Deck 10: Non-Current Assets: Property, plant and Equipment, and Intangibles

Question 1

Which of the following would be capitalised and depreciated,rather than expensed?

A) Replacement of tyres
B) Paint job
C) Modification for new use
D) Normal repair of engine

Answer 1

C

Question 2

A company purchased a used machine for $22,000.The machine required installation costs of $2000 and insurance while in transit of $900.At which of the following amounts would the machine be recorded?

A) $24,900
B) $22,900
C) $22,000
D) $24,000

Answer 2

A

Question 3

Which of the following accounting principles requires depreciation?

A) The reliability principle
B) The matching principle
C) The entity concept
D) The profit recognition principle

Answer 3

B

Question 4

Treating a cost that should be an expense as a capital expenditure will make a company's net profit higher.

Question 5

The cost of demolishing a building on a parcel of land to build a new building is added to the cost of the land.

Question 6

Normal expenditures for repairs and maintenance should be capitalised.

Question 7

Which of the following should be included in the cost of land?

A) Cost of installing fences
B) Cost to build footpaths on the land
C) Cost to clear the land of old buildings
D) Cost of installing signage

Question 8

Which of the following is NOT a characteristic of an item of property,plant and equipment?

A) The asset has physical form.
B) The asset is available for sale to customers in the ordinary course of business.
C) The asset is used in the production of income for the business.
D) The asset has future usefulness and value.

Question 9

A company's accountant capitalises a payment that should be recorded as an expense.Which of the following is TRUE?

A) Assets are overstated.
B) Expenses are overstated.
C) Liabilities are overstated.
D) Revenue is overstated.

Question 10

Acer Investments plans to develop a shopping centre.In the first quarter,it spent the following amounts:
$$\begin{array} { | l | l | } \hline \text { Purchase price of land } & \$ 17,000 \\\hline \text { Surveys and legal fees } &600 \\\hline \text { Land clearing } & 1100 \\\hline \text { Fencing } &8000 \\\hline \text { Install lighting and signage } & 1060 \\\hline\end{array}$$
What amount should be recorded as the cost of land in the books of the company?

A) $19,760
B) $26,100
C) $18,700
D) $26,700

Question 11

Expenditures that extend the life of an asset or increase its productive capacity should be expensed.

Question 12

Which of the following would be expensed,rather than capitalised?

A) Major engine overhaul
B) Addition to storage capacity
C) Modification for new use
D) Oil change and lubrication

Question 13

Hastings Company has purchased a group of assets for $16,000.The assets and their relative market values are listed below.
$$\begin{array} { | l | l | } \hline \text { Land } & \$ 11,000 \\\hline \text { Equipment } & 6100 \\\hline \text { Building } & 12,800 \\\hline\end{array}$$
Which of the following amounts would be debited to the Land account?

A) $2092.80
B) $5886.29
C) $6849.50
D) $3264.21

Question 14

Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?

A) Machinery and equipment
B) Buildings
C) Land
D) Land improvements

Question 15

Nobells Ltd purchased a property that included both land and a building for $570,000.The company hired an appraiser who has determined that the market value of the land is $380,000 and that of the building is $430,000.At what amount should the company record the cost of land?

A) $158,421
B) $66,667
C) $267,407
D) $285,000

Question 16

A company's accountant capitalises a payment that should be recorded as an expense.Which of the following is TRUE?

A) Revenues are understated
B) Profit is overstated.
C) Liabilities are overstated.
D) Assets are understated.

Question 17

Which of the following is included in the cost of land?

A) The cost of clearing the land
B) The cost of fencing
C) The cost of paving
D) The cost of outdoor lighting

Question 18

An item of property,plant and equipment is fully depreciated when the carrying amount is:

A) equal to the residual value.
B) greater than the market value.
C) equal to the market value.
D) greater than the residual value.

Question 19

A company's accountant expenses a payment that should be capitalised.Which of the following is TRUE?

A) Liabilities are overstated.
B) Revenue is overstated.
C) Assets are overstated.
D) Profit is understated.

Question 20

Which of the following items should be depreciated?

A) Intangible property
B) Natural resources
C) Tangible property, plant and equipment, other than land
D) Land

Question 21

Which of the following is TRUE when the estimate of an asset's useful life is increased?

A) The new estimate is ignored until the last year of the asset's life.
B) Annual depreciation expense is decreased for the remaining years of the asset's life.
C) Annual depreciation expense is increased for the remaining years of the asset's life.
D) Prior years' financial statements must be restated.

Question 22

Which of the following items is included in the journal entry if a company sells equipment at a price less than its carrying amount?

A) a credit to Accumulated depreciation
B) a credit to Gain on sale of equipment
C) a debit to Loss on sale of equipment
D) a debit to Equipment for its carrying amount

Question 23

A company purchased a computer on 1 July 2016.The computer has an estimated useful life of 5 years and will have no residual value.It was purchased for $10 000.It is estimated that the computer can be used for 5 000 hours.The computer was used for 450 hours during 2016.If the goal is to record higher depreciation expense in the earlier years,which method should be used?

A) Units of production
B) Straight line
C) First-in, first-out
D) Reducing balance

Question 24

Which of the following depreciation methods allocates a fixed amount of depreciation to kilometres driven,hours used or some other measure of the asset's utilisation?

A) Reducing-balance method
B) Sum-of-digits method
C) Units-of-production method
D) Straight-line method

Question 25

To determine if there is a gain or loss on the sale of an asset,you must compare:

A) sales price and original cost.
B) sales price and residual value.
C) sales price and carrying amount.
D) carrying amount and residual cost.

Question 26

Albatross Services scrapped a van.The van originally cost $40 000,had an estimated residual value of zero and an estimated life of 10 years.At the time it was scrapped,it had accumulated depreciation of $40 000.What was the effect of scrapping the van?

A) loss of $1 000
B) loss of $2 000
C) gain of $2 000
D) no gain or loss

Question 27

The straight-line method of depreciation assigns a fixed amount of depreciation to each unit of output produced by an asset.

Question 28

If an asset's physical condition deteriorates more rapidly than would be reflected by normal depreciation,that is referred to as:

A) recording error.
B) accelerated depreciation.
C) asset disposal.
D) asset impairment.

Question 29

Estimated residual value is the expected cash value of an asset at the end of its useful life.

Question 30

When an asset is fully depreciated,the residual value must be written off.

Question 31

If an asset is fully depreciated,but it can continue to be used,the asset account and accumulated depreciation balance remain on the books and no further depreciation is recorded.

Question 32

When an asset is fully depreciated,no further depreciation expense is recorded.

Question 33

Cost of an asset is $1,070,000 and its residual value is $220,000.Estimated useful life of the asset is five years.Calculate depreciation for the first year using the reducing-balance method of depreciation.

A) $340,000
B) $214,000
C) $428,000
D) $170,000

Question 34

The depreciation method in which residual value is ignored until the end of the life of the asset is:

A) units of output.
B) reducing balance.
C) First-in, first-out.
D) straight line.

Question 35

An asset was purchased for $36,000.The asset's estimated useful life was five years and its residual value was $10,000.The straight-line method of depreciation was used.Calculate the gain or loss on sale if the asset is sold for $19,000 at the end of the first year.

A) gain of $5900
B) no gain or loss
C) loss of $11,800
D) gain of $11,800

Question 36

Which of the following depreciation methods allocates an equal amount of depreciation to each year?

A) Reducing-balance method
B) Sum-of-years digits method
C) Units-of-production method
D) Straight-line method

Question 37

A photocopy machine costs $99,000 when new and has accumulated depreciation of $92,000.Suppose the company junks this machine and receives nothing.What is the result of the disposal transaction?

A) gain of $7000
B) no gain or loss
C) loss of $11,500
D) loss of $7000

Question 38

Iverycoast Ltd purchased a van on 1 January 2016 for $840,000.Estimated life of the van was five years,and its estimated residual value was $91,000.Iverycoast uses the straight-line method of depreciation.At the beginning of 2018,the company revised the total estimated life of the asset from five years to six years.The estimated residual value remained the same as estimated earlier.Calculate the depreciation expense for the year 2018.

A) $112,350
B) $152,250
C) $115,500
D) $149,800

Question 39

Albatross Services scrapped a van.The van originally cost $40 000,had an estimated residual value of zero and an estimated life of 10 years.At the time it was scrapped,it was fully depreciated.What was the effect of scrapping the van?

A) loss of $1 000
B) loss of $2 000
C) no gain or loss
D) gain of $2 000

Question 40

Which of the following items is included in the journal entry if a company sells equipment at a price equal to its carrying amount?

A) A debit to Loss on sale of equipment
B) A credit to Accumulated depreciation
C) A debit to Equipment for its carrying amount
D) A credit to Equipment for its original cost

Question 41

When an item of property,plant and equipment is sold,the first step is to bring the depreciation up to date.

Question 42

If the sales price of an item of property,plant and equipment is lower than the carrying amount,there will be a loss on sale.

Question 43

Plant and equipment are more likely to decrease in value than increase.

Question 44

When an asset is exchanged between knowledgeable willing parties in an arm's length transaction,the resulting value is called:

A) the present value.
B) the current value.
C) the fair value.
D) the replacement value.

Question 45

Revaluation increases and decreases must always be offset against each other.

Question 46

When an item of property,plant and equipment is sold,if the carrying amount is higher than the sales price,there will be a loss on sale.

Question 47

If assets are scrapped before being fully depreciated,there is a loss equal to the carrying amount of the asset.

Question 48

A revaluation increment will always be credited to revenue account.

Question 49

A revaluation decrement increases the carrying amount of an asset.

Question 50

Land that cost $500 000 is revalued to $600 000.The journal entry would be:

A) $$\begin{array} { | l | r | r | } \hline \text { Land } ( \mathrm { A } + ) & 600000 & \\\hline \text { Revaluation surplus } ( \mathrm { OE } + ) & & 600000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Land } ( \mathrm { A } + ) & 100000 & \\\hline \text { Revaluation Revenue } ( \mathrm { R } + ) & & 100000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Revaluation surplus (OE-) } & 100000 & \\\hline \text { Land (A-) } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Land } ( \mathrm { A } + ) & 100000 & \\\hline \text { Revaluation surplus } ( \mathrm { OE } + ) & & 100000 \\\hline\end{array}$$

Question 51

Sterling Company wishes to revalue some equipment with an original cost of $200 000 and accumulated depreciation of $30 000.The equipment now has a fair value of $100 000.What revaluation will be recorded?

A) a decrement of $100 000
B) a decrement of $30 000
C) an increment of $100 000
D) a decrement of $70 000

Question 52

The most common asset to revalue downwards is land.

Question 53

A revaluation decrement will always be debited as an expense in the income statement.

Question 54

Managers must choose from which of the following when recording non-current assets?

A) Current model or revaluation model
B) Cost model or revaluation model
C) Replacement model or cost model
D) Present value model or replacement model

Question 55

A loss on the sale of an item of property,plant and equipment is recorded when the sale price exceeds the carrying amount.

Question 56

Which of the following statements about the revaluation model is INCORRECT?

A) Revaluation can be upward or downward.
B) Assets must be revalued every month.
C) Use of the revaluation method is optional.
D) The carrying amount of each asset must be maintained at fair value.

Question 57

A loss on disposal of an asset is recorded when cash received is less than the carrying amount.

Question 58

A building with an original cost of $400 000 and accumulated depreciation of $100 000 is revalued to $500 000.The first step will be to write back the accumulated depreciation.The correct entry will be:

A) $$\begin{array} { | l | r | r | } \hline \text { Building } ( \mathrm { A } + ) & 100000 & \\\hline \text { Accumulated depreciation } ( \mathrm { CA } + ) & & 100000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Accumulated depreciation (CA-) } & 100000 & \\\hline \text { Revaluation surplus (OE+) } & & 100000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Accumulated depreciation (CA-) } & 100000 & \\\hline \text { Depreciation expense (E-) } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Accumulated depreciation (CA-) } & 100000 & \\\hline \text { Building (A-) } & & 100000 \\\hline\end{array}$$

Question 59

Asset impairments occur when the asset's value has a significant decline,outside of normal depreciation.

Question 60

A loss occurs on the exchange of an item of property,plant and equipment if the market value of the new asset received is greater than the total amount given up in the exchange.

Question 61

Which of the following assets is NOT an intangible asset?

A) Goodwill
B) Patent
C) Building
D) Trademark

Question 62

The decline in value of a trademark is accounted for by:

A) depreciation.
B) amortisation.
C) deterioration.
D) depletion.

Question 63

Depletion would be used for all of the following EXCEPT:

A) timber.
B) retail inventory.
C) minerals.
D) oil and gas.

Question 64

Depletion expense is the portion of a natural resource's cost used up in a particular period.

Question 65

The type of intangible asset related to the rights of original music and media is:

A) a patent.
B) a copyright.
C) goodwill.
D) a trademark.

Question 66

Which of the following items should be depleted?

A) Natural resources
B) Land
C) Intangible property
D) Tangible property, plant and equipment, other than land

Question 67

On 1 October 2016,Nurix Company purchased a patent for $200,000 cash.Although the patent gives legal protection for 20 years,the patent is expected to be used for only 10 years.What will be the balance in the patent account on 30 September 2017?

A) $190,000
B) $180,000
C) $100,000
D) $200,000

Question 68

Which of the following intangible assets bars other manufacturers from using the same name for a product?

A) Patent
B) Trademark
C) Copyright
D) Franchise

Question 69

A coal mine costs $1,008,000 and is estimated to hold 51,000 tonnes of coal.There is no residual value.10,000 tonnes are extracted and sold during the first year of operations.Calculate depletion per unit.

A) $19.76
B) $14.82
C) $9.88
D) $4.94

Question 70

Which of the following is NOT considered an item of property,plant and equipment?

A) Land
B) Copyright
C) Building
D) Equipment

Question 71

Which of the following is the proper accounting treatment for purchased goodwill?

A) Goodwill must be expensed when acquired.
B) Goodwill must be capitalised when acquired and amortised over 70 years or less.
C) Goodwill must be capitalised when acquired and amortised over 20 years or less.
D) Goodwill must be capitalised when acquired and expensed each year to the extent that the value has declined.

Question 72

Which of the following accounting methods is usually used to calculate amortisation expense?

A) Reducing balance
B) Straight line
C) Units of production
D) First-in, first-out

Question 73

Which of the following is the amount capitalised as goodwill?

A) The excess of the cost of an acquired company over the sum of the market value of its net assets
B) The excess of the cost of an acquired company over the sum of the carrying amount of its net assets
C) The excess of the cost of an acquired company over the sum of the market value of its assets
D) The excess of the cost of an acquired company over the sum of the carrying amount of its assets

Question 74

Which of the following is the expense resulting from a decline in the utility of a natural resource?

A) Depletion
B) Obsolescence
C) Amortisation
D) Depreciation

Question 75

Which of the following is the proper accounting treatment for research and development costs?

A) Research and development costs must be capitalised and amortised over 20 years or less.
B) Research and development costs must be capitalised and amortised over 70 years or less.
C) Research and development costs must be capitalised and expensed each year to the extent that their value has declined.
D) Research costs must be expensed and development costs may be capitalised in limited circumstances.

Question 76

A coal mine cost $1,007,000 and is estimated to hold 56,000 tonnes of coal.There is no residual value.16,000 tonnes are extracted and sold during the first year of operations.Calculate depletion expense for the first year.

A) $100,700
B) $151,050
C) $287,714.29
D) $201,400

Question 77

Which of the following types of expenses result from a decline in the utility of an intangible asset?

A) Depreciation
B) Amortisation
C) Depletion
D) Obsolescence

Question 78

Which would NOT be accounted for by the depletion method?

A) Oil reserves
B) Coal reserves
C) Timber reserves
D) Land

Question 79

Depletion is the word we use instead of depreciation to attach to recovering the cost of natural resources.

Question 80

Steel Rolling Company purchased a mine on 1 January 2016 for $529,000 and it is estimated to contain 37,000 tonnes of iron ore.There is no residual value.The company extracted 8500 tonnes of ore in 2016 and 12,800 tonnes of ore in 2017.What is depletion expense for 2017? (Do not round your intermediate calculations.)

A) $183,005
B) $143,527
C) $153,005
D) $122,527