Question 1

Entities that elect to report plant and equipment at cost less accumulated depreciation are required to disclose a valuation of plant and equipment every 3 years in a note to the accounts.

Accepted Answer

Entities that elect to report plant and equipment at cost less accumulated depreciation are not required to disclose a valuation of plant and equipment every 3 years. The requirement is to review the carrying amount annually for impairment, not to disclose a valuation at specific intervals.

Question 2

If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.

Accepted Answer

Even if an asset is subject to depreciation or amortization, it still needs to be tested for impairment if any indicators of impairment exist. Depreciation or amortization only reflects the gradual reduction in the asset's value over time, while impairment testing determines if there has been a significant loss in the value of the asset due to other factors.

Question 3

An entity that elects the revaluation model to measure a class of asset is permitted to revert back to the cost model provided that this will provide more relevant and reliable information.

Accepted Answer

According to IAS 16 Property, Plant and Equipment, an entity may choose to switch from the revaluation model to the cost model if the carrying amount of the asset under the revaluation model becomes unreliable, or if the asset is consumed or sold. This change in accounting policy should result in more relevant and reliable information.

Question 4

The process of discounting future cash flows in calculating the recoverable amount of an asset will result in a higher recoverable amount than if the cash flows are not discounted.

Accepted Answer

Discounting future cash flows typically results in a lower recoverable amount because it accounts for the time value of money, meaning that future cash flows are worth less in today's terms.

Question 5

IAS 38 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset.

Accepted Answer

According to IAS 38, intangible assets can be revalued upwards only when there is an active market for the asset. This is because the fair value of an intangible asset can only be reliably determined when there is an observable market price. If there is no active market for the asset, then revaluation is not permitted under IAS 38.

Question 6

IAS 16 requires that if it has been decided to revalue a class of non-current assets,the valuations must be kept up to date.

Accepted Answer

IAS 16, Property, Plant and Equipment, requires that if a class of non-current assets is revalued, the valuations must be kept up to date to ensure that the carrying amount does not differ materially from the fair value. This requirement is stated in paragraph 39 of the standard.

Question 7

IAS 16 requires entities to review at least at the end of each annual reporting period to assess if the fair value of the non-current assets has changed.

Accepted Answer

IAS 16 does not require entities to review the fair value of non-current assets at the end of each annual reporting period. Instead, it requires entities to assess if there has been any impairment loss in the value of the asset. Fair value is only reviewed if there is an indication of impairment.

Question 8

Depreciation method used and depreciation rates are required to be disclosed for taxation purposes.

Accepted Answer

The answer of Depreciation method used and depreciation rates are...

Question 9

Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset.

Accepted Answer

This statement is true, as recoverable amount is the expected amount that can be obtained from using and disposing of an asset, taking into account factors such as future cash flows and market conditions.

Question 10

Where the value of revalued non-current assets does not change frequently and is not material,IAS 16 suggests that revaluations:
A)may be undertaken when next convenient.
B)should be undertaken every 3 to 5 years.
C)may be undertaken for individual assets within a class.
D)should be suspended and the entity should switch back to cost.

Accepted Answer

IAS 16 suggests that revaluations should be carried out with sufficient regularity, typically every 3 to 5 years, to ensure that the carrying amount does not differ materially from the fair value.

Question 11

A class of non-current assets as defined by IAS 116 is a category of non-current assets that:
A)were all purchased at the same time by the reporting entity.
B)all have a similar nature or function in the operations of the entity.
C)are disclosed as a single item without supplementary dissection in the financial report.
D)all have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report.

Accepted Answer

A class of non-current assets as defined by IAS 116 is a category of non-current assets that have a similar nature or function in the operations of the entity and are disclosed as a single item without supplementary dissection in the financial report. Option A is incorrect because the assets in a class may have been purchased at different times. Option B is partially correct, but it is not necessary for the assets to have the same nature and function in operations. Option C is also partially correct, but the assets in a class must have a similar nature and function in operations.

Question 12

Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason.

Accepted Answer

According to the Financial Accounting Standards Board (FASB), an entity can switch back to using the cost basis measurement after adopting fair value measurement, but only if there is a justifiable reason for the change. Examples of justifiable reasons include changes in the characteristics of the asset, changes in the market or economic conditions, and changes in the entity's business model. However, the FASB encourages entities to use consistent accounting methods to promote comparability and consistency in financial reporting.

Question 13

The fair value of a non-current asset is defined in IAS 16 as the gross amount for which the asset can be sold when the entity is preparing to liquidate.

Accepted Answer

The fair value of a non-current asset is defined in IAS 16 as the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm's length transaction. It is not necessarily the gross amount for which the asset can be sold in a liquidation scenario.

Question 14

Once a class of non-current assets has been revalued,IAS 16 requires that:
A)Directors continue to revalue the class of assets on an ad hoc basis.
B)Revaluations must be undertaken regularly enough to ensure that the carrying amount of each asset in the class of assets does not differ materially from its fair value at reporting date.
C)All assets in the class must be revalued every 3 years.
D)Revaluations must be undertaken regularly enough to ensure that the carrying amount of the class of assets does not differ from its fair value at reporting date.

Accepted Answer

IAS 16 requires that revaluations must be undertaken regularly enough to ensure that the carrying amount of each asset in the class of assets does not differ materially from its fair value at reporting date. This means that revaluations must be undertaken regularly and frequently enough to ensure that the carrying amount of each asset in the class reflects its fair value at the reporting date, and that it does not result in any material misstatements in the financial statements. Therefore, option B is the correct answer.

Question 15

By permitting some classes of assets to be valued at cost and others at fair value the IASB has:
A)removed any confusion regarding the total balance of non-current assets.
B)forced entities to accurately reflect their true financial position at any point in time.
C)created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness.
D)removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory.

Accepted Answer

Allowing some assets to be valued at cost and others at fair value creates a situation where the total asset figure may be a combination of different assessments, reducing its meaningfulness. This can lead to confusion and make it difficult to compare the financial position of different entities.

Question 16

A sale of property plant and equipment requires the derecognition of the carrying amount of the asset and any cost of replacement part capitalised.

Accepted Answer

When a property, plant, or equipment is sold, the carrying amount of the asset along with any cost of replacement part capitalised must be derecognised from the balance sheet. This is because the asset is no longer owned by the company and hence should not be reflected in the balance sheet.

Question 17

Purple Co Plc purchased an item of land 3 years ago at a cost of £700 000.Two years ago the recoverable value of the land was considered to be £550 000.In the current period the land is revalued and the fair value is now £750 000.What is the treatment of the change in value in each of the periods?
A)Two years ago: a loss of £150 000 is recognised.The current period: a gain of £150 000 and an increase in the asset revaluation reserve of £50 000 is recognised.
B)Two years ago: £150 000 is debited to the asset revaluation reserve.The current period: £200 000 is credited to the asset revaluation reserve.
C)Two years ago: £150 000 is expensed in the period.The current period: £200 000 is transferred to the asset revaluation reserve.
D)Two years ago: £150 000 is written off to the asset revaluation reserve.The current period: £200 000 revenue is recognised.

Accepted Answer

Two years ago, there was a decrease in recoverable value of £150 000, which is recognized as a loss in the income statement. 
In the current period, since the fair value of the land has increased, there is a gain of £150 000 which is recognized in the income statement. In addition, there is an increase in the asset revaluation reserve of £50 000, which represents the difference between the fair value (£750 000) and the carrying value (£700 000) of the land. Therefore, choice A is the best option.

Question 18

IAS 16 provides guidance on fair values which states:
A)Where an active and liquid market exists for an asset, the market price represents evidence of the asset's fair value.
B)Fair values are determined on the basis that an entity is a going concern.
C)Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
D)All of the given answers are correct.

Accepted Answer

IAS 16 provides guidance that fair value should be determined based on market prices where available, and if not, based on an arm's length transaction between knowledgeable, willing parties, assuming the entity is a going concern.

Question 19

If an asset's carrying amount is impaired,IAS 16 requires all assets in the same class to be revalued.

Accepted Answer

If an asset's carrying amount is impaired, IAS 16 requires the asset's carrying amount to be reduced to its recoverable amount. However, it does not require all assets in the same class to be revalued.

Question 20

The revaluation model is a tool used by managers to reduce political costs.

Accepted Answer

The revaluation model is not used to reduce political costs. It is a method of measuring the value of assets where they are revalued to fair value at the end of each reporting period.

Quiz 6: Revaluations and Impairment Testing of Non-Current Assets