Question 1

Capital expenditures are expenditures that increase the company's investment in productive facilities.

Accepted Answer

Capital expenditures are investments made to improve or expand the company's productive capacity, such as purchasing new equipment, building a new factory, or renovating existing facilities. These expenditures are aimed at generating long-term benefits for the company, including increased revenue, reduced costs, and improved efficiency.

Question 2

A change in the estimated residual value of a plant asset requires a restatement of prior years' depreciation.

Accepted Answer

A change in the estimated residual value of a plant asset affects future depreciation calculations, not past ones, as it is considered a change in accounting estimate.

Question 3

The "Revaluation Surplus" account that results from a revaluation of plant assets to fair value is reported on the statement of financial position as a contra account to the plant asset that was revalued.

Accepted Answer

The "Revaluation Surplus" is reported in the equity section of the statement of financial position, not as a contra account to the plant asset.

Question 4

The fair value of a plant asset is always the same as its book value.

Accepted Answer

The fair value of a plant asset may differ from its book value due to factors such as changes in market conditions or depreciation.

Question 5

Ordinary repairs should be recognized when incurred as revenue expenditures.

Accepted Answer

Ordinary repairs are considered revenue expenditures because they maintain the normal functioning of an asset and do not add any significant value to it.

Question 6

If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.

Accepted Answer

If the proceeds from the sale of a plant asset exceed its book value (or its net carrying amount), a gain on disposal occurs. The gain is calculated as the difference between the proceeds from the sale and the book value of the asset.

Question 7

The journal entry to record a revaluation when the asset's price has increased includes a credit to the account Revaluation Surplus.

Accepted Answer

When an asset's price increases and a revaluation is done, the journal entry includes a debit to the asset's account and a credit to the account Revaluation Surplus. This is done to reflect the increase in the asset's value and to show the unrealized gain on the balance sheet.

Question 8

Assets that are experiencing rapid price changes must be revalued on an annual basis, otherwise less frequent revaluation is acceptable.

Accepted Answer

According to accounting standards, assets that are experiencing rapid price changes must be revalued on an annual basis to reflect their current market value. However, assets that do not experience significant price changes can be revalued less frequently, such as every three to five years.

Question 9

A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset's book value.

Accepted Answer

The answer of A loss on disposal of a plant...

Question 10

Revenue expenditures are reported on the statement of financial position and would include the cost to paint a building.

Accepted Answer

Revenue expenditures are not reported on the statement of financial position. They are expensed in the period incurred and do not result in the acquisition of an asset. The cost to paint a building would be considered a maintenance expense and would be recorded as a revenue expenditure.

Question 11

A plant asset must be fully depreciated before it can be removed from the books.

Accepted Answer

A plant asset can be removed from the books before it is fully depreciated, but the remaining value of the asset must be recorded as a loss or gain on disposal.

Question 12

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Accepted Answer

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are capitalized and then depreciated over the asset's remaining useful life.

Question 13

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

Accepted Answer

When there is a change in the estimated useful life of a plant asset, it affects the depreciation expense going forward in the current and future periods but does not impact the depreciation recognized in prior periods. This is because the determination of the useful life is made at the beginning of the asset's life and any change in the estimate is applied prospectively rather than retrospectively.

Question 14

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

Accepted Answer

Capital expenditures are typically large, one-time expenses that are made to acquire, improve or maintain long-term assets such as property, plant, and equipment. They are not recurring expenses that occur frequently during the period of ownership.

Question 15

A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.

Accepted Answer

A loss on disposal of a plant asset is calculated as the difference between the asset's book value (cost minus accumulated depreciation) and the amount received from the sale or salvage of the asset. This calculation applies whether the asset is sold or retired (scrapped or abandoned).

Question 16

Component depreciation is the method of depreciation recommended for an asset that is expected to be significantly more productive in the first half of its useful life.

Accepted Answer

Component depreciation involves depreciating different parts of an asset separately, not based on productivity but on the different useful lives of the components.

Question 17

To determine a new depreciation amount after a change in estimate of a plant asset's useful life, the asset's remaining depreciable cost is divided by its remaining useful life.

Accepted Answer

This is the correct method for determining a new depreciation amount after a change in estimate of a plant asset's useful life.

Question 18

IFRS allows companies to revalue plant assets to fair value at the reporting date.

Accepted Answer

IFRS allows companies to revalue plant assets to their fair value at the end of the reporting period. However, this revaluation is not required and can be done at the discretion of the company.

Question 19

Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.

Accepted Answer

Once an asset is fully depreciated, the business cannot take any more depreciation deductions even if the asset is still being used. The asset will remain on the books at its salvage value or its actual cost minus accumulated depreciation.

Question 20

The book value of a plant asset is the amount originally paid for the asset less anticipated residual value.

Accepted Answer

The book value of a plant asset is the original cost minus accumulated depreciation, not the anticipated residual value.

Quiz 9: Plant Assets, Natural Resources, and Intangible Assets