Question 1

Which of the following statements about the capitalisation of goodwill is true?

Accepted Answer

Internally generated goodwill is not recognized as an asset and cannot be capitalized because it is not an identifiable resource controlled by the entity that can be measured reliably at cost. However, purchased goodwill, which arises from a business combination, is recognized as an asset and is capitalized on the balance sheet. This is because it can be measured reliably at the cost of acquisition.

Question 2

If equipment that cost $100 000 and has accumulated depreciation of $70 000 is sold for $20 000,the journal entry to record the sale would include:

Accepted Answer

The correct journal entry to record the sale of equipment includes debiting (removing) the accumulated depreciation of $70,000 from the books. This reflects the reduction of the accumulated depreciation account for the depreciation expense that has been recognized over the equipment's useful life up to the point of sale.

Question 3

X buys Y for $1 million.The fair value of the following items is: property,plant and equipment $800 000;accounts receivable $160 000;loan from the bank $60 000;and provision for employee entitlements $80 000.The value of goodwill is:

Accepted Answer

The total fair value of the assets and liabilities is $800,000 + $160,000 - $60,000 + $80,000 = $980,000. Therefore, the difference between the purchase price of $1 million and the fair value of the assets and liabilities is $1,000,000 - $980,000 = $20,000. This $20,000 is the value of goodwill. Therefore, the answer is C.

Question 4

Where there is an asset revaluation decrement that does not reverse a previous increment,the amount is debited to:

Accepted Answer

When there is an asset revaluation decrement that does not reverse a previous increment, it indicates that the value of the asset has decreased and the previous gain on revaluation is no longer valid. As a result, the amount is treated as a loss and is debited to an expense account to reflect the true economic performance of the business. Choice B (retained profits) and Choice D (share capital) are not appropriate as they are part of equity and not affected by asset revaluations. Choice C (revaluation surplus) would only apply if there was a previous revaluation increment that was now being reversed.

Question 5

Which of the following do NOT need to be disclosed in financial statements?

Accepted Answer

Reasons for assets not being revalued do not need to be disclosed in financial statements. Disclosures typically focus on policies, amounts, and impacts of revaluations if they occur, rather than reasons for not revaluing assets.

Question 6

Bully Ltd acquires all the business assets and liabilities of Small Ltd for $700 000 cash.The best estimates of the fair market values of the assets and liabilities are:  What is the value of goodwill acquired by Bully Ltd?

Accepted Answer

The answer of Bully Ltd acquires all the business assets...

Question 7

Where there is an asset revaluation increment that does not reverse a previous decrement,the amount of the increment is credited to:

Accepted Answer

When there is an asset revaluation increment that does not reverse a previous decrement, the amount of the increment is credited to revaluation surplus. This account is used to record a change in the value of an asset that cannot be attributed to any specific transaction or event, but rather is due to changes in market conditions or other economic factors. The revaluation surplus is a component of equity and should be separated from retained earnings, accumulated depreciation, and capital.

Quiz 10: Noncurrent Assets