Question 1

A fixed asset costs &#8364;200,has an expected useful life of four years,with zero scrap value and the replacement cost of a new asset rises by &#8364;20 per annum.Calculate the holding gain reserve at the end of year 2.&#10;A)&#8364;55&#10;B)&#8364;50&#10;C)&#8364;40&#10;D)&#8364;35

Accepted Answer

D

Question 2

The current entry value balance sheet can be considered as a list of marketable assets at valuation.

Accepted Answer

The current entry value balance sheet reflects the current cost to replace an asset, not necessarily its market value or the price it could be sold for in the market.

Question 3

Current entry value accounting only considers the costs of assets that the firm intends to replace.

Accepted Answer

Current entry value accounting considers the current cost of replacing an asset, not just the costs of assets the firm intends to replace. It reflects the current entry cost of an asset, regardless of the firm's intention to replace it.

Question 4

The capital maintenance concept can be defined as the maintenance of the capacity to replace the resources of the business.

Accepted Answer

The capital maintenance concept is focused on maintaining or preserving the capital or resources of the business, in order to ensure that the business is sustainable and able to continue operating into the future. This includes maintaining the capacity to replace the resources of the business, either through reinvestment or through profits generated by the business. Therefore, the statement "the capital maintenance concept can be defined as the maintenance of the capacity to replace the resources of the business" is true.

Question 5

Which of the following is NOT an advantage of current entry value accounting?&#10;A)it requires the use of replacement cost figures for assets that the firm does not intend to replace.&#10;B)it provides more information by splitting the total profit into holding gains and operating profit.&#10;C)excluding holding gains from reported profit allows proper maintenance of 'business substance'.&#10;D)it provides a balance sheet based on current value.

Accepted Answer

Current entry value accounting requires the use of replacement cost figures for assets that the firm intends to replace, not for assets it does not intend to replace. Therefore, this is not an advantage of current entry value accounting.

Question 6

The holding gains account should record gains made in valuation of;&#10;A)stock.&#10;B)stock + plant & equipment.&#10;C)stock + plant & equipment + land.&#10;D)property plant & equipment.

Accepted Answer

Holding gains account records gains made in the valuation of assets that can appreciate over time, including stock, plant & equipment, and land. These assets can increase in value, hence the gains from their revaluation are recorded in the holding gains account.

Question 7

Where the replacement cost of a fixed asset rises year on year there will be a need to increase the accumulated depreciation.This should be offset by a charge to;&#10;A)the P & L account.&#10;B)the holding gain reserve.&#10;C)a prior year adjustment to the P & L.&#10;D)a separate reserve.

Accepted Answer

When the replacement cost of a fixed asset rises, the increase in accumulated depreciation should be offset by a charge to the holding gain reserve, which accounts for the increase in value due to inflation or revaluation.

Question 8

A holding gain can be defined as;&#10;A)current replacement cost - original purchase cost.&#10;B)current revenue - current replacement cost&#10;C)current revenue - original purchase cost&#10;D)half of current revenue - original purchase cost.

Accepted Answer

A holding gain is the increase in value of an asset between the time it was acquired and the current market value. Therefore, the calculation for holding gain is the current replacement cost (which represents the current market value) minus the original purchase cost.

Question 9

One of the advantages of current entry value accounting is that it takes account of the purchasing power of money.

Accepted Answer

Current entry value accounting focuses on updating the book value of assets to their current market values rather than accounting for changes in purchasing power due to inflation or deflation.

Question 10

Accounting income = business income + realised holding costs + unrealised holding costs.

Accepted Answer

Accounting income typically includes business income and realized gains (including realized holding gains), but it does not include unrealized holding gains or costs, as these are not recognized until they are realized.

Deck 5: Current Entry Value