Question 1

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 accounting standards, entities can switch from fair value to cost basis measurement and vice versa as long as there are valid reasons for the change. Therefore, the statement is true.

Question 2

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 3

Positive Accounting Theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve.

Accepted Answer

Positive Accounting Theory primarily focuses on understanding and predicting actual accounting practices rather than prescribing particular methods; it does not suggest that the revaluation model is inherently income-increasing, as it is more concerned with why firms choose certain accounting methods over others based on contracts, organizational structures, and market pressures.

Question 4

AASB 138 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset.

Accepted Answer

AASB 138 does permit some intangible assets to be revalued upwards, but only when there is an active market for the asset. This is in accordance with the principle of reliable measurement, which requires that assets be measured using methods that are reliable and verifiable. If there is no active market for an intangible asset, it may not be possible to determine its fair value with a high degree of reliability, and revaluation may not be permitted.

Question 5

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 6

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

Accepted Answer

Depreciation or amortization does not necessarily eliminate the possibility of impairment. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss should still be recognized. Therefore, it is still necessary to test the asset for impairment even if it is subject to depreciation or amortization.

Question 7

The concept of conservatism requires that if a class of non-current assets is revalued a revaluation decrement should be treated as an expense of the period,whereas a revaluation increment should be treated as an increase in a reserve.

Accepted Answer

This statement is true according to the concept of conservatism. When revaluing non-current assets, a decrease (or decrement) in value should be recognized as an expense to reflect potential losses, while an increase (or increment) should be recognized as an increase in a reserve to avoid overstating profits or the value of the asset on the balance sheet.

Question 8

AASB 116 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

AASB 116 requires that if a company decides to revalue a class of non-current assets, the valuations must be kept up to date in order to accurately reflect their fair value in the financial statements. This is to provide users of the financial statements with relevant and reliable information about the value of the assets.

Question 9

AASB 116 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

AASB 116 does not require entities to assess the fair value of non-current assets. It requires them to review the carrying amount of non-current assets at each reporting period to determine if there are any indicators of impairment that would require a revaluation.

Question 10

The fair value of a non-current asset is defined in AASB 116 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 AASB 116 as the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. It does not necessarily refer to the amount it could be sold for when the entity is preparing to liquidate.

Question 11

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 and equipment asset is sold, its carrying amount (i.e. its net book value) is removed from the financial statements through the process of derecognition. If any cost relating to the replacement of a part of the asset had been previously capitalised, then this cost would also need to be removed from the financial statements in the process of the sale. Therefore, the statement "A sale of property plant and equipment requires the derecognition of the carrying amount of the asset and any cost of replacement part capitalised" is true.

Question 12

AASB 116 requires that revaluation increments and decrements must be offset recorded directly to equity and not be recorded as a gain or loss.

Accepted Answer

AASB 116 requires that revaluation increments be recorded in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, revaluation decrements are recognized in profit or loss. Only if a decrement reverses a previous increment of the same asset, it is charged against the revaluation surplus directly in equity.

Question 13

Australia is the only country that allows upward revaluations of non-current assets.

Accepted Answer

Many countries, not just Australia, allow upward revaluations of non-current assets under certain accounting frameworks, such as the International Financial Reporting Standards (IFRS).

Question 14

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

Accepted Answer

The revaluation model is an accounting tool used to revalue fixed assets to their fair market value, but it is not intended to reduce political costs.

Question 15

If an asset's carrying amount is impaired,AASB 116 requires all assets in the same class to be revalued.

Accepted Answer

AASB 116 does not require all assets in the same class to be revalued if one asset's carrying amount is impaired. The impairment test is done on an individual asset basis.

Question 16

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

This statement is true according to International Accounting Standard (IAS) 16 Property, Plant and Equipment, which states that an entity can choose to use the revaluation model to measure a class of assets, but can revert back to the cost model if the revaluation model is no longer relevant or reliable.

Question 17

AASB 116 requires that where the replacement cost of a non-current asset is less than its carrying value,the asset should be written down to its replacement cost.

Accepted Answer

AASB 116 does not specifically require that a non-current asset be written down to its replacement cost if the replacement cost is less than its carrying value. Instead, it requires assets to be carried at cost less any accumulated depreciation and any accumulated impairment losses. Impairment losses are recognized if the carrying amount of an asset exceeds its recoverable amount, not specifically its replacement cost.

Question 18

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 19

AASB 136 does not require the use of present values when determining the recoverable amount of an asset.

Accepted Answer

AASB 136 requires the use of present values when determining the recoverable amount of an asset. The standard states that the recoverable amount should be the higher of the asset's fair value less costs of disposal and its value in use. The value in use should be determined by discounting the estimated future cash flows expected to be generated by the asset using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Question 20

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

Accepted Answer

This is the accurate definition of recoverable amount.

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