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

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

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?

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:

Which of the following statement is true of revaluation model in AASB 116?

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

Burchells Ltd owns a machine that originally cost $36,000.It has been depreciated using the straight-line method for 3 years,giving an accumulated depreciation of $15,000 (the salvage value was estimated at $6,000 and the useful life at 6 years).At the beginning of the current financial year its carrying value is therefore $21,000.It has been decided by the directors to revalue it to fair value,which is assessed to be $38,000.The salvage value and useful life are considered to be unchanged.What are the appropriate entries to record the revaluation and the depreciation expense for the current year (rounded to the nearest dollar)?

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

A sale of property plant and equipment requires the derecognition of the carrying amount of the asset and any cost of replacement part capitalised.

According to Positive Accounting Theory,the size of the entity may have an impact on management's decision to revalue because of management's motivation to reduce political costs.There is more than one possible view regarding the effect of revaluation on political visibility,including:

Casey Co Ltd is assessing the recoverable amount of some land it invested in 5 years ago at a cost $600,000.Management has sought independent valuation advice that indicates that the land may be sold in 6 years' time for $800,000.Since the land is not generating any cash flows,this is its undiscounted recoverable amount.The appropriate discount rate is estimated to be 7 per cent.The present value of $1 received in 6 years' time at a discount rate of 7 per cent is 0.6663.What is the effect of using the discount rate on the need to write-down the value of the asset?

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:

AASB 136 requires that:

Where an asset's carrying amount based on its cost is written down to its recoverable amount,AASB 136 specifies that:

Where the value of revalued non-current assets does not change frequently and is not material,AASB 116 suggests that revaluations:

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:

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

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

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:

The process of discounting future cash flows in calculating the recoverable amount of an asset will result in a higher recoverable amount than if the cash flows are not discounteD.

The costs associated with revaluing assets include: