Question 1

Which statement best describes the nature of depreciation?

Accepted Answer

A)  Writing down the value of an asset according to the change in its market value. 
B)  Writing down the value of an asset according to the decline in its physical efficiency. 
C)  Allocating the cost of an asset over its useful life. 
D)  A charge against profits to provide funds for asset replacement. 
A)  Writing down the value of an asset according to the change in its market value. 
B)  Writing down the value of an asset according to the decline in its physical efficiency. 
C)  Allocating the cost of an asset over its useful life. 
D)  A charge against profits to provide funds for asset replacement.

Question 2

A machine was purchased on 3 January 2015 for $56 000, net of GST. The machine had an estimated residual value of $14 000 and an estimated useful life of 5 years. Depreciation expense for the year ended 31 December 2015, using sum-of-the-years'- digits method, is:

Accepted Answer

A)  $16 000. 
B)  $19 200. 
C)  $14 000. 
D)  $8400. 
A)  $16 000. 
B)  $19 200. 
C)  $14 000. 
D)  $8400.

Question 3

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

Accepted Answer

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

Question 4

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

Accepted Answer

A)  purchase cost plus any incidental costs directly attributable to acquiring the asset and getting it ready for use. 
B)  invoice cost. 
C)  carrying value in the previous owner's books. 
D)  invoice cost plus freight inwards, plus other costs of acquiring the asset. 
A)  purchase cost plus any incidental costs directly attributable to acquiring the asset and getting it ready for use. 
B)  invoice cost. 
C)  carrying value in the previous owner's books. 
D)  invoice cost plus freight inwards, plus other costs of acquiring the asset.

Question 5

The planning and financing of capital investment is a function of management known as:

Accepted Answer

A)  differential analysis. 
B)  analysis and interpretation. 
C)  net present value analysis. 
D)  capital budgeting. 
A)  differential analysis. 
B)  analysis and interpretation. 
C)  net present value analysis. 
D)  capital budgeting.

Question 6

Which of these should not to be recorded in the 'office equipment' ledger account?

Accepted Answer

A)  Fax machine 
B)  Photocopier 
C)  Computer 
D)  Office curtains and carpets 
A)  Fax machine 
B)  Photocopier 
C)  Computer 
D)  Office curtains and carpets

Question 7

Under IAS 16/AASB 116The cost of the annual service of a motor vehicle should be:

Accepted Answer

A)  written off as repairs and maintenance. 
B)  capitalised and added to the carrying amount of the vehicle. 
C)  can be either written off as repairs and maintenance or added to the carrying amount of the vehicle. 
D)  added to the original cost of the vehicle. 
A)  written off as repairs and maintenance. 
B)  capitalised and added to the carrying amount of the vehicle. 
C)  can be either written off as repairs and maintenance or added to the carrying amount of the vehicle. 
D)  added to the original cost of the vehicle.

Question 8

The Egypt Corporation purchased a machine for $40 000 on 1 January 2011 which is expected to have a 5 year life, no residual value, and to produce a total of 20 000 ridgets before it is scrapped. Assuming the Egypt Corporation uses the units-of- production method and actual production for the calendar year 2012 is 8000 ridgets, calculate the carrying value of the machine as at 31 December 2012. The depreciation charge for 2011 was $10 000.

Accepted Answer

A)  $26 000 
B)  $14 000 
C)  $16 000 
D)  $24 000 
A)  $26 000 
B)  $14 000 
C)  $16 000 
D)  $24 000

Question 9

Ignoring GST, what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

Accepted Answer

A)  Debit bank $25 000; credit motor vehicles $25 000 
B)  Debit motor vehicles $25 000; credit bank $25 000 
C)  Debit motor vehicles $25 000; credit capital $25 000 
D)  Debit motor vehicles $25 000; credit accounts receivable $25 000 
A)  Debit bank $25 000; credit motor vehicles $25 000 
B)  Debit motor vehicles $25 000; credit bank $25 000 
C)  Debit motor vehicles $25 000; credit capital $25 000 
D)  Debit motor vehicles $25 000; credit accounts receivable $25 000

Question 10

Depreciation charged at the end of the accounting period is what type of entry?

Accepted Answer

A)  Closing entry 
B)  Reversing entry 
C)  Adjusting entry 
D)  ing entry 
A)  Closing entry 
B)  Reversing entry 
C)  Adjusting entry 
D)  ing entry

Question 11

When examining an external financial report a ratio that can be useful in determining the approximate age of the assets is:

Accepted Answer

A)  accumulated depreciation/average recorded property, plant and equipment at cost. 
B)  net sales/average total assets. 
C)  average total assets/net sales. 
D)  net sales/ average property, plant and equipment. 
A)  accumulated depreciation/average recorded property, plant and equipment at cost. 
B)  net sales/average total assets. 
C)  average total assets/net sales. 
D)  net sales/ average property, plant and equipment.

Question 12

Which statement concerning the diminishing-balance method of depreciation is true?

Accepted Answer

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

Question 13

HRH 's balance sheet of 30 June 2014 shows a motor vehicle at a cost price of $56 000 less accumulated depreciation of $28 000. 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 $8000 what is its carrying amount on 1 July 2016?

Accepted Answer

A)  $9443 
B)  $12 000 
C)  $16 000 
D)  $44 000 
A)  $9443 
B)  $12 000 
C)  $16 000 
D)  $44 000

Question 14

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

Accepted Answer

A)  The total amount of tax paid over the lifetime of the asset is reduced. 
B)  The business has the interest-free use of deferred tax dollars until the later years of the asset's life. 
C)  Lower tax payments are made during the early 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)  The total amount of tax paid over the lifetime of the asset is reduced. 
B)  The business has the interest-free use of deferred tax dollars until the later years of the asset's life. 
C)  Lower tax payments are made during the early 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 15

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

Accepted Answer

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

Question 16

Accepted Answer

A)  $3750. 
B)  $2500. 
C)  $3500. 
D)  $5000. 
A)  $3750. 
B)  $2500. 
C)  $3500. 
D)  $5000.

Question 17

Which of these is not one of the common methods used to calculate depreciation?

Accepted Answer

A)  Straight-line 
B)  Sum-of-the-provisions 
C)  Reducing-balance 
D)  Units-of-production 
A)  Straight-line 
B)  Sum-of-the-provisions 
C)  Reducing-balance 
D)  Units-of-production

Question 18

On 1 January 2014 Image Plus Ltd acquired electronic equipment for $18 000, net of GST. It is estimated it will have no residual value. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2016 is:

Accepted Answer

A)  $1312. 
B)  $1458. 
C)  $2700. 
D)  $3000. 
A)  $1312. 
B)  $1458. 
C)  $2700. 
D)  $3000.

Question 19

Delivery vehicles would be classified on the balance sheet of a transport company as:

Accepted Answer

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

Question 20

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits?
F1F1F1S1F1F1F10F1F1F1S1F1F1F10Commercial obsolescence
F1F1F1S1F1F1F10F1F1F1S1F1F1F10Technical obsolescence
F1F1F1S1F1F1F10F1F1F1S1F1F1F10Wear and tear
F1F1F1S1F1F1F10F1F1F1S1F1F1F10Inflation

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Exam 20: Non-Current Assets: Acquisition and Depreciation

Which statement best describes the nature of depreciation?

A machine was purchased on 3 January 2015 for $56 000, net of GST. The machine had an estimated residual value of $14 000 and an estimated useful life of 5 years. Depreciation expense for the year ended 31 December 2015, using sum-of-the-years'- digits method, is:

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

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

The planning and financing of capital investment is a function of management known as:

Which of these should not to be recorded in the 'office equipment' ledger account?

Under IAS 16/AASB 116The cost of the annual service of a motor vehicle should be:

Ignoring GST, what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

Depreciation charged at the end of the accounting period is what type of entry?

When examining an external financial report a ratio that can be useful in determining the approximate age of the assets is:

Which statement concerning the diminishing-balance method of depreciation is true?

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

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

Which of these is not one of the common methods used to calculate depreciation?

On 1 January 2014 Image Plus Ltd acquired electronic equipment for $18 000, net of GST. It is estimated it will have no residual value. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2016 is:

Delivery vehicles would be classified on the balance sheet of a transport company as:

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits? Commercial obsolescence Technical obsolescence Wear and tear Inflation

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

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

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

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