Deck 5: Property, Plant and Equipment

Question 1

Gemma Limited acquired a number of assets for $400 000 cash. The fair values of the assets on date of acquisition were: building $320 000, furniture and fittings $80 000. The correct journal entry to record this acquisition is:

A) DR Property, plant and equipment $400 000 CR Cash $400 000
B) DR Property, plant and equipment $440 000 CR Cash $440 000
C) DR Building $320 000 DR Furniture and fittings $ 80 000
CR Cash $400 000
D) DR Building $352 000 DR Furniture $ 88 000
CR Cash $440 000

Answer 1

C

Question 2

Under the cost model, after initial recognition of a property, plant and equipment asset the item must be carried at its:

A) cost less accumulated depreciation and less accumulated impairment losses.
B) historical cost.
C) initial cost.
D) net present value.

Answer 2

A

Question 3

Property, plant and equipment are assets that:

A) are expected to be used up within twelve months from purchase date.
B) are physical in nature.
C) are held for resale within the current period.
D) have a remaining productive life of less than one year.

Answer 3

B

Question 4

Depreciation is a process that is designed to:

A) allocate the cost of an asset across its useful life to an entity.
B) reduce the carrying amount of an asset to reflect the diminishing fair value of the asset.
C) spread the cost of an asset across a period no greater than 10 years.
D) reflect the change in value of an asset due to advances in technology.

Question 5

Wombat Limited applies the straight-line method of depreciation to its non-current assets. The cost of the buildings was $400 000, the depreciable amount is $350 000, the residual value is $50 000 and the useful life is 10 years. The annual depreciation charge is:

A) $35 000.
B) $40 000.
C) $50 000.
D) $100 000.

Question 6

AASB 116 Property, Plant and Equipment requires revaluations to be applied to:

A) all assets on an individual basis.
B) assets on a class-by-class basis.
C) individual current assets only.
D) individual non-current assets only.

Question 7

Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis to be adopted. The entity can choose either:

A) cost or revaluation.
B) cash or accrual.
C) tax or accounting.
D) current or non-current.

Question 8

Roland Limited acquired an item of plant with an expected useful life of 5 years. Expected total production output over this period was: Year 1, 40 000 units; Year 2, 40 000 units; Year 3, 32 000 units; Year 4, 28 000 units Year 5, 15 000 units. The plant cost $200 000 and associated installation costs amounted to $50 000 and residual value is $20 000. The amount of depreciation charged in the first year is:

A) $57 500
B) $62 500
C) $67 500
D) $92 000

Question 9

A company depreciates an item of machinery using the straight-line method. The asset was revalued upwards after two years of use. The remaining useful life of four years and the residual value are determined to remain the same. Which of the following relationships reflects the effect of the revaluation on the prospective depreciation of the machinery?

A) Depreciation rate = Same; Annual depreciation expense = Same.
B) Depreciation rate = Higher; Annual depreciation expense = Higher.
C) Depreciation rate = Same; Annual depreciation expense = Higher.
D) Depreciation rate = Higher; Annual depreciation expense = Same.

Question 10

The cost of property, plant and equipment is only recognised as an asset if it is probable that the future economic benefits will flow to the entity and:

A) the asset has been fully paid for in cash.
B) the asset has been sent to the buyer.
C) it is a physical asset.
D) the cost can be reliably measured.

Question 11

Under AASB 116, the depreciation charge for a period reflects:

A) the fall in the re-sell value of the asset across the period.
B) the consumption of economic benefits over the period.
C) a change in the market value of the asset that has occurred over the period.
D) a reduction in the estimated fair value of the asset across the period.

Question 12

After an item of property, plant and equipment has been initially recognised at cost it may be measured using which measurement method?

A) liquidation value.
B) revaluation.
C) accrual.
D) net realisable value.

Question 13

Which of the following statements regarding depreciation is incorrect?

A) Depreciation is an allocation of the cost of the asset over its useful life.
B) The depreciation method used should best reflect the pattern of usage of the asset over its useful life.
C) Depreciation is a measure of the asset's change in value.
D) Depreciation is a systematic allocation of the cost of the asset over its useful life.

Question 14

Costs that may be included in the cost of acquisition of property, plant and equipment assets include: $$\begin{array} { | l | c | c | c | c | } \hline & \text { I } & \text { II } & \text { III } & \text { IV } \\\hline \text { Site preparation } & \text { No } & \text { Yes } & \text { Yes } & \text { Yes } \\\hline \text { Initial delivery and hardling costs } & \text { No } & \text { Yes } & \text { Yes } & \text { No } \\\hline \text { Installation and assernbly costs } & \text { No } & \text { No } & \text { Yes } & \text { Yes } \\\hline \text { Testing whether the asset is functioning } & \text { No } & \text { No } & \text { Yes } & \text { Yes } \\\hline\end{array}$$

A) I.
B) II.
C) III.
D) IV.

Question 15

When applying the revaluation measurement model to assets, the model:

A) may only be applied to current assets.
B) is applied permanently and may not be changed.
C) applies to the entire class of non-current assets.
D) is applied to individual assets within a class of non-current assets.

Question 16

For the purposes of recognising property, plant and equipment assets the acquisition date is the date:

A) the consideration is paid.
B) on which the acquirer obtains control of the asset.
C) the contract to exchange assets is signed.
D) on which the contract to acquire the asset becomes unconditional.

Question 17

Property, plant and equipment includes items that:

A) have no physical substance.
B) are held for resale.
C) held for rental to others.
D) are expected to be used up within one year from date of purchase.

Question 18

The cost of property, plant and equipment is only recognised if the cost of the asset can be reliably measured and:

A) the asset has been paid for in cash.
B) the asset has been received by the purchaser.
C) the cost is not directly attributable to the asset.
D) it is probable that future economic benefits associated with the asset will flow to the entity.

Question 19

If a residual value is determined to be of a material amount the entity is required to review the residual value:

A) monthly.
B) at the end of each reporting period.
C) when completing interim reports.
D) at no time.

Question 20

An entity acquired an item of machinery in exchange for a motor vehicle. The carrying amount of the machinery is $8000 and its fair value is $10 000. The journal entry to record the acquisition of the machinery will include:

A) a loss on acquisition of $2000.
B) a gain on sale of $2000.
C) proceeds on sale of motor vehicle of $2000.
D) proceeds on sale of machinery of $2000.

Question 21

The resulting gain or loss from the sale of a non-current asset is:

A) recognised in other comprehensive income, normally with separate disclosure of income and the carrying amount of the asset.
B) recognised in other comprehensive income, normally on a net basis.
C) recognised in current period profit or loss, normally on a net basis.
D) recognised in current period profit or loss, normally with separate disclosure of income and the carrying amount of the asset.

Question 22

AASB 116 requires which of the following disclosures for each class of property, plant and equipment?

A) The type of deprecation methods used.
B) The useful lives or the depreciation rates used.
C) Whether the class of assets is valued using the cost or revaluation method.
D) All of the options are correct.

Question 23

Which of the following statements is incorrect in relation to disclosure of balances for property, plant and equipment?

A) An entity must disclose the useful life estimates for each class of assets.
B) A summary of movements in the revaluation surplus is required to be disclosed.
C) The gross carrying amounts of the assets at both the beginning and the end of the financial period must be disclosed.
D) Information on assets carried at revalued amounts must be disclosed on an individual asset basis.

Question 24

Tully Limited had an existing revaluation surplus in respect to an item of plant that has now been derecognised. The appropriate journal entry to transfer the surplus to retained earnings would include:

A) CR Retained earnings.
B) CR Asset revaluation surplus.
C) DR Gain on revaluation - OCI.
D) DR Retained earnings.

Question 25

Use the following information to answer this question. The draft statement of financial position for Banjo Ltd as at 30 June 2021 discloses the following:
Machinery (at cost) $750 000
Less Accumulated depreciation 400 000 $350 000
On the same date, Banjo Ltd assessed the fair value of the machinery to be $400 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.
The journal entries to adjust for the tax effect of the revaluation at 30 June 2021 is:

A) $\begin{array}{cccc}\text { Income tax expense - OCI } & \mathrm{Dr} & 15,000 & \\\text { Deferred tax liability } & \mathrm{Cr} & & 15,000\end{array}$
B) $\begin{array}{clll}\text { Asset revaluation surplus } & \mathrm{Dr} & 15,000 & \\\text { Income tax expense - OCI } & \mathrm{Cr} & & 15,000\end{array}$
C) $\begin{array}{rlll}\text { Income tax expense - OCI } & \mathrm{Dr} & 15,000 & \\\text { Asset revaluation surplus } & \mathrm{Cr} & & 15,000\end{array}$
D) $\begin{array}{cll}\text { Income tax exp ense - OCI } & \mathrm{Dr}&15,000 \\\text { Deferred tax liability } & \mathrm{Cr}&&15,000\\\\\text { Gain on revaluation - OCI } & \mathrm{Dr} & 50,000 \\\text { Income tax expense - OCI } & \mathrm{Cr} &&15,000 \\\text { Asset revaluation surplus } & \mathrm{Cr} &&35,000\end{array}$

Question 26

Use the following information to answer this question. The draft statement of financial position for Banjo Ltd as at 30 June 2021 discloses the following:
Machinery (at cost) $750 000
Less Accumulated depreciation 400 000 $350 000
On the same date, Banjo Ltd assessed the fair value of the machinery to be $400 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.
In accordance with IAS 16 Property, Plant and Equipment, the journal entries necessary to record the revaluation of machinery (ignoring any tax effect) at 30 June 2021 is:

A) $\begin{array}{llll}\text { Accumulated depreciation - Machinery } & \mathrm{Dr} & 400,000 & \\\text { Machinery } & \mathrm{Cr} & & 400,000 \\& & & \\\text { Machinery } & \mathrm{Dr} & 50,000 & \\\text { Gain on revaluation\_OCI } & \mathrm{Cr} & & 50,000\end{array}$
B) $\begin{array}{lll}\text { Machinery } & \mathrm{Dr} & 50,000 \\\text { Gain on revaluation \_ OCI } & \mathrm{Cr} && 50,000 \\\end{array}$
C) $\begin{array}{lll}\text { Gain on revaluation \_ OCI } & \mathrm{Dr} & 50,000 \\\text { Asset revaluation surplus }& \mathrm{Cr} && 50,000 \\\end{array}$
D) $\begin{array}{llr}\text { Machinery } & \mathrm{Dr} & 350,000 \\\text { Gain on revaluation - OCI } & \mathrm{Dr} & 50,000 \\\text { Accumulated depreciation } & - \mathrm{Cr}&&400,000\\\text { Machinery }\end{array}$

Question 27

Footloose Limited acquired furniture and fittings on 1 July 2019 for $42 000. The estimated useful life of the furniture and fittings at acquisition date was 8 years and the residual value was $2000. The company sold all the furniture and fittings on 1 January 2025 for $18 000. The journal entry to reflect the sale is:

A) $\begin{array}{ll}\text { DR Cash } & \$ 18000 \\\text { DR Accumulated depreciation } & \$ 30000\\\text { CR Furniture and fittings }&\$42,000\\\text { CR Gain on sale }&\$6000\end{array}$
B) $\begin{array}{lll}\text { DR Cash } & \$ 18,000 & \\\text { CR Proceeds on sale } & & \$ 18,000 \\\text { DR Carrying amount of F \& F } & \$ 27,500 & \\\text { CR Furniture and fittings } & & \$ 27,500\end{array}$
C) $\begin{array}{ll}\text { DR Cash } & \$ 18,000 \\\text { DR Loss on sale } & \$ 3,500\\\text { CR Furniture and fittings }&&\$21,500\end{array}$
D) $\begin{array}{ll}\text { DR Cash } & \$ 18,000 \\\text { DR Accumulated depreciation } & \$ 27,500\\\text { CR Furniture and fittings }&&\$42,000\\\text { CR Gain on sale }&&\$3,500\end{array}$