LAND, BUILDING AND MACHINERY

1. When an entity purchases land and a building and immediately tears down the building, the cost
incurred to tear down the building is
a. Expensed immediately
b. Added to the cost of the plant
c. Added to the cost of the land
d. Allocated to the cost of the plant and cost of the land on a prorata basis
2. An entity purchased land to be used as the site for the construction of a plant. Timber was cut
from the building site. The proceeds from the sale of timber should be
a. Credited to income
b. Netted against the cost to clear the land and expensed as incurred
c. Deducted from the cost of the plant
d. Deducted from the cost of land
3. The cost of land includes all of the following, except
a. Commission related to acquisition
b. Property tax after date of acquisition assumed by the purchaser
c. Property tax to date of acquisition assumed by the purchaser
d. Cost of survey
4. The cost of land does not include
a. Cost of grading, filling, draining and clearing
b. Cost of removing old building
c. Cost of improvement with limited life
D. Special assessment
5. The term betterment refers to
a. An expenditure made for new facilities with increase capacity
b. An expenditure made to restore capacity after abandonment or retirement
c. An expenditure made to improve existing facilities by increasing capacity
d. An expenditure made to help insure continuity of service capacity
6. The cost of building includes all of the following, except
a. Any renovating or remodeling cost incurred to put the building purchased in a condition for
the intended use
b. Cost of excavation
c. Expenditure for service equipment and fixture made a permanent part of the structure
D. Cost incurred to have existing building removed to make room for new construction
7. An improvement made to a machine which increased the fair value and production capacity
without extending the useful life should be
a. Expensed immediately
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account
8. Which of the following subsequent outlays should be expensed immediately?
a. Expenditure made to increase the efficiency or effectiveness of an existing asset
b. Expenditure made to extend the useful life of an existing
c. Expenditure made to maintain an existing asset in operating condition
d. Expenditure made ti add new asset
9. An expenditure made in connection with a machine being used by an entity should be
a. Expensed if it merely extends the useful life but does not improve the quality
b. Expensed if it merely improves the quality but does not extend the useful life
c. Capitalized if it maintains the machine in normal operating condition
d. Capitalized if it increases the quantity of units produced by the machine
10. Gain or loss from disposal of plant asset is equal to the difference between
a. Fair value of the asset and the carrying amount

b. Net realizable value and the carrying amount

c. Net proceeds from disposal and the cost of the asset
d. Net proceeds from disposal and the carrying amount of the asset
11. Noeme company commenced operations at the beginning of the current year. The following costs
are incurred by the entity:
Payment for land and an old building which is to be demolished
1,000,000
Payment of property taxes in arrears
130,000
Title search and insurance
50,000
Option paid for an alternative land which was not acquired
30,000
Cost of relocating squatters
10,000
Special assessment for city improvements on water and sewer system
150,000
Demolition of old building, net of salvage of P10,000
100,000
Survey before construction of new building
60,000
Contract price for factory building
5,000,000
Architect fee
230,000
Building permit or payment to city hall for approval of building construction
120,000
Excavation before new construction
110,000
Liability insurance during construction
55,000
Safety fence around construction site
35,000
Safety inspection on building
30,000
Removal of safety fence after completion of factory building
20,000
New fence surrounding the factory
80,000
Driveways, parking bays and safety lighting
550,000
Cost of trees, shrubs and other landscaping
250,000
What amount should be reported respectively as initial measurement of the land and building?
a. 1,500,000 and 5,600,000
c. 1,610,000 and 5,490,000
b. 1,440,000 and 5,660,000
d. 2,380,000 and 5,600,000
12. During the current year, Jocelyn company purchased a second hand machine at a price of
P5,000,000. A cash payment of P1,000,000 was made and a tow-year, noninterest bearing note
was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate
that the used machine has a second hand market value of P4,500,000. A new machine would cost
of P6,500,000. The following costs were incurred during the year:
Cost of removing old machine that is replaced
350,000
Cash proceeds from the sale of the old machine replaced
100,000
Cost of hauling the machine from vendor to entity premises
40,000
Overhaul and repairs to recondition machine prior to use
220,000
Cost of installation
190,000
Cost of testing machine prior to use
150,000
Safety device added to the machine
300,000
Cost of spare parts to cover breakdowns
80,000
Cost of repairing damage to machine caused when the machine was dropped
during installation
50,000
Repairs incurred during the first year of operation
160,000
Cost of training workers to operate the machine
25,000
What total amount should be capitalized as cost of the second hand machine?
a. 5,900,000
b. 5,400,000
c. 5,650,000
d. 5,425,000
13. Paula company acquired a machine at the beginning of the current year:
Cash paid for machine, including VAT of P96,000
Cost of transporting machine
Labor cost of installation by expert fitter
Labor cost of testing machine
Cost of safety rails and platform surrounding machine
Cost of water device to keep machine cool
Cost of adjustment to machine to make it operate more efficiently
Estimated dismantling cost to be incurred as required by contract
Insurance cost for the current year
Cost of training personnel who will use the machine
What total amount should be capitalized as cost of the machine?
a. 1,135,000
b. 1,231,000
c. 1,200,000
d. 1,150,000

896,000
30,000
50,000
40,000
60,000
80,000
75,000
65,000
15,000
25,000