Question 1

IFRS permits capitalization of interest on specific borrowings related to both constructed and purchased assets.

Accepted Answer

False

Question 2

When more than one different type of asset is acquired in one purchase transaction, the total purchase price is allocated among the assets in proportion to their fair values.

Accepted Answer

When multiple assets are acquired in a single transaction, the purchase price is allocated based on the fair value of each asset to accurately reflect their individual worth on the balance sheet.

Question 3

The cost of land does not include ________.
A) costs of removing old buildings
B) costs of improvements with limited lives
C) costs of grading and clearing the land
D) legal fees and closing costs

Accepted Answer

Costs of improvements with limited lives are not included in the cost of land; they are considered separate assets and depreciated over time.

Question 4

Capitalization is the process of recording an expenditure as an asset.

Accepted Answer

Capitalization involves recording a cost as an asset on the balance sheet rather than an expense on the income statement, spreading the cost over its useful life.

Question 5

When land is purchased and landscaping improvements are made, the total purchase price plus the improvement cost is the total capitalized value of the land.

Accepted Answer

The answer of When land is purchased and landscaping improvements...

Question 6

Which of the following is not a major characteristic of a fixed asset?
A) acquired for resale
B) tangible in nature
C) expected to be used for more than one year
D) used in the production and sale of other assets

Accepted Answer

Fixed assets are not acquired for resale; they are long-term assets used in the operations of a business.

Question 7

A cost that is recorded as an asset is ________.
A) an operating expenditure
B) a tangible expenditure
C) an intangible expenditure
D) a capital expenditure

Accepted Answer

A capital expenditure is recorded as an asset because it provides future economic benefits to the company, unlike operating expenditures which are expensed immediately.

Question 8

The debit for a sales tax paid on the purchase of machinery would be a charge to ________.
A) accumulated depreciation for machinery
B) a deferred liability account
C) the machinery account
D) miscellaneous tax expense

Accepted Answer

The sales tax paid on the purchase of machinery is considered part of the cost of the machinery and should be debited to the machinery account.

Question 9

The amount of capitalized interest for a constructed asset is the lesser of actual interest incurred and avoidable interest.

Accepted Answer

Capitalized interest is limited to the lesser of the actual interest cost incurred during the construction period or the avoidable interest, which is the interest cost that could have been avoided if the construction had not taken place.

Question 10

To determine the amount of interest to capitalize, the interest rate on specific borrowings to finance construction of the asset is multiplied times the total weighted-average accumulated expenditures.

Accepted Answer

The answer of To determine the amount of interest to...

Question 11

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

Accepted Answer

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

Question 12

Property, plant, and equipment include both tangible and intangible fixed assets.

Accepted Answer

Property, plant, and equipment (PP&E) include only tangible fixed assets, such as buildings, machinery, and land, not intangible assets like patents or trademarks.

Question 13

When land is purchased and an old building thereon is demolished, the total purchase price plus the demolition cost is the total capitalized value of the land.

Accepted Answer

The total capitalized value of the land includes the purchase price and any costs necessary to prepare the land for its intended use, such as demolition costs.

Question 14

For constructed assets, the amount of capitalized interest is calculated as total construction costs times the applicable interest rate.

Accepted Answer

The amount of capitalized interest is calculated based on the average amount of accumulated expenditures for the asset during the period, not the total construction costs, multiplied by the applicable interest rate.

Question 15

Firms compute the amount of avoidable interest as the weighted-average accumulated expenditures times the appropriate interest rate.

Accepted Answer

Firms calculate avoidable interest by applying the appropriate interest rate to the weighted-average accumulated expenditures related to a specific project or asset.

Question 16

Construction costs for fences and driveways are reported on the statement of financial position as ________.
A) current assets
B) intangible assets
C) land
D) land improvements

Accepted Answer

Construction costs for fences and driveways are considered land improvements, which are reported separately from land on the statement of financial position.

Question 17

Firms capitalize interest costs from the time of the initial expenditure until the asset is actually put into service.

Accepted Answer

The answer of Firms capitalize interest costs from the time...

Question 18

Under IFRS, there is no need to use the weighted-average accumulated expenditures to determine capitalized interest.

Accepted Answer

Under IFRS, the weighted-average accumulated expenditures method is used to determine the amount of borrowing costs eligible for capitalization as part of the cost of a qualifying asset.

Question 19

The cost of land includes the purchase price and land improvement costs.

Accepted Answer

The answer of The cost of land includes the purchase...

Question 20

With basket purchases, the firm allocates one purchase price to specific assets based on fair values.

Accepted Answer

In a basket purchase, the total purchase price is allocated to individual assets based on their relative fair values to accurately reflect their worth on the balance sheet.

Quiz 11: Long-Term Operating Assets: Acquisition, Cost Allocation

IFRS permits capitalization of interest on specific borrowings related to both constructed and purchased assets.

When more than one different type of asset is acquired in one purchase transaction, the total purchase price is allocated among the assets in proportion to their fair values.

The cost of land does not include ________.

Capitalization is the process of recording an expenditure as an asset.

When land is purchased and landscaping improvements are made, the total purchase price plus the improvement cost is the total capitalized value of the land.

Which of the following is not a major characteristic of a fixed asset?

A cost that is recorded as an asset is ________.

The debit for a sales tax paid on the purchase of machinery would be a charge to ________.

The amount of capitalized interest for a constructed asset is the lesser of actual interest incurred and avoidable interest.

To determine the amount of interest to capitalize, the interest rate on specific borrowings to finance construction of the asset is multiplied times the total weighted-average accumulated expenditures.

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

Property, plant, and equipment include both tangible and intangible fixed assets.

When land is purchased and an old building thereon is demolished, the total purchase price plus the demolition cost is the total capitalized value of the land.

For constructed assets, the amount of capitalized interest is calculated as total construction costs times the applicable interest rate.

Firms compute the amount of avoidable interest as the weighted-average accumulated expenditures times the appropriate interest rate.

Construction costs for fences and driveways are reported on the statement of financial position as ________.

Firms capitalize interest costs from the time of the initial expenditure until the asset is actually put into service.

Under IFRS, there is no need to use the weighted-average accumulated expenditures to determine capitalized interest.

The cost of land includes the purchase price and land improvement costs.

With basket purchases, the firm allocates one purchase price to specific assets based on fair values.