PROBLEMS

Problem 22-1 Multiple choice (PAS 16)

1. Property, plant and equipment are defined as

a. Tangible assets held for sale in the ordinary course of business.
b. Tangible assets held to earn rentals or for capital appreciation or both.
c. Tangible assets held for use in the production or supply of goods or services and
expected 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.
2. Which is not an essential characteristic of property, plant and equipment?
a. The property, plant and equipment are tangible assets.
b. The property, plant and equipment are used in production and for administrative
purposes.
c. The property, plant and equipment are expected to be used over a period or more than
one year.
d. The property, plant and equipment are subject to depreciation.
3. An item of property, plant and equipment shall be recognized as an asset when
I. It is probable that future economic benefits associated with the asset will flow to the
entity.
II. The cost of the asset to the entity can be measured reliably.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. Major spare parts and standby equipment which are expected to be used over a period of more
than one year shall be classified as
a. Property, plant and equipment
b. Inventory
c. Noncurrent investment
d. Expense
5. Which of the following statements is true concerning recognition of property, plant and
equipment?
I. Most spare parts and servicing equipment are usually carried as inventory and
recognized as expense when consumed.
II. If the spare parts and servicing equipment can be used only in connection with an item
of property, plant and equipment and their use is expected to be irregular, they are
accounted for as property, plant and equipment and are depreciated over their useful
life or useful life of the related asset, whichever is shorter.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
6. Under the cost model, subsequent to initial recognition as an asset, an item of property, plant
and equipment shall be carried at
a. Cost
b. Revalued amount
c. Cost less accumulated depreciation and any accumulated impairment loss
d. Revalued amount less accumulated depreciation and any accumulated impairment loss
7. The cost of an item of property, plant and equipment comprises all of the following, except:
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Any cost directly attributable in bringing the asset to the location and condition for its
intended use
d. Initial estimate of the cost dismantling and removing the item and restoring the site,
the obligation for which the entity does not incur when the item was acquired.
8. Cost directly attributable to bringing the asset to the location and condition for its intended use
include all of the following, except:
a. Cost of employee benefits not arising directly from the construction and acquisition of
property, plant and equipment
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
9. Cost that are expensed immediately include all of the following, except:
a. Cost of opening a new facility
b. Cost of introducing a new product or service, including cost of advertising and
promotional activities
c. Cost of conducting business in a new location, including cost of staff training
d. Cost of testing whether the asset is functioning properly
 10. Cost that are expensed immediately include all of the following, except:
a. Cost incurred whiles an item capable of operating in a manner intended by management
has yet to be brought into use, or is operated at less than full capacity
b. Initial operating loss
c. Cost of relocating or recognizing part or all of an entity’s operations
d. Professional free arising directly from the acquisition of an item of property, plant and
equipment

Problem 22-2 Multiple choice (PAS 16)

1. It is the present value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
a. Entity-specific value
b. Fair value
c. Value in use
d. Discounted value
2. The cost of an item of property, plant and equipment that is acquired in exchange for a
combination of monetary and nonmonetary asset is measured at the
a. Fair value of the asset given up plus cash payment
b. Fair value of the asset received plus cash payment
c. Carrying amount of the asset given up plush cash payment
d. Carrying amount of the asset received plush cash payment
3. If an entity is able to determine reliably the fair value of the asset given up and the fair value of
the asset received in an exchange transaction, the cost of the asset acquired is measured at
a. Fair value of asset given up
b. Fair value of asset received
c. Either the fair value of asset received or fair value of asset given up
d. Neither the fair value of asset received nor the fair value of asset given up
4. In an exchange having commercial substance
a. Gain or loss is recognized in its entirety
b. A gain or loss is computed by comparing the fair value of the asset received with the fair
value of the asset given up
c. Only gain should be recognized
d. Only loss should be recognized
5. Which of the following nonmonetary exchange transactions has commercial substance?
a. Exchange by assets with no difference in future cash flows
b. Exchange by entities in the same line of business with no difference in future cash flows
c. Exchange of assets with a difference in future cash flows
d. Exchange of an equivalent interest in similar productive assets that causes the entities
involved to remain in essentially the same economic position
6. Which of the following statements is incorrect concerning acquisition of an item of property,
plant and equipment by self-construction?
a. The cost of self-constructed assets is determined using the same principles as for an
acquired asset
b. Any internal profit is eliminated in arriving at the cost of self-constructed asset
c. The cost of abnormal amount of wasted material, labor and other resources incurred
in the production of self-constructed asset is included in the cost of the asset
d. The cost of normal amount of wasted material, labor and other resources incurred in
the production of self-constructed asset is included in the cost of the asset
7. Which of the following terms best describes the removal of an asset from an entity’s statement
of financial position?
a. Derecognition
b. Impairment
c. Write-off
d. Depreciation
8. The carrying amount of an item of property, plant and equipment shall be derecognized
I. On disposal
II. When no future economic benefits are expected from the use or disposal of the asset

a. I only
b. II only
c. Either I and II
d. Neither I nor II
9. Gains and losses arising from the derecognition of an item of property, plant and equipment
shall be determined as the difference between
a. Gross disposal proceeds and the cost of the asset
b. Gross disposal proceeds and the carrying amount of the asset
c. Net disposal proceeds and the cost of the asset
d. Net disposal proceeds and the carrying amount of the asset
10. Entities are encouraged to disclose all of the following information in relation to property, plant
and equipment, except
a. The carrying amount of temporarily idle property, plant and equipment
b. The gross carrying amount of fully depreciated property, plant and equipment still in use
c. The carrying amount of property, plant and equipment classified as held for sale
d. The fair value of property, plant and equipment that is not materially different from
carrying amount when the cost model is used