Deck 6: Property, Plant and Equipment

Question 1

According to AASB 116,the specific elements of the cost of an item of property,plant and equipment include:

A)any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the entity's management
B)the initial estimate of any costs of dismantling and removing the item and restoring the site on which it is located
C)purchase price,including import duties and non- refundable purchase taxes,after deducting any trade discounts and rebates
D)all of the above

Answer 1

D

Question 2

Explain the two alternative accounting policies for the measurement of property,plant and equipment after initial recognition.

Answer 2

Subsequent to their initial recognition,AASB 116 provides entities with a choice in accounting policy between the cost model and the revaluation model (para.29).The valuation model selected must be applied to an entire class of property,plant and equipment,although alternative policies can be adopted for alternative classes.A class of property,plant and equipment is "a grouping of assets of a similar nature and use in an entity's operations" (para.37).Under the cost model,AASB 116 requires an item of property,plant and equipment to be carried,after initial recognition,at its cost less any accumulated depreciation and any accumulated impairment losses (para.30).After initial recognition,the alternative measurement model to cost is that of revaluation.When the revaluation model is adopted,AASB 116 requires an item of property,plant and equipment,after initial recognition and where fair value can be reliably measured,to be carried at a revalued amount (para.31).This revalued amount comprises the asset's fair value as at the date of the revaluation less any subsequent accumulated depreciation and accumulated impairment losses.

Question 3

Sammy Ltd purchased an item of machinery on 1 January 2011.The machinery cost $10 000,a residual value of $2 000 and an estimated useful life of 4 years.Assuming that the straight- line method is used,how much depreciation expense would be recorded at 30 June 2011?

A)$500
B)$2 000
C)$1 000
D)$2 500

Answer 3

C

Question 4

According to AASB 116,the cost of an item of property,plant and equipment shall be recognised as an asset if,and only if:

A)it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item cannot be measured reliably
B)it is possible that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably
C)it is possible that future economic benefits associated with the item will flow to the entity and the cost of the item cannot be measured reliably
D)it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably

Question 5

Examples of subsequent costs recognised in the carrying amount of an item of property,plant and equipment include:

A)petrol for a motor vehicle
B)relining of a furnace after a specified numbers of hours of use
C)replacement of aircraft interiors such as seats and galleys
D)both B and C

Question 6

Examples of costs listed in AASB 116 that would not be considered to represent directly attributable costs include:

A)costs of introducing a new product or service
B)administration and other general overhead costs
C)costs of relocating or reorganising part or all of an entity's operations
D)all of the above

Question 7

Explain the major requirements of the revaluation model under AASB 116.

Question 8

A revaluation decrement,would be required when the asset's:

A)fair value is materially below its carrying amount
B)fair value is materially above its carrying amount
C)carrying amount is materially below its fair value
D)carrying amount is materially above its residual value

Question 9

Discuss the AASB 116 requirements with respect to costs incurred after the acquisition date.

Question 10

Subsequent to their initial recognition,AASB 116 provides entities with a choice in accounting policy between the:

A)recoverable amount and the carrying value model
B)recoverable amount model and the revaluation model
C)cost model and the revaluation model
D)cost model and the recoverable amount model

Question 11

Derecognition of an item of property,plant and equipment occurs when:

A)the item is sold or otherwise disposed of
B)the item is completely destroyed
C)both A and B
D)none of the above

Question 12

An identifiable non- monetary asset without physical substance is also known as a/an:

A)tangible asset
B)non- physical asset
C)infinite asset
D)intangible asset

Question 13

An asset is not required to be depreciated if:

A)its residual value exceeds its carrying amount
B)its fair value exceeds its carrying amount
C)its carrying amount exceeds its residual value
D)its book value exceeds its carrying amount

Question 14

AASB 116: Property,Plant and Equipment does not apply to which of the following situations:

A)investment property valued at fair value rather than cost
B)land and buildings
C)exploration and evaluation assets
D)both A and C

Question 15

According to AASB 116,the following must be disclosed for revalued items of property,plant and equipment:

A)the methods and significant assumptions applied in estimating fair values
B)the effective date of the revaluation
C)whether an independent valuer was involved
D)all of the above

Question 16

The method of depreciation that results in a decreasing annual charge over the useful life of an asset is the:

A)diminishing balance method
B)straight- line method
C)units of production method
D)none of the above

Question 17

The amount for which an asset could be exchanged between knowledgeable,willing parties in an arm's length transaction is defined in AASB 116 as:

A)carrying value
B)exchange value
C)fair value
D)recoverable amount

Question 18

The comparison of the carrying amount of an asset to its recoverable amount is referred to as:

A)derecognition
B)impairment testing
C)depreciation
D)none of the above

Question 19

Identify and explain the specific elements of the cost of an item of property,plant and equipment as per AASB 116.

Question 20

AASB 116 defines property,plant and equipment as tangible items that:

A)are held for rental to others and are expected to be used during the current period
B)are held for use in the production or supply of goods or services and are expected to be used during the current period
C)are held for use in the production or supply of goods or services and are expected to be used during more than one period
D)none of the above

Question 21

Explain the factors to be considered in determining an asset's useful life.

Question 22

Explain the definition and give examples of property,plant and equipment in AASB 116.

Question 23

Identify the objective and main accounting issues covered in AASB 116: Property,Plant and Equipment.

Question 24

Explain the concept of depreciation.

Question 25

Explain the three examples of depreciation methods identified in AASB 116.

Question 26

Provide the definition of assets in the AASB Framework and the recognition criteria for assets in AASB 116.