Question 1

The statement relating to revaluations of non-current assets that is not true is:

Accepted Answer

A revaluation increase is not regarded as income to be added to the firm's profit for the year; instead, it is credited to a revaluation surplus in equity, unless it reverses a previous revaluation decrease recognized in profit or loss.

Question 2

Accounting standard IAS 16/AASB 116:

Accepted Answer

Accounting standard IAS 16/AASB 116 does not require an entity to revalue its assets. However, it allows entities to choose between the cost model and the revaluation model for accounting for property, plant, and equipment. If an entity chooses the revaluation model, it must revalue the assets regularly and ensure that the carrying amount does not exceed the fair value.

Question 3

Accounting standard IAS 16/AASB 116 requires what basis of valuation to be used if assets are valued at other than cost?

Accepted Answer

IAS 16/AASB 116 requires the use of fair value as the basis of valuation if assets are to be valued at other than cost.

Question 4

The basic accounting entry for an initial revaluation decrease of a non-depreciable asset is:

Accepted Answer

When there is an initial revaluation decrease of a non-depreciable asset, the decrease is recognized as an expense. Therefore, the correct entry is to debit the expense on revaluation of the asset and credit the asset.

Question 5

How many of these are requirements of IAS 16/AASB 116?
.An entire class of non-current assets must be revalued together
.If the revaluation model is adopted non-current assets should be revalued to fair value
.Before a depreciable asset is revalued accumulated depreciation should be written back to the asset account

Accepted Answer

The answer of How many of these are requirements of...

Question 6

On 31 December 2012 HiRise Ltd's balance sheet shows motor vehicles at a cost price of $200,000 less accumulated depreciation $50,000.HiRise Ltd uses the cost model to value its assets.On 31 December 2012 an estimate is made that the recoverable amount of the vehicles is $120,000.Under IAS 36/AASB 136 the accounting entry to record the write down of the motor vehicles to recoverable amount is:

Accepted Answer

According to IAS 36/AASB 136, when an asset's recoverable amount is less than its carrying amount, the asset must be written down to its recoverable amount, and an impairment loss must be recognized. In this case, the carrying amount of the motor vehicles is $150,000 ($200,000 cost - $50,000 accumulated depreciation), which is $30,000 more than the estimated recoverable amount of $120,000. Therefore, an impairment loss of $30,000 should be recognized. Since the impairment loss reduces the carrying amount of the asset, it must be credited to the accumulated depreciation and impairment losses account, and debited to the impairment loss on motor vehicles expense account. Thus, the accounting entry to record the write down of the motor vehicles to recoverable amount is:

Dr. Impairment loss on motor vehicles expense $30,000
Cr. Accumulated depreciation and impairment losses $30,000

Question 7

The balance sheet of Marty Ltd at 31 December 2012 showed: 1.
$\begin{array}{ll}&\$\
\text {Equipment } & 50,000 \
\text { Accumulated Depreciation-Plant } & 35,000\&15,000
\end{array}$ On 1 January 2013 the equipment was sold for $10 000.The accounting entry to record the receipt of the proceeds from the sale of the equipment is:

Accepted Answer

The correct answer is A because the proceeds from the sale of the equipment are credited to the bank account, and the equipment account is debited for the amount received.

Question 8

The true statement is:

Accepted Answer

An initial revaluation decrease should be recognized as a loss in the profit or loss statement, as it reflects a decrease in the asset's value.

Question 9

Under IAS 36/AASB 136 'Impairment of Assets' how many of these statements are true?
.When an asset's carrying amount is less than its recoverable amount the asset is said to suffer impairment
.Impairment losses are accounted for as a revaluation decrease if the revaluation model is used
.Impairment losses must be recognised as an expense in that period if the cost model is used

Accepted Answer

- Statement 1 is true as per IAS 36/AASB 136
- Statement 2 is false as per IAS 36/AASB 136, as impairment losses are accounted for as an expense, not a revaluation decrease
- Statement 3 is true as per IAS 36/AASB 136 for assets accounted for under the cost model.

Question 10

The balance sheet of Brown Ltd at 31 December 2012 shows the following: $\begin{array}{ll}&\$\
\text { Plant } & 50,000 \
\text { Accumulated Depreciation-Plant } & 30,000\&20,000
\end{array}$ On 1 January 2013,based on a valuer's estimate of fair value,it was decided to revalue the plant to $35 000.This was the first time the asset had been revalued.
The journal entry to record the revaluation is: a. Accumulated Depreciation-Plant $\quad$30,000
$\quad$Plant $\quad$$\quad$15,000
$\quad$Gain on revaluation Plant$\quad$15,000
b. Plant $\quad$15,000
$\quad$Gain on revaluation plant$\quad$15,000
c. Expense on Revaluation of Plant $\quad$15,000
$\quad$Plant$\quad$$\quad$15,000
d. Plant$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$15,000
$\quad$Expense on Revaluation of Plant $\quad$15,000
$\quad$Accumulated Depreciation-Plant$\quad$30,000

Accepted Answer

The answer of The balance sheet of Brown Ltd at...

Question 11

The balance sheet of Marty Ltd at 31 December 2012 showed: 1.
$\begin{array}{ll}&\$\
\text {Equipment } & 50,000 \
\text { Accumulated Depreciation-Plant } & 35,000\&15,000
\end{array}$ On 1 January 2013 the equipment was sold for $10 000.The accounting entry to record the closing of the equipment and the accumulated depreciation of equipment accounts is:

Accepted Answer

When an asset is sold, the carrying amount of the asset (net of accumulated depreciation) is removed from the balance sheet. In this case, the carrying amount of the equipment is $15,000 ($50,000 - $35,000). The accumulated depreciation account is also closed out, with a debit of $35,000. The equipment account is then credited for the total of the carrying amount and the accumulated depreciation, which is $50,000.

Question 12

The statement relating to the composite-rate depreciation approach that is not true is:

Accepted Answer

The statement that the composite-rate depreciation approach is only used for items valued at less than $500 each is not true. In fact, this approach is often used for business entities with many similar assets in the one class and involves applying a single depreciation rate to the average cost of a functional group of assets. Additionally, the composite rate is applied to the average of the beginning and ending balances in the asset account for the year, not just to assets valued at less than $500.

Question 13

The balance sheet of Brown Ltd at 31 December 2012 shows the following: $\begin{array}{ll}&\$\
\text { Plant } & 50,000 \
\text { Accumulated Depreciation-Plant } & 30,000\&20,000
\end{array}$ On 1 January 2013,based on a valuer's estimate of fair value,it was decided to revalue the plant to $35 000.The plant was then assessed to have a further useful life of 3 years and an expected residual amount of $5000.The journal entry in the books of Brown Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2013 balance date)is: a. Depreciation Expense-Plant$\quad$10,000
$\quad$Accumulated Depreciation-Plant$\quad$10,000
b. Depreciation Expense-Plant$\quad$5,000
$\quad$Accumulated Depreciation-Plant$\quad$5,000
c. Accumulated Depreciation-Plant$\quad$5,000
$\quad$Depreciation Expense-Plant$\quad$5,000
d. Depreciation Expense-Plant$\quad$7,500
$\quad$Accumulated Depreciation-Plant$\quad$7,500

Accepted Answer

The answer of The balance sheet of Brown Ltd at...

Question 14

If a computer with a fully depreciated cost of $30 000 is discarded as worthless,the accounting entry to record the scrapping is:

Accepted Answer

When an asset is fully depreciated and is discarded as worthless, it is removed from the balance sheet by crediting the asset account and debiting the accumulated depreciation account. Therefore, the accounting entry to record the scrapping of a fully depreciated computer would be to debit accumulated depreciation computer for $30,000 and credit computer for $30,000. There is no need to record an expense on the disposal of the asset, as the asset has already been fully depreciated and its original cost has been expensed over its useful life.

Question 15

Rachel's Gymnasium purchased some new gym equipment trading in old equipment with a carrying amount of $5 000.Cash of $9 000 was paid to the supplier and a trade-in allowance of $3 000 was granted.The new equipment should be recorded at:

Accepted Answer

The cost of the new equipment is $9,000 (cash paid) plus $3,000 (trade-in allowance), minus the carrying amount of the old equipment of $5,000, which equals $7,000. Therefore, the new equipment should be recorded at $12,000 ($7,000 cost + $5,000 carrying amount of old equipment). So, the best choice is option B ($12,000).

Question 16

The statement that is not correct is:

Accepted Answer

The original cost of an asset is not an expense on disposal; rather, the carrying amount (original cost minus accumulated depreciation) represents the expense on disposal.

Question 17

On 31 December 2012 an aeroplane with a cost of $200 000 has accumulated depreciation written off of $90 000.If it is sold for $130 000 on 1 January 2013 what will be the net effect of the sale on the income statement?

Accepted Answer

The book value of the aeroplane is $110,000 ($200,000 cost - $90,000 accumulated depreciation). Selling it for $130,000 results in a $20,000 profit ($130,000 - $110,000).

Question 18

When a non-current asset is sold the gain or loss on disposal is the difference between:

Accepted Answer

The gain or loss on disposal of a non-current asset is calculated as the difference between the selling price and carrying amount (which is the cost of the asset less accumulated depreciation). In other words, it represents the amount by which the selling price exceeds or falls short of the cost less depreciation of the asset. Therefore, option D (selling price and carrying amount) is the best choice.

Question 19

The pair of terms that match is:
i.Non-current fixed assets - depreciation
ii.Natural resources - amortisation
iii.Intangible assets - depletion
iv.Land - depreciation

Accepted Answer

Depreciation is the term used for the systematic allocation of the cost of non-current fixed assets. Natural resources are subject to amortisation, and intangible assets are subject to depletion. Land is not subject to depreciation, amortisation or depletion. Therefore, the pair that matches is i. Non-current fixed assets - depreciation.

Question 20

Assume that a machine with a cost of $3000 has accumulated depreciation of $1400 on the date of its disposal.If it was traded-in for $2000 on a new machine and the balance of $1500 was paid in cash what is the profit or loss on disposal of the old machine? Ignore GST.

Accepted Answer

The book value of the old machine is $1600 ($3000 cost - $1400 accumulated depreciation). It was traded in for $2000, resulting in a gain of $400 ($2000 trade-in value - $1600 book value).

Quiz 21: Non-Current Assets: Revaluation,disposal and Other Aspects