Question 1

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)  Holding gains are allowed to be recognised just like any other type of profit. 
D)  Revaluation increments can be used to offset previous decrements across all asset classes. 
E)  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)  Holding gains are allowed to be recognised just like any other type of profit. 
D)  Revaluation increments can be used to offset previous decrements across all asset classes. 
E)  This model loosens debt covenant restrictions.

Question 2

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 3

Palm Beach Ltd has elected to adopt the allowed alternative treatment to account for some of its property,plant and equipment.The information available for the class of assets the entity wishes to covert to revaluation model follows:   Which of the following statements are correct if Palm Beach Ltd is to comply with AASB 116?

Accepted Answer

A)  When office equipment is revalued, net profit will increase $10,000. 
B)  When machinery is revalued, net profit will increase by $2,500. 
C)  When motor vehicles are revalued, net profit will decrease by $16,000. 
D)  When all assets are revalued, net profit will increase by $8,500. 
E)  When all assets are revalued, net profit will decrease by $18,500 and asset revaluation reserve is increased by 8,500. 
A)  When office equipment is revalued, net profit will increase $10,000. 
B)  When machinery is revalued, net profit will increase by $2,500. 
C)  When motor vehicles are revalued, net profit will decrease by $16,000. 
D)  When all assets are revalued, net profit will increase by $8,500. 
E)  When all assets are revalued, net profit will decrease by $18,500 and asset revaluation reserve is increased by 8,500.

Question 4

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 5

Positive accounting theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve:

Accepted Answer

A) True 
 B)False

Question 6

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 7

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. 
E)  None of the given answers. 
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. 
E)  None of the given answers.

Question 8

Australia is the only country that allows upward revaluations of non-current assets:

Accepted Answer

A) True 
 B)False

Question 9

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 building will remain the same and salvage value is expected to be $100,000.What is the revaluation gain(loss)for 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 
E)  None of the given answers 
A)  $120,000; $24,800 
B)  ($120,000); $28,800 
C)  $220,000; $24,800 
D)  ($220,000); $28,800 
E)  None of the given answers

Question 10

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 11

Depreciation method used and depreciation rates are required to be disclosed for taxation purposes.

Accepted Answer

A) True 
 B)False

Question 12

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. 
E)  None of the given answers. 
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. 
E)  None of the given answers.

Question 13

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 14

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 on 30 June 2002.A revaluation undertaken on 30 June 2005 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 2002 and 30 June 2005?

Accepted Answer

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

Question 15

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 16

Chopin Ltd has a debt contract and is close to violating the return on equity ratio as stipulated in the debt agreement.What is the most appropriate action to take?

Accepted Answer

A)  Negotiate a loan to increase cash balance. 
B)  Accelerate collection of receivables. 
C)  Negotiate to prepay long-term debt. 
D)  Revalue a class of asset. 
E)  None of the given answers. 
A)  Negotiate a loan to increase cash balance. 
B)  Accelerate collection of receivables. 
C)  Negotiate to prepay long-term debt. 
D)  Revalue a class of asset. 
E)  None of the given answers.

Question 17

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 18

A class of non-current assets as defined by AASB 116 is a category of non-current assets that:

Accepted Answer

A)  Were all purchased at the same time by the reporting entity. 
B)  All have a similar nature or function in the operations of the entity. 
C)  Are disclosed as a single item without supplementary dissection in the financial report. 
D)  All have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report. 
E)  All of the given answers. 
A)  Were all purchased at the same time by the reporting entity. 
B)  All have a similar nature or function in the operations of the entity. 
C)  Are disclosed as a single item without supplementary dissection in the financial report. 
D)  All have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report. 
E)  All of the given answers.

Question 19

Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset:

Accepted Answer

A) True 
 B)False

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

Revaluations increments are often a source of discussion because:

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

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?

Positive accounting theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve:

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

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?

Australia is the only country that allows upward revaluations of non-current assets:

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

Depreciation method used and depreciation rates are required to be disclosed for taxation purposes.

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

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?

Chopin Ltd has a debt contract and is close to violating the return on equity ratio as stipulated in the debt agreement.What is the most appropriate action to take?

A class of non-current assets as defined by AASB 116 is a category of non-current assets that:

Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset:

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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