Question 1

By permitting some classes of assets to be valued at cost and others at fair value the AASB has:

Accepted Answer

A)  Removed any confusion regarding the total balance of non-current assets. 
B)  Forced entities to accurately reflect their true financial position at any point in time. 
C)  Created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness. 
D)  Removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory. 
E)  None of the given answers. 
A)  Removed any confusion regarding the total balance of non-current assets. 
B)  Forced entities to accurately reflect their true financial position at any point in time. 
C)  Created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness. 
D)  Removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory. 
E)  None of the given answers. C

Question 2

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  False

Question 3

Which of the following statement is true of accumulated depreciation?

Accepted Answer

A)  This is the difference between acquisition costs and residual value. 
B)  This is the difference between acquisition costs and revalued amount. 
C)  It is initially derecognized on first time revaluations. 
D)  It is restated proportionately to the carrying amount and the revalued amount of the asset. 
E)  None of the given answers 
A)  This is the difference between acquisition costs and residual value. 
B)  This is the difference between acquisition costs and revalued amount. 
C)  It is initially derecognized on first time revaluations. 
D)  It is restated proportionately to the carrying amount and the revalued amount of the asset. 
E)  None of the given answers C

Question 4

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 5

Mendelssons Ltd has a machine that has been revaluing over a number of years.The valuation as at 1 January 2002 is $130,000.The previous valuation was $145,000 and the accumulated depreciation is $40,000.The revised salvage value is $15,000 and the estimated useful life remaining is 12 years.The benefits from the machine are expected to be derived evenly over its life.In the previous year,the machine had been devalued by $15,000 and this amount written off to the income statement.What are the entries at 1 January 2002 to record the revaluation and at 31 December 2002 to record depreciation?

Accepted Answer

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

Question 6

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 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 of 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 revalution reserve. 
E)  Asset revaluation reserve is increased by $100,000. 
A)  Net profit of 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 revalution reserve. 
E)  Asset revaluation reserve is increased by $100,000.

Question 7

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 8

When an entity adopts the valuation model to account for its property,plant and equipment,which of the following statement(s)is/are correct?

Accepted Answer

A)  If an item is revalued, all assets in the same class shall be revalued. 
B)  If an asset's carrying amount is decreased as a result of a revaluation, the decrease is always recognised in profit and loss. 
C)  If an asset's carrying amount is increased as a result of a revaluation, the increase is always credited directly to equity. 
D)  All of the given answers. 
E)  None of the given answers 
A)  If an item is revalued, all assets in the same class shall be revalued. 
B)  If an asset's carrying amount is decreased as a result of a revaluation, the decrease is always recognised in profit and loss. 
C)  If an asset's carrying amount is increased as a result of a revaluation, the increase is always credited directly to equity. 
D)  All of the given answers. 
E)  None of the given answers

Question 9

Peters Ltd has a machine that originally cost $20,000 and has accumulated depreciation of $5,000.Its remaining life is assessed to be 5 years with no salvage value.The directors of Peters Ltd decide on 1 July 2003 to revalue the machine.They are unable to find market information on a machine in a similar state to theirs,so the market value of a new machine of the same type,$30,000,is used as a basis.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.

Question 10

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 11

AASB 136 does not require the use of present values when determining the recoverable amount of an asset:

Accepted Answer

A) True 
 B)False

Question 12

On disposal of an asset a gain or loss is the difference between the proceeds from sale anD.

Accepted Answer

A)  the cost of an asset; 
B)  residual value of the asset; 
C)  carrying amount of the asset; 
D)  revalued amount of the asset; 
E)  None of the given answers. 
A)  the cost of an asset; 
B)  residual value of the asset; 
C)  carrying amount of the asset; 
D)  revalued amount of the asset; 
E)  None of the given answers.

Question 13

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 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

AASB 116 permits 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)  All of the given answers. 
E)  None of the given answers. 
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)  All of the given answers. 
E)  None of the given answers.

Question 16

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 17

AASB 116 provides guidance on fair values which states:

Accepted Answer

A)  Where an active and liquid market exists for an asset, the market price represents evidence of the asset's fair value. 
B)  Fair values are determined on the basis that an entity is a going concern. 
C)  Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. 
D)  All of the given answers. 
E)  None of the given answers. 
A)  Where an active and liquid market exists for an asset, the market price represents evidence of the asset's fair value. 
B)  Fair values are determined on the basis that an entity is a going concern. 
C)  Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. 
D)  All of the given answers. 
E)  None of the given answers.

Question 18

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 19

Cars and Trucks Limited owns an engine testing machine which was purchased for $120,000.After 3 years of use the machine had accumulated depreciation of $58,560 but was revalued to $80,000.Two years later the machine was sold for $60,000 and had accumulated depreciation at the time of sale of $36,800.What journal entries would be required to record the sale of the machine in accordance with AASB 116 requirements?

Accepted Answer

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

Question 20

Manchester Ltd has a building that originally cost $850,000 and has accumulated depreciation of $120,000 as at 30 June 2002.It is decided on 1 July 2002 that the building should be revalued to $820,000.What are the appropriate entries to record the revaluation using the net method?

Accepted Answer

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

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

By permitting some classes of assets to be valued at cost and others at fair value the AASB has:

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.

Which of the following statement is true of accumulated depreciation?

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.

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:

When an entity adopts the valuation model to account for its property,plant and equipment,which of the following statement(s)is/are correct?

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

AASB 136 does not require the use of present values when determining the recoverable amount of an asset:

On disposal of an asset a gain or loss is the difference between the proceeds from sale anD.

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

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

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

AASB 116 provides guidance on fair values which states:

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

Manchester Ltd has a building that originally cost $850,000 and has accumulated depreciation of $120,000 as at 30 June 2002.It is decided on 1 July 2002 that the building should be revalued to $820,000.What are the appropriate entries to record the revaluation using the net method?

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

Filters