Deck 21: Non-Current Assets: Revaluation,disposal and Other Aspects

Question 1

The statement relating to revaluations of non-current assets that is not true is:

A)Before assets are revalued any existing accumulated depreciation must be written off against the asset account
B)A revaluation decrease should be included as a reduction in profit
C)A revaluation increase is regarded as income to be added to the firm's profit for the year
D)Future depreciation charges will be based on the revalued carrying amount of the asset

Answer 1

C

Question 2

Accounting standard IAS 16/AASB 116:

A)Requires all assets to be revalued every five years
B)Requires all assets to be revalued every three years
C)Requires all assets to be revalued yearly
D)Does not require an entity to revalue its assets

Answer 2

D

Question 3

Accounting standard IAS 16/AASB 116 requires what basis of valuation to be used if assets are valued at other than cost?

A)Market value
B)No basis of valuation is specified
C)Fair value
D)The lower of cost and net realisable value

Answer 3

C

Question 4

The basic accounting entry for an initial revaluation decrease of a non-depreciable asset is:

A)Debit expense on revaluation of asset; credit asset
B)Debit asset; credit expense on the revaluation of asset
C)Debit revaluation surplus reserve; credit asset
D)Debit asset; credit revaluation surplus reserve

Question 5

How many of these are requirements of IAS 16/AASB 116?
.An entire class of non-current assets must be revalued together
.If the revaluation model is adopted non-current assets should be revalued to fair value
.Before a depreciable asset is revalued accumulated depreciation should be written back to the asset account

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

Question 6

On 31 December 2012 HiRise Ltd's balance sheet shows motor vehicles at a cost price of $200,000 less accumulated depreciation $50,000.HiRise Ltd uses the cost model to value its assets.On 31 December 2012 an estimate is made that the recoverable amount of the vehicles is $120,000.Under IAS 36/AASB 136 the accounting entry to record the write down of the motor vehicles to recoverable amount is:

A)Dr.Impairment loss on motor vehicles expense $80,000; cr.Accumulated Depreciation $80,000
B)Dr.Impairment loss on motor vehicles expense$30,000; cr.Motor Vehicles $30,000
C)Dr.Impairment loss on motor vehicles expense $30,000; cr.Accumulated Depreciation and Impairment losses $30,000
D)No entry is required

Question 7

The balance sheet of Marty Ltd at 31 December 2012 showed: 1.
$\begin{array}{ll}&\$\\\text {Equipment } & 50,000 \\\text { Accumulated Depreciation-Plant } & 35,000\\&15,000\end{array}$ On 1 January 2013 the equipment was sold for $10 000.The accounting entry to record the receipt of the proceeds from the sale of the equipment is:

A)Debit bank $10 000; credit proceeds from sale of equipment $10 000
B)Debit bank $15 000; credit proceeds from sale of equipment $15 000
C)Debit bank $10,000; credit equipment $10 000
D)Debit bank $5 000; credit proceeds from sale of equipment $5 000

Question 8

The true statement is:

A)A revaluation decrease should occur if a non-current asset's carrying amount is less than its fair value
B)An initial revaluation decrease should be treated as a debit to the revaluation surplus reserve
C)An initial revaluation decrease should be treated as a debit against the current period's profit or loss
D)An initial revaluation decrease should be disclosed in the profit report as a reduction in other comprehensive income

Question 9

Under IAS 36/AASB 136 'Impairment of Assets' how many of these statements are true?
.When an asset's carrying amount is less than its recoverable amount the asset is said to suffer impairment
.Impairment losses are accounted for as a revaluation decrease if the revaluation model is used
.Impairment losses must be recognised as an expense in that period if the cost model is used

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

Question 10

The balance sheet of Brown Ltd at 31 December 2012 shows the following: On 1 January 2013,based on a valuer's estimate of fair value,it was decided to revalue the plant to $35 000.This was the first time the asset had been revalued.
The journal entry to record the revaluation is:

Question 11

The balance sheet of Marty Ltd at 31 December 2012 showed: 1.
$\begin{array}{ll}&\$\\\text {Equipment } & 50,000 \\\text { Accumulated Depreciation-Plant } & 35,000\\&15,000\end{array}$ On 1 January 2013 the equipment was sold for $10 000.The accounting entry to record the closing of the equipment and the accumulated depreciation of equipment accounts is:

A)Debit accumulated depreciation equipment $35 000,credit equipment $35 000
B)Debit accumulated depreciation equipment $35 000,debit carrying amount of equipment $15 000; credit equipment $50 000
C)Debit bank $10 000,credit carrying amount of equipment $10 000
D)Debit accumulated depreciation equipment $15 000,credit equipment $15 000

Question 12

The statement relating to the composite-rate depreciation approach that is not true is:

A)It is often used in practice by business entities with many similar assets in the one class
B)A single depreciation rate is applied to the average cost of a functional group of assets
C)It is only used for items valued at less than $500 each
D)The composite rate is applied to the average of the beginning and ending balances in the asset account for the year

Question 13

The balance sheet of Brown Ltd at 31 December 2012 shows the following: On 1 January 2013,based on a valuer's estimate of fair value,it was decided to revalue the plant to $35 000.The plant was then assessed to have a further useful life of 3 years and an expected residual amount of $5000.The journal entry in the books of Brown Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2013 balance date)is:

Question 14

If a computer with a fully depreciated cost of $30 000 is discarded as worthless,the accounting entry to record the scrapping is:

A)Debit expense on disposal of asset $30 000; credit computer $30 000
B)Debit expense on disposal of asset $30 000; credit accumulated depreciation computer $30 000
C)Debit accumulated depreciation computer $30 000; credit computer $30 000
D)Debit accumulated depreciation computer $30 000; credit computer $30 000,Debit expense on disposal of asset,credit proceeds of disposal of asset $30,000.

Question 15

Rachel's Gymnasium purchased some new gym equipment trading in old equipment with a carrying amount of $5 000.Cash of $9 000 was paid to the supplier and a trade-in allowance of $3 000 was granted.The new equipment should be recorded at:

A)$14 000
B)$12 000
C)$9 000
D)$6 000

Question 16

The statement that is not correct is:

A)If an asset is scrapped as worthless before it is fully depreciated its original cost represents an expense on disposal
B)If an asset is scrapped as worthless before it is fully depreciated its carrying amount represents an expense on disposal
C)An amount paid to remove an asset that is scrapped before it is fully depreciated is an addition to the expense recorded on its disposal
D)When an asset is scrapped during the year an entry should be made to record depreciation expense for the portion of the year before scrapping

Question 17

On 31 December 2012 an aeroplane with a cost of $200 000 has accumulated depreciation written off of $90 000.If it is sold for $130 000 on 1 January 2013 what will be the net effect of the sale on the income statement?

A)$20 000 profit
B)$20 000 loss
C)$70 000 loss
D)$40 000 profit

Question 18

When a non-current asset is sold the gain or loss on disposal is the difference between:

A)Fair market value and accumulated depreciation
B)Selling price and accumulated depreciation
C)Fair value and selling price
D)Selling price and carrying amount

Question 19

The pair of terms that match is:
I)Non-current fixed assets - depreciation
Ii)Natural resources - amortisation
Iii)Intangible assets - depletion
Iv)Land - depreciation

A)i,ii,iv
B)i,ii,iii,iv
C)ii,iii,
D)i

Question 20

Assume that a machine with a cost of $3000 has accumulated depreciation of $1400 on the date of its disposal.If it was traded-in for $2000 on a new machine and the balance of $1500 was paid in cash what is the profit or loss on disposal of the old machine? Ignore GST.

A)$1000 loss
B)$600 gain
C)$400 gain
D)$1200 loss

Question 21

Which of these are not examples of biological assets?

A)Sheep and cattle
B)Planted wheat and grape vines
C)Wool and wine
D)Trees in a pine plantation,coffee bushes on a coffee plantation

Question 22

Which pairing of non-current assets and acquisition value does not match?

A)Mineral resources - cost
B)Biological assets and agricultural produce - cost
C)Identifiable intangible assets - cost
D)Goodwill - cost of the business combination less the sum of the fair values of the net assets acquired

Question 23

Follies Ltd uses composite-rate depreciation rate at 12.5% p.a.for its office equipment.The Office Equipment account had a $16 000 balance of the beginning of the period and a $24 000 balance at the end of the accounting period.The annual charge for depreciation is:

A)$2000
B)$2500
C)$3000
D)$5000

Question 24

According to IFRS 3/AASB 3 purchased goodwill:

A)Should be written off immediately on recognition
B)Should be written off by a systematic charge against profits using the straight-line method,over a period not exceeding 20 years
C)Should remain in the accounts at cost less any accumulated impairment losses
D)Should be written off over the useful life of the asset

Question 25

Which statement concerning patents is true?

A)A patent in Australia gives the holder the exclusive right to produce and sell a particular product for a period of 70 years
B)Research costs spent on internal patent development cannot be recognised as an asset under IAS 38/AASB 138.
C)A patent that is purchased from its holder is debited to an asset account and must be amortised over a 20 year period
D)A patent that has been capitalised is shown in the balance sheet on one line at its net value

Question 26

In rare cases the cost of purchasing a business combination may be less than the sum of the fair values of the identifiable assets and liabilities acquired bargain purchase).The true statement concerning the requirements of IFRS 3/AASB 3 in this situation is:

A)The buyer and the seller must adjust the value to the consideration to eliminate the bargain purchase
B)Any bargain purchase difference should be eliminated by adjusting the values of the assets acquired as it is not possible to recognise a bargain purchase
C)A genuine bargain purchase should be recognised immediately as a gain that is an addition to profit
D)A genuine bargain purchase should be recognised progressively as an addition to profit over a 20 year period

Question 27

L Ltd acquired the business of M Ltd for a cash payment of $750 000.The carrying amount of M Ltd's assets at the time of purchase was $410 000 while the independent fair value was $630 000.There were no liabilities.What is the value of the purchased goodwill recorded by L Ltd?

A)$120 000
B)$340 000
C)$220 000
D)0

Question 28

The excess of the purchase price of a business over the fair values of the identifiable net assets acquired is a measure of:

A)Fair value
B)Revaluation surplus
C)Purchased goodwill
D)Improvements

Question 29

A coal mine was purchased for $400 000.Estimated production is 20 000,000 tons of coal after which the mine will be sold for $40 000.During a recent year 6 500 000 tons of coal were produced and sold.Amortisation for the year would be:

A)$117 000
B)$130 000
C)$143 000
D)$150 000

Question 30

R_________________ amount is the higher of an asset's fair value less selling costs and its value in use.

Question 31

According to IAS 38/AASB 138 intangible assets that have been established to have finite useful lives:

A)should be amortised on a systematic basis over their useful lives
B)amortised over their legal lives
C)should not be amortised but tested each year for impairment
D)should be amortised over a period not exceeding 20 years

Question 32

Under IAS 38/AASB 138 the statement concerning internally generated intangible assets that is nottrue is:

A)They can only be recognised if their cost can be measured reliably
B)It is likely that the cost of internally generated brand names,mastheads and customer lists can be measured reliably
C)The tests for recognising internally generated intangibles are more stringent than for recognising internally generated property,plant and equipment
D)If patents and copyrights are deemed to be in the research phase all expenditure incurred should be expensed rather than capitalised

Question 33

Intangible assets may be further classified as:

A)Identifiable and unidentifiable
B)Cash and credit
C)Living and non-living
D)Physical and non-physical

Question 34

Recoverable amount is:

A)The higher of an asset's fair value less costs to sell,and its value in use
B)The amount expected to be received from the disposal of the asset
C)The amount expected to be recovered from the use of the asset
D)The trade-in or expected amount to be received from the disposal of the asset

Question 35

The statement about goodwill that is true is:

A)Goodwill can be purchased or sold as a separate item
B)Goodwill arises from many factors,such as customer confidence,superior management and a favourable location
C)Under IFRS 3/AASB 3 goodwill must be amortised
D)Goodwill is classified as a current asset

Question 36

If the proceeds of sale of an asset are less than its carrying amount at the date of sale,a gain/loss________ results.

Question 37

On 1 June 2012 S Company acquired for $145,000 cash the business of G Inc.The carrying amount of G Inc's net assets at the time of the acquisition was $110 000 while independent valuers calculated their fair value at $130 000.S Company should debit 'Goodwill' for the amount of:

A)$0
B)$15 000
C)$20 000
D)$35 000

Question 38

Under IAS 41/AASB 141 the basis for measuring biological assets is:

A)Historical cost
B)Fair value less estimated point-of-sale costs
C)Replacement value
D)Estimated market value less estimated point-of-sale costs

Question 39

IAS 16/AASB 116 define f_______ v__________ as the amount for which an asset could be exchanged between knowledgeable,willing parties in an arm's length transaction.

Question 40

The cost or revalued amount of a non-current asset less accumulated depreciation or amortisation is known as its c______________ amount.

Question 41

When an old asset is used as part-payment on a new asset the old asset is said to be t__________-_______.

Question 42

Any impairment of goodwill under IAS 36/AASB 136 is recognised as an e__________.

Question 43

Biological assets are defined in IAS 41/AASB 141 as l___________ animals or plants.

Question 44

Patents,brand names,franchises and goodwill are all examples of i________________ assets.

Question 45

An entity with many similar assets in the same class can use c______________-rate depreciation for that class.

Question 46

G_____________ is defined in IFRS 3/AASB 3 as the 'future economic benefits arising from assets that are not capable of being individually identified and separately recognised'.