Question 1

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. 
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.

Question 2

Mozart Ltd acquired a building for $1.5 million.Management estimates the value of land to be 40% of cost.The building is estimated to have a useful life of 50 years.After 25 years,the property's fair value is estimated at 1.2 million.It is expected that the life of the building will remain the same and salvage value is expected to be $100 000.Which of the following statements is correct at end of year 25 with respect to the revaluation?

Accepted Answer

A)  Net profit will increase by $100 000. 
B)  Net profit will increase by $120 000. 
C)  Net profit will decrease by $220 000. 
D)  Net profit is unaffected as the credit is through the asset revaluation reserve. 
A)  Net profit will increase by $100 000. 
B)  Net profit will increase by $120 000. 
C)  Net profit will decrease by $220 000. 
D)  Net profit is unaffected as the credit is through the asset revaluation reserve.

Question 3

An entity that elects the revaluation model to measure a class of asset is permitted to revert back to the cost model provided that this will provide more relevant and reliable information.

Accepted Answer

A) True 
 B)False

Question 4

AASB 138 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset.

Accepted Answer

A) True 
 B)False

Question 5

Seagull Marinas Ltd owns land that was purchased for $300 000 to be used as the future site of a boat shed.Due to the development of a resort in the vicinity,the land's fair market value had risen to $480 000 and was revalued on 30 June 2009.A revaluation undertaken on 30 June 2012 of $150,000 reflects the effect of the failure of resort development and local concerns about the protection of the nesting sites of endangered sea birds located near the land.What are the journal entries required to record the revaluations on 30 June 2009 and 30 June 2012?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 6

The fair value of a non-current asset is defined in AASB 116 as the gross amount for which the asset can be sold when the entity is preparing to liquidate.

Accepted Answer

A) True 
 B)False

Question 7

AASB 116 requires entities to review at least at the end of each annual reporting period to assess if the fair value of the non-current assets has changed.

Accepted Answer

A) True 
 B)False

Question 8

Brahms Ltd acquired a property of land and building for $1.5 million.Management estimates the value of land to be 40% of cost.The building is estimated to have a useful life of 50 years.After 25 years,the property was revalued at 1.2 million.It is expected that the life of the building will remain the same and salvage value is expected to be $100 000.What is the revaluation gain(loss)for the building and the depreciation expense one year after revaluation?

Accepted Answer

A)  $120 000; $24 800 
B)  ($120 000); $28 800 
C)  $220 000; $24 800 
D)  ($220 000); $28 800 
A)  $120 000; $24 800 
B)  ($120 000); $28 800 
C)  $220 000; $24 800 
D)  ($220 000); $28 800

Question 9

AASB 116 permits which of the following with respect to measurement of non-current assets using revaluation model?

Accepted Answer

A)  Net revaluation decrements for each class of asset are initially debited to asset revaluation reserve. 
B)  Use of cost model to measure other assets in the same class. 
C)  All increments arising from revaluation are credited to asset revaluation reserve. 
D)  None of the given answers are correct. 
A)  Net revaluation decrements for each class of asset are initially debited to asset revaluation reserve. 
B)  Use of cost model to measure other assets in the same class. 
C)  All increments arising from revaluation are credited to asset revaluation reserve. 
D)  None of the given answers are correct.

Question 10

If an asset's carrying amount is increased due to an initial revaluation that increase shall be recognised in:

Accepted Answer

A)  other comprehensive income. 
B)  the profit and loss. 
C)  in the disclosures. 
D)  None of the given answers are correct. 
A)  other comprehensive income. 
B)  the profit and loss. 
C)  in the disclosures. 
D)  None of the given answers are correct.

Question 11

Revaluations increments are often a source of discussion because:

Accepted Answer

A)  Historical-cost accounting has traditionally stated that unrealised holding gains should generally be treated as income. 
B)  A transaction with an external party is always required to recognise income. 
C)  Revaluation increments can be used to offset previous decrements across all asset classes. 
D)  This model loosens debt covenant restrictions. 
A)  Historical-cost accounting has traditionally stated that unrealised holding gains should generally be treated as income. 
B)  A transaction with an external party is always required to recognise income. 
C)  Revaluation increments can be used to offset previous decrements across all asset classes. 
D)  This model loosens debt covenant restrictions.

Question 12

An investment property is considered to generate cash flows that are:

Accepted Answer

A)  dependent on the other assets of the entity. 
B)  designed to reduce taxes. 
C)  largely independent of the other assets of the entity. 
D)  all of the given answers. 
A)  dependent on the other assets of the entity. 
B)  designed to reduce taxes. 
C)  largely independent of the other assets of the entity. 
D)  all of the given answers.

Question 13

AASB 116 prescribes that,if assets within the same class are revalued and some assets increased in value while others decreased in value:

Accepted Answer

A)  the net decrement for the class of asset should be recognised as loss in the income statement. 
B)  the net increment for the class of asset should be credited to revaluation reserve. 
C)  the total increment for all assets in the same class that increased in value should be credited to revaluation reserve and total decrement for all assets in the same class of asset should be recognised as loss in the income statement. 
D)  All of the given answers are correct. 
A)  the net decrement for the class of asset should be recognised as loss in the income statement. 
B)  the net increment for the class of asset should be credited to revaluation reserve. 
C)  the total increment for all assets in the same class that increased in value should be credited to revaluation reserve and total decrement for all assets in the same class of asset should be recognised as loss in the income statement. 
D)  All of the given answers are correct.

Question 14

If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.

Accepted Answer

A) True 
 B)False

Question 15

AASB 116 requires that where the replacement cost of a non-current asset is less than its carrying value,the asset should be written down to its replacement cost.

Accepted Answer

A) True 
 B)False

Question 16

A machine purchased by White Ltd had a cost of $670 000 and an accumulated depreciation balance of $120 000 at 30 June 2012.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 using the net method?

Accepted Answer

A) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation -machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 100000 & \
\hline \mathrm { Cr } & \text { Machine } & & 100000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Loss on revaluation of machine } & 220000 & \
\hline \mathrm { Cr } & \text { Machine } & & 220000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 100000 & \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 100000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Loss on revaluation of machine } & 100000 & \
\hline \mathrm { Cr } & \text { Machine } & & 100000 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation -machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 100000 & \
\hline \mathrm { Cr } & \text { Machine } & & 100000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Loss on revaluation of machine } & 220000 & \
\hline \mathrm { Cr } & \text { Machine } & & 220000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 100000 & \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 100000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 120000 & \
\hline \mathrm { Cr } & \text { Machine } & & 120000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Loss on revaluation of machine } & 100000 & \
\hline \mathrm { Cr } & \text { Machine } & & 100000 \
\hline
\end{array}$$

Question 17

Compare the accounting treatment for investment properties with that of property,plant and equipment using the valuation model.

Accepted Answer

Investment properties and property, plan

Question 18

Entities that elect to report plant and equipment at cost less accumulated depreciation are required to disclose a valuation of plant and equipment every 3 years in a note to the accounts.

Accepted Answer

A) True 
 B)False

Question 19

Purple Co Ltd purchased an item of land 3 years ago at a cost of $700 000.Two years ago the recoverable value of the land was considered to be $550 000.In the current period the land is revalued and the fair value is now $750 000.What is the treatment of the change in value in each of the periods?

Accepted Answer

A)  Two years ago: a loss of $150 000 is recognised. The current period: a gain of $150 000 and an increase in the asset revaluation reserve of $50 000 is recognised. 
B)  Two years ago: $150 000 is debited to the asset revaluation reserve. The current period: $200 000 is credited to the asset revaluation reserve. 
C)  Two years ago: $150 000 is expensed in the period. The current period: $200 000 is transferred to the asset revaluation reserve. 
D)  Two years ago: $150 000 is written off to the asset revaluation reserve. The current period: $200 000 revenue is recognised. 
A)  Two years ago: a loss of $150 000 is recognised. The current period: a gain of $150 000 and an increase in the asset revaluation reserve of $50 000 is recognised. 
B)  Two years ago: $150 000 is debited to the asset revaluation reserve. The current period: $200 000 is credited to the asset revaluation reserve. 
C)  Two years ago: $150 000 is expensed in the period. The current period: $200 000 is transferred to the asset revaluation reserve. 
D)  Two years ago: $150 000 is written off to the asset revaluation reserve. The current period: $200 000 revenue is recognised.

Question 20

Pigeon Ltd purchased land for $750 000 6 years ago.It was revalued on 31 December 2009 to $600 000.A subsequent revaluation on 31 December 2011 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 2009 and 31 December 2011?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

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

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

An entity that elects the revaluation model to measure a class of asset is permitted to revert back to the cost model provided that this will provide more relevant and reliable information.

AASB 138 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset.

The fair value of a non-current asset is defined in AASB 116 as the gross amount for which the asset can be sold when the entity is preparing to liquidate.

AASB 116 requires entities to review at least at the end of each annual reporting period to assess if the fair value of the non-current assets has changed.

AASB 116 permits which of the following with respect to measurement of non-current assets using revaluation model?

If an asset's carrying amount is increased due to an initial revaluation that increase shall be recognised in:

Revaluations increments are often a source of discussion because:

An investment property is considered to generate cash flows that are:

AASB 116 prescribes that,if assets within the same class are revalued and some assets increased in value while others decreased in value:

If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.

AASB 116 requires that where the replacement cost of a non-current asset is less than its carrying value,the asset should be written down to its replacement cost.

A machine purchased by White Ltd had a cost of $670 000 and an accumulated depreciation balance of $120 000 at 30 June 2012.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 using the net method?

Compare the accounting treatment for investment properties with that of property,plant and equipment using the valuation model.

Entities that elect to report plant and equipment at cost less accumulated depreciation are required to disclose a valuation of plant and equipment every 3 years in a note to the accounts.

Purple Co Ltd purchased an item of land 3 years ago at a cost of $700 000.Two years ago the recoverable value of the land was considered to be $550 000.In the current period the land is revalued and the fair value is now $750 000.What is the treatment of the change in value in each of the periods?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of 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 Leases

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 Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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