Question 1

Under AASB 116 when an asset is revalued and the gross method is used, accumulated depreciation:

Accepted Answer

A)  must be written back to profit. 
B)  must be closed off to reduce the asset account. 
C)  is ignored during revaluation as it has not effect on carrying amount. 
D)  should be increased by the same proportion as the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the revalued amount. 
E)  None of the given answers. 
A)  must be written back to profit. 
B)  must be closed off to reduce the asset account. 
C)  is ignored during revaluation as it has not effect on carrying amount. 
D)  should be increased by the same proportion as the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the revalued amount. 
E)  None of the given answers. D

Question 2

A machine purchased by White Ltd had a cost of $670,000 and an accumulated depreciation balance of $120,000 at 30 June 2002. Its fair value is assessed at this time, with its first revaluation as $450,000. What is/are the appropriate journal entry(ies) to record the revaluation?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers. D

Question 3

The concept of conservatism requires that if a class of non-current assets is revalued a revaluation decrement should be treated as an expense of the period, whereas a revaluation increment should be treated as an increase in a reserve:

Accepted Answer

A) True 
 B)False  True

Question 4

Where management's bonuses are tied to profit-based performance measures management may have an incentive not to revalue assets because:

Accepted Answer

A)  When revaluing assets, the value of the asset base increases, consequently the return on assets will fall. 
B)  A revaluation may result in a decrease in the value of the asset base. 
C)  A revaluation that increases the value of the asset base will increase profit measures. 
D)  When revaluing assets, the value of the asset base increases, consequently the debt to equity ratio will fall. 
E)  None of the given answers. 
A)  When revaluing assets, the value of the asset base increases, consequently the return on assets will fall. 
B)  A revaluation may result in a decrease in the value of the asset base. 
C)  A revaluation that increases the value of the asset base will increase profit measures. 
D)  When revaluing assets, the value of the asset base increases, consequently the debt to equity ratio will fall. 
E)  None of the given answers.

Question 5

AASB 136 requires that:

Accepted Answer

A)  If a non-current asset is revalued, the revalued amount may be less than the recoverable amount. 
B)  If a non-current asset is revalued, it must be revalued to the lower of current replacement cost or net realisable value. 
C)  If a non-current asset is revalued, it must be revalued to the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. 
D)  If a non-current asset is revalued, it must be revalued to the amount for which the asset could be realised in an active market in a liquidation sale. 
E)  None of the given answers. 
A)  If a non-current asset is revalued, the revalued amount may be less than the recoverable amount. 
B)  If a non-current asset is revalued, it must be revalued to the lower of current replacement cost or net realisable value. 
C)  If a non-current asset is revalued, it must be revalued to the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. 
D)  If a non-current asset is revalued, it must be revalued to the amount for which the asset could be realised in an active market in a liquidation sale. 
E)  None of the given answers.

Question 6

The revaluation model is a tool used by managers to reduce political costs.

Accepted Answer

A) True 
 B)False

Question 7

Hendersons Ltd has just begun to revalue its plant and equipment. The following information about the items included in this class of non-current assets shows their carrying value, and most recent revaluation.
 
What is/are the appropriate journal entry(ies) to record the revaluations?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 8

Pigeon Ltd purchased land for $750,000 6 years ago. It was revalued on 31 December 2002 to $600,000. A subsequent revaluation on 31 December 2004 found the market value to be $900,000 due to a change in council zoning for the area. What are the journal entries required to record the revaluations on 31 December 2002 and 31 December 2004?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 9

If an asset's carrying amount is impaired, AASB 116 requires all assets in the same class to be revalued.

Accepted Answer

A) True 
 B)False

Question 10

Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason:

Accepted Answer

A) True 
 B)False

Question 11

Stairway Ltd is undertaking its regular review of the fair value of its assets. It has discovered the following material changes:
 
What are the journal entries required to record the revaluations in accordance with relevant accounting standards?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 12

Staples Ltd has invested in two parcels of land that are treated as belonging to the same class of assets. The first parcel of land was purchased for $500,000 and has been valued this period at $650,000. The second parcel of land has a carrying value of $340,000 and has been valued this period at $100,000. What is the appropriate journal entry to record the revaluations?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 13

Under AASB 116 when an asset is revalued and the net method is used, accumulated depreciation:

Accepted Answer

A)  must be written back to profit. 
B)  must be closed off to equity account. 
C)  should be eliminated against the gross carrying amount of the asset before revaluation. 
D)  should be increased by the same proportion as the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the revalued amount. 
E)  None of the given answers. 
A)  must be written back to profit. 
B)  must be closed off to equity account. 
C)  should be eliminated against the gross carrying amount of the asset before revaluation. 
D)  should be increased by the same proportion as the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the revalued amount. 
E)  None of the given answers.

Question 14

Research using the Positive Accounting Theory approach investigated public trust deeds and found that in relation to revaluations they:

Accepted Answer

A)  Allowed revaluations but imposed very low debt/asset limits. 
B)  Specified which assets may be revalued and who may conduct the revaluations. 
C)  Generally did not permit revaluations. 
D)  Allowed revaluations but specified the period between revaluations as being no longer than 2 years. 
E)  None of the given answers. 
A)  Allowed revaluations but imposed very low debt/asset limits. 
B)  Specified which assets may be revalued and who may conduct the revaluations. 
C)  Generally did not permit revaluations. 
D)  Allowed revaluations but specified the period between revaluations as being no longer than 2 years. 
E)  None of the given answers.

Question 15

Brown, Izan and Loh (1992) found that revaluations are more likely to take place:

Accepted Answer

A)  In small firms with low value assets that wished to borrow more. 
B)  In industries that are strike prone. 
C)  In entities that are highly geared. 
D)  In industries that are strike prone and in entities that are highly geared. 
E)  None of the given answers. 
A)  In small firms with low value assets that wished to borrow more. 
B)  In industries that are strike prone. 
C)  In entities that are highly geared. 
D)  In industries that are strike prone and in entities that are highly geared. 
E)  None of the given answers.

Question 16

Once a class of non-current assets has been revalued, AASB 116 requires that:

Accepted Answer

A)  Directors continue to revalue the class of assets on an ad hoc basis. 
B)  Revaluations must be undertaken regularly enough to ensure that the carrying amount of each asset in the class of assets does not differ materially from its fair value at reporting date. 
C)  All assets in the class must be revalued every 3 years. 
D)  Revaluations must be undertaken regularly enough to ensure that the carrying amount of the class of assets does not differ from its fair value at reporting date. 
E)  None of the given answers. 
A)  Directors continue to revalue the class of assets on an ad hoc basis. 
B)  Revaluations must be undertaken regularly enough to ensure that the carrying amount of each asset in the class of assets does not differ materially from its fair value at reporting date. 
C)  All assets in the class must be revalued every 3 years. 
D)  Revaluations must be undertaken regularly enough to ensure that the carrying amount of the class of assets does not differ from its fair value at reporting date. 
E)  None of the given answers.

Question 17

Which of the following statements is a valid reason to select cost model over the revaluation model?

Accepted Answer

A)  To report relevant information; 
B)  To reduce taxes; 
C)  To properly match costs with expenses; 
D)  To simplify the measurement accounting policy; 
E)  None of the given answers. 
A)  To report relevant information; 
B)  To reduce taxes; 
C)  To properly match costs with expenses; 
D)  To simplify the measurement accounting policy; 
E)  None of the given answers.

Question 18

Smith & Jones Ltd owns equipment that was purchased for $56,000 and has accumulated depreciation of $14,000. The following market value information was gathered about the equipment:
 
The equipment has a remaining useful life to the entity of 10 years. What are the appropriate journal entries to record the revaluation under the gross method and the net-amount method?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 19

AASB 116 requires that revaluation increments and decrements must be offset recorded directly to equity and not be recorded as a gain or loss:

Accepted Answer

A) True 
 B)False

Question 20

Where there are debt covenants in place to restrict the level of debt to assets then management may be motivated to:

Accepted Answer

A)  Avoid revaluations because an increase in asset values increases depreciation and therefore reduces profit. 
B)  Undertake revaluations where the expectation is that asset values have fallen. 
C)  Avoid revaluations because of their effect on the cash flows of the business and therefore its ability to pay interest under the debt covenant. 
D)  Undertake revaluations where the expectation is that asset values are rising. 
E)  None of the given answers. 
A)  Avoid revaluations because an increase in asset values increases depreciation and therefore reduces profit. 
B)  Undertake revaluations where the expectation is that asset values have fallen. 
C)  Avoid revaluations because of their effect on the cash flows of the business and therefore its ability to pay interest under the debt covenant. 
D)  Undertake revaluations where the expectation is that asset values are rising. 
E)  None of the given answers.

Exam 6: Revaluation and Impairment Testing of Non-Current Assets

Under AASB 116 when an asset is revalued and the gross method is used, accumulated depreciation:

A machine purchased by White Ltd had a cost of $670,000 and an accumulated depreciation balance of $120,000 at 30 June 2002. Its fair value is assessed at this time, with its first revaluation as $450,000. What is/are the appropriate journal entry(ies) to record the revaluation?

The concept of conservatism requires that if a class of non-current assets is revalued a revaluation decrement should be treated as an expense of the period, whereas a revaluation increment should be treated as an increase in a reserve:

Where management's bonuses are tied to profit-based performance measures management may have an incentive not to revalue assets because:

AASB 136 requires that:

The revaluation model is a tool used by managers to reduce political costs.

Hendersons Ltd has just begun to revalue its plant and equipment. The following information about the items included in this class of non-current assets shows their carrying value, and most recent revaluation. What is/are the appropriate journal entry(ies) to record the revaluations?

If an asset's carrying amount is impaired, AASB 116 requires all assets in the same class to be revalued.

Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason:

Stairway Ltd is undertaking its regular review of the fair value of its assets. It has discovered the following material changes: What are the journal entries required to record the revaluations in accordance with relevant accounting standards?

Under AASB 116 when an asset is revalued and the net method is used, accumulated depreciation:

Research using the Positive Accounting Theory approach investigated public trust deeds and found that in relation to revaluations they:

Brown, Izan and Loh (1992) found that revaluations are more likely to take place:

Once a class of non-current assets has been revalued, AASB 116 requires that:

Which of the following statements is a valid reason to select cost model over the revaluation model?

AASB 116 requires that revaluation increments and decrements must be offset recorded directly to equity and not be recorded as a gain or loss:

Where there are debt covenants in place to restrict the level of debt to assets then management may be motivated to:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Lease

Set-Off and Extinguishment of Debt

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues Ii: Accounting for Minority Interests

Further Consolidation Issues Iii: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

Accounting for Equity Investments

Accounting for Equity Investments

Accounting for Foreign Currency Transactions

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

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