Question 1

A class of non-current assets as defined by AASB 116 is a category of non-current assets that:
A) Were all purchased at the same time by the reporting entity.
B) All have a similar nature or function in the operations of the entity.
C) Are disclosed as a single item without supplementary dissection in the financial report.
D) All have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report.
E) All of the given answers.

Accepted Answer

A class of non-current assets as defined by AASB 116 is a category of non-current assets that all have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report. Option A is incorrect because it is not necessary that all the assets were purchased at the same time. Option B is partially correct but misses the second part of the requirement. Option C is incorrect because while the assets may be disclosed as a single item without supplementary dissection, it does not necessarily make them a class. Option E is incorrect because not all options are valid.

Question 2

The process of discounting future cash flows in calculating the recoverable amount of an asset will result in a higher recoverable amount than if the cash flows are not discounteD.

Accepted Answer

False

Question 3

An entity that elects the revaluation model to measure a class of asset, is permitted to revert back to the cost model provided that this will provide more relevant and reliable information.

Accepted Answer

According to International Accounting Standard (IAS) 16 Property, Plant and Equipment, an entity that elects the revaluation model may revert back to the cost model if the revalued amount is no longer reliable, or if it becomes more relevant and reliable to do so. Therefore, Option A is correct.

Question 4

The fair value of a non-current asset is defined in AASB 116 as the gross amount for which the asset can be sold when the entity is preparing to liquidate:

Accepted Answer

The fair value of a non-current asset is defined in AASB 116 as the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction, which is not necessarily the same as the amount for which the asset can be sold when the entity is preparing to liquidate.

Question 5

AASB 116 requires entities to review at least at the end of each annual reporting period to assess if the fair value of the non-current assets has changeD.

Accepted Answer

AASB 116 requires entities to review the carrying amount of its non-current assets at the end of each reporting period to assess whether there is any indication that those assets may be impaired. It does not specifically require a review of fair value.

Question 6

By permitting some classes of assets to be valued at cost and others at fair value the AASB has:
A) Removed any confusion regarding the total balance of non-current assets.
B) Forced entities to accurately reflect their true financial position at any point in time.
C) Created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness.
D) Removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory.
E) None of the given answers.

Accepted Answer

Allowing for different methods of valuation can make the total asset figure less meaningful as it is a combination of different valuations. This can complicate the interpretation of financial statements and make it more difficult to compare companies. However, it does allow for a more accurate reflection of the financial position of the entity as some assets may have significantly changed in value since their purchase.

Question 7

The revaluation model is a tool used by managers to reduce political costs.

Accepted Answer

The revaluation model is a tool used for measuring non-current assets at fair value, it is not related to reducing political costs.

Question 8

The concept of conservatism requires that if a class of non-current assets is revalued a revaluation decrement should be treated as an expense of the period, whereas a revaluation increment should be treated as an increase in a reserve:

Accepted Answer

This is consistent with the principles of conservatism, which advocate for caution in recognizing gains and losses. By treating revaluation decrements as expenses, companies are recognizing losses as soon as they occur, while revaluation increments are recognized as increases to a reserve to avoid overstating the value of the assets.

Question 9

A sale of property plant and equipment requires the derecognition of the carrying amount of the asset and any cost of replacement part capitalised.

Accepted Answer

When a property, plant or equipment is sold, the carrying amount (the book value) of the asset and any cost of replacement part capitalised must be removed from the balance sheet, resulting in derecognition of the asset.

Question 10

AASB 116 requires that where the replacement cost of a non-current asset is less than its carrying value, the asset should be written down to its replacement cost:

Accepted Answer

AASB 116 does not specifically require that a non-current asset be written down to its replacement cost if the replacement cost is less than its carrying value. Instead, it requires assets to be carried at cost less any accumulated depreciation and any accumulated impairment losses. Impairment losses are recognized if the carrying amount of an asset exceeds its recoverable amount, not specifically its replacement cost.

Question 11

Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset:

Accepted Answer

This statement is true. Recoverable amount is the estimated amount that an entity expects to receive from the continuing use or eventual sale/disposal of an asset. It is calculated as the higher of an asset's fair value less costs to sell and its value in use.

Question 12

Depreciation method used and depreciation rates are required to be disclosed for taxation purposes.

Accepted Answer

The answer of Depreciation method used and depreciation rates are...

Question 13

Australia is the only country that allows upward revaluations of non-current assets:

Accepted Answer

Many countries, not just Australia, allow upward revaluations of non-current assets under certain accounting frameworks, such as the International Financial Reporting Standards (IFRS).

Question 14

AASB 116 requires that revaluation increments and decrements must be offset recorded directly to equity and not be recorded as a gain or loss:

Accepted Answer

AASB 116 requires that revaluation increments be recorded in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, revaluation decrements are recognized in profit or loss. Only if a decrement reverses a previous increment of the same asset, it is charged against the revaluation surplus directly in equity.

Question 15

Entities that elect to report plant and equipment at cost less accumulated depreciation are required to disclose a valuation of plant and equipment every 3 years in a note to the accounts:

Accepted Answer

Entities that elect to report plant and equipment at cost less accumulated depreciation are not required to disclose a valuation of plant and equipment every 3 years. The requirement is to review the carrying amount annually for impairment, not to disclose a valuation at specific intervals.

Question 16

If an asset's carrying amount is impaired, AASB 116 requires all assets in the same class to be revalued.

Accepted Answer

AASB 116 requires an asset's carrying amount to be tested for impairment and written down to its recoverable amount, but it does not require all assets in the same class to be revalued.

Question 17

If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.

Accepted Answer

Asset impairment testing is required even if an asset is subject to depreciation or amortization. Depreciation or amortization is only a systematic way to allocate the cost of the asset over its useful life, whereas impairment testing is conducted to assess whether the carrying amount of the asset is still recoverable through future cash flows.

Question 18

Positive accounting theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve:

Accepted Answer

The answer of Positive accounting theory suggests that the revalution...

Question 19

Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason:

Accepted Answer

This statement is true. An entity may switch back to cost basis measurement if there is a justifiable reason, such as a change in the market or the asset experiencing significant declines in value. However, this should not be done frequently, as it can impact the comparability of financial statements over time.

Question 20

AASB 136 does not require the use of present values when determining the recoverable amount of an asset:

Accepted Answer

AASB 136 requires the use of present values when determining the recoverable amount of an asset. The standard states that the recoverable amount should be the higher of the asset's fair value less costs of disposal and its value in use. The value in use should be determined by discounting the estimated future cash flows expected to be generated by the asset using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Quiz 6: Revaluation and Impairment Testing of Non-Current Assets

A class of non-current assets as defined by AASB 116 is a category of non-current assets that: