the period benefited. by systematic charges to expense over the period benefited.

11. How shall the fair value of biological assets physically attached to land be determined? a. The fair value of biological assets may be deducted from the fair value of the combined assets to arrive at fair value of the raw land and land improvements. b. The fair value of raw land and land improvements may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets. c. It cannot be determined. d. The fair value of raw land and land improvements may be added to the fair value of biological assets to arrive at the fair value of the combined assets. 12. A required disclosure for biological assets. I. Aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets. II. Description of each group of biological assets a. I only c. Both land Il b. Il only d. Neither I nor Il 13. Entity A had a plantation forest that is likely to be harvested and sold in 30 years. The income should be accounted for in the following way: a. No income should be reported until first harvest and sale in 30 years. b. Income should be measured annually and reported using a fair value approach that recognizes and measures biological growth. c. The eventual sale proceeds should be estimated and matched to the profit and loss account over the 30-year period. d. The plantation forest should be valued every 5 years and the increase in value should be shown in the statement of recognized gains and losses. 14. The following provides examples of biological assets, agricultural produce and products that are the result of processing after harvest. Which is a correct combination? Biological asset a. b. c. d.

Plants Dairy Sausage Vines

Agricultural produce Harvested cane cattle Carcass Wine

Product after harvest Sugar Cheese Milk Pig Grapes

15. Not costs to sell biological assets a. Commissions to brokers and dealers b. Levies by regulatory agencies c. Transfer taxes and duties. d. Transport and other costs necessary to get the assets to a market 16. Choose the incorrect statement. a. For a biological asset, there is a presumption that a fair value can be measured reliably b. The fair value assumption on biological assets can be rebutted only on initial recognition c. For an agricultural produce, it is assumed that its fair value less costs to sell on initial recognition (point of harvest) can always be measured reliably d. Quantified description of each group of biological assets is required by PAS 41. 17. Which of the following statements is incorrect in determining the fair value of biological assets and agricultural produce? a. Contract prices are not necessarily relevant in determining fair value when entities enter into contracts to sell their biological assets or agricultural produce at a future date, because fair value reflects the current market in which a willing buyer and seller would enter into a transaction. b. If an active market exists for a biological asset or agricultural produce, in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset c. The determination of fair value fora biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes. d. The fair value of a biological asset or agricultural produce adjusted when entities enter into contracts to sell their biological assets or agricultural produce at a future date. 18. Harvested agricultural crops or extracted mineral ores assured to be sold under a forward contract or government guarantee are measured at a. Higher of cost and net realizable value b. Fair value less costs to sell

c. Lower of cost and net realizable value d. Net realizable value

19. Which of the following is not dealt with by PAS 41? a. The accounting for biological assets b. The initial measurement of agricultural produce harvested from the entity’s biological assets c. The processing of agricultural produce after harvesting d. The accounting treatment of government grants received in respect of biological assets

20. Where there is a long aging or maturation process after harvest, the accounting for such products should be dealt with by a. PAS 41 b. PAS 2

c. PAS 16 d. PAS 40 I 3

21. An entity shall classify a noncurrent asset or disposal group as "held for sale" when the a. Carrying amount of the asset or disposal group will be recovered through a sale transaction. b. Carrying amount of the asset or disposal group will be recovered through continuing use. c. Noncurrent asset or disposal group is to be abandoned. d. Noncurrent asset or disposal group is idle or retired from active use. 22. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. “Highly probable” means that a. The future sale is likely to occur b. The future sale is more likely than not to occur c. The sale is certain d. The probability is higher than more likely than not 23. An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the criteria to be classified as held for sale. At the balance sheet date, the subsidiary has not yet been sold, and six months have passed since its acquisition. How will the subsidiary be valued in the balance sheet at the date of the first financial statements after acquisition? a. At fair value b. At the lower of its cost and fair value less cost to sell c. At carrying value d. In accordance with applicable PFRS 24. Any gain on a subsequent increase in the fair value less cost to sell of a noncurrent asset classified as held for sale should be treated as follows: . a. b. c. d.

The gain should be recognized in full The gain should not be recognized The gain should be recognized but not in excess of the cumulative impairment loss The gain should be recognized but only in retained earnings

25. A component of an entity is classified as "held for sale" when the component is available for immediate sale and the sale is highly probable. Which of the following statements is incorrect when considering a sale to be highly probable? a. Management is committed to a plan to sell the component. b. Active program to locate a buyer is initiated. c. The component is actively marketed for sale at an unreasonable price in relation to its cost. d. The sale is expected to qualify as a completed sale w1th1n one year from the date of classification as "held for sale". 26. An entity shall recognize any subsequent increase in fair value less cost to sell of a noncurrent asset or disposal group classified as held to sale as a. deferred gain in as component of equity b. Deferred gain as component of liability. c. Gain entirely to be included in profit or loss. . d. gain to be included in profit or loss but not in excess of the cumulative impairment loss previously recognized 27. An entity has an asset that was classified as held for sale. However, the criteria for it to remain as held for sale no longer apply. The entity should therefore. a. Leave the noncurrent asset in the financial statements at its current carrying value b. Remeasure the noncurrent asset at fair value c. Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as held for sale (as adjusted for subsequent depreciation, amortization, or revaluations) and its recoverable amount at the date of the decision not to sell d. Recognize the noncurrent asset at its carrying amount prior to its classification as held for sale as adjusted for subsequent depreciation, amortization, or revaluations 28. The results of operations of a component of an entity that either has been disposed of or classified as held for sale shall be reported in discontinued operations if: I. The operations and cash flows of the component have been or will be eliminated from the on-going operations of the entity as a result of the disposal transaction. Il. The entity continues to have a significant continuing involvement in the operations of the component after the disposal' transactions Ill. The entity outsources the manufacturing operations of a component and sells the manufacturing facility of the component but continues to sell the product formerly manufactured by the facility sold. a. Only I is true c. I and II are true b. Only Il is true d. I, Il, and Ill are all true

29. Which of the following statements about the requirements of IFRS 5 is valid? · I. An asset that meets the criteria for classification as held for sale after the end of the reporting period but before the authorization of the financial statements should be measured in the statement of financial position at the lower of carrying amount and fair value less costs to sell. II. To be classified as an asset held for sale, the sale must be expected to be completed within 12 months from the end of the financial year. a. I only c. Both I and II b. II only d. Neither I nor II 30. An entity put back an asset that was previously classified as "Held for Sale" into active use; thus, the criteria for the asset to be classified as "Held for Sale" no longer apply. For accounting purposes, the entity shall a. continue to classify the asset as Held for Sale, until such date that the asset is retired or disposed of. b. reclassify the asset into its previous classification at the lower of fair value less cost to sell and its carrying amount when the asset was classified as Held for Sale. c. continue to classify the asset as Held for Sale and resume the depreciation for the asset. d. reclassify the asset into its previous classification, measuring it at the lower between its carrying value had the asset not been classified as Held for Safe and its recoverable amount as determined under IAS 36 Impairment of Assets and then subject the asset to depreciation or amortization. PROBLEMS 31. During 2020, Delta Inc. incurred research and development costs as follows: Experimental and development costs of a new process patented in December 2020 Testing for evaluation of new products Modification of the formulation of a chemical product Research and development costs reimbursable under a contract with Quality Chemicals Corporation

P250,000 300,000 150,000

500,000

What amount should Delta report as research and development expense in its income statement for the year ended December 31, 2020? a. P 0 c. P700,000 b. P450,000 d. P950,000

32. Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on January 1, 2015 for P5,400,000. On January 1, 2017, a new patent is received for an improved version of the same drug. The new patent has a legal and useful life of twenty years. What is the amortization expense for 2017? a. 900,000 c. 180,000 b. 200,000 d. 300,000 33. Rave Company developed a trademark to distinguish its product from those of its competitors. Through advertising and other means, the company is seeking to establish significant product identification to increase future sales. The similarity between the trademark costs and other intangible and operating costs has caused some confusion over property accounting. The following items are being treated as part of the cost of the trademark: Marketing research to study consumer tastes Design costs of trademark Legal fees of registering trademark Advertising to establish recognition of trademark Registration fee with Patent Office

P 400,000 1,500,000 150,000 200,000 50,000

Through renewals, the trademark is expected to have an unlimited life. The cost to be capitalized as trademark should be: a. P1,700,000 c. P2,300,000 b. P1,900,000 d. P2,100,000 Use the following information for answering questions 34 and 35: Cam Software Company is an established computer software company. In 2018, the firm incurred the following costs in the process of designing, developing and producing a new software program using the JAVA technology to access the Internet: Designing and planning P1,000,000 Code development 1,500,000 Testing 500,000 Production of product master 2,500,000 In 2019, Cam incurred P1,000,000 in costs to produce the software program for sale in 2019. The costs of designing and planning, code development and testing were all incurred before the technological feasibility of the product was established. Cam began marketing the software program in 2019 and earned revenues of P2,400,000 in 2019. Cam estimates that total revenues over the 4-year life of the product will be P12,000,000. At the end of 2019, Cam was offered P4,000,000 for the rights to distribute the software.

34. How much of the R and D and production costs will be expenses in 2018? a. P5,500,000 b. P3,000,000

c. P3,500,000 d. P3,625,000

35. How much of the R and D and production costs will be expensed in 2019? a. P1,625,000 b. P1,500,000

c. P700,000 d. P875,000

36. At the beginning of the current year, Boracay Company bought a trademark from Lamitan Company for P3,000,000. The entity retained an independent consultant who estimated the trademark´s life to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan Company. What is the carrying amount of the trademark at the year-end? a. 3,000,000 c. 2,850,000 b. 1,500,000 d. 0 37. Northstar Company acquired a registered trademark for 600,000. The trademark has a remaining legal life of 5 years but can be renewed every 10 years for a nominal fee, The entity was expected to renew the trademark indefinitely. What amount of amortization expense should be recorded for the trademark in the current year? a. 120,000 c. 40,000 b. 15,000 d. 0 38. The general ledger of the ABC Corp. as of December 31, 2020 included the following accounts: Restricted deposits in foreign countries P 2,000 Deposits with advertising agency (will be used to promote goodwill) 3,000 Excess of cost of investment in stock over book value of net assets of acquired subsidiary 4,000 Leasehold 5,000 Trademarks 1,000 In the preparation of ABC’s balance sheet as of December 31, 2020, the total intangible assets that should be shown is: a. P6,000 b. P9,000

c. P10,000 d. P13,000

39. Sailor Company's has bought the entity from previous owners through a leveraged management buy-in (MBI). The company incurred a total transaction cost related to the MBI. In the amount of P5,000,000 which was broken into the following specific costs: P1,000,000 related to the issue of own equity instrument, P1,500,000 related to the issue of debt instrument and P2,500,000 for the consultants and lawyers’ fees. The management proposes to capitalize the P5,000,000 as intangible assets. What amount should the company recognize as at intangible asset? a. none c. P4,000,000 b. P2,500,000 d. P5,000,000 40. Moon Company 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. P675,000 c. P1,680,000 b. P975,000 d. P2,430,000 41. An entity provided the following information about assets in forest plantation: Freestanding trees 5,000,000 Land under trees 900,000 Roads in forest 500,000 Animals related to recreational activities 2,000,000 Rubber trees and grape vines 1,500,000 What total amount should be reported as biological assets? a. 5,000,000 c. 6,500,000 b. 8,500,000 d. 9,900,000 42. Salve Company is engaged in raising dairy livestock. The entity provided the following information during the current year: Carrying amount on January 1 5,000,000 Increase due to purchases 2,000,000 Gain arising from change in fair value less cost of disposal attributable to price change 400,000 Gain arising from change in fair value less cost of disposal attributable to physical change 600,000 Decrease due to sales 850,000 Decrease due to harvest 200,000

What is the carrying amount of the biological asset on December 31? a. 6,950,000 c. 8,000,000 b. 6,000,000 d. 7,150,000 Use the following information for answering questions 43 to 45: The Central Luzon Farms harvested corn with fair value of P350,000 at the date of harvest. Estimated cost to sell is P10,000. At year-end, the fair value declined slightly to P330,000 and no corn has been sold at year-end. On January 15, 2019, all of the corn had been sold for P345,000, the company incurring selling cost of P9,500. 43. At what amount shall the harvested corn be initially recorded? a. P330,000 c. P340,000 b. P335,500 d. P350,000 44. At the year-end statement of financial position, the inventory of corn shall be presented at a. P320,000 c. P335,500 b. P330,000 d. P340,000 45. How much profit or loss did the company realize from the sale of the corn in 2019? a. P 5,500 c. P15,500 b. P15,000 d. P25,000 Use the following information on answering questions 46 and 47: On December 31, 2020, Sony Company reported the following information involving its biological assets: Biological assets, at cost on December 31, 2018 P6,000,000 Fair value surplus on initial recognition at fair value on December 31, 2019 7,000,000 Change in fair value to December 31, 2020 1,000,000 Decrease in fair value due to harvest during 2020 900,000 46. What amount should the biological asset be reported in the December 31, 2020 balance sheet? a. P6,100,000 c. P12,100,000 b. P7,100,000 d. P13,100,000 47. What amount of net gain should Sony Company report in its December 31, 2020 income statement related to the biological asset? a. None c. P1,000,000 b. P100,000 d. P6,100,000

Use the following information for answering questions 48 to 50: Rainbow Company has the following information pertaining to its biological assets for the year 2020: A herd of 100, 2-year-old animals was held at January 1, 2020. Ten animals aged 2.5 years were purchased on July 1, 2020 for P5,400, and ten animals were born on July 1, 2020. No animals were sold or disposed of during the period. Per unit fair values less estimated point of sale costs were as follows: 2.0-year-old animal at January 1, 2020 Newborn animal at July 1, 2020 2.5-year-old animal at July 1, 2020 Newborn animal at December 31, 2020 0.5-year old animal at December 31, 2020 2.0-year old animal at December 31,2020 2.5-year old animal at December 31, 2020 3.0-year old animal at December 31,2020

P5,000 3,500 5,400 3,600 4,000 5,250 5,550 6,000

48. How much of the increase in the fair value of the biological assets due to price change? a. None c. P26,500 b. P25,000 d. P27,500 49. How much of the increase in the fair value of the biological assets due to physical change? a. P75,000 c. P110,000 b. P79,500 d. P118,500 50. What is the fair value of the biological assets as of December 1, 2020? a. P554,000 c. P700,000 b. P581,500 d. P735,000 Use the following information for answering questions 51 and 52: Arlene Company accounted for noncurrent assets using the cost model. On October 30, 2017, the entity classified a noncurrent asset as held for sale. At the date, the carrying amount was P1,500,000, the fair value was estimated at P1,100,000 and the cost of disposal at P150,000. On November 20, 2017, the asset was sold for net proceeds of P800,000. 51. What amount should be reported as impairment loss for 2017? a. 550,000 c. 700,000 b. 400,000 d. 0

52. What amount should be included as loss on disposal in the statement of comprehensive income for the year ended December 31, 2017? a. 550,000 c. 150,000 b. 700,000 d. 0 Use the following for answering questions 53 to 55: On October 1, 2019, Builder Company has a building with a cost of P4,00,000 and accumulated depreciation of P3,100,000. The company commits to a plan to sell the building by February 1, 2020. On October 1, 2019, the building as an estimated selling price of P800,000, and it is estimated that selling costs associated with the disposal of the building will be P120,000. On December 31, 2019, the estimated selling price of the building has increased to P1,200,000, with an estimated selling costs remaining at P120,000. 53. At the time of reclassification as held for sale, what amount should the noncurrent asset held for sale be recognized? a. P680,000 c. P800,000 b. P780,000 d. P900,000 54. What amount of loss should Builder Company recognize at the time the building was reclassified as held for sale? a. None c. P120,000 b. P100,000 d. P220,000 55. As of December 31, 2019, what amount of gain on recovery should Builder Company recognize related to the asset held for sale? a. None c. P220,000 b. P180,000 d. P400,000 56. On January 2, 2020, Chronicle Company is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. Chronicle Company does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backing of uncompleted customer orders. The facility was constructed for a total cost of P6,300,000. Its estimated useful life was for a period of 30 years and with an estimated salvage value of P300,000. As of January 2, 2020, the carrying value of the facility is P4,300,000 and a recoverable value of P4,500,000. As of December 31, 2020, Chronicle Company has yet to complete the customers’ orders and facility has a recoverable amount of P4,275,000. On December 31, 2020, Chronicle Company should classify the facility as a. Property, Plant and Equipment valued at P4,300,000 b. Property, Plant and Equipment at P4,100,000 c. Noncurrent asset held for sale and valued at P4,500,000 d. Noncurrent asset held for disposal and valued at P4,275,000

57. On December 1, 2020 P Company acquired through foreclosure a company comprising land and building that it intends to sell. However, P Company does not intend to transfer the property to a buyer until after it completes renovations to increase the property´s sales value. P Company paid a total lump sum amount of P7,000,000 to acquire the property. As of December 30, 2020, P Company has paid a total amount of P100,000 for the partial renovation of the property and the property is currently selling at P7,600,000. In its December 31, 2020 statement of financial position, P Company should report its held for sale property at a. None c. P7,100,000 b. P7,000,000 d. P7,600,000 Use the following information for answering questions 58 to 60: Surreal Company accounted for noncurrent assets using the revaluation model. On October 1, 2019, the entity classified a land held for sale. At that date, the carrying amount of the land was P5,000,000 and the balance in the revaluation surplus was P1,500,000. At the same date, the fair value of the land was estimated at P5,500,000 and the cost of disposal at P100,000. On December 31, 2019, the fair value less cost of disposal of the land did not change. The land was sold on January 31, 2020 for P6,000,000. 58. What is the impairment loss in 2019? a. 100,000 b. 500,000

c. 400,000 d. 0

59. What is the adjusted carrying amount of the land on December 31, 2019? a. 5.000,000 c. 5,400,000 b. 5,500,000 d. 3.500,000 60. What amount should be reported as gain on disposal of land in 2020? a. 1,000,000 c. 500,000 b. 2,600,000 d. 600,000

ANSWER KEY: THEORIES 1. D. Marketable securities 2. C. R and D costs should be expensed as incurred. 3. C. represent those portions of expenditures for services, made prior to the balance sheet date but not consumed at the balance sheet and will be utilized or consumed in the future normal operating cycles. 4. D. laboratory research aimed at discovery of new knowledge 5. B. initial acquisition 6. B. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity. 7. C. 20 years 8. A. expense costs for patent A and capitalize cost for patent B. 9. C. Formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services 10. D. by systematic charges to expense over the period benefited. 11. B. The fair value of raw land and land improvements may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets. 12. C. Both I and II 13. C. The eventual sale proceeds should be estimated and matched to the profit and loss account over the 30-year period. 14. A. Plants, Harvested cane, Sugar 15. D. Transport and other costs necessary to get the assets to a market 16. D. Quantified description of each group of biological assets is required by PAS 41. 17. D. The fair value of a biological asset or agricultural produce adjusted when entities enter into contracts to sell their biological assets or agricultural produce at a future date. 18. D. Net Realizable Value 19. C. The processing of agricultural produce after harvesting 20. B. PAS 2 21. A. Carrying amount of the asset or disposal group will be recovered through a sale transaction 22. D. The probability is higher than more likely than not 23. B. At the lower of its cost and fair value less cost to sell 24. C. The gain should be recognized but not in excess of the cumulative impairment loss 25. C. The component is actively marketed for sale at an unreasonable price in relation to its cost. 26. D. gain to be included in profit or loss but not in excess of the cumulative impairment loss previously recognized 27. C. Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as held for sale (as adjusted for subsequent depreciation, amortization, or revaluations) and its recoverable amount at the date of the decision not to sell

28. A. Only I is true 29. D. Neither I nor II 30. D. reclassify the asset into its previous classification, measuring it at the lower between its carrying value had the asset not been classified as Held for Safe and its recoverable amount as determined under IAS 36 Impairment of Assets and then subject the asset to depreciation or amortization. PROBLEMS 31. C. P700,000 Experimental and development costs of a new process patented in December 2020 P250,000 Testing for evaluation of new products 300,000 Modification of the formulation of a chemical product 150,000 Total R and D expense P700,000 32. C. 180,000 Cost – January 1, 2015 5,400,000 Amortization for 2015 and 2016 (5,400,000/6 x 2) (1,800,000) Carrying amount – January 1, 2017 3,600,000 Amortization for 2017 (3,600,000/20) 180,000 33. A. 1,700,000 Design costs P1,500,000 Legal fees of registering trademark 150,000 Registration fee with Patent Office 50,000 Total cost of trademark P1,700,000 34. B. 3,000,000 Designing and planning P1,000,000 Code development 1,500,000 Testing 500,000 Total R and D expense P3,000,000 35. A. 1,625,000 Straight line rate (100% / 4) 25% Ratio of current year sales (2,400,000/12,000,000) 20% Cost of producing the software program in 2019 P1,000,000 Amortization of software cost (2,500,000 x 25%) 625,000 Total expense in 2019 P1,625,000 36. A. 3,000,000 The legal life of trademark is 10 years and may be renewed every 10 years. Considering the almost automatic renewal of a trademark, the trademark can be classified as an intangible asset with indefinite life. Accordingly, the cost of trademark is not amortized but tested for impairment at least annually. 37. D. 0

The cost of an intangible asset with indefinite life is not amortized but tested for impairment at least annually. The trademark is an intangible asset with indefinite life 38. C. 10,000 Excess of cost of investment in stock over book value of net assets of acquired subsidiary P 4,000 Leasehold 5,000 Trademarks 1,000 Total P10,000 39. A. None The cost of MBI should not be capitalized as an intangible asset, as they do not in themselves provide access to future economic benefits. The transaction costs on the equity instrument. Issued should be deducted from equity (PFRS3 par. 31 or PFRS 3 par. 53 revised), the cost related to the debt issue should be deducted from the liability and recognized over the term of the loan through an adjustment to the interest cost (PAS 39 por. 43). The consultants' and lawyers’ fees should be added to the cost of the acquisition of the business (PFRS 3 par. 29 or PFRS3 por. 53 revised). 40. A. 675,000 Capitalized Expensed Original cost Purchase price P 600,000 P 900,000 Indirect costs 75,000 105,000 Total 675,000 P 1,005,000 Subsequent cost 750,000 Total costs P 675,000 P 1,775,000 As a result of the unsuccessful litigation on patent B, its purchased price, indirect cost and the unsuccessful litigation cost should be charged outright as expense. The cost to be capitalized should be the purchase price and indirect cost of patent A. Subsequent cost incurred such as fees and other cost of successfully prosecuting or defending a patent should be expensed. (PAS 38) The standard requires that only subsequent cost on an intangible asset that would enable the asset to generate future economic benefits in excess of the original assessed standard of performance can be capitalized as cost of the intangible asset. Litigation cost or legal cost incurred in prosecuting an intangible is considered as cost of maintaining the asset rather than enhancing or increasing its future economic benefits. 41. A. 5,000,000 The land under trees and roads in forest should be included in property, plant and equipment. Under IFRS, animals related to recreational activities as in game parks, and bearer plants, such as rubber trees and grape vines should be accounted for as PPE.

42. A. 6,950,000 Carrying amount on January 1 5,000,000 Increase due to purchases 2,000,000 Gain arising from change in fair value less cost of disposal attributable to price change 400,000 Gain arising from change in fair value less cost of disposal attributable to physical change 600,000 Decrease due to sales (850,000) Decrease due to harvest (200,000) Carrying amount – December 31 6,950,000 43. C. P340,000 Fair value 350,000-10,000 = 340,000 P350,000 Estimated cost to sell (10,000) Initial value P340,000 44. A. P320,000 Fair value 330,000-10,000 = 320,000 P330,000 Estimated cost to sell (10,000) Inventory value at December 31 P320,000 45. C. P15,500 Net Selling Price (345,000-9,500) P335,500 Inventory value at December 31 320,000 Profit on sale 15,500 46. D. P13,100,000 Biological assets, at cost on December 31, 2018 P6,000,000 Fair value surplus on initial recognition at fair value on December 31, 2019 7,000,000 Change in fair value to December 31, 2020 1,000,000 Decrease in fair value due to harvest during 2020 (900,000) Fair value as of December 31, 2020 P13,100,000 47. B. P100,000 Change in fair value to December 31, 2020 1,000,000 Decrease in fair value due to harvest during 2020 (900,000) Net change in fair value – reported in income statement P 100,000 48. D. P27.500 Increase in fair value less estimated point of sale due to price change: 100 (P5,250 – P5,000) P25,000 10 (P5,550 – P5,400) 1,500 10 (P3,600 – P3,500) 1,000 Total P27,500

49. D. P118,500 Increase in fair value less estimated point of sale due to physical change: 100 (P6,000 – P5,250) P75,000 10 (P6,000 – P5,550) 4,500 10 (P4,000 – P3,600) 4,000 10 x P3500 35,000 Total P118,500 50. C. P700,000 Fair value less estimated point of sale cost on January 1, 2020 (100 x P5,000) P500,000 Purchase on July 1, 2020 (10 x P5,400) 54,000 Total P554,000 Increase in fair value less estimated point of sale cost due to price change; 27,500 Increase in fair value less estimated point of sale cost due to physical change: 118,500 Total fair value P700,000 51. A. P550,000 Carrying amount 1,500,000 Fair value less cost of disposal (1,100,000 – 150,000) 950,000 Impairment loss 550,000 52. C. P150,000 Sale price 800,000 Carrying amount on November 20, 2017, date of sale 950,000 Loss on disposal (150,000) 53. A. P680,000 Fair market value (P800,000 – P120,000) 680,000 Carrying value (P4,000,000 – P3,100,000) 900,000 Initial measure of held for sale (lower) 680,000 54. D. P220,000 Carrying value (P4,000,000 – P3,100,000) 900,000 Fair market value (P800,000 – P120,000) 680,000 Loss on reclassification of impairment loss P220,000 Journal Entry for reclassification; Building –Held for sale Loss on held for sale classification Accumulated depreciation – Building Building

680,000 220,000 3,100,000 4,000,000

55. C. P220,000 Fair value as of December 31, 2019 (P1,200,000 – P120,000) P1,080,000 Carrying value 900,000 Fair value date of reclassification 680,000 At the balance sheet date, the noncurrent asset held for sale is remeasured at the lower of its carrying value and its fair market value. Therefore, the noncurrent asset should be remeasured at P900,000 by increasing the initial cost of P680,000 by P220,000 and the increase in the value of the asset is reported immediately as a component of the profit or loss of the period. 56. B. Property, plant and equipment at P4,100,000 Carrying value as of January 2, 2020 4,300,000 Less: 2020 depreciation (P4,300,000 – 300,000/ 20 years) 200,000 Carrying value as of December 31, 2020 P4,100,000 The delay in the timing of the transfer of the facility imposed by the entity (seller) demonstrates that the facility is not available for immediate sale. Therefore, Chronicle Company should not classify the facility as held for sale but continue to classify as held for use and should be valued the usual way for property plant and equipment. 57. A. None The delay in the timing of transfer of the facility imposed by the entity (seller) demonstrates that the facility is not available for immediate sale. P Company should not report the property as held for sale but classify the property as investment property that is to be measured either under the cost model or fair value model 58. A. 100,000 Carrying amount equal to fair value 5,500,000 Fair value less cost of disposal (5,500,000 – 100,000) 5,400,000 Impairment loss for 2019 100,000 - Actually the cost of disposal for revalued asset is recognized as the impairment loss. 59. C. 5,400,000 Adjusted carrying amount on December 31, 2019 equal to Fair value less cost of disposal 5,400,000 60. D. 600,000 Sale Price 6,000,000 Carrying amount 5,400,000 Gain on sale of land 600,000