Question 1

Ariopolous Company incurred the following expenses in acquiring manufacturing equipment. $
Gross invoice price (includes GST) 99 000
Transportation costs to get the equipment to the factory (net of GST)1 000
Special permit to allow a wide load on freeway (net of GST)450
Twelve months insurance policy on the equipment (net of GST)200
The equipment should be recorded in the company's books at:

Accepted Answer

The gross invoice price of $99,000 includes GST, which means the net cost of the equipment is $90,000 ($99,000/1.1). Adding the transportation costs ($1,000), special permit ($450), and insurance policy ($200) gives a total of $91,650, which is the cost of the equipment to be recorded in the company's books. Therefore, the correct answer is B).

Question 2

The assumption underlying the reducing balance method of depreciation is:

Accepted Answer

The reducing balance method of depreciation assumes that the asset makes a higher contribution to income in the earlier years of its life. This is because under this method, a fixed percentage of the asset's book value is depreciated each year. As the book value decreases over time, the depreciation expense also decreases, leading to a higher contribution to income in the earlier years of the asset's life.

Question 3

Which of these is not an example of a fixed asset for a company engaged in mining coal?

Accepted Answer

A company engaged in mining coal would consider land, storage depot, and mining equipment as fixed assets since they are necessary for the production of coal. However, the stock of coal is not considered a fixed asset since it is a product that the company produces and intends to sell.

Question 4

How many of these factors are required to calculate depreciation?
-Estimated residual value
-Estimated useful life
-Cost or revalued amount
-A method of depreciation

Accepted Answer

All four factors (estimated residual value, estimated useful life, cost or revalued amount, and method of depreciation) are required to calculate depreciation accurately.

Question 5

Which statement is untrue?

Accepted Answer

The cash at bank account is not affected by depreciation as it is a non-cash expense.

Question 6

A popular method for an entity to acquire the benefits of property,plant and equipment is to lease assets.How many of these asset types are commonly subject to lease agreements?
-Motor vehicles
-Land and buildings
-Machinery
-Storage space

Accepted Answer

All listed asset types (motor vehicles, land and buildings, machinery, and storage space) are commonly subject to lease agreements.

Question 7

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

Accepted Answer

IAS 16/AASB 116 specifically states that the cost of acquisition for fixed assets includes the purchase cost of the asset as well as any incidental costs that are directly attributable to acquiring and preparing the asset for use. These incidental costs may include items such as delivery charges, installation costs, and professional fees. Therefore, A is the correct choice. B, C, and D are incorrect as they do not fully capture all of the costs that are included in the cost of acquisition for fixed assets as per the standard.

Question 8

Milligan & Miles purchased a small clothing company for $250 000 (net of GST).The fair values of the individual assets acquired (net of GST)were as follows.
$ $
Building 100 000 Shop fittings 80 000
Land 60 000 Equipment 30 000
At what amount should shop fittings be recorded by Milligan & Miles?

Accepted Answer

The answer of Milligan & Miles purchased a small clothing...

Question 9

Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months.The journal entry to record the acquisition is which of the following?
$ $

Accepted Answer

This journal entry correctly records the acquisition of the trucks by debiting the Trucks account for the full cost, including GST, and crediting the Sundry creditor account for the amount owed after the down payment. The cash payment of $20 000 is also recorded by debiting the Cash account. Option A incorrectly debits the Sundry creditor account for the full cost of the trucks, which does not reflect the down payment. Option C incorrectly debits the Trucks account for $150 000 without recording the GST. Option D debits the Trucks account and credits the Cash account for the down payment, but fails to record the balance owed to the supplier.

Question 10

In the financial statements prepared at the end of the accounting period the item accumulated depreciation appears on:

Accepted Answer

Accumulated depreciation appears on the balance sheet as a deduction from the related asset, reflecting the decrease in value of that asset over time. It does not appear on the income statement as an expense or as a liability on the balance sheet.

Question 11

Blue Horizon has acquired equipment and incurred these expenses in doing so.
$
Gross invoice price,net of GST,subject to terms of 2/10,n/30)14 500
Transportation costs to get equipment to factory 1 200
Speeding ticket incurred by company driver while
Delivering equipment to the factory 120
Cost to repair wall damaged during installation 500
Special permit to allow wide load on freeway 300
The equipment should be recorded in Blue Horizon's records at:

Accepted Answer

The equipment should be recorded in Blue Horizon's records at its gross invoice price, which is $14,500. However, additional costs incurred to get the equipment to the factory, including transportation costs ($1,200) and special permit costs ($300), should also be included in the cost of the asset.

The speeding ticket incurred by the driver and the cost to repair the wall damaged during installation are not directly related to the cost of the asset and should be expensed separately.

Therefore, the total cost of the asset should be $14,500 + $1,200 + $300 = $16,000.

Option C is the closest to this total cost.

Question 12

The correct entry to record the purchase of a motor vehicle for $25 000 cash,plus 10% GST is which of the following?

Accepted Answer

The purchase of the motor vehicle for $25,000 plus 10% GST should be recorded as two separate transactions: one for the purchase of the vehicle and one for the payment of the GST.

The purchase of the motor vehicle should be recorded with a debit to the Motor Vehicles account for the full purchase price of $25,000, and a credit to the Bank account for the same amount.

The payment of the GST should be recorded with a debit to the GST Outlays account for $2,500, and a credit to the Bank account for the same amount.

Therefore, the correct entry is: 
Debit Motor Vehicles $25,000
Debit GST Outlays $2,500
Credit Bank $27,500

Question 13

When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

Accepted Answer

The cost of installing an air conditioning system should not be debited to the building account because it is considered a separate asset that adds value to the property independently of the building itself. It should be capitalized as a distinct asset in the air conditioning system account.

Question 14

The factor that distinguishes fixed assets such as property,plant and equipment from other assets is:

Accepted Answer

Fixed assets such as property, plant and equipment are acquired with the intention to use them in the future production of goods and services. The key factor that distinguishes them from other assets is their intended use in the business rather than their physical existence or the potential future benefits they may provide.

Question 15

Delivery vehicles would be classified on the balance sheet of a transport company as:

Accepted Answer

Delivery vehicles are considered as fixed assets (non-current assets) as they are used for the long-term operation of the business and are not expected to be sold or used up within the next year.

Question 16

Ignoring GST,what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

Accepted Answer

When purchasing a motor vehicle with cash, the correct entry is to debit the motor vehicles account (asset) for the purchase price of $25,000 and credit the bank account for the same amount. Thus, the correct option would be to select Choice B. Choice A is incorrect because it incorrectly debits the bank account for the value of the motor vehicle. Choice C is incorrect because it credits the capital account rather than the bank account. Choice D is incorrect because it credits the accounts receivable account, which is typically used to record amounts owed to the business by customers, not the purchase of assets.

Question 17

Depreciation is classified as a(n):

Accepted Answer

Depreciation is an expense that represents the decrease in value of an asset over time. It is therefore reported on the income statement, not the balance sheet. Choices A, C, and D are incorrect because they do not accurately describe the nature of depreciation.

Question 18

Items of property,plant and equipment may be acquired for a lump-sum without identification of the cost of each asset.The total cost must be allocated to the individual assets on the basis of:

Accepted Answer

Allocating the cost based on fair value at the date of acquisition is the most accurate method, as it takes into account the individual value of each asset at the time of purchase. This ensures that the value of each asset is correctly represented on the balance sheet. Independent valuation or market value may be used as alternatives, but they may not accurately reflect the true value of the assets, especially if they are unique or difficult to value. Replacement value may be more appropriate for insurance purposes, but it does not necessarily reflect the actual cost of the assets at the time of acquisition.

Question 19

IAS 16/AASB 116 requires all assets must be accounted for on acquisition at:

Accepted Answer

IAS 16/AASB 116 requires that all assets must be accounted for on acquisition at cost, which includes the purchase price, import duties, non-refundable taxes, and any directly attributable cost to get the asset ready for use. Depreciable value, market value, and net realisable value are all subsequent measurements of the asset's value and do not relate to initial acquisition.

Question 20

On what basis would the costs of several items of property,plant and equipment, acquired for a lump-sum payment,normally be allocated?

Accepted Answer

The fair value of each item of property, plant, and equipment should be determined at the acquisition date and allocated on a relative fair value basis, unless the fair value of an individual item is not reliably measurable. This is in accordance with the International Accounting Standards (IAS 16). Therefore, option D is the correct choice as it states the allocation should be based on fair value at acquisition date.

Quiz 14: Non-Current Assets: Acquisition and Depreciation