Question 1

Machinery after two years worth of depreciation has an opening book value of $6,400.At the beginning of the third year,the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400.The revised annual depreciation using the straight-line method is $1,500.

Accepted Answer

The revised annual depreciation using the straight-line method is calculated as:
(revised book value - revised residual value) / revised remaining useful life

Revised book value = opening book value - total depreciation taken in previous years
= $6,400 - 2*$1,500 (since it has already undergone depreciation for two years)
= $3,400

Revised remaining useful life = 4 years
Revised residual value = $400

Revised annual depreciation = ($3,400 - $400) / 4 = $1,000

Therefore, the statement is false. The revised annual depreciation using the straight-line method is $1,000, not $1,500.

Question 2

When the cost of the asset changes because of a subsequent capital expenditure,revised depreciation for current and future periods must be calculated and adjusted.

Accepted Answer

When there is a subsequent capital expenditure that changes the cost of an asset, the revised cost must be used to calculate the depreciation for current and future periods. This is done to ensure that the expense recognition accurately reflects the asset's value and useful life.

Question 3

An asset with a current book value of $5,000 has a current market value of $2,000.The company should recognize an impairment loss of $3,000.

Accepted Answer

An impairment loss occurs when the market value of an asset falls below its book value, and the difference between the book value and the current market value should be recognized as an impairment loss.

Question 4

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device,or to use a process,for a specified period of time.

Accepted Answer

This is the definition of a patent.

Question 5

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological,economic,or legal factors.

Accepted Answer

Impairment can indeed result from a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors.

Question 6

Depreciation amounts can be revised because of changes in the estimates for residual value,useful life or because of subsequent revenue expenditures.

Accepted Answer

The answer of Depreciation amounts can be revised because of...

Question 7

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Accepted Answer

According to accounting standards, the fair value of the asset given up should be used when assigning values to an exchange of assets. This is to ensure that the transaction is recorded accurately and fairly on the financial statements.

Question 8

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Accepted Answer

The answer of When assigning values to an exchange of...

Question 9

Intangible assets should be amortized over their anticipated legal,regulatory,contractual,competitive or economic life.

Accepted Answer

Intangible assets such as patents, trademarks, and copyrights are generally amortized over their anticipated legal, regulatory, contractual, competitive or economic life. This is because these assets do not have a physical form and their value is expected to decline over time due to legal, regulatory or competitive changes. Amortization is a method of allocating the cost of these assets over their useful life and recognizing the expenses annually in the income statement.

Question 10

Impairment losses must be assessed by companies on an annual basis.

Accepted Answer

True. Impairment losses must be assessed annually to determine if the carrying value of an asset exceeds its recoverable amount. If it does, a loss must be recognized in the financial statements.

Question 11

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Accepted Answer

Amortization is the process of allocating the cost of intangibles such as patents, copyrights, and trademarks over their estimated useful life. This is similar to depreciation but applies to intangible assets instead of physical assets.

Question 12

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000.The company should recognize a $1,000 loss on disposal of the equipment.

Accepted Answer

The answer of Equipment costing $14,000 with accumulated depreciation of...

Question 13

Property,plant and equipment can be disposed of by discarding,sale,or exchange of the asset.

Accepted Answer

Property, plant, and equipment can be disposed of in various ways such as discarding, sale, or exchange.

Question 14

If the book value of a property,plant and equipment item is less than the amount to be recovered through the asset's use or sale,the difference is an impairment loss and the asset is described as impaired.

Accepted Answer

The answer of If the book value of a property,plant...

Question 15

When accumulated depreciation equals the asset's cost,the asset is fully depreciated.The entry to record the removal of the asset is called exchanging the equipment.

Accepted Answer

When accumulated depreciation equals the asset's cost, the asset is fully depreciated and the entry to record the removal of the asset is called "disposal of equipment" or "sale of equipment" depending on how the asset was removed from the company's possession. "Exchanging the equipment" typically refers to trading in an old asset for a new one and should not be used to record the removal of a fully depreciated asset.

Question 16

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

Accepted Answer

Drilling rights are legal permissions that grant the right to extract natural resources from the earth and are considered intangible assets, meaning they have value but cannot be physically touched or seen.

Question 17

The first step in accounting for the disposal of property,plant and equipment is calculating the gain or loss on disposal.

Accepted Answer

The first step in accounting for the disposal of property, plant, and equipment is to remove the asset's carrying amount from the books, which involves recording the asset's historical cost and accumulated depreciation up to the date of disposal. Calculating the gain or loss on disposal comes after these amounts have been accounted for.

Question 18

An asset that cost $5,000 has a current book value of $2,000.A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400.Using the straight-line method,the revised depreciation will be $500 per year.

Accepted Answer

The revised annual depreciation would be calculated as (Current Book Value - Residual Value) / Remaining Useful Life = ($2,000 - $400) / 4 = $400 per year.

Question 19

The gain or loss from disposal of property,plant and equipment is the difference between an asset's book value and the value received.

Accepted Answer

This statement is true. The book value of an asset is its original cost minus accumulated depreciation. The gain or loss from disposal is calculated by subtracting the asset's book value from the amount received from its sale or disposal.

Question 20

At the time a plant asset is being discarded or sold,it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

Accepted Answer

This is true because accumulated depreciation is the total depreciation expense that has been charged to the asset since its acquisition, and it needs to be updated to reflect the asset's total depreciation before it is disposed of or sold. This adjustment is necessary to ensure that the financial statements accurately reflect the asset's historical cost and accumulated depreciation as of the date of disposal.

Quiz 10: Property,plant and Equipment,and Intangibles