Question 1

The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received.

Accepted Answer

This statement is true. The gain or loss is calculated by subtracting the asset's book value (or carrying value) from the amount received from selling or disposing of the asset.

Question 2

An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000.

Accepted Answer

An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. In this case, since the market value ($2,000) is less than the book value ($5,000), the company should recognize an impairment loss of $3,000 to adjust the book value to its recoverable amount.

Question 3

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

Accepted Answer

Drilling rights are considered legal permissions or licenses to extract natural resources and are therefore intangible assets.

Question 4

At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

Accepted Answer

This is true because accumulated depreciation represents the total amount of depreciation taken over the life of the asset up to the date of disposal or sale. Updating the accumulated depreciation to the date of disposal or sale ensures that the book value of the asset is correctly reflected in the financial statements.

Question 5

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Accepted Answer

The value of an exchange of assets can be based on the fair value of the asset given up or the fair value of the asset received, whichever is more clearly evident.

Question 6

Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures.

Accepted Answer

The answer of Depreciation amounts can be revised because of...

Question 7

Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life.

Accepted Answer

Intangible assets such as patents, copyrights, and trademarks should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life. This is in accordance with generally accepted accounting principles (GAAP).

Question 8

Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500.

Accepted Answer

The answer of Machinery after two years worth of depreciation...

Question 9

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time.

Accepted Answer

This is the definition of a patent.

Question 10

If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired.

Accepted Answer

The answer of If the book value of a property,...

Question 11

When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment.

Accepted Answer

The entry to record the removal of a fully depreciated asset is not called exchanging the equipment; it is typically referred to as disposing of the asset or asset disposal.

Question 12

The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal.

Accepted Answer

The first step in accounting for the disposal of property, plant and equipment is to remove the asset's carrying amount from the books, which involves derecognizing the asset's cost and its accumulated depreciation. Calculating the gain or loss on disposal comes after this step, based on the difference between the proceeds from the disposal and the carrying amount of the asset.

Question 13

Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

Accepted Answer

This is true. Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

Question 14

An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year.

Accepted Answer

The revised annual depreciation would be calculated as (Current Book Value - Residual Value) / Remaining Useful Life = ($2,000 - $400) / 4 = $400 per year.

Question 15

Impairment losses must be assessed by companies on an annual basis.

Accepted Answer

Impairment losses must be assessed by companies on an annual basis according to accounting standards. This is to ensure that assets are not overstated and require adjustments in their value.

Question 16

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Accepted Answer

According to generally accepted accounting principles, the fair value of the asset given up should be used to assign values to an exchange of assets. This ensures that the value of the transaction is accurately reflected in the financial statements.

Question 17

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors.

Accepted Answer

Impairment can occur due to multiple reasons including market value decline, technological factors, economic factors, and legal factors.

Question 18

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment.

Accepted Answer

The carrying amount of the equipment (original cost minus accumulated depreciation) is $4,000 ($14,000 - $10,000). Since the equipment was sold for $3,000, there is a loss on disposal of $1,000 ($4,000 - $3,000). Therefore, the company should recognize a loss of $1,000 on the disposal of the equipment.

Question 19

When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted.

Accepted Answer

When there is a change in cost of the asset due to subsequent capital expenditure, the depreciation for current and future periods needs to be adjusted to reflect the revised cost.

Question 20

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Accepted Answer

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Quiz 9: Property, Plant and Equipment Intangibles

The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received.

An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000.

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures.

Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life.

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time.

If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired.

When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment.

The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal.

Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year.

Impairment losses must be assessed by companies on an annual basis.

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors.

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment.

When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted.

Amortization is the process of allocating the cost of intangibles over their estimated useful life.