Deck 8: Accounting for Property, plant and Equipment

Question 1

Under AASB 123 'Borrowing Costs',a qualifying asset is defined as:

A) an asset that takes more than twelve months to complete
B) an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
C) a long-term construction project for the construction of ships, dams, roads or buildings
D) an asset that necessarily takes more than two years to complete

Answer 1

B

Question 2

Under AASB 123 'Borrowing Costs':

A) borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset may be capitalised
B) all borrowing costs must be expensed
C) all borrowing costs must be capitalised
D) none of the above is correct

Answer 2

A

Question 3

What is the main feature of the cost model in asset measurement?

A) The gross carrying amount of an asset is unchanged over its useful life
B) Depreciation is not measured
C) Assets are impaired each year based on estimated useful life
D) None of the above are correct

Answer 3

A

Question 4

AASB 136 requires that assets are carried at no more than which amount?

A) Original cost
B) Current market value
C) Cost less accumulated depreciation
D) Recoverable amount

Question 5

If borrowing costs are capitalised,capitalisation continues:

A) for the life of the qualifying asset
B) up to where substantially all the activities necessary to prepare the qualifying assets for its intended use or sale are complete
C) for the life of the business
D) none of the above

Question 6

The accounting standard that specifically deals with property,plant and equipment is:

A) AASB 138
B) AASB 116
C) AASB 132
D) AASB 101

Question 7

Explain and discuss how donated assets should be recorded in the accounts.

Question 8

Which of the following is not an example of borrowing costs as defined by AASB 123?

A) Interest expense calculated by the effective interest method
B) Net present value calculated by projected cash inflows and outflows
C) Exchange differences arising from foreign currency borrowings
D) Finance charges in respect of finance leases

Question 9

Under AASB 116,which of the following would normally not be regarded as separate classes of assets?

A) Computer equipment
B) Office desks
C) Motor vehicles
D) None of the above, i.e., all would normally be regarded as separate classes of assets

Question 10

Which of the following is not a category of investment in non-current assets?

A) Property, plant, and equipment
B) Investment property
C) Financial investments in the form of share investments
D) Inventory

Question 11

What are defined as immovable public facilities that are necessary to sustain living standards and concerned with essential services?

A) Current assets
B) Heritage assets
C) Property, plant and, equipment
D) Infrastructure assets

Question 12

When equipment is acquired by exchange,how is the asset to be measured if the transaction lacks commercial substance?

A) Fair value of the surrendered asset
B) Net present value of the acquired asset
C) Carrying amount of the surrendered asset
D) Fair value of the acquired asset

Question 13

AASB 116 specifies that if an item of property,plant and equipment is sold,then the gain or loss on disposal is measured as the difference between:

A) the carrying amount at the time of disposal and the net proceeds from disposal
B) the re-valued amount at the time of disposal and the net proceeds from disposal
C) the adjusted carrying amount at the time of disposal and the net proceeds from disposal
D) none of the above

Question 14

Paragraph 15 of AASB requires what entry by a government department to record the fair value of a donated asset?

A) debit asset, credit loan
B) debit asset, credit revaluation surplus
C) would not need to be recorded
D) debit asset, credit revenue

Question 15

On 1 January 20X0 an asset that had a useful life of five years and a cost of $100 000,had a carrying value of $60 000.(The asset had been depreciated for two years at $20 000 per annum).On 1 January 20X0 it was decided to revalue the asset upwards to $90 000 with no change in its useful life.A year after the revaluation on 1 January 20X1 the asset was sold for $80 000.Under the provisions of AASB 116,the gain or loss on disposal is:

A) $10 000 gain
B) $20 000 gain
C) $10 000 loss
D) $30 000 gain

Question 16

Which of the following is a main concern raised about the recognition of land under roads?

A) Uncertainty about which entities control land under roads
B) Land under roads cannot be measured reliably
C) The costs of recognizing land under roads would exceed the benefits
D) All of the above are main concerns

Question 17

Under AASB 116 if an item of property,plant and equipment is acquired for cash,the cost includes:

A) the purchase price after deducting trade discounts and rebates
B) the insurance premium paid to cover the asset for the first 12 months of its life
C) any import duties
D) all of the above
E) both A and C

Question 18

Under AASB 116,the net method of treating accumulated depreciation when assets are re-valued requires:

A) accumulated depreciation to be increased by the same proportion as the gross carrying amount of the asset, so the carrying amount of the asset represents its re-valued amount
B) accumulated depreciation to be closed to the asset account before re-valuation
C) accumulated depreciation to be written back to net profit on the date of re-valuation
D) accumulated depreciation to be ignored at re-valuation

Question 19

AASB 116 requires the capitalisation of inspection costs associated with an asset when:

A) future economic benefits associated with the inspection will flow to the entity
B) it is probable that benefits will flow to the entity
C) the economic benefits can be measured reliably
D) all of the above

Question 20

Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.

Question 21

Depreciable amount is defined in AASB 116 as:

A) the allocation of the cost of an asset, or other amount substituted for cost, over its useful life
B) the cost of an asset, or other amount substituted for cost, less accumulated depreciation
C) the cost of an asset, or other amount substituted for cost, less its residual value
D) none of the above

Question 22

Under the provisions of AASB 116,concerning an asset that has been re-valued upward,which statement is correct?

A) If the asset is disposed of, the revaluation surplus can remain in the accounts after the disposal of the asset that created it
B) The amount of the revaluation increment is included in equity without being included in net profit
C) Neither of the statements is correct
D) Both of the statements are correct

Question 23

Which of the following is not part of the definition of investment properties?

A) Real property
B) Generation of rental revenue
C) Increases in value
D) Held for resale

Question 24

Which factor should be considered when selecting a depreciation method?

A) The profit or loss for the year
B) Whether the asset has been re-valued
C) The amount that can be claimed as a tax deduction
D) None of the above

Question 25

AASB 116 para 6,defines depreciation expense as 'an expense recognised systematically for the purpose of allocating the depreciable amount of a depreciable asset over its useful life.'
Explain the terms,'depreciable amount' and 'useful life' and discuss the nature of depreciation that is implied by this definition.

Question 26

Assume that an asset was bought at a cost of $50 000.It is expected that the asset will have a useful life of 10 years with the straight-line depreciation method being used.At the beginning of year 5 the total useful life is re-estimated downward to 8 years.Under AASB 116 the annual depreciation expense for the final years of useful life is:

A) $7500
B) $5000
C) $4500
D) $3000

Question 27

An asset should be depreciated over its:

A) technical life
B) economic life
C) legal life
D) physical life

Question 28

What is the meaning of the word 'depreciation' in contemporary accounting?

A) An allocation of cost
B) A physical deterioration
C) A fall in price
D) A fall in value

Question 29

What is the immediate accounting consequence of the acquisition of a depreciable asset?

A) Statement of financial position classification
B) Cash flow measurement
C) Prepayment of depreciation expense
D) Holding assets for sale

Question 30

AASB 136 requires that assets are carried at no more than their recoverable amount.Outline the accounting treatment required to recognise an impairment loss.In your answer discuss the subsequent reversal of an impairment loss.

Question 31

Which of these items does AASB 116 apply to?

A) Assets held for sale
B) Biological assets
C) Mineral rights and mineral reserves
D) None of the above

Question 32

A subsequent increase in the value of goodwill that has previously been written off as an impairment loss:

A) must not be reversed in subsequent periods
B) must be reversed in the period in which the value has changed
C) is allocated over the other assets in the cash generating unit in proportion to their carrying amounts
D) all of the above

Question 33

Which statement concerning depreciation is correct?

A) Land is depreciated
B) Assets that have increased in value should still be depreciated
C) Charging depreciation provides cash for asset replacement
D) None of the statements is correct

Question 34

AASB 136 proposes factors that may indicate the existence of asset impairment.Which of the following is not one of those factors?

A) Evidence of obsolescence or physical damage to an asset
B) Changes in interest rates that would reduce fair value calculations involving future cash flows
C) The carrying amount of net assets exceeds the entity's market capitalisation
D) None of the above, i.e., all are factors that may indicate the existence of impairment

Question 35

An impairment loss results when the ________ of an asset is less than its ________.

A) carrying amount; recoverable amount
B) recoverable amount, carrying amount
C) fair value, carrying amount
D) original cost, fair value

Question 36

What must be present for an asset to be classified as held for sale?

A) Management has committed itself a plan to sell the asset
B) There is an active program to locate a buyer
C) The assets are available for immediate sale in their present condition
D) All of the above are required criteria