Meirose Manlangit

BSAC IV A
Chapter 31SMEs Property Plant and Equipment

1. Problem: On January 1, 2015, an SME acquired a building for P50, 000,000.

On December 31, 2015, management assessed that the useful life of the
building is 50 years from the date of acquisition with residual value of P10,
000,000. The fair value of the building on the same date is P60, 000,000. On
December 31, 2017, SME reassessed that the useful life of the building is 40
years from January 1, 2017 with residual value of P5,000,000. The fair value
of the building on December 31, 2017 is P45,000,000.
1. What is the carrying amount of the building on December 31,
2015
a. 50,000,000
b. 49,000,000
c. 65,000,000
d. 49,200,000

ANSWER B
Cost 50,000,000
Accumulated Depreciation (50,000,000- 10,000,000/50)
( 800,000)
Total 49, 200, 000

2. What is the depreciation for 2017?

a. 1,085,000
b. 1,210,000
c. 968,000
d. 800,000

ANSWER A
Cost 50,000,000
Accumulated Depreciation (50,000,000- 10,000,000 *2)
(1,600,000)
Total 48, 400, 000

3. What is the impairment loss for 2017?

a. 3,400,000
b. 2,315,000
c. 2,190,000
d. 0

ANSWER B
Carrying Amount (12/31/16) 48, 400, 000
Depreciation (2017) ( 1,
085, 000)
Carrying amount (12/31/17) 47,
315, 000
Meirose Manlangit
BSAC IV A
Fair value (12/31/17) (45, 000,
000)
Impairment Loss 2, 315, 000
4. What is the carrying amount of the building on December 31,
2017after recognition of impairment loss?
a. 47,315,000
b. 47,600,000
c. 45,000,000
d. 43,875,000

Answer C

2. Property, plant and equipment are defined as

a. Tangible assets held for sale
b. Tangible assets held to earn rentals
c. Tangible assets held for use in the production or supply of goods or
services and expects to be used during more than one reporting period
d. Tangible assets held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes and
expected to be used during more than one reporting period
ANSWER D
3. As SME must measure property, plant and equipment after initial recognition
at
a. Cost
b. Cost less any accumulated depreciation less any accumulated
impairment losses
c. Cost less any accumulated depreciation
d. Cost plus the cost of day to day servicing
ANSWER B
4. On January 1, an SME acquired a machine at a certain coat. The machine was
installed and ready for use intended by management on February 1. However.
Because of unexpected delay in retaining the staff to operate the machine,
production began on March I. When must the entity start to depreciate the
machine>
a. January 1
b. February 1
c. March 1
d. No depreciation
ANSWER B
5. What depreciation method is most appropriate for the significant part of an
aircraft?
a. Straight line method for all parts of the aircraft
b. Production method based on air miles flown for the jet engine and
straight line method for all other parts
c. Production method for all parts
d. Diminishing balance method for all parts
ANSWER B