Question 1

Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

Accepted Answer

Property, plant and equipment can be disposed of by discarding (such as scrapping), sale (such as selling to another party), or exchange of the asset (such as trading it for another asset).

Question 2

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Accepted Answer

The answer of When assigning values to an exchange of...

Question 3

When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment.

Accepted Answer

When accumulated depreciation equals the asset's cost, the asset is fully depreciated and the entry to record the removal of the asset is called "disposal of equipment" or "sale of equipment" depending on how the asset was removed from the company's possession. "Exchanging the equipment" typically refers to trading in an old asset for a new one and should not be used to record the removal of a fully depreciated asset.

Question 4

Impairment losses must be assessed by companies on an annual basis.

Accepted Answer

Impairment losses must be assessed at least annually by companies in order to determine if the carrying value of their assets (such as property, plant, and equipment) has been reduced to an amount that is less than their fair value or future economic benefits. If this is the case, companies must recognize an impairment loss in their financial statements.

Question 5

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

Accepted Answer

Drilling rights are legal permissions that allow companies to access and extract natural resources from the earth's subsurface, such as oil or gas. These rights are intangible assets because they do not have a physical presence but have value to the owner.

Question 6

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time.

Accepted Answer

This is the definition of a patent.

Question 7

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, orlegal factors.

Accepted Answer

This statement is true. Impairment can occur due to various reasons such as a decline in market value, technological changes, economic downturns, or changes in legal regulations.

Question 8

At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

Accepted Answer

When a plant asset is discarded or sold, the accumulated depreciation of the asset must be updated to the date of disposal in order to accurately calculate the gain or loss on the sale of the asset.

Question 9

Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures.

Accepted Answer

The answer of Depreciation amounts can be revised because of...

Question 10

The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal.

Accepted Answer

The first step in accounting for the disposal of property, plant, and equipment is to remove the asset's carrying amount from the books, which involves recording the asset's historical cost and accumulated depreciation up to the date of disposal. Calculating the gain or loss on disposal comes after these amounts have been accounted for.

Question 11

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for$3,000. The company should recognize a $1,000 loss on disposal of the equipment.

Accepted Answer

The carrying value of the equipment was $4,000 ($14,000 - $10,000), and it was sold for $3,000, resulting in a loss of $1,000 ($3,000 - $4,000). Therefore, the company should recognize a $1,000 loss on disposal of the equipment.

Question 12

The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received.

Accepted Answer

The gain or loss is calculated as the difference between the asset's book value (its recorded cost less accumulated depreciation) and the value received upon disposal.

Question 13

Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life.

Accepted Answer

Intangible assets such as patents, copyrights, trademarks, and goodwill should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life. This means that their cost should be spread over the period in which they are expected to provide economic benefits to the company. This is in contrast to tangible assets, which are generally depreciated over their estimated useful life.

Question 14

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Accepted Answer

Amortization is the process of gradually writing off the cost of intangible assets over their useful life.

Question 15

If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired.

Accepted Answer

The answer of If the book value of a property,...

Question 16

An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and willhave a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year.

Accepted Answer

The revised annual depreciation would be calculated as (Current Book Value - Residual Value) / Remaining Useful Life = ($2,000 - $400) / 4 = $400 per year.

Question 17

Intangible assets provide rights, privileges, and competitive advantages to the owner, are used in operations, and have no physical substance.

Accepted Answer

Intangible assets such as patents, trademarks, copyrights, and goodwill provide legal rights, competitive advantages, and are used in operations. They have no physical presence or substance.

Question 18

When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted.

Accepted Answer

When there is a change in the cost of an asset due to subsequent capital expenditure, the revised cost needs to be used to calculate the depreciation for current and future periods. This is to ensure that the depreciation expense reflects the actual cost of the asset and is spread out over its useful life.

Question 19

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Accepted Answer

According to accounting standards, when assets are exchanged, the fair value of the asset given up should be used to assign values to the transaction. This helps to ensure more accurate financial reporting.

Question 20

An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000.

Accepted Answer

An impairment loss occurs when the market value of an asset falls below its book value, and the difference between the book value and the current market value should be recognized as an impairment loss.

Quiz 9: Property, Plant and Equipment and Intangibles