Question 1

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

Accepted Answer

False

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 there are any indications that its carrying value may be impaired. Depreciation or amortization simply reflects the cost of using the asset over time, but it does not necessarily represent its current value or future potential.

Question 3

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 accounts for the time value of money, resulting in a lower present value compared to undiscounted cash flows.

Question 4

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

Accepted Answer

The revaluation model is an accounting technique used to measure the value of fixed assets. It is not related to reducing political costs.

Question 5

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

Entities can switch from fair value to cost basis measurement if there is a justifiable reason, such as significant changes in market conditions or a change in the entity's business model. However, the switch back to cost basis measurement must be applied consistently and cannot be used to manipulate financial statements.

Question 6

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

This statement is true. When property plant and equipment is sold, the carrying amount of the asset and any cost of replacement part that had been previously capitalized must be removed from the balance sheet. This is known as derecognition.

Question 7

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 the amount at which the asset could be exchanged between knowledgeable and willing parties in an arm's length transaction, and is not necessarily the gross amount for which the asset can be sold when the entity is preparing to liquidate.

Question 8

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

Accepted Answer

This is the definition of recoverable amount.

Question 9

Positive accounting theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve:

Accepted Answer

The answer of Positive accounting theory suggests that the revalution...

Question 10

A class of non-current assets as defined by AASB 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.
E) All of the given answers.

Accepted Answer

This is the correct definition of a class of non-current assets as per AASB 116. The assets in this class 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. Options A, B, and C are either incorrect or incomplete. Option E includes all possible choices and is therefore not specific.

Question 11

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 is true. According to IAS 16 Property, Plant and Equipment, an entity may choose to use the revaluation model or the cost model for a class of assets. However, if the revaluation model is used and it is determined that the carrying amount of the asset exceeds its recoverable amount, then the entity must switch back to the cost model. Additionally, the entity may voluntarily switch back to the cost model if it can provide more relevant and reliable information.

Question 12

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.

Question 13

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 report plant and equipment at cost less accumulated depreciation are not required to disclose a valuation of plant and equipment every 3 years. However, they may choose to do so if they believe it is necessary for the users of their financial statements to have a better understanding of the carrying value of their assets.

Question 14

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 is correct as per the concept of conservatism in accounting. When there is a revaluation of non-current assets, any decrease in value (revaluation decrement) should be recognized as an expense in the current period, while any increase in value (revaluation increment) should be recognized as an increase in a reserve, rather than in the income statement. This approach is in line with the principle of conservatism, which suggests that losses should be recognized as soon as they are probable, while gains should be recognized only when they are certain.

Question 15

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. Instead, it requires them to measure these assets at cost less any accumulated depreciation and impairment losses, unless they are classified as held for sale or revaluation model is applied. In the latter case, entities must revalue the assets regularly to fair value. However, this does not need to occur at least at the end of each annual reporting period but may be less frequent depending on the asset and circumstances.

Question 16

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 17

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 18

By permitting some classes of assets to be valued at cost and others at fair value the AASB 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.
E) None of the given answers.

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 cost and fair value assessments, reducing its meaningfulness. This is because the balance sheet will show a mix of historical cost figures and current market values, making it difficult to compare the total value of assets between companies or even over time for a single company.

Question 19

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

Accepted Answer

AASB 116 requires individual assets to be revalued if their carrying amount is impaired, not all assets in the same class.

Question 20

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).

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