Deck 9: Advanced Asset and Liability Issues

Question 1

The carrying amount of an asset is:

A)its cost less accumulated depreciation
B)the greater of its cost and its recoverable amount
C)its cost less its value in use
D)its cost less accumulated depreciation less accumulated impairment

Answer 1

D

Question 2

Under AASB 116, the minimum factors that must be considered when deciding if an asset's recoverable amount must be reassessed are not the same for both impairment and reversal of a previously recognised impairment.

Answer 2

True

Question 3

A contingent liability is never recognised in the financial statements.

Answer 3

True

Question 4

Edwards Ltd has two pieces of equipment in its balance sheet as follows:
$\begin{array} { l c c c c c } \begin{array} { l } \text { Item } \\\text { no. }\end{array} & \begin{array} { c } \text { Cost or } \\\text { revalued } \\\text { amount }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Value in Use } & \text { Fair value } & \begin{array} { c } \text { Estimated } \\\text { cost to sell }\end{array} \\1 & \$ 600000 & \$ 100000 & \$ 600000 & \$ 450000 & \$ 20000 \\2 & \$ 800000 & \$ 400000 & \$ 450000 & \$ 500000 & \$ 25000 \\\text { Total } & \$ \mathbf { 4 0 0 0 0 0 } & \$ \mathbf { 5 0 0 0 0 0 } & & &\end{array}$

-If Edwards Ltd applies the revaluation model to the assets, at what amount will asset 2 be reported in the balance sheet?

A)$400,000
B)$475,000
C)$500,000
D)$450,000

Question 5

Under AASB 116 the usual treatment for an upward revaluation increment amount is to credit:

A)depreciation expense
B)asset revaluation reserve
C)revenue
D)retained profits

Question 6

Edwards Ltd has two pieces of equipment in its balance sheet as follows:
$\begin{array} { l c c c c c } \begin{array} { l } \text { Item } \\\text { no. }\end{array} & \begin{array} { c } \text { Cost or } \\\text { revalued } \\\text { amount }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Value in Use } & \text { Fair value } & \begin{array} { c } \text { Estimated } \\\text { cost to sell }\end{array} \\1 & \$ 600000 & \$ 100000 & \$ 600000 & \$ 450000 & \$ 20000 \\2 & \$ 800000 & \$ 400000 & \$ 450000 & \$ 500000 & \$ 25000 \\\text { Total } & \$ \mathbf { 4 0 0 0 0 0 } & \$ \mathbf { 5 0 0 0 0 0 } & & &\end{array}$

-If Edwards Ltd applies the cost model to the assets, at what amount will asset 1 be reported in the balance sheet?

A)$450,000
B)$500,000
C)$600,000
D)Nil

Question 7

For a depreciable asset, when the cost model is adopted under AASB 116, it is impossible for the full amount of impairment recognised in earlier reporting periods to be reversed in subsequent reporting periods.

Question 8

Beaver Ltd has an item of plant which had a cost of $2 000 000; on 30 June 20X7 its accumulated depreciation was $1 100 000 and its recoverable amount was $1 000 000.What is the carrying amount of this asset at 30 June 20X7?

A)$1 100 000
B)$1 000 000
C)$900 000
D)$2 000 000

Question 9

Otter Ltd has an item of plant with a cost of $4 200 000, and at 30 June 20X4 the accumulated depreciation was $600 000 and its estimated residual amount $200 000; its accumulated impairment was $150 000 at the beginning of the reporting period.
Otter Ltd has adopted the cost model for the class of assets.What is the carrying amount of the asset at 30 June 20X4?

A)$3 650 000
B)$3 400 000
C)$3 450 000
D)$3 250 000

Question 10

Impairment requirements of AASB 136 apply to non-current assets recognised using the revaluation model under AASB 116.

Question 11

The definition of contingent assets is narrower than the definition of contingent liabilities.

Question 12

It is stated in AASB 116 that under the revaluation model an asset's fair value is determined by its selling price in current condition; that is, it is an exit measure.

Question 13

Edwards Ltd has two pieces of equipment in its balance sheet as follows:
$\begin{array} { l c c c c c } \begin{array} { l } \text { Item } \\\text { no. }\end{array} & \begin{array} { c } \text { Cost or } \\\text { revalued } \\\text { amount }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Value in Use } & \text { Fair value } & \begin{array} { c } \text { Estimated } \\\text { cost to sell }\end{array} \\1 & \$ 600000 & \$ 100000 & \$ 600000 & \$ 450000 & \$ 20000 \\2 & \$ 800000 & \$ 400000 & \$ 450000 & \$ 500000 & \$ 25000 \\\text { Total } & \$ \mathbf { 4 0 0 0 0 0 } & \$ \mathbf { 5 0 0 0 0 0 } & & &\end{array}$

-If Edwards Ltd applies the revaluation model to the assets, at what amount will asset 1 be reported in the balance sheet?

A)$600,000
B)$430,000
C)$500,000
D)$450,000

Question 14

Restating of assets to their fair value can only be done using the revaluation model under AASB 116.

Question 15

Under certain circumstances, a choice exists between using the primary method or the exception method when revaluing property, plant and equipment under AASB 116.All other things being equal, which statement is incorrect?

A)Both methods provide the same information just after revaluation.
B)The exception method is more time consuming than the primary method.
C)The primary method results in the accumulated depreciation account equalling zero just after revaluation.
D)The methods do not affect the asset's carrying amount.

Question 16

In measuring recoverable amount under AASB 136, the future net cash flows from an asset are:

A)required to be added for 10 years from the reporting date
B)required to be discounted using the firm's weighted average cost of capital
C)required to be discounted using the time value of money, represented by current risk-free rate of interest
D)not required to be discounted

Question 17

The recoverable amount of an asset is:

A)its fair value
B)its value in use
C)the greater of its value in use and its net fair value (fair value less cost to sell)
D)its net fair value (fair value less cost to sell)

Question 18

When a class of assets is revalued under AASB 116, in all cases we must net-off the increments and decrements in determining if there is a debit/credit to the asset revaluation reserve or an item of expense or income to be included in period profit or loss.

Question 19

Otter Ltd has an item of plant with a cost of $4 200 000, and at 30 June 20X4 the accumulated depreciation was $600 000 and its estimated residual amount $200 000; its accumulated impairment was $150 000 at the beginning of the reporting period.
Otter Ltd has adopted the cost model for the class of assets.At reporting date, the directors determined that the asset's value in use was $3 200 000, its fair value was $3 300 000 and the estimated costs to sell it $150 000.At what amount will it be reported in the balance sheet?

A)$3 350 000
B)$3 150 000
C)$3 500 000
D)$3 200 000

Question 20

Edwards Ltd has two pieces of equipment in its balance sheet as follows:
$\begin{array} { l c c c c c } \begin{array} { l } \text { Item } \\\text { no. }\end{array} & \begin{array} { c } \text { Cost or } \\\text { revalued } \\\text { amount }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Value in Use } & \text { Fair value } & \begin{array} { c } \text { Estimated } \\\text { cost to sell }\end{array} \\1 & \$ 600000 & \$ 100000 & \$ 600000 & \$ 450000 & \$ 20000 \\2 & \$ 800000 & \$ 400000 & \$ 450000 & \$ 500000 & \$ 25000 \\\text { Total } & \$ \mathbf { 4 0 0 0 0 0 } & \$ \mathbf { 5 0 0 0 0 0 } & & &\end{array}$

-If Edwards Ltd applies the cost model to the assets, at what amount will asset 2 be reported in the balance sheet?

A)$400,000
B)$450,000
C)$500,000
D)$475,000

Question 21

A contingent liability is one for which:

A)the liability definition is not satisfied, as there is not a present obligation due to the existence of a contingency the outcome of which is not wholly within the company's control
B)the company does not presently have sufficient liquid resources to discharge
C)the liability definition is satisfied but not the liability recognition criteria.
D)Both A and C but not B

Question 22

Platypus Ltd has an item of plant with a cost of $4 200 000, and at 30 June 20X5 the accumulated depreciation was $600 000 and its estimated residual amount $200 000.Platypus Ltd has adopted the revaluation model for the class of assets, but the asset has not previously been revalued.
At reporting date, the directors determined that the asset's fair value was $3 750 000.What is the carrying amount of the asset at 30 June 20X4 and what type of revaluation - if any - was carried out during the reporting period and how was it recognised?

A)carrying amount $3 750 000; revaluation decrement $150 000 recognised as an expense
B)carrying amount $3 750 000; revaluation increment $150 000 recognised in the asset revaluation reserve
C)carrying amount $3 950 000; revaluation increment $250 000
D)carrying amount $3 950 000; revaluation decrement $250 000 recognised as a reduction in the asset revaluation reserve

Question 23

Bill Ltd will have to pay for long service leave (LSL) for its employees when they become entitled to it in 5 years' time.The estimate of this future payment is a:

A)provision to be recognised when they become entitled to the LSL (when there is a legal obligation to pay the LSL)
B)a contingent liability to be recognised this year
C)a contingent liability to be recognised when they become entitled to the LSL
D)provision to be recognised this year

Question 24

It is possible to measure assets in several ways: the possible ways include:
I cost - an input or entry measure
II replacement cost - an input or entry measure for a equivalent asset in new condition (an input or entry measure)
III value in use (present value of future cash flows)
IV current cost - the cost of replacing the production capacity that an asset had when new (an input or entry measure)
V fair value less cost to sell
VI fair value used under revaluation model
When the revaluation model is adopted, the carrying amount at reporting date is measured by:

A)VI in all cases
B)VI, except when VI is less than IV, in which case IV is used
C)IV in all cases
D)VI, except when the both III and V are less than VI, when the greater of III and V is used

Question 25

It is possible to measure assets in several ways: the possible ways include:
I cost - an input or entry measure
II replacement cost - an input or entry measure for a equivalent asset in new condition (an input or entry measure)
III value in use (present value of future cash flows)
IV current cost - the cost of replacing the production capacity that an asset had when new (an input or entry measure)
V fair value less cost to sell
VI fair value used under revaluation model
Under AASB 136 the following measures are used to estimate recoverable amount:

A)the total of III and V
B)the greater of III and V
C)III
D)V

Question 26

Platypus Ltd has an item of plant with a cost of $4 200 000, and at 30 June 20X5 the accumulated depreciation was $600 000 and its estimated residual amount $200 000.Platypus Ltd has adopted the revaluation model for the class of assets, but the asset has not previously been revalued.
At reporting date, the directors determined that the asset's fair value was $3 750 000 and the estimated cost to sell it was $250 000.The assets value in use (ViU) was estimated to be $3 400 000.What is the carrying amount of the asset at 30 June 20X5, and what type of revaluation - if any - was carried out during the reporting period and how was it recognised?

A)carrying amount $3 500 000; revaluation increment $100 000 recognised by an increase in the asset revaluation reserve
B)carrying amount $3 500 000; revaluation decrement $100 000 recognised by a decrease in the asset revaluation reserve
C)carrying amount $3 500 000; revaluation decrement of $100 000 recognised as an expense
D)carrying amount $3 700 000; revaluation decrement of $100 000recognised as an expense

Question 27

Which of the following best describes the role played by the 'income approach' in determining an asset's fair value

A)it is the method required by AASB 116 to estimate fair value in the absence of an active, liquid market
B)it refers to the process of comparing an asset's fair value to the period profit or loss (sometimes called income or net income)
C)it is another term for net present value, and in some circumstances NPV is the best estimator of fair value
D)it has no formal role in the current AASB 116, although it was mentioned in the subsequently withdrawn Australian implementation guidance

Question 28

Which of the following does not result in the recognition of a provision in the balance sheet?

A)the expected future warranty claims in respect of goods sold during the reporting period
B)a final dividend declared by directors after the reporting date
C)the amount of employee annual leave accrued but not taken at reporting date
D)the company has been held liable for damages for breach of copyright but the court is yet to determine the amount of damages payable to the copyright owner.

Question 29

Which of the following is not true of a provision:

A)provisions are measured at the discounted value of the amount required to settle the obligation.
B)provisions are a type of liability
C)accumulated depreciation and accumulated impairment are types of provisions
D)to be recognised, a provision must satisfy the recognition criteria for a liability.

Question 30

When an entity classifies a non-current asset as "held for sale":

A)the entity no-longer expects to recover its carrying amount through its use.
B)they are no longer of use to the entity and must be abandoned
C)always comprise part of a discontinued operation.
D)they continue to be depreciable assets

Question 31

An item classified contingent asset can only be reclassified and recognised as an asset when the benefits from that asset are:

A)reasonably certain
B)virtually certain
C)probable
D)beyond reasonable doubt