Deck 9: Accounting for Heritage Assets and Biological Assets

Question 1

Heritage assets may be defined as intangible assets that a community intends preserving because of cultural,historic or spiritual associations:

Answer 1

False

Question 2

One of the arguments against recording heritage assets as assets in the financial statements is that they typically generate negative net cash flows.SAC 4 argues in response to this that:

A) Economic benefits as defined in SAC 4 extend beyond the mere financial benefits that an entity chooses to extract from its assets.
B) These assets benefit the reporting entities, enabling them to meet their objectives of providing the needed services to beneficiaries.
C) Meeting the needs of beneficiaries in a broad sense provides an economic benefit to society as a whole that should be captured through financial measurement in the annual reports of the entity.
D) Heritage assets may in many cases not meet the definition of generating future economic benefits for the entity that controls them; however, in the cases where there is evidence of positive future cash flows these should be recorded as assets.
E) None of the given answers.

Answer 2

B

Question 3

Unlike heritage assets,there has always been very clear guidance on the treatment of biological assets given their importance in Australia.

Answer 3

False

Question 4

AASB 141 covers agricultural activities such as deep sea fishing.

Question 5

AASB 141 does not require gains to be broken down into volume changes and price changes as recommended by Roberts,Staunton and Hagen:

Question 6

Research has indicated that in general large arts institutions in the English-speaking world value their collections as assets and report them in their financial statements:

Question 7

AASB 101 requires heritage assets to be disclosed separately on the statement of financial position.

Question 8

Biological assets are defined in AASB 141 as 'living animal or plant':

Question 9

AASB 141 prohibits the classification of biological assets as current or non-current:

Question 10

Concept of control is problematic for heritage assets but not so for biological assets.

Question 11

AASB 141 requires that biological asset be recognised at cost until the asset is sold.

Question 12

An agricultural produce is no longer re-measured to fair value because it is accounted for using the lower of cost or recoverable amount.

Question 13

Features common to heritage assets are that they typically:

A) Are unique, are aspects of the natural environment (for example, parks), and cannot be replaced.
B) Have no alternative use, cannot be replaced, and generate negative net cash flows.
C) Are self-generating, individually unique, and generate negative net cash flows.
D) Have no alternative use, cannot be replaced, and generate positive net cash flows.
E) None of the given answers.

Question 14

"Wine" is classified as a processed product of an agricultural produce "grapes" and is still within the scope of AASB 141 "Agriculture".

Question 15

The requirements of AAS 29 are out of line with one of the views outlined in the International Accord on the Value of Natural Science Collections:

Question 16

According to AAS 29 government departments should put a financial value on their heritage assets for the purpose of disclosure in general-purpose financial reports:

Question 17

In order to apply the contingent-valuation method to heritage assets it is necessary to decide whether or not leisure time should be charged at an individual's wage rate:

Question 18

Demand for financial information on heritage assets has not been clearly established.

Question 19

In accordance with AASB 141 "Agriculture" biological assets may be classified as part of property,plant and equipment in the statement of financial position.

Question 20

A concern associated with the capitalisation of heritage assets is that it will lead to financial statement users believing that the assets could be readily sold when this is not the case:

Question 21

Parker (1996)has identified a number of quantitative and qualitative performance indicators that he argues provide a broader scope of accountability for managers of heritage assets in museums.The indicators he has proposed include:

A) The quality of experience of visitors.
B) The uses made of collections.
C) The number of visitors.
D) Both the uses made of collections and the number of visitors.
E) All of the given answers.

Question 22

AAS 29 states that the measurement basis of infrastructure and heritage assets should be:

A) Depreciated historical cost.
B) Written current cost.
C) Depreciated fair value.
D) Recoverable amount.
E) None of the given answers.

Question 23

Providing financial information about heritage assets:

A) Is important as it will benefit all users.
B) Is a requirement of AAS 29 which appears to be based on the assumption that only financial information is relevant to report users.
C) Will result in wasted resources if demand for such information is limited.
D) Should be done only if the cost of providing the information exceeds the benefits.
E) None of the given answers.

Question 24

Valuations of forestry assets in Australia have been undertaken on:

A) An historical-cost basis.
B) A replacement and/or market-value basis.
C) Using net present values.
D) An historical-cost basis and a replacement and/or market-value basis.
E) An historical-cost basis, a replacement and/or market-value basis and using net present values.

Question 25

Prior to the effective date for implementation of AASB 1037 (30 June 2001)the difficulties in classifying self-generating and regenerating assets caused the use of a variety of practices among reporting entities.Those classifications for self-generating and regenerating assets include:

A) Inventory.
B) Property plant and equipment.
C) Non-current inventory.
D) Regenerative assets.
E) All of the given answers.

Question 26

Net present value (NPV)method has been considered as an alternative valuation technique to historical cost for biological assets.The NPV method may be described as:

A) An accounting method for projecting the revenues and expenses associated with an asset or entity.
B) An economic concept based on the notion that an asset's value can be determined from its future cash flows.
C) An accounting concept based on the statement of cash flows to determine the present value of investments.
D) A finance technique for testing the efficiency of the market by comparing share prices to the discounted cash inflows associated with the asset.
E) None of the given answers.

Question 27

A recognition criterion for assets is that the entity reporting them should have control (but not necessarily ownership)of them.Heritage assets often have features that make the establishment of control difficult.These features include:

A) The interrelationships between legislation and regulations governing heritage assets may make it difficult to establish which government agency has ultimate control over the asset.
B) It can be difficult to control access to a range of heritage assets.
C) The government agency with responsibility for the heritage asset may be restricted in what it may do with the asset.
D) The interrelationships between legislation and regulations governing heritage assets may make it difficult to establish which government agency has ultimate control over the asset; and the government agency with responsibility for the heritage asset may be restricted in what it may do with the asset.
E) All of the given answers.

Question 28

Examples of biological assets include:

A) Trees in a recreational park.
B) Aquaculture and fishery holdings.
C) Telecommunications and computer software.
D) Preserved fossilised remains.
E) All of the given answers.

Question 29

A contentious issue with heritage assets is valuation.This is a concern because:

A) For some heritage assets no market really exists to determine fair value.
B) As heritage assets are by their nature unique, it is difficult to compare them with similar assets.
C) Those entities charged with responsibility for heritage assets usually don't have the discretion to dispose of them, so 'market value' has no relevance.
D) Heritage assets generally create negative cash flows and so using discounted cash flows to establish value is impractical.
E) All of the given answers.

Question 30

In accordance with the requirements of the AASB Framework,accounting standard setters should ensure that the benefits from required disclosures exceed the costs incurred by entities in making them.The costs associated with a disclosure are specified by the AASB Framework to include:

A) The cost of interpretation of the information.
B) The cost of dissemination of the information.
C) The cost of misdirection of resources where the information is not reliable.
D) The cost of interpretation of the information and the cost of misdirection of resources where the information is not reliable.
E) None of the given answers.

Question 31

Methods that have been used to provide a valuation of heritage assets include:

A) Contingent-valuation method and the nominal or notional value.
B) Travel-cost method and adjusting the market values of nearby privately held properties.
C) The net present value of the adjusted cash-flow method and the arbitrary allocation of cost method.
D) Contingent-valuation method and the nominal or notional value and travel-cost method and adjusting the market values of nearby privately held properties.
E) All of the given answers.

Question 32

A broader issue raised by the measurement of heritage assets in the financial statements of government entities is the appropriateness of the AASB Framework Project for not-for-profit entities.Among other things,writers have argued that:

A) It is not clear that the social objectives of not-for-profit enterprises are compatible with the approach to accountability implied in the qualitative disclosures the Conceptual Framework Project gives rise to.
B) The heritage 'assets' held by not-for-profit entities should be de-accessioned and valued at cost if they are to fit within the definitions of assets in the Conceptual Framework. Where this is not feasible they fall outside the Conceptual Framework's objectives.
C) Accrual accounting concepts form the basis of the Conceptual Framework Project. These concepts are fundamentally based on the historical-cost approach to accounting and are therefore flawed in relation to heritage assets, which clearly should be valued using a market-based measure.
D) It is not clear that 'assets' held by not-for-profit entities should be defined in terms of their probability of generating future economic benefits.
E) All of the given answers.

Question 33

Measuring the value of heritage assets to be reported in the balance sheet raises difficulties because:

A) While reliable valuations may be made, the cost of maintaining and improving the value of the assets is so high that the capitalisation of these amounts often distorts the valuations.
B) The cost of heritage assets is the most reliable measure, but because heritage assets may be very old their carrying value will often be zero under the requirements of AAS 29.
C) Obtaining a reliable valuation for heritage assets is problematic because there will generally be no sales or purchases and no valid market comparison to use.
D) The cost of obtaining detailed valuations by experts in the area of the specific type of heritage asset is prohibitive for most government departments.
E) None of the given answers.

Question 34

Contingent Valuation of Heritage will not be effective unless:

A) An accurate description of the item to be valued is given.
B) A sample of the society that knows the true value of the asset is chosen.
C) The asset to be valued is available for the public to view.
D) The asset can actually be purchased in an open market.
E) None of the given answers.

Question 35

Jaenicke and Glazer (1992)suggest an alternative approach to the one in AAS 29 for disclosures by museums within a US context.The proposal is that:

A) They should present a summary by classes of items held in the collection that shows the cost of items held, any purchases and the inflow of cash from sales of items from the collection and any grants received.
B) They should present a schedule of changes in the number of items in the collection, reconciling the beginning and ending figures. The dollar figures for total current-period purchases, contributions and sales of collection items should also be disclosed.
C) They should present a schedule of the nature and type of the heritage asset held and a summary of the cost to maintain the collection in its current condition. Disclosures about the amounts received from the sale of items and grants received should be provided as well as a statement of the number of items purchased and their cost.
D) They should present a summary statement showing how grants received and the proceeds from items sold during the period were allocated to the purchase of additional items and the maintenance of the existing collection. Amounts spent on administration and other overheads should be separately detailed to the extent that they are material.
E) None of the given answers.

Question 36

Biological assets may be difficult to classify as current or non-current because:

A) The asset may unexpectedly become ill or die.
B) The value of the asset may change depending on management's intention.
C) The operating cycle of the entity may be unknown.
D) The same physical assets may have either a shorter or longer life span depending on management intention.
E) None of the given answers.

Question 37

Roberts,Staunton and Hagen (1995)propose that biological assets be subject to a classification scheme that differs from other assets.This scheme would require:

A) Biological assets to be grouped into one category and then subdivided into current and non-current groups.
B) The intent of management to be stated at acquisition date so that the assets can be properly classified.
C) These types of assets to be shown in a separate category of 'biological assets' and identified by subcategories.
D) Notes to be included in the accounts clearly identifying why a biological asset had been classified.
E) None of the given answers.

Question 38

Difficulties applying the net present value method to forests include the need to estimate:

A) The time the trees will take to mature.
B) The volume yield and processing utility.
C) The costs associated with replanting should the forestry operation be considered a continuing activity.
D) The future transportation costs.
E) All of the given answers.

Question 39

AASB 141 excludes certain biological assets from its scope.To be included.

A) The living animal or plant must be capable of earning revenue.
B) The asset must be alive and may include organisms such as viruses.
C) The living animal or plant must be used in a commercial venture.
D) The living animal or plant may only be used within an agricultural activity.
E) The living animal or plant must be capable of earning revenue and the living animal or plant must be used in a commercial venture.

Question 40

Arguments for the use of financial valuations of heritage assets to fulfil the accountability and performance evaluation functions of accounting statement preparation include:

A) The funds contributed to government departments cannot be effectively tracked unless valuations of heritage assets are included in financial statements.
B) Managers of heritage assets need to ensure that they maximise the value of the collections and maintain them appropriately. Valuations of all assets provide an accurate performance measure in this regard.
C) In order to assess whether or not managers of collections have performed well it is necessary to have financial valuations of the heritage assets held at the beginning and end of the period. Decisions to buy and sell heritage assets can then be evaluated in the context of their impact on the quality of the entire collection.
D) Performance measurement will be more accurate because, for example, rate of return is calculated on total asset base.
E) None of the given answers.

Question 41

One approach to revenue recognition proposed for self-generating and regenerating assets is to recognise volume changes as revenue or expense but to treat price changes as an adjustment to equity through a reserve.Arguments against this approach include:

A) It is often impracticable to separate price and volume changes.
B) There is no precedent in accounting standards for the recognition of changes in market values as adjustments to equity.
C) The total increase in value is the production for the period and it should be available for distribution to owners.
D) The revenue for the period would not reflect the performance of management.
E) All of the given answers.

Question 42

Nerang Orange Farms Ltd has orange tress which on 30 June 2009 had a fair value of $1,600,000.On 30 April 2010,oranges with an estimated market value of $300,000 were picked.The costs of picking,sorting and packing paid in cash amount to $150,000.The oranges were sold on the same day for $310,000.An independent valuation on 30 June 2006 report that the estimated fair value of the orange trees is $1,500,000.What is the journal entry to recognise the harvest of oranges on 30 April 2010?

A)
B)
C)
D)
E) None of the given answers.

Question 43

Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information is available. What is the change in fair value less estimated point-of-sale costs of the vines for the reporting period 30 June 2012 in accordance with AASB 141 "Agriculture"?

A) ($350,000)
B) ($300,000)
C) $250,000
D) $350,000
E) None of the given answers.

Question 44

AASB 1037 and AASB 141 have been criticised on the grounds that:

A) Their affect is to overstate the payout ratio relative to companies in the US.
B) They emphasise reliability over relevance in asset measurement.
C) They limit the accounting methods available to report on these types of assets.
D) They will hinder the timely production of financial reports.
E) All of the given answers.

Question 45

Which of the following are within the scope of AASB 141 "Agriculture"?

A) Land related to agricultural activity
B) Research and development costs of a biological asset
C) Warehouse used to sheer wool from sheep
D) Equipment and machinery used to harvest grapes
E) None of the given answers

Question 46

AASB 141 requires biological assets to be measured at:

A) The lower of cost and net realisable value.
B) Recoverable amount.
C) Current replacement cost.
D) Fair value less costs to sell.
E) None of the given answers.

Question 47

Which of the following statements is a valid argument for not recognising heritage assets in the statement of financial position?

A) Heritage assets provide economic benefits.
B) The identity of the party that ultimately controls the heritage asset is not clear.
C) The benefits derived from use of heritage assets are measured reliably.
D) Demand for financial information on heritage assets has been clearly established.
E) None of the given answers.

Question 48

Which of the following are considered agricultural produce,hence should be reclassified to inventory?

A) Pigs held for reproduction
B) Recently planted vines
C) Sheep held for shearing wool
D) Harvested pine trees
E) None of the given answers

Question 49

Which of the following statements is correct with respect to accounting for biological assets as required in AASB 141:

A) A biological asset may initially be recognised at cost when market-determined prices or value are not available and for which alternative estimates of fair value are not available.
B) If a biological asset is initially recognised at cost it should be measured at cost less any accumulated depreciation.
C) A biological asset that was initially recognised at fair value less point-of-sale costs may subsequently be recognised at cost when fair value less point-of-sale costs is no longer available.
D) A biological asset may initially be recognised at recoverable amount.
E) All of the given answers.

Question 50

Where a biological asset is not separable from other assets:

A) The value of the biological asset should be included in the value of the other asset.
B) The value of the package of assets for which an active market exists should be used to assist in determining the fair value of the biological assets.
C) The fair values of the non-biological assets should be subtracted from the package value.
D) The value of the package of assets for which an active market exists should be used to assist in determining the fair value of the biological assets and the fair values of the non-biological assets should be subtracted from the package value.
E) None of the given answers.

Question 51

Which of the following items are not within the scope of AASB 141 "Agriculture"?

A) Apple trees in a commercial orchard
B) Dried apples sold in supermarkets
C) Pine trees in a plantation forest
D) Harvested apples
E) All of the given answers

Question 52

AASB 141 states that where no active market exists fair value may be determined by:

A) The most recent market transaction price, irrespective of any changes to economic conditions.
B) Market prices for similar assets without adjustments to reflect differences.
C) Sector benchmarks expressed in relevant units for that type of asset.
D) Using net present values calculated at the current-market determined post-tax rate.
E) None of the given answers.

Question 53

What is the accounting treatment for a non-living product of a biological asset in accordance with AASB 141 "Agriculture"?

A) They are to be treated the same as all other biological assets and are to be valued accordingly.
B) They shall be measured at fair value less point-of-sale costs at the point of harvest and thereafter be covered by AASB 102 "Inventory".
C) They become a special category of biological assets that should be valued at the lower of cost or market value until sold.
D) They are no longer biological assets but are to be treated as current or non-current assets as appropriate, based on management's intention for the product.
E) None of the given answers.

Question 54

What treatment of revenue recognition is required by AASB 141?

A) Revenue should be recognised in the income statement on the sale of the asset. Losses should be recognised as a result of a write-down to recoverable amount.
B) Changes in the net market values of biological assets that relate to volume changes must be recognised as revenues or expenses as appropriate in the profit and loss statement.
C) Changes in the current replacement cost of biological assets should be treated as adjustments to the asset revaluation reserve. Revenues should be recognised on the sale of the asset and matched against the replacement cost of the asset sold.
D) Increments and decrements in the net market values of biological assets must be recognised as revenues or expenses in the profit and loss statement for the financial year in which the increments or decrements occur.
E) None of the given answers.

Question 55

Nerang Orange Farms Ltd has orange tress which on 30 June 2009 had a fair value of $1,600,000.On 30 April 2010,oranges with an estimated market value of $300,000 were picked.The costs of picking,sorting and packing paid in cash amount to $150,000.The oranges were sold on the same day for $310,000.An independent valuation on 30 June 2006 report that the estimated fair value of the orange trees is $1,500,000.What is the journal entry to recognise the harvest of oranges on 30 April 2010? What is the net profit of Nerang Orange Farms Ltd for the year ending 30 June 2010 to conform with the provisions of AASB 141 "Agriculture"?

A) $60,000.
B) $210,000.
C) $300,000.
D) $310,000.
E) None of the given answers.

Question 56

Which of the following items are not within the scope of AASB 141 "Agriculture"?

A) Pigs
B) Carcass
C) Sausages
D) Cattles
E) None of the given answers

Question 57

One approach to revenue recognition proposed for biological assets is to recognise volume changes as revenue or expense but to treat price changes as an adjustment to equity through a reserve.Arguments that support this approach include:

A) Price changes have not been realised and so should not be recognised in the income statement.
B) Treating price changes as a non-distributable reserve protects the operating capability of the entity.
C) The biological development of a self-generating and regenerating asset is clearly distinguishable and separately measurable from changes in price.
D) The treatment should be equivalent to that used in other reporting standards such as AAS 25 'Financial Reporting by Superannuation Funds'.
E) None of the given answers.

Question 58

Lynne-Melinda Ltd operates a large scale lavender farm supplying companies producing high quality essential oils in the Riverina region.On 30 June 2009 the farm was independently appraised and the lavender farm valued at $500,000.On 31 October 2009 lavender seed flowers that had a fair value less costs to sell of $100,000 were harvested and sold on the same day for the same amount.Picking costs and delivery charges to point-of-sale was $10,000.On 30 June 2010 the farm was valued at $550,000. What is the net profit for Melinda and Lynne Ltd on 30 June 2010?

A) $50,000.
B) $90,000.
C) $140,000.
D) $150,000.
E) None of the given answers.

Question 59

Lynne-Melinda Ltd operates a large scale lavender farm supplying companies producing high quality essential oils in the Riverina region.On 30 June 2009 the farm was independently appraised and the lavender farm valued at $500,000.On 31 October 2009 lavender seed flowers that had a fair value less costs to sell of $100,000 were harvested and sold on the same day for the same amount.Picking costs and delivery charges to point-of-sale was $10,000.On 30 June 2010 the farm was valued at $550,000. What journal entry is required on 31 October 2009 to recognise the harvest of lavender seeds?

A)
B)
C)
D)
E) None of the given answers.

Question 60

In accordance with AASB 141 a gain or loss may arise from:

A) subsequent measurement dates of a biological asset.
B) initial recognition of an agricultural produce.
C) initial recognition of a biological asset.
D) harvesting a biological asset.
E) All of the given answers.

Question 61

Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information was available. There was no material change in the condition of vineyard from last appraisal to 30 June 2012
In accordance with AASB 141 "Agriculture",what is the journal entry to recognise the harvest of grapes on 25 June 2012?

A)
B)
C)
D)
E) None of the given answers.