Question 1

An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a carrying value of $5000 and a fair value of $6000. The journal entry to record the acquisition of the Plant will show:

Accepted Answer

The answer of An entity acquired an item of Plant...

Question 2

For the purposes of recognising a non-current property, plant and equipment asset the acquisition date is determined as the date:

Accepted Answer

The date on which the acquirer obtains control of the asset is most appropriate for recognising a non-current property, plant and equipment asset as this is when the acquirer gains useful ownership of the asset, and is able to control and benefit from its future economic flow.

Question 3

When applying a revaluation measurement model to assets, the model:

Accepted Answer

The answer of When applying a revaluation measurement model to...

Question 4

ABC Limited acquired an item of plant on 1 July 2012 for $80 000. The estimated useful life of the plant at acquisition date was 5 years and the residual value $5000. The company sold the plant on 1 January 2016 for $30 000. The journal entry to reflect the sale is:

Accepted Answer

The accumulated depreciation is $52,500 ([$80,000 - $5,000] / 5 years * 3.5 years). The carrying amount is $27,500 ($80,000 - $52,500). The gain on sale is $2,500 ($30,000 - $27,500).

Question 5

Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis to be adopted. The choice is between:

Accepted Answer

The two options for measuring assets after initial recognition are cost and revaluation. Cost refers to the historical cost of acquiring the asset, while revaluation refers to the current fair value of the asset. The choice between these two options will depend on factors such as the nature of the asset, the volatility of its fair value, and the intended use of the asset. Generally, cost is a more conservative option that provides more stable and reliable financial statements, while revaluation can provide more relevant information on the value of certain assets in rapidly changing markets. Ultimately, the choice will depend on management's judgment and the needs of the users of the financial statements.

Question 6

Under AASB 116, the depreciation charge for a period reflects:

Accepted Answer

Under AASB 116, the depreciation charge for a period reflects the consumption of economic benefits over the period. This means that the charge represents how much of the asset's value has been used up or expired during the period, and therefore needs to be recognized as an expense in that period. The depreciation charge is calculated based on the asset's cost, useful life, estimated residual value and any expected future costs. It does not take into account changes in fair value, re-sale value or estimated market value of the asset, as these are not relevant to the calculation of depreciation.

Question 7

Depreciation is a process that is designed to:

Accepted Answer

Depreciation is a method used to allocate the cost of an asset over its useful life. This process helps to match the cost of the asset with the income it generates during its useful life. Option A is incorrect because depreciation is not designed to reflect the fair value of the asset, but rather its historical cost. Option B is incorrect because the period of depreciation can be greater than 5 years. Option C is also incorrect because obsolescence is just one of the factors considered while determining the useful life of an asset.

Quiz 13: Property, Plant and Equipment