Question 1

Miller Company, a company who uses IFRS reporting standards, sells a non-current asset classified as held-for-sale. Which of the following statements is true regarding the treatment of a gain on a subsequent increase in the fair value less cost?

Accepted Answer

Under IFRS, if there is a subsequent increase in the fair value less costs to sell of a non-current asset classified as held-for-sale, a gain should be recognized in the income statement but only to the extent that it reverses a previously recognized impairment loss.

Question 2

All of the following are true regarding the revaluation model allowed under IFRS except

Accepted Answer

When an asset is revalued, any increase in carrying amount is not reported as miscellaneous revenue, but rather as other comprehensive income (OCI) within equity.

Question 3

Under IFRS, interest revenue earned on specific borrowings for qualifying assets

Accepted Answer

Under IFRS, interest revenue earned on specific borrowings for qualifying assets reduces the cost of the qualifying asset. This is because the interest expense that would have been incurred on the borrowing is capitalized as part of the cost of the asset, and the interest revenue earned offsets this cost. As a result, the net cost of the asset is reduced, which is consistent with the matching principle of accounting.

Question 4

Elton Industries, a company who uses IFRS reporting standards, has assets and liabilities of a disposal group classified as held-for-sale shown on its statement of financial position. Which of the following presents the best treatment for these?

Accepted Answer

According to IFRS, assets and liabilities of a disposal group classified as held-for-sale should be shown separately from other assets and liabilities on the statement of financial position. This means that they should not be netted, deducted from equity or omitted from the financial statements. Therefore, the best treatment for Elton Industries is to show the disposal group assets and liabilities separately on the balance sheet.

Question 5

Icon Industries, a company who uses IFRS reporting standards, is installing a new plant. The company has incurred the following costs  Which of these costs can Tram capitalize in accordance with IFRS?

Accepted Answer

The answer of Icon Industries, a company who uses IFRS...

Question 6

Under IFRS, Sampson Company, who has a non-current asset which has been classified as held-for-sale, should

Accepted Answer

Non-current assets classified as held-for-sale should no longer be depreciated as they are expected to be sold in the near future. Testing for impairment should be done only when there is evidence that the asset's recoverable amount is less than its carrying amount. Valuation should be at the lower of carrying amount or fair value less costs to sell. Therefore, the correct option is not to depreciate the asset.

Question 7

On January 1, 2014, Jackson Company has a building with a carrying value of $80,000 and a remaining useful life 5 years that was recently valued at $240,000. Assuming that the company uses straight-line depreciation, IFRS would show the depreciation as

Accepted Answer

Under IFRS, revaluation of an asset to its fair value is allowed. If the building is revalued to $240,000 with a remaining useful life of 5 years, the annual depreciation would be $48,000 ($240,000 / 5 years). However, the original depreciation before revaluation would be $16,000 ($80,000 / 5 years). Therefore, both A and B could be correct depending on whether the revaluation is considered.

Question 8

Woodson Company, a company who uses IFRS reporting standards, has identified a group of plant assets for disposal. On January 1, 2014, the carrying value of these assets was$14.5 million. The assets were revalued to $13.5 million on January 5, 2014, when they were identified as property for the disposal group. In addition, Woodson thinks that it will cost$1.5 million to sell these assets. What carrying amount should these assets reflect foryear-end financial statements to be prepared on January 10, 2014?

Accepted Answer

The carrying amount should be the lower of the carrying value or fair value less costs to sell. The fair value is $13.5 million, and the cost to sell is $1.5 million, so the fair value less costs to sell is $12.0 million.

Question 9

Danson Company, a company who uses IFRS reporting standards, has a non-current asset that has been classified as held-for-sale. When the asset no longer meets this definition, Danson should

Accepted Answer

According to IFRS, if a non-current asset is no longer classified as held-for-sale, it should be measured at the lower of its carrying value before it was classified as held-for-sale and its recoverable amount at the date when the company decided not to sell it. This is in order to reflect any impairment loss that may have occurred during the period it was classified as held-for-sale. Therefore, option C is the best choice.

Question 10

Tram Industries, a company who uses IFRS reporting standards, is installing a new plant. The company has incurred the following costs  Which of these costs can Tram capitalize in accordance with IFRS?

Accepted Answer

According to IFRS, costs that can be capitalized include: 
1) costs directly attributable to the acquisition or construction of the asset (can be capitalized)
2) costs of testing whether the asset is functioning properly (can be capitalized)
3) professional fees (such as legal and architectural fees) directly attributable to the acquisition or construction of the asset (can be capitalized)
4) borrowing costs (such as interest on loans) incurred during the construction period (can be capitalized)
Therefore, Tram Industries can capitalize costs 2, 3, and 4, making choice C the correct answer.

Quiz 10: Acquisition and Disposition of Property, Plant, and Equipment