Deck 13: Property, Plant and Equipment

Question 1

When an asset is sold the resulting gain or loss is:

A) reported in other comprehensive income, normally with separate disclosure of income and the carrying amount of the asset
B) reported in other comprehensive income, normally on a net basis
C) reported in current period profit or loss, normally with separate disclosure of income and the carrying amount of the asset
D) reported in current period profit or loss, normally on a net basis

Answer 1

D

Question 2

After an item of Property, plant and equipment has been initially recognised at cost it may be measured using the following measurement method:

A) liquidation value
B) accrual
C) revaluation
D) realisable value.

Answer 2

C

Question 3

Wilson Limited applied the straight-line method of depreciation to its non-current assets. The cost of the buildings was $640 000, the depreciable amount is $560 000, the residual value is $80 000 and the useful life is 8 years. The annual depreciation charge is:

A) $80 000
B) $75 000
C) $70 000
D) $60 000.

Answer 3

C

Question 4

A change in accounting policy from the revaluation model to the cost model requires a retrospective adjustment to the:

A) revenue in the profit and loss statement
B) expenses in the profit and loss statement
C) opening balance of retained earnings
D) other comprehensive income.

Question 5

Troubadour Limited had an existing revaluation surplus in respect to an item of Plant that had been derecognised. An appropriate journal entry to transfer the surplus to retained earnings would include:

A) DR Gain on revaluation - OCI
B) CR Asset revaluation surplus
C) DR Retained earnings
D) CR Retained earnings.

Question 6

Replicator Limited acquired an item of Plant with an expected useful life of 5 years. Expected total production output over this period was: Year 1, 35 000 units; Year 2, 35 000 units; Year 3, 18 000 units; Year 4, 12 000 units. The asset cost $ 100 000 and associated installation costs amounted to $20 000 and residual value is $5000. The amount of depreciation charged in the first year is:

A) $40 250
B) $42 000
C) $35 000
D) $33 250.

Question 7

Revaluations under AASB 116 Property, Plant and Equipment apply to:

A) all assets on an individual basis
B) individual current assets only
C) individual non-current assets only
D) assets on a class-by-class basis.

Question 8

The cost of an item of property, plant and equipment is only recognised if the cost of the item can be reliably measured and if:

A) it is not directly attributable to the asset;
B) it has been paid for in cash;
C) the item has been received by the acquirer;
D) it is probable that future economic benefits associated with the item will flow to the entity.

Question 9

Property, plant and equipment includes items that are:

A) intangible
B) held for resale
C) expected to be used up during the current period
D) held for rental to others.

Question 10

Under the cost model, after initial recognition of a Property, plant and equipment asset the item must be carried at its:

A) residual value
B) cost less accumulated depreciation and less accumulated impairment losses
C) initial cost
D) net present value.

Question 11

Use the following information to answer questions
An extract of a company's draft statement of financial position at 30 June 2012 discloses the following:
$\begin{array} { l r r } \text { Plant (at cost) } & \$ 500,000 & \\\text { Less Accumulated Depreciation } & \underline { 300,000 } & \$ 200,000\end{array}$

On 30 June 2013 the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying amount of the Plant was $250 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.

-The journal entries to adjust for the tax effect of the revaluation at 30 June 2013 is:

A) $\begin{array} { c l l l } \text { Income tax expense - OCI } & \mathrm { Dr } & 45,000 & \\\text { Deferred tax liability } & \mathrm { Cr } & & 45,000\end{array}$
B) $\begin{array} { l l l l } \text { Asset revaluation surplus } & \mathrm { Dr } & 45,000 & \\\text { Income tax expense - OCI } & \mathrm { Cr } & 45,000\end{array}$
C) $\begin{array} { c l l l } \text { Income tax expense } - \text { OCI } & \mathrm { Dr } & 45,000 & \\\text { Asset revaluation surplus } & \mathrm { Cr } & 45,000\end{array}$
D) $\begin{array} { l l r r } \text { Income tax expense - OCI } & \mathrm { Dr } & 45,000 & \\\text { Deferred tax liability } & \mathrm { Cr } & 45,000 \\& & & \\\text { Gain on revaluation - OCI } & \mathrm { Dr } & 150,000 & \\\text { Income tax expense - OCI } & \mathrm { Cr } & 45,000 \\\text { Asset revaluation surplus } & \mathrm { Cr } & 105,000\end{array}$

Question 12

Property, plant and equipment are assets that:

A) are expected to be used up within the current financial period
B) are held for resale within the current period
C) are physical in nature
D) have a remaining productive life of less than one financial year.

Question 13

Which of the following statements is NOT correct in relation to disclosure of property, plant & equipment balances?

A) Paragraph 79 of IAS 16 contains disclosure that are encouraged, but not required in relation to property, plant & equipment.
B) An entity must disclose the useful life estimates for each class of assets.
C) A summary of movements in the revaluation surplus is required to be disclosed.
D) Information on assets carried at revalued amounts must be disclosed on an individual asset basis.

Question 14

The cost of property, plant and equipment is only recognised as an asset if it is probable that the future economic benefits will flow to the entity and if:

A) the cost can be reliably measured
B) the asset has been fully paid for in cash
C) the asset has been received by the purchaser
D) it is a tangible asset.

Question 15

Jackson Limited acquired a bundle of assets for a cash consideration of $200 000. The fair values of the assets on date of acquisition was as follows: Building $132 000, Furniture $88 000. The appropriate journal entry to record this acquisition is:

A) $\text { DR\quad Property, plant and equipment } \quad \$ 200,000$
$\text { CR\quad Cash }\quad\quad\quad\quad \$ 200,000$
B) $\text { DR\quad Property, plant and equipment } \quad\$ 220,000$
$\text { CR\quad Cash } \quad\quad\quad \$ 220,000$
C) $\begin{array} { l r r r } \text { DR } & \text { Building } & \$ 120000 & \\\text { DR } & \text { Furniture } & \$ 80000 & \\\text { CR } & \text { Cash } & \$ 200000\end{array}$
D) $\begin{array} { l r r r } \text { DR } & \text { Building } & \$ 132000 & \\\text { DR } & \text { Furniture } & \$ 88000 & \\\text { CR } & \text { Cash } & & \$ 220000\end{array}$

Question 16

A non-current Property, plant and equipment asset is depreciated using the straight-line method. The asset was revalued upwards after four years of use. There is no change in the remaining useful life of six years or to the residual value. Which of the following relationships reflects the effect of the revaluation on the prospective depreciation of the asset?

Question 17

When a company recognises a depreciation credit resulting from a review of the estimated residual value of a depreciable asset, the depreciation debit should be recognised in accumulated depreciation and the depreciation credit should be recognised:

A) in the opening balance of retained earnings
B) in the depreciation expense
C) directly in the depreciable asset account
D) as a gain in the current period.

Question 18

Speculator Limited acquired a parcel of land for $50 000. This amount is also the tax base of the land. Two years after acquisition date the building was revalued to $80 000. The tax rate is 30%. The appropriate journal entry to recognise the net effect of the revaluation is:

A) $\text { DR\quad Gain on revaluation - OCI } \quad \$ 30,000$
$\text { CR } \quad \text { Asset revaluation surplus } \quad \$ 30,000$
B) $\begin{array}{lll}\text { DR } & \text { Land } & \$ 21000 \\\text { DR } & \text { Income tax expense - OCI } & \$ 9000\\C R & \text { Asset revaluation surplus } & & \$ 30000\end{array}$
C) $\begin{array}{llll}\text { DR } & \text { Land } & \$ 30000 & \\\text { CR } & \text { Deferred tax liability } & & \$ 9000 \\\text { CR } & \text { Asset revaluation surplus } & & \$ 21000\end{array}$
D) $\begin{array}{lccr}\text { DR } & \text { Gain on revaluation - OCI } & \$ 30000 & \\\text { CR } & \text { Income tax expense - OCI } & \$ 9000 \\\text { CR } & \text { Asset revaluation surplus } & \$ 21000\end{array}$

Question 19

AASB 116 requires disclosure, for each class of property, plant and equipment:

A) the measurement bases used for determining the gross carrying amount
B) the deprecation methods used
C) the useful lives or the depreciation rates used
D) all of the options are correct.

Question 20

Use the following information to answer questions
An extract of a company's draft statement of financial position at 30 June 2012 discloses the following:
$\begin{array} { l r r } \text { Plant (at cost) } & \$ 500,000 & \\\text { Less Accumulated Depreciation } & \underline { 300,000 } & \$ 200,000\end{array}$

On 30 June 2013 the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying amount of the Plant was $250 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.

-The journal entries necessary to record the revaluation of plant (ignoring any tax effect) at 30 June 2013 in accordance with IAS 16 Property, Plant and Equipment is:

A) $\begin{array}{llll}\text { Accumulated depreciation - Plant } & \mathrm{Dr} & 300,000 & \\\text { Plant } & \mathrm{Cr} & 300,000\\\\\text { Plant } & \mathrm{Dr} & 150,000 & \\\quad \text { Gain on revaluation - OCI } & \mathrm{Cr} & 150,000\end{array}$
B) $\begin{array} { l l l l } \text { Plant } & \mathrm { Dr } & 150,000 & \\\text { Gain on revaluation - OCI } & \mathrm { Cr } & 150,000\end{array}$
C) $\begin{array} { c l l l } \text { Gain on revaluation - OCI } & \mathrm { Dr } & 150,000 & \\\text { Asset revaluation surplus } & \mathrm { Cr } & & 150,000\end{array}$
D) $\begin{array} { l l l l } \text { Plant } & \mathrm { Dr } & 150,000 & \\\text { Gain on revaluation - OCI } & \mathrm { Dr } & 150,000 & \\\text { Accumulated depreciation - Plant } & \mathrm { Cr } & & 300,000\end{array}$

Question 21

An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a carrying value of $5000 and a fair value of $6000. The journal entry to record the acquisition of the Plant will show:

A) a loss on acquisition of $1000;
B) proceeds on sale of Equipment of $1000;
C) a gain on sale of $1000;
D) proceeds on sale of Plant of $1000.

Question 22

For the purposes of recognising a non-current property, plant and equipment asset the acquisition date is determined as the date:

A) the contract to exchange assets is signed;
B) on which the offer to acquire the asset becomes unconditional
C) the consideration is paid;
D) on which the acquirer obtains control of the asset.

Question 23

When applying a revaluation measurement model to assets, the model:

A) applies to the entire class of non-current assets;
B) may only be applied to current assets;
C) is applied permanently and may not be changed;
D) is applied to individual assets within a class of non-current assets.

Question 24

ABC Limited acquired an item of plant on 1 July 2012 for $80 000. The estimated useful life of the plant at acquisition date was 5 years and the residual value $5000. The company sold the plant on 1 January 2016 for $30 000. The journal entry to reflect the sale is:

A) $\begin{array}{lll}\text { DR Cash } & \$ 30000 & \\\text { DR Accumulated depreciation } & \$ 56000 & \\\text { CR Plant } & & \$ 80000 \\\text { CR Gain on sale } & & \$ 6000\end{array}$
B) $\begin{array} { l l l } \text { DR Cash } & \$ 30000 & \\\text { CR Proceeds on sale } & & \$ 30000 \\\text { DR Carrying amount of plant } & \$ 27500 & \\\text { CR Plant } & & \$ 27500\end{array}$
C) $\begin{array} { l r } \text { DR Cash } & \$ 30,000 \\ \text { DR Loss on sale } & \$ 2500\\\text { CR Plant }&\$32,500 \end{array}$
D) $\begin{array} { l r r } \text { DR Cash } & \$ 30,000 & \\\text { DR Accumulated depreciation } & \$ 52,500 & \\\text { CR Plant } & \$ 80,000 \\\text { CR Gain on sale } & \$ 2500\end{array}$

Question 25

Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis to be adopted. The choice is between:

A) cash and accrual;
B) cost and revaluation;
C) tax and accounting;
D) current and non-current.

Question 26

Under AASB 116, the depreciation charge for a period reflects:

A) the fall in the fair value of the asset across the period;
B) a change in the re-sale value of the asset that has occurred over the period;
C) the consumption of economic benefits over the period;
D) a reduction in the estimated market value of the asset across the period.

Question 27

Depreciation is a process that is designed to:

A) reduce the carrying amount of an asset to reflect the diminishing fair value of the asset;
B) spread the cost of an asset across a period no greater than 5 years;
C) reflect the change in value of an asset as a result of obsolescence;
D) allocate the cost of an asset across its useful life to an entity.