Question 1

Acme purchased a property that included both land and a building for $200 000. Acme hired an appraiser who determined that the market value of the land was $140 000 and the market value of the building was $50 000. At what amount should Acme record the building cost?

Accepted Answer

The building cost is recorded based on its proportionate share of the total market value. The building's market value is $50,000 out of a total market value of $190,000 ($140,000 for land + $50,000 for building). The proportionate cost is ($50,000/$190,000) * $200,000 = $52,632.

Question 2

Acme purchased a property that included both land and a building for $200 000. Acme hired an appraiser who determined that the market value of the land was $140 000 and the market value of the building was $50 000. At what amount should Acme record the land cost?

Accepted Answer

The cost of the land should be recorded based on its proportionate share of the total market value. The total market value is $190,000 ($140,000 for land + $50,000 for building). The proportionate share for the land is $140,000/$190,000 of the total purchase price of $200,000, which equals $147,368.

Question 3

Estimated residual value is the expected cash value of an asset at the end of its useful life.

Accepted Answer

Estimated residual value is indeed the expected cash value of an asset at the end of its useful life.

Question 4

Which of the following depreciation methods writes off more depreciation near the start of an asset's life than in later years?

Accepted Answer

The reducing-balance method, also known as the declining balance method, applies a constant rate of depreciation to the declining book value of the asset, resulting in higher depreciation expenses in the earlier years of the asset's life.

Question 5

If an asset is fully depreciated, but it can continue to be used, the asset account and accumulated depreciation balance remain on the books, and no further depreciation is recorded.

Accepted Answer

Once an asset is fully depreciated, it means its cost has been fully allocated and there is no residual value left. However, the asset may still be used beyond its estimated useful life. In this case, the asset and its accumulated depreciation balance will remain on the books, but no further depreciation will be recorded as the asset has already been fully depreciated.

Question 6

Which of the following is the expected cash value of an asset at the end of its useful life?

Accepted Answer

Residual value is the expected cash value of an asset at the end of its useful life.

Question 7

The straight- line method of depreciation assigns a fixed amount of depreciation to each unit of output produced by an asset.

Accepted Answer

The straight-line method of depreciation assigns a fixed amount of depreciation to each year of an asset's useful life, not to each unit of output produced.

Question 8

Which of the following should be included in the cost of land?

Accepted Answer

Cost to clear the land of old buildings is included in the cost of land because it is a necessary cost to prepare the land for its intended use.

Question 9

Which of the following depreciation methods does NOT use a residual value in the depreciation formula?

Accepted Answer

The reducing-balance method does not use the residual value in its depreciation formula; it applies a fixed percentage to the book value of the asset each year.

Question 10

An item of property, plant and equipment is fully depreciated when the carrying amount is:

Accepted Answer

An item of property, plant, and equipment is fully depreciated when its carrying amount is equal to its residual value, meaning it has been depreciated down to the estimated amount it can be sold for at the end of its useful life.

Question 11

Accelerated depreciation differs from straight- line depreciation in that depreciation expense is greater in the first year and less in the later years.

Accepted Answer

Accelerated depreciation allows for a greater depreciation expense in the earlier years of an asset's life and a lower expense in the later years, while straight-line depreciation allocates an equal amount of depreciation expense each year.

Question 12

Which of the following accounting principles requires depreciation?

Accepted Answer

The matching principle requires that expenses be matched with revenues in the period in which they are incurred, which includes the allocation of the cost of long-term assets over their useful lives through depreciation.

Question 13

Which of the following depreciation methods allocates an equal amount of depreciation to each year?

Accepted Answer

The straight-line method allocates an equal amount of depreciation to each year over the asset's useful life.

Question 14

Which of the following depreciation methods allocates a fixed amount of depreciation to kilometres driven, hours used, or some other measure of the asset's utilisation?

Accepted Answer

The units-of-production method allocates depreciation based on the actual usage of the asset, such as kilometres driven or hours used, making it suitable for assets whose wear and tear is directly related to their usage.

Question 15

Once an asset is fully depreciated, it may not be used any more, but must be sold or disposed of.

Accepted Answer

Once an asset is fully depreciated, it may still be used and continue to provide value or utility to the company. It is only when the asset is no longer useful or functional that it must be sold or disposed of.

Question 16

When an asset is fully depreciated, no further depreciation expense is recorded.

Accepted Answer

Once an asset has been fully depreciated, its cost has been allocated over its useful life and no further depreciation is required to be recorded.

Question 17

When an asset is fully depreciated, the residual value must be written off.

Accepted Answer

When an asset is fully depreciated, there is no residual value left to be written off since it has already been accounted for during the depreciation process.

Question 18

A company purchased a used machine for $80 000. The machine required installation costs of $8 000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?

Accepted Answer

The equipment should be recorded at its total cost, which includes the purchase price, installation costs, and insurance while in transit. Therefore, $80,000 + $8,000 + $500 = $88,500.

Question 19

Which of the following items should be depreciated?

Accepted Answer

Tangible property, plant, and equipment, other than land, are depreciated over their useful life as they lose value over time.

Question 20

Which of the following items should NOT be depreciated, depleted, or amortised?

Accepted Answer

Land is not depreciated because it does not lose value over time like other tangible assets.

Quiz 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles