Question 1

Which of the following are not examples of biological assets?

Accepted Answer

Wine and wool are finished products and not living organisms, therefore they are not considered biological assets.

Question 2

Which of the following statements relating to the composite rate depreciation approach are correct?
I. The general asset mix of a functional group of assets is assumed to be the same through new assets are added and old assets are sold.
II. Additions and retirements are assumed to occur uniformly throughout the year.
III. The method is often used by business entities with many similar assets in one class.
IV. Profits and losses on disposal of assets are debited/credited to the accumulated depreciation account so no losses or profits on disposal are recorded.

Accepted Answer

The composite rate depreciation approach assumes a consistent asset mix (I), treats additions and retirements as happening uniformly throughout the year (II), is used by businesses with many similar assets (III), and handles profits and losses on disposal by adjusting the accumulated depreciation account, avoiding the recording of disposal profits or losses (IV).

Question 3

Which of the following statements is incorrect?

Accepted Answer

If an asset is scrapped as worthless before it is fully depreciated, its original cost does not represent an expense on disposal. Instead, the carrying amount of the asset at the time of disposal represents the expense on disposal.

Question 4

A coal mine was purchased for $900 000. Estimated production is 20 000 000 tons of coal after which the mine will be sold for $50 000. During the current year 5 500 000 tons of coal were produced and sold. Amortisation for the year is:

Accepted Answer

The answer of A coal mine was purchased for $900...

Question 5

On 31 May 2018 a photocopying machine with a cost of $12 000 has accumulated depreciation written off of $10 000. If the machine is sold for $1 500 on 1 June 2018 what will be the net effect of the sale on the income statement?

Accepted Answer

The net book value of the photocopying machine on 31 May 2018 is $2,000 ($12,000 cost - $10,000 accumulated depreciation). Selling it for $1,500 results in a $500 loss ($2,000 - $1,500).

Question 6

On 31 December 2019 a machine with a cost of $150 000 has accumulated depreciation written off of $90 000. If the machine was sold for $80 000 on 1 January 2020 how much will be recognised to the account "Carrying amount on the disposal of machinery"?

Accepted Answer

The carrying amount on the disposal of machinery can be calculated as follows:

Carrying amount = Cost of machine - Accumulated depreciation written off 
Carrying amount = $150,000 - $90,000 
Carrying amount = $60,000

Since the machine was sold for $80,000, the difference between the sale price and the carrying amount will result in a gain or loss on disposal. Therefore, the amount recognized in the account "Carrying amount on the disposal of machinery" will be the carrying amount of $60,000.

Question 7

What type of account is the Carrying Amount of Equipment account?

Accepted Answer

The answer of What type of account is the Carrying...

Question 8

Which statement relating to mineral resources is not true?

Accepted Answer

The most common approach to the calculation of the depletion of mineral resources is the unit-of-production method, not the reducing-balance method.

Question 9

Scot Ltd uses a composite-rate depreciation rate of 8% p.a. for its office equipment. The office equipment account had a balance of $15 000 at the beginning of the period and a balance of $28 000 at the end of the accounting period. The annual depreciation charge for the period is:

Accepted Answer

To calculate the annual depreciation charge for the period, we need to use the following formula:

Depreciation Charge = (Asset Cost - Salvage Value) x Depreciation Rate

Where:
- Asset Cost is the initial balance of the office equipment account ($15,000)
- Salvage Value is the estimated value of the asset at the end of its useful life, which is not given in the question. We assume that the office equipment has no salvage value.
- Depreciation Rate is the composite-rate depreciation rate of 8% p.a.

Using the formula, we get:

Depreciation Charge = ($15,000 - $0) x 8% = $1,200

Therefore, the annual depreciation charge for the period is $1,200. The correct answer is option C.

Question 10

Which of the following are mineral resources?
I. Oil
II. Coal
III. Natural gas
IV. Uranium

Accepted Answer

All listed options (Oil, Coal, Natural Gas, and Uranium) are considered mineral resources. They are naturally occurring substances that can be extracted and processed for energy production, manufacturing, and other purposes.

Question 11

If a computer with a fully depreciated cost of $10 000 is discarded as worthless, the correct accounting entry to record the scrapping is:

Accepted Answer

When an asset is fully depreciated and is being discarded, the proper accounting entry is to debit the Accumulated Depreciation account for the full cost of the asset (in this case, $10,000) and credit the Computer account for the same amount. This removes the asset from the books and recognizes the reduction in the asset's value over time through depreciation. Option A and C would be incorrect as they both include a debit to an expense account, which is not appropriate in this situation. Option D would only be used if the asset had some remaining value and was sold or traded in.

Question 12

Proceeds from the sale of equipment is a/an ______________account.

Accepted Answer

Proceeds from the sale of equipment is a type of income because it represents revenue earned by the company from selling its equipment. This income is reported in the company's income statement as part of its total revenue or sales.

Question 13

The gain or loss on disposal of a non-current asset is calculated as the difference between:

Accepted Answer

The gain or loss on disposal of a non-current asset is calculated as the difference between the selling price and carrying amount. This is because carrying amount represents the net book value of the asset at the time of disposal, which includes the original cost of the asset less accumulated depreciation. The selling price, on the other hand, represents the amount for which the asset was sold. The difference between the two reflects the gain or loss incurred on the disposal of the asset.

Question 14

Which of the following pairs of terms match?
I. Non-current fixed assets and depreciation
II. Natural resources and amortisation
III. Intangible assets and depletion
IV. Land and depreciation

Accepted Answer

Non-current fixed assets are typically depreciated over their useful life, making option I correct. Options II and III incorrectly match terms (natural resources are usually subject to depletion, and intangible assets to amortization), and land is not depreciated as it does not have a determinable useful life.

Question 15

Equipment which had a carrying amount at the end of the financial year 2018/19 of $18 000, was disposed of on 1 October 2019. Depreciation was calculated on the equipment at 20% per annum using the diminishing-balance method. What was the depreciation expense charged for the first 3 months of the financial year 2019/20, before the asset was sold?

Accepted Answer

Using the diminishing-balance method at 20% per annum, the annual depreciation expense for the equipment would be 20% of $18,000, which equals $3,600. Since the equipment was disposed of after 3 months in the financial year 2019/20, the depreciation expense for these 3 months would be one-quarter of the annual expense: $3,600 / 4 = $900.

Question 16

Bronwyn's Computer Shop purchased some new equipment by trading in old equipment with a carrying amount of $10 000. Cash of $8 000 was paid to the supplier and a trade-in allowance of $7 000 was granted. The new equipment should be recorded at:

Accepted Answer

The new equipment should be recorded at the total cost to the company, which includes the cash paid ($8,000) plus the carrying amount of the old equipment traded in ($10,000), minus the trade-in allowance ($7,000). This results in a total of $8,000 + $10,000 - $7,000 = $11,000. However, since none of the provided options match this calculation, and assuming a possible typo or misunderstanding in the question or answer options, the closest correct approach to record the new equipment's value involves adding the cash paid to the trade-in allowance, which equals $8,000 + $7,000 = $15,000, aligning with option D by default.

Question 17

Which statement relating to the composite-rate depreciation approach is not true?

Accepted Answer

The statement that the composite-rate depreciation approach is only used for items valued at less than $1000 each is not true. There is no limitation regarding the value of the assets that can be subjected to this method of depreciation.

Question 18

On 31 December 2019 an item of machinery had a cost of $300 000 and accumulated depreciation of $280 000. If the machinery was sold for a profit of $30 000 on 1 January 2020, how much was recorded as income from the proceeds of the sale?

Accepted Answer

The machinery was sold for a profit of $30 000, so the proceeds from the sale would be $280 000 + $30 000 = $310 000. 
The amount recorded as income from the sale would be the proceeds minus the cost of the machinery, which is $310 000 - $300 000 = $10 000. 
Therefore, the correct choice is B.

Question 19

Assume that a machine with a cost of $90 000 has accumulated depreciation of $48 000 on the date of its disposal. What is the profit or loss on disposal of the old machine if it was traded-in for $40 000 on a new machine? (Ignore GST.)

Accepted Answer

The book value of the machine at the time of disposal is calculated as the original cost ($90,000) minus the accumulated depreciation ($48,000), which equals $42,000. Since the machine was traded in for $40,000, the loss on disposal is the difference between the book value ($42,000) and the trade-in value ($40,000), which is $2,000.

Question 20

Which of the following statements relating to the composite-rate depreciation approach is not correct?

Accepted Answer

Composite-rate depreciation can use different methods of depreciation, not just straight-line.

Quiz 15: Non-Current Assets: Revaluation, Disposal and Other Aspects