Question 1

According to AASB 116 Property, Plant and Equipment, the cost of property, plant and equipment is only recognised as an asset if it is probable that the future economic benefits will flow to the entity and if:

Accepted Answer

According to AASB 116, the cost of property, plant and equipment is recognised as an asset if it is probable that the future economic benefits will flow to the entity and if the cost can be reliably measured. The other options listed are not relevant criteria for recognition as an asset.

Question 2

Under the cost model, after initial recognition an item of property, plant and equipment must be carried at its:

Accepted Answer

Under the cost model, property, plant, and equipment are carried at their initial cost minus accumulated depreciation and accumulated impairment losses. This means that as the asset is used and ages, its value on the balance sheet gradually decreases to reflect its diminishing value to the company.

Question 3

Property, plant and equipment includes items that are:

Accepted Answer

Property, plant, and equipment are tangible assets used in an entity's production process, and are not intended for resale or investment purposes. Therefore, the correct choice is D.

Question 4

Which of the following depreciation methods is most appropriate when the asset's benefits are expected to be received evenly over its useful life?

Accepted Answer

The straight-line method is the most appropriate when the asset's benefits are expected to be received evenly over its useful life. This method allocates an equal amount of depreciation expense to each year of the asset's useful life, which is ideal when the asset's usefulness is not expected to decline significantly over time.

Question 5

The cost of an asset less its residual value is referred to as its:

Accepted Answer

The cost of an asset less its residual value is the depreciable amount, as this is the portion of the asset's cost that can be depreciated over its useful life. The book value refers to the value of the asset on the company's balance sheet and takes into account any accumulated depreciation. The residual amount refers specifically to the value of an asset at the end of its useful life. The carrying amount is similar to book value, but may include additional adjustments for impairment or revaluation.

Question 6

For the purposes of recognising an item of property, plant and equipment, the acquisition date is defined in AASB 3 Business Combination as the date:

Accepted Answer

According to AASB 3 Business Combination, the acquisition date of property, plant and equipment is defined as the date on which the acquirer obtains control of the acquiree. This is the most relevant date for determining when the asset was acquired and should be recognized in the financial statements. Option B, C and D may be relevant for determining the terms and conditions of the acquisition, but they do not necessarily align with the actual acquisition of the asset.

Question 7

Webcke Limited acquired an item of machinery with an expected useful life of 4 years. The expected total production output over this period was: year 1, 30 000 units; year 2, 25 000 units; year 3, 15 000 units; year 4, 10 000 units. The machinery cost $85 000 and the residual value is $15 000. The amount of depreciation expense recorded in the first year is:

Accepted Answer

The depreciation expense is calculated using the units of production method: (Cost - Residual Value) / Total Units of Production * Units Produced in Year 1 = ($85,000 - $15,000) / 80,000 units * 30,000 units = $26,250.

Question 8

Estimated future restoration costs associated with mining land are:

Accepted Answer

Estimated future restoration costs associated with mining land are capitalized into the cost of the land. This is because they are considered a necessary part of the cost of preparing the land for its intended use, and they are incurred to bring the asset to the condition necessary for it to be capable of operating in the manner intended by management.

Question 9

An entity acquired an item of plant in exchange for an item of equipment. The equipment has a carrying amount of $15 000 and a fair value of $20 000. The journal entry to record the acquisition of the plant will show:

Accepted Answer

Since the fair value of the equipment given up is higher than its carrying amount, there is a gain on sale. The gain is calculated as the fair value of the equipment given up ($20,000) minus its carrying amount ($15,000), which equals $5,000. Therefore, the journal entry would be to debit Plant for its fair value and credit Equipment for its carrying amount of $15,000, and credit Gain on sale of equipment for $5,000.

Question 10

Hunt Limited applied the straight-line method of depreciation to its non-current assets. The cost of the buildings was $850 000, the residual value is $150 000 and the useful life is 10 years. The annual depreciation expense is:

Accepted Answer

The answer of Hunt Limited applied the straight-line method of...

Question 11

Which of the following is the appropriate journal entry to recognise depreciation expense calculated using the diminishing balance method?

Accepted Answer

The appropriate journal entry to recognise depreciation expense calculated using the diminishing balance method is to debit Depreciation Expense and credit Accumulated Depreciation. This is because the diminishing balance method is a method of accelerated depreciation, meaning that a higher portion of the total depreciation expense is recognised in earlier years of an asset's useful life. Therefore, the balance in the Accumulated Depreciation account will be higher at the beginning of an asset's life, and decrease over time as the asset's value is gradually depreciated.

Question 12

Which of the following are not examples of directly attributable costs that should be included in the cost of acquisition for property, plant and equipment?

Accepted Answer

The costs of opening a new facility are not directly attributable to the acquisition of property, plant, and equipment. These costs are related to the start-up of a new activity rather than the acquisition of an asset. The other options (A, B, and C) are examples of directly attributable costs that should be included in the cost of acquisition for property, plant, and equipment.

Question 13

The depreciation expense calculated using the diminishing balance method reflects:

Accepted Answer

The diminishing balance method is a type of accelerated depreciation method where the depreciation expense is higher in the early years of the asset's useful life and decreases over time. This reflects a decreasing pattern of benefits as the asset ages and becomes less efficient or useful.

Question 14

Under AASB 116 Property, Plant and Equipment, the purpose of calculating the depreciation charge for a period on an item of property, plant and equipment is to measure:

Accepted Answer

The purpose of calculating the depreciation charge is to measure the consumption of economic benefits over the period, as the asset is expected to generate revenues over its useful life and gradually lose its ability to do so as it wears out or becomes obsolete. This reduction in future economic benefits is reflected in the depreciation charge. The other choices are incorrect as they do not align with the purpose of depreciation under AASB 116.

Question 15

When changing from the revaluation to the cost model of measurement for non-current assets, the model must be applied:

Accepted Answer

When changing from the revaluation model to the cost model, the change is considered a change in accounting policy and must be applied retrospectively according to IAS 8, unless it is impracticable to determine the effects of the change.

Question 16

Hoffman Limited acquired a bundle of assets for a cash consideration of $400 000. The fair values of the assets on date of acquisition were as follows: machinery $264 000, motor vehicles $176 000. Which of the following is the appropriate journal entry to record this acquisition?

Accepted Answer

The total cash consideration of $400,000 should be allocated to the machinery and motor vehicles based on their relative fair values. The fair value of machinery is $264,000 and motor vehicles is $176,000, totaling $440,000. The allocation is done proportionally: Machinery = $240,000 and Motor vehicles = $160,000, which sums up to the cash consideration of $400,000.

Question 17

On 1 July 2009, Barba Limited acquired an item of equipment for $105 000 which it depreciated using the straight-line basis. The equipment had an estimated useful life of 10 years and its residual value was $15 000. The carrying amount of the equipment in the financial statements dated 30 June 2014 is:

Accepted Answer

The depreciation expense per year is calculated as (Cost - Residual value) / Useful life = ($105,000 - $15,000) / 10 = $9,000 per year. Over 5 years (from 1 July 2009 to 30 June 2014), the total depreciation is $9,000 * 5 = $45,000. Therefore, the carrying amount on 30 June 2014 is Cost - Accumulated Depreciation = $105,000 - $45,000 = $60,000.

Question 18

After an asset has been initially recognised, an entity has a choice between the cost model and the:

Accepted Answer

The choice between the cost model and the revaluation model applies only to certain classes of assets, such as property, plant and equipment, and intangible assets. The cost model measures assets at their historical cost less accumulated depreciation or amortisation, while the revaluation model allows entities to measure assets at fair value less any subsequent accumulated depreciation or amortisation. The choice of model should be made on a class-by-class basis and should be based on which model provides more relevant and reliable information for users of the financial statements. In most cases, the revaluation model is appropriate when the fair value of an asset can be measured reliably and it is expected to provide more relevant information than the historical cost model.

Question 19

Property, plant and equipment are assets that:

Accepted Answer

Property, plant, and equipment (also known as fixed assets) are tangible assets, meaning they have a physical substance and can be touched. They are not expected to be used up within the current financial period, nor are they held for resale within the current period. Fixed assets have a remaining productive life greater than one financial year.

Question 20

For the purpose of the initial recognition of an item of property, plant and equipment, the date on which the fair values should be measured is referred to as the:

Accepted Answer

The acquisition date is the correct term used for the initial recognition of an item of property, plant, and equipment, as it refers to the date on which the entity obtains control of the asset and its fair value can be measured.

Quiz 18: Property, Plant Equipment