Question 1

The ______________is the historical cost of an asset less its residual value.

Accepted Answer

A)  straight-line value. 
B)  carrying amount. 
C)  depreciable amount. 
D)  accumulated depreciation. 
A)  straight-line value. 
B)  carrying amount. 
C)  depreciable amount. 
D)  accumulated depreciation. C

Question 2

A separate record that contains detailed information concerning individual assets is known as a(n):

Accepted Answer

A)  stock card. 
B)  fixed asset register. 
C)  special journal. 
D)  asset control account. 
A)  stock card. 
B)  fixed asset register. 
C)  special journal. 
D)  asset control account. B

Question 3

Which of the following statements about depreciation is true?

Accepted Answer

A)  The cash account is affected by depreciation charges. 
B)  Accumulated depreciation represents the amount of an asset's cost that has been transferred to depreciation expense to date. 
C)  Accumulated depreciation is shown in the financial statements as a contra-expense account. 
D)  Depreciation represents the amount of cash available to replace assets when they wear out. 
A)  The cash account is affected by depreciation charges. 
B)  Accumulated depreciation represents the amount of an asset's cost that has been transferred to depreciation expense to date. 
C)  Accumulated depreciation is shown in the financial statements as a contra-expense account. 
D)  Depreciation represents the amount of cash available to replace assets when they wear out. B

Question 4

Hightop's balance sheet of 30 June 2018 shows a motor vehicle at a cost price of $46 000 less accumulated depreciation of $17 500. Depreciation is calculated on a straight-line basis. If the vehicle had a useful life of 6 years at the time of purchase and a residual value of $4 000, its carrying amount on 1 July 2020 is:

Accepted Answer

A)  $7 666 
B)  $13 160 
C)  $14 500 
D)  $17 500 
A)  $7 666 
B)  $13 160 
C)  $14 500 
D)  $17 500

Question 5

How many of the following items of information about office equipment are required to be disclosed in the financial statements prepared for external reporting?
$\bullet$Depreciation method used
$\bullet$Aggregate cost of office equipment
$\bullet$Aggregate Accumulated Depreciation of office equipment
$\bullet$Depreciation rates used or useful lives of office equipment
$\bullet$The total number of assets held in the office equipment grouping

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 6

A reduction in the ratio net sales/average property, plant and equipment over time could mean:

Accepted Answer

A)  there is an elevated level of inflation. 
B)  the price of plant and equipment is falling. 
C)  the firm may be heading for a liquidity crisis. 
D)  there is an over-investment in plant and equipment. 
A)  there is an elevated level of inflation. 
B)  the price of plant and equipment is falling. 
C)  the firm may be heading for a liquidity crisis. 
D)  there is an over-investment in plant and equipment.

Question 7

Which of the following is not an advantage of the use of accelerated depreciation methods for tax purposes as opposed to the straight-line method?

Accepted Answer

A)  Lower tax payments are made during the early years of the asset's life. 
B)  The total amount of tax paid over the lifetime of the asset is reduced. 
C)  The business has the interest-free use of deferred tax dollars until the later years of the asset's life. 
D)  For many assets, the combination of decreasing depreciation expense of the asset and increasing repairs and maintenance expense tends to equalise the total periodic expense of holding the asset. 
A)  Lower tax payments are made during the early years of the asset's life. 
B)  The total amount of tax paid over the lifetime of the asset is reduced. 
C)  The business has the interest-free use of deferred tax dollars until the later years of the asset's life. 
D)  For many assets, the combination of decreasing depreciation expense of the asset and increasing repairs and maintenance expense tends to equalise the total periodic expense of holding the asset.

Question 8

Which of the following statements concerning the sum-of-the-years'-digits method of depreciation is correct?

Accepted Answer

A)  It is an alternative name for the reducing balance method. 
B)  The depreciation charge per annum decreases over the life of the asset. 
C)  It is the most common method of depreciation used in Australia. 
D)  The formula is: carrying amount multiplied by remaining years of useful life. 
A)  It is an alternative name for the reducing balance method. 
B)  The depreciation charge per annum decreases over the life of the asset. 
C)  It is the most common method of depreciation used in Australia. 
D)  The formula is: carrying amount multiplied by remaining years of useful life.

Question 9

The correct statement concerning the diminishing-balance method of depreciation is:

Accepted Answer

A)  It is an appropriate method when proportionately more of the asset's benefits are consumed in the early years of its life. 
B)  It is also known as the units-of-production method. 
C)  It charges the same amount of depreciation each period. 
D)  It applies a declining percentage factor to the asset's original cost. 
A)  It is an appropriate method when proportionately more of the asset's benefits are consumed in the early years of its life. 
B)  It is also known as the units-of-production method. 
C)  It charges the same amount of depreciation each period. 
D)  It applies a declining percentage factor to the asset's original cost.

Question 10

The cost of a major overhaul of equipment that extends its total useful life by five years would be:

Accepted Answer

A)  treated as an expense. 
B)  charged to a separate asset account and depreciated over five years. 
C)  cause for an adjustment to prior years' depreciation on the equipment. 
D)  added to the carrying amount of the asset causing future depreciation to be increased. 
A)  treated as an expense. 
B)  charged to a separate asset account and depreciated over five years. 
C)  cause for an adjustment to prior years' depreciation on the equipment. 
D)  added to the carrying amount of the asset causing future depreciation to be increased.

Question 11

Depreciation charged at the end of the accounting period is a/an __________________entry.

Accepted Answer

A)  Closing 
B)  Reversing 
C)  Correcting 
D)  Adjusting 
A)  Closing 
B)  Reversing 
C)  Correcting 
D)  Adjusting

Question 12

Which of the following statements concerning fixed assets is not true?

Accepted Answer

A)  knowledge of the approximate average age of fixed assets can be useful in assessing the efficiency of the assets. 
B)  knowledge of the approximate average age of fixed assets can be useful in deciding whether the assets may need to be replaced in the near future. 
C)  knowledge of the approximate average age of fixed assets can be calculated by the formula accumulated depreciation divided by average recorded cost of fixed assets. 
D)  knowledge of the approximate average age of fixed assets can be useful in deciding whether the asset register is up-to-date. 
A)  knowledge of the approximate average age of fixed assets can be useful in assessing the efficiency of the assets. 
B)  knowledge of the approximate average age of fixed assets can be useful in deciding whether the assets may need to be replaced in the near future. 
C)  knowledge of the approximate average age of fixed assets can be calculated by the formula accumulated depreciation divided by average recorded cost of fixed assets. 
D)  knowledge of the approximate average age of fixed assets can be useful in deciding whether the asset register is up-to-date.

Question 13

Molly's Manufacturing purchased a machine for $80 000 on 1 January 2018. The machine is expected to have a useful life of 5 years, no residual value, and to produce a total of 50 000 units before it is scrapped. Assuming Molly's Manufacturing uses the units-of-production method and actual production during the machine's first year of use is 12 000 units, the depreciation expense for 2018 is:

Accepted Answer

A)  $7 500 
B)  $12 000 
C)  $16 000 
D)  $19 200 
A)  $7 500 
B)  $12 000 
C)  $16 000 
D)  $19 200

Question 14

Mighty Models acquired a machine for $20 000 on 31 December 2018. Calculate depreciation for the year ended 31 December 2020 using the diminishing-balance method at 12% p.a. Assume a nil residual value.

Accepted Answer

A)  $1800 
B)  $2000 
C)  $2112 
D)  $2400 
A)  $1800 
B)  $2000 
C)  $2112 
D)  $2400

Question 15

Wong purchased a computer for $15 000, net of GST. Originally it had an estimated useful life of 4 years and a residual value of $3000. The straight-line method is used. At the start of the third year of usage Wong revised the life of the computer to a total life of 6 years. The residual value had not changed. What depreciation expense should be recorded for the computer for year 3?

Accepted Answer

A)  $1500 
B)  $1000 
C)  $3000 
D)  $4000 
A)  $1500 
B)  $1000 
C)  $3000 
D)  $4000

Question 16

If the cost of a major service on a motor vehicle, which did not increase the vehicles' useful life was incorrectly capitalised and added to the carrying amount of the vehicle rather than being expensed, expenses would be:

Accepted Answer

A)  overstated, fixed assets would be overstated and equity would be understated. 
B)  understated, fixed assets would be overstated and equity would be overstated. 
C)  understated, fixed assets would be understated and equity would be overstated. 
D)  understated, fixed assets would be overstated and equity would be understated. 
A)  overstated, fixed assets would be overstated and equity would be understated. 
B)  understated, fixed assets would be overstated and equity would be overstated. 
C)  understated, fixed assets would be understated and equity would be overstated. 
D)  understated, fixed assets would be overstated and equity would be understated.

Question 17

A transport company would classify their delivery vehicles on the balance sheet as:

Accepted Answer

A)  current assets. 
B)  contra assets. 
C)  non-current assets. 
D)  non-current liabilities. 
A)  current assets. 
B)  contra assets. 
C)  non-current assets. 
D)  non-current liabilities.

Question 18

The factor that distinguishes fixed assets such as property, plant and equipment from other assets is the:

Accepted Answer

A)  intention to sell the asset. 
B)  fact that they have a physical existence. 
C)  fact that the asset will provide future benefits. 
D)  intention to use the asset for the future production of goods and services. 
A)  intention to sell the asset. 
B)  fact that they have a physical existence. 
C)  fact that the asset will provide future benefits. 
D)  intention to use the asset for the future production of goods and services.

Question 19

On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?

Accepted Answer

A)  Net realisable value at acquisition date 
B)  Independent valuation at acquisition date 
C)  Replacement cost at acquisition date 
D)  Fair value at acquisition date 
A)  Net realisable value at acquisition date 
B)  Independent valuation at acquisition date 
C)  Replacement cost at acquisition date 
D)  Fair value at acquisition date

Question 20

IAS 16/AASB 116 specifies that all assets must be accounted for on acquisition at:

Accepted Answer

A)  cost. 
B)  market value. 
C)  depreciable value. 
D)  net realisable value. 
A)  cost. 
B)  market value. 
C)  depreciable value. 
D)  net realisable value.

Exam 14: Non-Current Assets: Acquisition and Depreciation

The ______________is the historical cost of an asset less its residual value.

A separate record that contains detailed information concerning individual assets is known as a(n):

Which of the following statements about depreciation is true?

A reduction in the ratio net sales/average property, plant and equipment over time could mean:

Which of the following is not an advantage of the use of accelerated depreciation methods for tax purposes as opposed to the straight-line method?

Which of the following statements concerning the sum-of-the-years'-digits method of depreciation is correct?

The correct statement concerning the diminishing-balance method of depreciation is:

The cost of a major overhaul of equipment that extends its total useful life by five years would be:

Depreciation charged at the end of the accounting period is a/an __________________entry.

Which of the following statements concerning fixed assets is not true?

Mighty Models acquired a machine for $20 000 on 31 December 2018. Calculate depreciation for the year ended 31 December 2020 using the diminishing-balance method at 12% p.a. Assume a nil residual value.

If the cost of a major service on a motor vehicle, which did not increase the vehicles' useful life was incorrectly capitalised and added to the carrying amount of the vehicle rather than being expensed, expenses would be:

A transport company would classify their delivery vehicles on the balance sheet as:

The factor that distinguishes fixed assets such as property, plant and equipment from other assets is the:

On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?

IAS 16/AASB 116 specifies that all assets must be accounted for on acquisition at:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

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