Question 1

Which of the following is not a characteristic of a plant asset?

Accepted Answer

Property, plant and equipment are assets that have physical substance, are used in the operations of the entity for more than one period and are not intended for sales to customers.

Question 2

Wisemans Winery purchases land for $200,000 cash. Wisemans Winery assumes $2,500 in rates and taxes due on the land. The title and legal fees totaled $2,750. Wisemans Winery has the land graded for $5,000 and fenced for $20,000. What amount does Wisemans Winery record as the cost for the land?

Accepted Answer

The cost for the land is $210,250 ($200,000 + $2,500 + $2,750 + $5,000).

Question 3

Endevour Enterprises acquires land for $250,000 cash. Additional costs are as follows:
 Endevour Enterprises will record the acquisition cost of the land as:

Accepted Answer

The cost for the land is $268,000 [$250,000 + (10,000 - 1,500) + 2,500 + 7,000).

Question 4

Warners Warehouse installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?

Accepted Answer

The cost of paving and installing lights are both classified as Land improvements each will be depreciated over their separate useful lives.

Question 5

Trentham Transport purchases a new delivery truck for $80,000. The stamp and transfer duty is $3,000. The logo of the company is painted on the side of the truck for $500. The truck registration is $700 and a 12 month accident insurance policy is $1100. The truck undergoes safety testing for $330. What does Trentham Transport record as the cost of the new truck?

Accepted Answer

The cost of the new truck is $83,830 ($80,000 + 3,000 + 500 + 330). The costs of registration and insurance are treated as expenses.

Question 6

All leases are classified as either:

Accepted Answer

Leases will either be classified as operating leases or finance leases. If the lease is classified as a finance lease both the leased asset and the lease obligation are recognised on the statement of financial position.

Question 7

Which of the following statements regarding accounting for the acquisition of property, plant and equipment is incorrect?

Accepted Answer

When land is purchased all necessary costs incurred to make the land ready for its intended use are recorded as an increase in the cost of the land. All other statements are correct.

Question 8

Which of the following statements regarding depreciation is true?

Accepted Answer

Land is not depreciated as its useful life is not limited, depreciation also affects the statement of financial position and the cost of an asset is not an estimate.

Question 9

Equipment was purchased for $45,000. Freight charges amounted to $500 and there was a cost of $2,500 for building a foundation and installing the equipment. It is estimated that the equipment will have a $8,000 residual value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be:

Accepted Answer

Annual depreciation expense will be ((45,000 + 500 + 2,500 - 8,000)/5) = $8,000.

Question 10

Equipment with a cost of $160,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation expense for the first full year, during which the equipment was used 3,300 hours?

Accepted Answer

((160,000 - 10,000)/4) = $37,500.

Question 11

Equipment with a cost of $160,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation expense for the first full year, during which the equipment was used 3,300 hours?

Accepted Answer

((160,000 - 10,000)/12,000) = $12.50 x 3,300 = $41,250.

Question 12

Equipment with a cost of $160,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the diminishing value method with a constant depreciation rate of 37.5%. What is the amount of depreciation expense for the first full year, during which the equipment was used 3,300 hours?

Accepted Answer

$160,000 x 37.5% = $60 000.

Question 13

A company purchased factory equipment on April 1, 2019, for $48,000. It is estimated that the equipment will have a $6,000 residual value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at 31 December, 2019, is:

Accepted Answer

Depreciation expense per year = (48,000 - 6,000)/10 = $4,200. April 1 to December 31 = 9 months, therefore depreciation expense to December 31, 2019 = (4,200/12) x 9 = $3,150.

Question 14

A plant asset was purchased on 1 January for $30,000 with an estimated residual value of $6,000 at the end of its useful life. The current year's depreciation expense is $3,000 calculated on the straight-line basis and the balance of the Accumulated depreciation account at the end of the year is $15,000. The remaining useful life of the plant asset is:

Accepted Answer

($30,000 - $6,000)/x = $3,000. x = 8 years, $15,000/3,000 = 5 years. The remaining useful life is: 8 - 5 years = 3 years.

Question 15

Jeff's Copy Shop purchased equipment for $18,000 on 1 January, 2019. Jeff estimated the useful life to be 3 years with no residual value, and the straight-line method of depreciation will be used. On 1 January, 2020, Jeff decides that the business will use the equipment for a total of 5 more years. What is the revised depreciation expense for 2019?

Accepted Answer

The carrying amount on 1/1/2020 is ($18,000 - $6,000) $12,000. $12,000/5 years = $2,400 per year for the remaining 5 years.

Question 16

Vickers Company use the units-of-production method in computing depreciation expense. A new plant asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life. Estimated residual value at the end of its useful life is $2,000. What is the depreciation cost per unit?

Accepted Answer

The depreciation expense per unit of production is: $18,000 - $2,000 = $16,000/100,000 = $0.16 per unit.

Question 17

Additions and improvements:

Accepted Answer

Additions and improvements increase the efficiency, productive capacity or useful life of a PPE asset. They are usually material in amount and occur infrequently during the life of the asset.

Question 18

The first step in the revaluation of an asset is to:

Accepted Answer

Recording the depreciation expense up to the date of the asset revaluation is the first step in the revaluation of an asset.

Question 19

Value in use is the:

Accepted Answer

The present value of the net cash flows from using the asset is referred to as the value in use.

Question 20

Cole Company buys land for $50,000 on 31/12/19. As of 31/3/20, the land has appreciated in value to $50,500. On 31/12/20, the land has an appraised value of $51,800. By what amount must the Land account be increased in 2022?

Accepted Answer

Land revaluation increments are recognised at the time of the revaluation, therefore the land value in 2022 is the purchase price.

Quiz 8: Reporting and Analysing Non-Current Assets