Deck 20: Non-Current Assets: Acquisition and Depreciation

Question 1

How many of these are ways in which a residual value can be recovered from an asset on its disposal?
? Trade in
? Sell second-hand
? Sell for scrap

A)0
B)1
C)2
D)3

Answer 1

3

Question 2

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

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

Answer 2

D

Question 3

HRH 's balance sheet of 30 June 2011 shows a motor vehicle at a cost price of $72000 less accumulated depreciation of $36 000.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 $6000 what is its carrying amount on 1 July 2013?

A)$24 000
B)$25 000
C)$14 000
D)$26 000

Answer 3

C

Question 4

On 1 January 2012 Dee Ltd acquired electronic equipment for $10 000,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 2014 is:

A)$700
B)$729
C)$810
D)$800

Question 5

The statement relating to depreciation that is true is:

A)Accumulated depreciation represents the amount of an asset's cost that has been transferred to depreciation expense to date
B)The cash account is affected by charging depreciation
C)Accumulated depreciation is a contra-expense account
D)Depreciation represents cash that can be used to replace assets when they wear out

Question 6

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

A)Depreciable value
B)Replacement value
C)Market value
D)Cost

Question 7

Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months.The journal entry to record the acquisition is:

Question 8

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

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 9

Eastern Rug Distributors acquired a computer for $ 7000 on 31 December 2010.Calculate depreciation for the year ended 31 December 2012 using the diminishing-balance method at 20% p.a.Assume a nil residual value.

A)$1400
B)$700
C)$2800
D)$1120

Question 10

PSU Enterprises purchased a small timber company for $200 000 net of GST .The fair values of the individual assets acquired net of GST were: $$\begin{array} { l c l r } & \$ && \$ \\\text { Building } & 80,000 & \text { Standing timber } & 120,000 \\\text { Land } & 20,000 & \text { Equipment } & 30,000\end{array}$$ At what amount should standing timber be recorded by PSU?

A)$120 000
B)$108 000
C)$96 000
D)$90 000

Question 11

The statement that describes the assumption underlying the straight-line method of depreciation is:

A)The asset makes the same contribution to income each year
B)The asset's contribution to income relates mainly to obsolescence
C)The asset makes a higher contribution to income in the earlier years of its life
D)The asset's contribution to income is variable

Question 12

NG Ltd purchased a sprinkler system on 1 January,the start of Year 1. $$\begin{array} { l c } \text { Cost (net of GST) } & \$ 6500 \\\text { Residual } & \$ 1500 \\\text { Estimated Useful Life } & 5 \text { years }\end{array}$$ Under the straight-line method depreciation expense for year 2 will be:

A)$1300
B)$1000
C)$1500
D)$1250

Question 13

In the financial statements prepared at the end of the accounting period the item Accumulated Depreciation appears:

A)On the income statement as an expense
B)On the balance sheet as a liability
C)On the balance sheet as a deduction from the related asset
D)On both the balance sheet and the income statement

Question 14

The Delivery Equipment account in the ledger of A Co has a balance of $17 600 which is the cost of two 2^nd hand trucks purchased on 1 January 2011.The Accumulated Depreciation Delivery Equipment account has a balance on 31 December 2012 of $8000,before adjusting entries.No additional delivery trucks have been acquired or sold.The residual value of each truck is estimated to be $800 and the straight-line depreciation method is used.The necessary adjusting entry to record annual depreciation on 31 December 2013 is:

Question 15

When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

A)Expenditure on initial repairs to the building floor
B)Stamp duty paid on the property purchase
C)The cost of installing an air conditioning system
D)Legal fees for the purchase of the property

Question 16

The statement that best describes the nature of accounting depreciation is:

A)A charge representing the change in the asset's market value
B)A charge representing the decline in the physical efficiency of the asset
C)The amount that can be claimed as a tax deduction
D)An allocation of the cost of the asset over its estimated useful life

Question 17

On 31 December 2011 a new motor vehicle with a life of five years and no estimated residual value was purchased by a business at a cost of $23 000,net of GST.The diminishing-balance depreciation method is employed.At a rate of 25% p.a.what is the carrying value of the motor vehicle at 31 December 2013 after charging depreciation for that year?

A)$17,250
B)$12,937
C)$9,703
D)$15 000

Question 18

How many of these factors will have an effect on the amount of depreciation charged on an asset in a particular accounting period?
.Estimated useful life of asset
.Cost or revalued amount of asset
.Estimated residual value of asset
.Method of depreciation used

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

Question 19

Sentosa has acquired manufacturing equipment and incurred these expenses in doing so. $\begin{array}{llr}&&\$\\\text { ii. } & \text { Gross invoice price, net of GST, subject to terms of } 2 / 10, \mathrm{n} / 30) & 9000 \\\text { iii. } & \text { Transportation costs to get equipment to factory } & 1000 \\\text { iv. } & \text { Special permit to allow wide load on freeway } & 300\\\text {v. } &\text { Speeding ticket incurred by comp any driver while }\\&\text { deliv ering equipment to the factory }&100\\\text {vi. } &\text { Cost to repair wall damaged during installation }&500\\\end{array}$ The equipment should be recorded in Sentosa's records at:

A)$10 900
B)$10 300
C)$10 120
D)$10 000

Question 20

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

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

Question 21

An estimate of the value of an asset that can be recovered at the end of its useful life is called its r_____________ value.

Question 22

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

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 23

The correct statement concerning subsequent costs incurred in relation to a depreciable asset after its original acquisition is:

A)The replacement of the tyres on a motor would add to the expected life of the vehicle
B)Subsequent costs should nearly always be capitalised rather than charged to an expense account
C)If the subsequent cost of replacing part of an item of equipment is added to the carrying amount of that asset then the carrying amount of the part that is replaced must be decommissioned
D)The painting of a building would normally be considered an improvement and capitalised

Question 24

The units-of-production method relates depreciation to u__________ rather than to time.

Question 25

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?

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 26

The Egypt Corporation purchased a machine for $40 000 on 1 January 2012 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 up to 31 December 2012,the end of the accounting year)is 5 000 ridgets,calculate depreciation expense for 2012.

A)$12 000
B)$10 000
C)$20 000
D)$8 000

Question 27

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?

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

Question 28

How many of these are advantages of maintaining a subsidiary ledger for depreciable assets?
.It provides information for the preparation of income tax returns
.It provides information to support insurance claims in the event of loss from theft or accident
.It provides information concerning servicing of the assets
.It provides information for internal control over assets

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

Question 29

If the straight-line method of depreciation rather than the reducing-balance method is selected,in the early years of the asset's life the depreciation charge will be comparatively:

A)Greater
B)Smaller
C)The same
D)Cannot say

Question 30

The depreciation method most commonly used in Australia,as disclosed by a survey of the annual reports of listed companies,is:

A)Straight-line
B)Reducing-balance
C)Units-of-use
D)Sum-of-the digits

Question 31

A retailer purchased a delivery wagon for $21 000 on 1 July 2010.It was planned to keep the vehicle until it had done 60 000 kilometres and then to trade it in.The expected trade in value was $6 000.
Schedule of actual distance travelled was: $$\begin{array} { l l } 30 / 6 / 11 & 20000 \mathrm {~km} \\30 / 6 / 12 & 15000 \mathrm {~km} \\30 / 6 / 13 & 15000 \mathrm {~km} \\30 / 6 / 14 & 10000 \mathrm {~km}\end{array}$$
Using the units-of-production method the amount of depreciation charged for the year ended 30 June 2014 was:

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

Question 32

The s_____________ line method of depreciation is the most widely used.

Question 33

When estimates of useful life and residual value made for the purposes of calculating depreciation,in later years turn out to be materially incorrect and the asset has not reached the end of its useful life,the procedure to be followed is to:

A)Issue corrected financial statements for all prior years
B)Issue corrected financial statements for only the most recent three years
C)Ignore the problem since estimates are not expected to be exact anyway
D)Spread the remaining depreciable amount over the remaining useful life

Question 34

A machine was purchased on 3 January 2012 for $48 000,net of GST.The machine had an estimated residual value of $6000 and an estimated useful life of 5 years.Depreciation expense for the year ended 31 December 2012,using sum-of-the-years'-digits method,is:

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

Question 35

The information to be disclosed about office equipment in the financial statements prepared for external reporting includes how many of the following?
.The total number of assets held in the office equipment grouping
.Aggregate cost of office equipment
.Aggregate Accumulated Depreciation of office equipment
.Depreciation rates used or useful lives of office equipment
.Depreciation method used

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

Question 36

Under IAS 23/AASB 123,if borrowing costs are directly attributable to the acquisition or construction of an asset that takes a considerable period of time to produce,the standard allows the alternative of treating the borrowing costs as part of the c_________ of acquisition of the qualifying asset.

Question 37

Failure to record depreciation expense for a period when fixed assets are used would result in an overstatement /understatement)____________________ of expenses and thus an overstatement /understatement)__________________ of profit.

Question 38

An asset bought for $168 000 with a zero residual value was expected to last for seven years before it needed replacing.If at the end of the third year it was decided to extend its total useful life by four years new remaining life is now eight years)calculate the new depreciation charge using the straight-line approach.

A)$11 000
B)$13 000
C)$12 500
D)$12 000

Question 39

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

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

Question 40

The cost of an asset less its residual value is known as its d__________________ amount.

Question 41

The installation of escalators to replace stairwells is an example of capital/maintenance)_______________ expenditure.

Question 42

Detailed property records constitute a s______________ ledger to the property account in the general ledger.

Question 43

When detailed subsidiary records are maintained for delivery equipment the general ledger accounts,Accumulated Depreciation Delivery Equipment and Delivery Equipment,are c_____________ accounts.