PHINMA UNIVERSITY OF PANGASINAN

BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2

1ST PERIODICAL EXAMINATION
SET B

1. Government grant in recognition of specific costs is recognized as income

A. Over the same period as the relevant expense
B. Over a maximum of 5 years using straight line
C. Immediately
D. Over a maximum of 5 years using sum of digits
2. A government grant that becomes repayable shall accounted for as'
A. Change in accounting estimate
B. Change in accounting policy
C. Both change in accounting estimate and change in accounting policy
D. Neither a nor b
3. Repayment of grant related to income shall be
A. Recognized as component of other comprehensive income
B. Charged to retained earnings
C. Expensed immediately
D. Applied first against the deferred income balance and any excess shall be recognized
immediately as an expense
4. It is an action by government designed to provide an economic benefits specific to an
entity or a range of entities qualifying under certain criteria.
A. Government grant C. Government takeover
B. Government assistance D. Subvention
5. Government assistance included all of the following except,
A. Free technical advice
B. Provision of guarantee
C. Government procurement policy that is responsible for a portion of the entity’s sales
D. Improved irrigation water system for the benefit of an entire local community
6. Which disclosure is not required in relation to government grant?
A. The accounting policy adopted for government grant including method of
presentation adopted in the financial statements
B. Unfulfilled conditions and other contingencies attaching to government assistance
C. The name of the government agency that gave the grant along with the date of
sanction of the grant by the government agency and the date when cash was
received in case of monetary grant
D. The nature and extent of government grant recognized in the financial statements
and an indication of other form of government assistance from which the entity has
directly benefited.
7. Which is the correct approach in accounting for interest incurred in financing
specifically the construction of property, plant, and equipment?
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 times the estimated cost of the
asset being constructed.
8. When computing the amount of interest cost to be capitalized, the concept of
avoidable interest refers to
A. The total interest cost actually incurred.
B. A cost of capital.
C. That portion of total interest cost which would not have been incurred if expenditures
for asset construction had not been made.
D. That portion of average accumulated expenditures on which no interest cost was
incurred.

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

9. An entity can commence capitalization of borrowing cost on a new construction

project when
A. Loan interest relating to the project starts to be incurred.
B. Technical site planning commences.
C. Expenditures on the project start to be incurred.
D. Construction work commences.
10. Interest revenue earned 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.
11. Capitalization of borrowing cost:
A. Shall be suspended during temporary period of delay.
B. May be suspended only during extended period of delay in which active development
is delayed.
C. Shall never be suspended.
D. Shall be suspended only during extended period of delay in which active development
is delayed.
12. Which is not a disclosure requirement in relation to borrowing cost?
A. Accounting policy adopted for borrowing cost
B. Amount of 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

Use the information for the following four questions.

ABC Inc. purchased a machine for P5,000,000 on January 1, 20X1, and received a
government grant of P2,000,000 for this asset. The award mandates the entity to
produce food goods and sell them at a discount of 20% below market value.
The machine will be depreciated over an 8-year period on a straight-line basis. The
residual value is supposed to be 10% of the purchase price.
13. How much is the income to be recognized in 20x1 under the deferred income
approach?
A. 0 C. 312,500
B. 250,000 D. 562,500
14. How much is the net effect in the 20x1 profit or loss under the deferred income
approach?
A. (562,500) C. 250,000
B. (312,500) D. 0
15. How much is the income to be recognized in 20x1 under the deduction from asset
approach?
A. 0 C. 312,500
B. 250,000 D. 325,000
16. How much is the net effect in the 20x1 profit or loss under the deduction from
asset approach?
A. (325,000) C. 250,000
B. (312,500) D. 0
17. Which of the following gives an accurate definition of government grants under
PAS 20?

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

A. It pertains to assistance by government in the form of transfer of resources to an

entity in return for part or future compliance with absolutely no condition relating to
the operating activities of the entity.
B. It pertains to assistance to government in the form of transfer of resources by an
entity in return for part or future compliance with certain conditions relating to the
operating activities of the entity.
C. It pertains to assistance by government in the form of transfer of resources to an
entity in return for part or future compliance with certain conditions relating to the
operating activities of the entity.
D. It pertains to assistance to government in the form of transfer of resources by an
entity in return for part or future compliance with absolutely no condition relating to
the operating activities of the entity.

Use the information for the following three questions.

ABC Company was constructing an asset that qualified for interest capitalization. The
construction began at the beginning of the current year and was completed at the end of
current year.
The construction cost totaled P36,000,000 and was incurred evenly during the current
year.
The company had the following outstanding liabilities during the entire year of
construction:
8% 2-year note payable P18,000,000
9% 3-year bank loan payable 27,000,000
None of the borrowings were specified for the construction of the qualified asset.
18. What is the capitalization rate to be used to compute for the average borrowing
cost during 2022?
A. 8% C. 8.6%
B. 8.5% D. 9%

19. What amount of borrowing cost shall be capitalized?

A. 1,440,000 C. 2,430,000
B. 1,548,000 D. 2,880,000
20. How much is the interest expense for the current year?
A. 0 C. 2,322,000
B. 1,935,000 D. 2,880,000
21. XYZ Company borrowed P10,000,000 at 10% partly for general purposes and partly
to finance the construction of a building on January 1, 2022. The loan shall be repaid
commencing the month following completion of the building. Expenditures incurred
evenly during the year for the completed building totaled P6,000,000 on December
31, 2018. The company earned interest of P100,000 for the year on the unexpended
portion of the loan. What amount of interest is capitalized on December 31, 2022?
A. 200,000 C. 500,000
B. 300,000 D. 1,000,000
22. The Philippine government grants a huge parcel of land in Ilocos to an entity. The
land has a fair market value of P50,000,000. According to the terms of the award, the
company must build a factory and hire solely Ilocos residents. The factory costs
P80,000,000 and has a 25-year usable life. What is the net effect in the profit or loss
for the year as a result of the transaction?
A. Increase by 1,200,000 C. Increase by 2,000,000
B. Decrease by 1,200,000 D. Decrease by 2,000,000

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

23. The Australian government awarded a grant of P15,000,000 to a corporation to

compensate for huge damages caused by a recent earthquake. What is the net effect
in the profit or loss for the year as a result of the transaction?
A. Increase by 7,500,000 C. Increase by 15,000,000
B. Decrease by 7,500,000 D. No effect
24. A local government official gave ABC Company 5,000 hectares of land near slums
outside the city limits on January 1, 2021. The body receiving the gift was required to
clean up the area and create roads using laborers from the hamlet where the land was
located. The government has established a minimum wage for workers. The complete
process is expected to take three years and cost P10,000,000. This sum will be spent
in three installments: P2,000,000 in 2021, P2,000,000 in 2022, and P6,000,000 in
2023. This property has a fair market value of P12,000,000 on January 1, 2021. What
is the net effect in the profit or loss for the year 2021 as a result of the transaction?
A. Increase by 2,400,000 C. Increase by 2,000,000
B. Decrease by 2,400,000 D. No effect
25. ABC Company purchased a machine for P7,000,000 at the start of the current year
and obtained a government grant of P1,000,000 to help with the capital costs. The
machine will be depreciated over 5 years on a straight-line basis, with a residual value
of P500,000 at the end of that time. What is the net effect in the profit or loss for the
current year as a result of the transaction?
A. Increase by P200,000 C. Increase by P1,100,000
B. Decrease by P200,000 D. Decrease by P1,100,000
26. According to PAS 23, borrowing costs are capitalized when
A. They relate directly to the acquisition, construction or production of a qualifying asset.
B. The entity chooses to capitalize them.
C. They are material and are expected to be incurred over more than one reporting
period.
D. All of these.
27. According to PAS 23, borrowing costs that do not directly relate to the acquisition,
construction or production of a qualifying asset are
A. Capitalized as cost of the qualifying asset.
B. Expensed.
C. Expensed, except when the borrowing costs relate to other assets.
D. Any of these as a matter of accounting policy choice.
28. Which of the following is a qualifying asset?
A. Investment property measured at fair value.
B. Building that is ready for its intended use upon purchase.
C. Inventories that are routinely produced in large quantities on a continuous basis.
D. An application software (intangible asset) that takes 3 years to develop.
29. An entity starts the capitalization of borrowing costs to the cost of a qualifying
asset when
A. Expenditures for the asset are being incurred.
B. Borrowing costs are being incurred.
C. Activities necessary to prepare the asset for its intended use or sale are being
undertaken.
D. All of the above conditions are met.
30. In which of the following instances is the capitalization of borrowing costs under
PAS 23 would most likely be suspended?
A. Construction is temporarily stopped for the curing of concrete.

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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

B. Active development is stopped to give time for the engineers to reevaluate a design
flaw.
C. The construction of a bridge is disrupted by troubled waters.
D. The construction of a building is discontinued because it is condemned by the
government. The resumption of development is uncertain.
31. Which of the following is a qualifying asset?
A. A biological asset measured at fair value less costs to sell
B. A multi-million-dollar executive jet plane that is ready for its intended use upon
purchase
C. A second-hand heavy machinery that takes 2 years to refurbish and customize for its
intended use
D. A long-term note receivable (financial asset)

32. On January 1, 20x1, Entity A obtained a 12%, ₱6,000,000 loan specifically to

finance the construction of a building. The proceeds of the loan were temporarily
invested and earned interest income of ₱180,000. The construction was completed on
December 31, 20x1. How much borrowing costs are capitalized to the cost of the
constructed building?
A. 0 C. ₱540,000
B. ₱480,000 D. ₱720,000

Use the following information for the next three questions:

ABC Company had the following loans outstanding for 20x3,
Specific construction loan P1,000,000 10%
General loan P20,000,000 12%
The entity began the self-construction of a building on January 1, 20X3 and the building
was completed on December31, 20X3.
The following expenditures were made during the year
January 1 P1,000,000
July 1 2,000,000
November 1 3,000,000
33. What is the capitalizable borrowing cost?
A. 300,000 C. 250,000
B. 280,000 D. 100,000
34. What is the cost of the new building?
A. 6,000,000 C. 6,250,000
B. 6,280,000 D. 6,300,000
35. What is the interest expense for 20x3?
A. 2,220,000 C. 2,120,000
B. 2,400,000 D. 0
36. A grant of P30,000,000 was given to an entity by the British government to help
offset safety and environmental costs in the area where the business is located.
P2,000,000, P4,000,000, P6,000,000, and P8,000,000.00 in safety and environmental
expenditures are estimated to be incurred over four years. How much should be the
grant income for the current year?
A. P3,000,000 C. P5,000,000
B. P2,000,000 D. P1,000,000
37. Capitalization of borrowing costs as part of the cost of a qualifying asset shall begin
when the entity
A. Incurs expenditures for the asset.

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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

B. Incurs borrowing costs.

C. Undertakes activities that are necessary to prepare the asset for its intended use or
sale.
D. All of these conditions must be met.
38. Which of the following statements concerning the suspension of capitalization of
borrowing costs is true?
A. Capitalization of borrowing costs shall never be suspended.
B. Capitalization of borrowing costs shall be suspended during extended periods in which
active development of a qualifying asset is suspended.
C. Capitalization of borrowing costs can be suspended when a temporary delay is a
necessary part of the process of getting an asset ready for its intended use or sale,
depending on the circumstances.
D. Capitalization of borrowing costs may be suspended, depending accounting policy of
the entity.
39. Capitalization of borrowing costs shall cease when
A. All the activities necessary to prepare the qualifying asset for its intended use or sale
are substantially complete.
B. No further interest is being incurred.
C. The asset is abandoned or dispose.
D. In no case capitalization of borrowing costs shall cease.
40. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing
cost is equal to
A. Zero.
B. Actual borrowing cost incurred.
C. Actual borrowing cost incurred up to the completion of the asset.
D. Actual borrowing cost incurred up to the completion of the asset minus any
investment income from the temporary investment of the borrowing.
41. If the qualifying asset is financed by general borrowing, the capitalizable borrowing
cost is equal to
A. Actual borrowing cost incurred up to the completion of the asset minus any
investment income from the temporary investment of the borrowing.
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. Average expenditures on the asset multiplied by a capitalization rate or actual
borrowing cost incurred, whichever is higher.
42. Which of the following best differentiates government grants from government
assistance?
A. Government assistance are transfers of resources to an entity by government in
return for past or future compliance with certain conditions relating to the operating
activities of the entity. Government grants is action by government designed to
provide an economic benefit that is specific to an entity or range of entities qualifying
under certain criteria.
B. Government grants are transfers of resources to an entity by government in return for
past or future compliance with certain conditions relating to the operating activities of
the entity. Government assistance is action by government designed to provide an
economic benefit that is specific to an entity or range of entities qualifying under
certain criteria.
C. Government assistance are transfers of resources from one entity to another entity by
government in return for past or future compliance with certain conditions relating to

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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

the operating activities of the entity. Government grants is action by government

designed to provide an economic benefit that is specific to an entity or range of
entities qualifying under certain criteria.
D. Government grants are transfers of resources from one entity to another entity by
government in return for past or future compliance with certain conditions relating to
the operating activities of the entity. Government assistance is action by government
designed to provide an economic benefit that is specific to an entity or range of
entities qualifying under certain criteria.
43. Government grants
A. Excludes the form of grants which cannot reasonably have a value placed upon them.
B. Includes the form of grants which cannot reasonably have a value placed upon them
C. Assistance provided by a government of another country.
D. Given in return for favor that is unconstitutional.
44. Statement I: The capitalization or non-capitalization of borrowing costs will depend
on the amount of related borrowing.
Statement II: Generally, an entity has the unilateral choice regarding the
capitalization or non- capitalization of its borrowing costs.
Statement III: Qualifying assets are those assets that take a substantial period of time
before they become ready for intended use.
Statement IV: Borrowing costs related to assets other than qualifying assets are not
capitalized.
Statement Statement Statement Statement
I II III IV
A. False True True True
B. False True False True
C. True True False False
D False False True True
.
45. Borrowing costs include which of the following?
I. Interest expense calculated using the effective interest method.
II. Interest in respect of finance lease liabilities.
III. Exchange differences arising from foreign currency borrowings to the extent that they
are regarded as an adjustment to interest costs.
IV. Cost of equity.
A. I and II C. III and IV
B. I, II, and III D. I, II, III, and IV
46. Which of the following statements is true concerning the capitalization of borrowing
costs?
I. Borrowing costs that are directly attributable to a qualifying asset shall be capitalized
as part of the cost of that asset.
II. Borrowing costs that are not directly attributable to a qualifying asset shall be
capitalized as part of the cost of that asset.
III. Borrowing costs that are directly attributable to a qualifying asset shall be expensed
as incurred.
IV. Borrowing costs that are not directly attributable to a qualifying asset shall be
capitalized as part of the cost of that asset shall be expensed as incurred.
V. Borrowing costs, whether or not directly attributable to a qualifying asset shall be
capitalized as part of the cost of that asset.
VI. Borrowing costs, whether or not directly attributable to a qualifying asset shall be
expensed as incurred.

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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

A. I and IV C. V only
B. II and III D. VI only
47. Which of the following approaches is used in the accounting for government grants
under PAS 20?
A. Capital Approach C. Gentle Approach
B. Income Approach D. Direct Approach
48. Which of the following principles applies most to the accounting for government
grants?
A. Accrual Basis C. Materiality
B. Cash Basis D. Prudence
49.On September 1, 20x1, Entity A, a private university, receives P1M cash as
government grant conditioned on the acquisition of computers to be used in Entity A's
I.T. department. Entity A acquires the computers on November 1, 20x1, at which date the
computers are available for their intended use. Entity A recognizes depreciation on a
monthly basis. When should Entity A starts recognizing income from the government
grant?
A. September 1, 20x1 C. November 30, 20x1
B. November 1, 20x1 D. December 31, 20x1
50.Monetary grants are measured at
A. the amount of cash received C. nominal amount
B. the fair value of the amount D. a or b, whichever is more
receivable appropriate
51.According to PAS 20, government grants are presented in the financial statements
using
A. a gross presentation. C. a functional presentation.
B. a net presentation. D. a or b
52.Non-monetary grants are measured at
A. the fair value of the non-monetary asset.
B. the amount of cash received or receivable.
C. nominal amount.
D. a or c

Use the following information for the next three questions:

On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government
conditioned on the construction of a building on the lot. Entity A started immediately the
construction and it was completed on December 31, 20x1 for a total cost of ₱1,000,000.
The building has an estimated useful life of 10 years and zero residual value.
53.How much is the income from government grant in 20x1 and 20x2, respectively?

20x1 20x2
A. 0 ₱200,000
B. ₱200,000 0
C. 0 ₱20,000
D. ₱20,000 ₱20,000

54.How much is the carrying amount of the building on December 31, 20x2 under the
following presentations?

Gross Presentation Net Presentation

A. ₱1,000,000 ₱800,000
B. ₱900,000 ₱720,000
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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

C. ₱800,000 ₱640,000
D. ₱800,000 ₱533,333

55.How much is the depreciation expense recognized in 20x3 under the following
presentations?
Gross Presentation Net Presentation
A. ₱100,000 ₱80,000
B. ₱100,000 ₱100,000
C. ₱80,000 ₱100,000
D. ₱80,000 ₱80,000

56.On January 1, 20x1, Entity A receives a financial aid from the government amounting
to ₱1,000,000 as compensation for losses it has incurred on a recent calamity. How much
income from government grant will Entity A recognize in 20x1?
A. ₱1,000,000 C. ₱53,334
B. ₱100,000 D. 0
A.

Use the following information for the next two questions:

On January 1, 20x1, Entity A had the following general borrowings. Construction was
completed on December 31, 20x1. A part of the proceeds was used to finance the
construction of a qualifying asset:
12% bank loan (1.5 years) ₱1,000,000
10% bank loan (3 years) ₱8,000,000
Expenditures made on the qualifying asset were as follows:
January 1 ₱5,000,000
March 1 ₱4,000,000
August 31 ₱3,000,000
December 1 ₱2,000,000

57.How much borrowing costs are capitalized to the cost of the constructed qualifying
asset?
A. ₱1,045,000 C. ₱970,900
B. ₱1,026,667 D. ₱920,000
58.How much is the cost of the qualifying asset on initial recognition?
A. ₱15,045,000 C. ₱14,920,000
B. ₱14,970,900 D. ₱13,010,000
59.PAS 23 does not require which of the following disclosures?
A. The amount of borrowing costs capitalized during the period.
B. The capitalization rate used to determine the capitalizable borrowing costs.
C. Separate presentation of qualifying assets from other assets either on the face of
the statement of financial position or in the notes.
D. PAS 23 requires the disclosure of all of this information.
60.Government Grants are recognized only when there is reasonable assurance that the
entity
A. Will comply with the conditions attaching to them.
B. The grants are received.
C. The grants will be received.
D. A and C

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

61.In relation to a benefit included in the term ‘government assistance’, are the following
statements true or false according to PAS 20 Government grants and government
assistance?
I. The provision of infrastructure in developing areas is a benefit.
II. The imposition of trading constraints on competitors is a benefit.

Statement Statement
1 2
A. False False
B. False True
C. True False
D True True
62. This is defined as assistance by government in the
.
form of transfer of resources to an entity in return for
past or future compliance with certain conditions relating to the operating activities of
the entity
A. Government grant C. Government donation
B. Government assistance D. Government aid
63.Government grant shall be recognized when there is a reasonable assurance that
A. The entity will comply with the conditions of the grant
B. The grant will be received
C. The entity will comply with conditions of the grant and the grant will be received.
D. The grant must have been received.

Use the following information for the next two questions:

On January 2, 20x1, ABC Corporation received a grant of P20,000,000 to build and run a
power plant in an economically backward area. The secondary condition attached to the
grant is that the entity should directly distribute the necessary needed power to the area
at a rate that is much lower than the prevailing power rate in other advance areas. The
power plant is to be depreciated using the straight-line method over a period of 10
years.
The power plant was completed at the end of year 20x1 at cost of P50,000,000 and
started producing and distributing power to the backward area at rate which is at par
that the prevailing rates in other advance areas. On July 1, 20x3 the government
demanded from ABC Company the repayment of the grant due to the nonfulfillment of
the conditions.

64.What is the carrying value of the power plant as of July 1, 20x3, assuming at the time
of initial recognition the grant received was recognized as a deferred income?
A. P40,000,000 C. P45,000,000
B. P42,500,000 D. P50,000,000
65.What is the carrying value of the power plant as of July 1, 20x3, assuming at the time
of initial recognition the grant received was recognized as a reduction of the related
asset?
A. P40,000,000 C. P45,000,000
B. P42,500,000 D. P50,000,000
66.On January 2, 20X1, ABC Company received a consolidated grant of P240,000,000.
Three-fourths of the grant is to be utilized to purchase a college building for students
from underdeveloped or developing countries. The balance of the grant is for subsidizing
the tuition costs of those students for four years from the date of the grant. The
expected college life of the building is 10 years and the company uses the straight-line

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BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

method of depreciation. What amount of the grant is recognized as income for the year
ended December 31, 20X1?
A. P15,000,000 C. P33,000,000
B. P18,000,000 D. P60,000,000
67.Which of the following may not be considered a qualifying asset?
A. A power generation plant that normally takes two years to construct.
B. An expensive private jet that can be purchased from a local 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.
68.Assets that qualify for interest capitalization include
A. Asset under construction for an entity's use.
B. Asset that is ready for the intended use.
C. Asset that is not currently being used.
D. All of these assets qualify for interest capitalization.
69.Which of the following costs may not be eligible for capitalization as borrowing cost?
A. Interest on bonds issued to finance the construction of a qualifying asset.
B. Amortization of discount or premium relating to borrowings that qualify for
capitalization.
C. Imputed cost of equity.
D. Exchange difference arising from foreign currency borrowing regarded as an
adjustment to interest cost pertaining to a qualifying asset.
70.Which statement about the capitalization of borrowing cost as part of the cost of a
qualifying asset is true?
A. If funds come from general borrowings, the amount to be capitalized is based on
the weighted average amount of expenditures.
B. Capitalization always continues until the asset is brought into use.
C. Capitalization always commences as soon as expenditure of the asset is incurred.
D. Capitalization always commences as soon as interest on relevant borrowings is
being incurred.

Use the information for the following five questions.

ABC company had a 10% P3,000,000 specific construction loan and 12% P25,000,000
general loan outstanding during 2015 and 2016. The entity began the self-construction
of a building on January 1, 2015 and was completed on December 31, 2016. The
expenditure were made during 2015 and 2016:
January 1, 2015 4,000,000
April 1, 2015 5,000,000
December 1, 2015 3,000,000
March 1, 2016 6,000,000
71.What amount of interest is capitalized as cost of the building in 2015?
A. 3,300,000 C. 900,000
B. 1,380,000 D. 880,000
72.What is the cost of the building to date December 31, 2015?
A. 12,880,000 C. 13,380,000
B. 12,900,000 D. 15,300,000
73.What is the cost of building on December 31, 2016?
A. 10,100,000 C. 19,980,000
B. 18,000,000 D. 20,988,000
74.What amount of interest expense should be reported for 2016?
A. 3,330,000 B. 3,000,000

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

C. 1,212,000 D. 912,000
75.What is the cost of building, assuming the building was completed on June 30, 2016?
A. 18,000,000 C. 19,884,000
B. 19,377,000 D. 20,868,000
76.On January 2, 20X1, ABC Corporation received a grant of P30,000,000 to install and
run a windmill in an economically backward area. ABC Corporation has estimated that
such a windmill would cost P50,000,000 to construct. The secondary condition attached
to the grant is that the entity should hire labor in the local market (i.e. from the
economically backward area where the windmill is located) instead of employing workers
from other parts of the country. It should maintain a ratio of 1:1 local worker from outside
in its labor force for the next 5 years. The windmill is to be depreciated using the
straight-line method over a period of 10 years. What amount of income related to the
grant received should ABC Corporation recognize in its income statement for the year
ended December 31, 20X1?
A. None C. ₱5,000,000
B. ₱3,000,000 D. ₱6,000,000

Use the following information for the next two questions:

On January 2, 20x1, ABC Company received a grant of P60,000,000 to compensate it for
costs it incurred in planting trees over a period of five years. Brand Company will incur
such cost in this manner:
Year 20X1 20X2 20X3 20X4 20X5
s
Cost ₱2,000,0 ₱4,000,0 ₱6,000,0 ₱8,000,0 ₱10,000,0
s 00 00 00 00 00
77.What amount of income should ABC Company recognize at the end of year 20x4?
A. ₱8,000,000 C. ₱16,000,000
B. ₱12,000,000 D. ₱20,000,000
78.What amount of income should ABC Company recognize at the end of year 20x5?
A. ₱8,000,000 C. ₱16,000,000
B. ₱12,000,000 D. ₱20,000,000

Use the following information for the next three questions:

ABC Company participates in a 'cap and trade' for emission rights and is allocated on
January 2, 20x2, free of charge, allowances of 10,000 tons of carbon dioxide during the
calendar year 20x2. The market price of an allowance (equivalent to one tone of carbon
dioxide) on January 2, 20x2 is P20 giving a fair value of P200,000. On June 30, 20x2, the
company has emitted 6,000 tons of carbon dioxide and expects its emissions for the full
year to be 12,500 tons. The market price for allowances has risen to P22 per tons. On
December 31, 20x2 the company has emitted 12,500 tons and market price of
allowances is P24 per tons. The company uses the fair value model to account for the
allowances.

79.What amount of deferred income should the company recognize on January 2, 20x2?
A. None C. P200,000
B. P132,000 D. P220,000
80.What amount of realized income should the company recognize on June 30, 20x2
based on the actual tons of carbon dioxide emitted?
A. None B. P96,000

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

C. P132,000 D. P200,000
81.If the company uses the full market value approach, what amount of liability on
emission should the company recognize on June 30, 2012?
A. None C. P200,000
B. P132,000 D. P220,000
82.On January 2, 20x1, ABC Company received a grant of P60,000,000 to compensate it
for costs it incurred in planting trees over a period of five years. ABC Company will incur
such cost in this manner:
Year 20X1 20X2 20X3 20X4 20X5
s
Cost ₱2,000,0 ₱4,000,0 ₱6,000,0 ₱8,000,0 ₱10,000,0
s 00 00 00 00 00

Actual costs incurred in planting the trees showed P2,000,000 and P4,000,000 in years
20x1 and 20x2, respectively. However, in 20x3 and up to year 20x4, the company has
stopped planting trees.
Due to the non-fulfillment of its obligation, the government is demanding an immediate
repayment of the grant in the amount of 250,000.000 which is considered reasonable.
What amount should be recognized as an expense related to the repayment of grant?
A. ₱2,000,000 C. ₱44,000,000
B. ₱4,000,000 D. ₱50,000,000
83.On January 1, 201x3 ABC Company borrowed P6,000,000 at an annual interest rate of
10% to finance specifically the cost of building an electricity generating plant.
Construction commenced on January 1, 20X3 with a cost P6,000,000.
Not all the cash borrowed was used immediately, so interest income of P80,000 was
generated by temporarily investing some of the borrowed funds prior to use. The project
was completed on November 30, 20X3.
What is the carrying amount of the plant on November 30, 20X3?
A. 6,000,000 C. 6,520,000
B. 6,470,000 D. 6,550,000
84.On January 1, 20X3, ABC Company took out a loan of P24,000,000 in order to finance
specifically the renovation of a building. The loan carried annual interest at 10%.
The renovation work started on the same date. Work on the building was substantially
complete on October 31, 20X3.
The loan was repaid on December 31, 20X3 and P200,000 investment income was
earned in the period to October 31 on the proceeds of the loan not yet used for the
renovation.
What amount of capitalizable borrowing cost should be included in the cost of the
building?
A. 2,400,000 C. 2,000,000
B. 2,200,000 D. 1,800,000

Use the following information for the next two questions:

ABC Company was constructing an asset that qualified for interest capitalization. The
construction began at the beginning of the current year and was completed at the end of
current year.
The construction cost totaled P12,000,000 and was incurred evenly during the current
year. The average expenditures on the asset totaled P6,000,000.

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

The entity had outstanding notes payable during the entire year of construction
comprising P6,000,000 8% interest and P9,000,000 9% interest.
None of the borrowings were specified for the construction of the qualifying asset.
85.What amount of interest should be capitalized?
A. 480,000 C. 810,000
B. 516,000 D. 960,000
86.What is the interest expense for the current year?
A. 960,000 C. 645,000
B. 774,000 D. 0
87.During 20x3, ABC Company constructed a new facility at a cost of P30,000,000.
The expenditures for the building, which was finished late in 20x3, were incurred evenly
during the year. The weighted average expenditure totaled P15,000,000.
The entity had the following loans outstanding on December 31, 20x3:
 10% note to finance specifically the construction, dated January 1, 20x3,
P10,000,000. This note is unpaid on December 31, 20x3.
Investments were made on the proceeds from this loan and income of P100,000 was
realized in 20x3.
 12% 20-year bonds issued at face amount on April 30, 20x2, P30,000,000.
 8% 5-year note payable, dated March 1, 20x2, P10,000,000.
What amount of interest is capitalized as cost of the new building?
A. 1,400,000 C. 1,500,000
B. 1,450,000 D. 1,550,000
88.During 20x2, ABC Company constructed asset costing P5,000,000. The weighted
average expenditures totaled P3,000,000. To help pay specifically for construction,
P2,200,000 was borrowed at 10% on January 1, 20x2.
Funds not needed for construction were temporarily invested in short-term securities
yielding P45,000 in interest revenue.
Other than the construction funds borrowed, the only other debt outstanding during the
year was a P2,500,000, 10-year, 9% note payable dated January 1, 20x1.
What amount of borrowing cost should be capitalized during 20x2?

A. 150,000 C. 300,000
B. 247,000 D. 472,000
89.ABC Company borrowed P4,000,000 on a 10% note payable to finance a new
warehouse which the entity is constructing for own use.
The only other debt of the entity is a P6,000,000, 12% mortgage payable on an office
building.
At the end of the current year, average expenditures on the new warehouse totaled
P4,750,000.
What amount should be capitalized as interest for the current year?
A. 400,000 C. 490,000
B. 475,000 D. 522,500

Use the information for the following four questions.

On January 1, 2018, ABC agreed to provide XYZ with a P5,000,000 three-year, zero
interest bearing loan evidenced by promissory note. The prevailing rate of interest for
the loan of this type is 10%.
90.What is included in the journal entry to record the loan and grant?
A. Debit discount on note payable P1,250,000
B. Credit deferred grant income P1,250,000

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

C. Credit note payable P5,000,000

D. All of the above are included in the journal entry
91.What is the interest expense for 2018?
A. 500,000 C. 125,000
B. 375,000 D. 750,000
92.What is the grant income for 2018?
A. 625,000 C. 500,000
B. 875,000 D. 375,000
93.What is the carrying amount of the note payable on December 31, 2019?
A. 5,000,000 C. 4,125,000
B. 4,250,000 D. 4,537,500

Use the information for the following four questions.

On January 1, 2022, ABC Co. had the following borrowings made for general purposes, a
part of the proceeds was used to finance the construction of a high-rise building:
12% short-term note P5,000,000
14% 3-year bank loan 9,000,000
16% 5-year note 11,000,00
The construction of the high-rise building was started immediately and expenditures
incurred on the building were as follows:
January 1 P2,400,000
March 31 1,100,000
July 31 1,800,000
October 1 2,700,000
December 31 150,000
94.What is the weighted average expenditures on the high-rise building during 2022?
A. 4,075,000 C. 4,891,667
B. 4,650,000 D. 8,150,000
95.What is the capitalization rate to be used to compute for the average borrowing cost
during 2022?
A. 12% C. 14.48%
B. 14% D. 15.10%
96.How much is the capitalizable borrowing cost for the year 2022?
A. 673,320 C. 2,946,680
B. 702,150 D. 3,620,000
97.How much is the interest expense for the year 2022?
A. 673,320 C. 2,946,680
B. 702,150 D. 3,620,000

Use the information for the following three questions.

On January 1, 2022, ABC Company borrowed P30,000,000 at an annual interest rate of
12% to finance specifically the cost of building a manufacturing plant. Construction
commenced on January 1, 2022 with a cost of P30,000,000.
Not all the cash borrowed was used immediately, so the interest income of P400,000 was
earned during the period up to the completion of the plant by temporarily investing
some of the borrowed funds prior to use. The manufacturing plant was completed on
October 31, 2022.

98.How much is the capitalizable borrowing cost for 2022?

A. 2,600,000 B. 3,000,000

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 PHINMA UNIVERSITY OF PANGASINAN
BAM 199– INTERMEDIATE ACCOUNTING 1 PART 2
1ST PERIODICAL EXAMINATION
SET B

C. 3,200,000 D. 3,600,000
E.
99.How much is the interest expense for 2022?
A. 0 C. 600,000
B. 400,000 D. 1,000,000
100.What is the carrying amount of the plant on December 31, 2022?
A. 30,000,000 C. 33,000,000
B. 32,600,000 D. 33,200,000

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