Chapter 20 - Multiple choice quiz

The correct entry to record the purchase of a motor vehicle for $25 000 cash, plus 10% GST is:

A.	Debit motor vehicles $27 500; credit bank $27 500

B.	Debit motor vehicles $25 000, debit GST paid $2 500; credit bank $27 500

C.	Debit motor vehicles $27 500; credit bank $25 000, credit GST collected $2 500

D.	Debit motor vehicles $22 500, debit GST paid $2 500; credit bank $25 000

Which of these is not an example of a fixed asset for Coal Mining and Distributors Ltd?

Land

B.	Storage depot

C.	Stock of coal

D.	Mining equipment

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.	All of the above

Ariopolous Company incurred the following expenses in acquiring manufacturing equipment:

	$
Gross invoice price (includes GST)	99 000
Transportation costs to get the equipment to the factory (net of GST)	1 000
Special permit to allow a wide load on freeway (net of GST)	450
Twelve months insurance policy on the equipment (net of GST)	20

The equipment should be recorded in the company's books at:

$100 450

$91 450

$91 650

$101 650

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

A.	Depreciable value

B.	Replacement value

C.	Market value

Cost

Items of property, plant and equipment may be acquired for a lump-sum without identification of the cost of each asset. The total cost must be allocated to the individual assets on the basis of:

A.	Fair value at date of acquisition

B.	Independent valuation

C.	Market value at the date of acquisition

D.	Replacement value

A lease where substantially all the risks and benefits of ownership are transferred from the lessor to the lessee is known as a/an:

A.	Operating lease

B.	Finance lease

C.	Qualifying lease

D.	Contingent lease

The treatment in the lessee's accounting records of an operating lease is:

A.	The leased item is recognised as an asset and the lease obligation is recorded as a liability

B.	The lease payment is recorded as an expense

C.	The leased item is depreciated in the income statement

D.	The lease is recorded as a contingent liability in a footnote to the balance sheet

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

10.

If light fittings and carpets were purchased on 1 January for $35 000 what is the accounting entry for depreciation at the end of the calendar year? Use the straight-line method at 10% pa.

A.	Debit depreciation fixtures and fittings $3 500; credit accumulated depreciation $3 500

B.	Debit accumulated depreciation $3 500; credit depreciation fixtures and fittings $3 500

C.	Debit depreciation fixtures and fittings $3 500; credit fixtures and fittings $3 500

D.	Debit depreciation fixtures and fittings $1 750; credit accumulated depreciation $1 750

11.

The statement concerning depreciation that is true is:

A.	If an asset is acquired part way through the year a full year's depreciation should be charged

B.	Under the reducing balance method the final year's depreciation is calculated by subtracting the asset's residual value from its carrying value

C.	The depreciable amount of an asset is its carrying amount less accumulated depreciation

D.	All of the statements are true

12.

A retailer purchased a delivery wagon for $21 000 on 1 July 2006. 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 is:
30/6/07 20 000 km
30/6/08 15 000 km
30/6/09 15 000 km
30/6/10 12 000 km
Calculate the depreciation to be charged for the year ended 30 June 2009 using the production unit's method.

$8 000

$6 000

$3 750

D.	None of the above

13.

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

14.

Which of these is required to calculate depreciation?

A.	Estimated residual value

B.	Estimated useful life

C.	Historical cost

D.	All of the above

15.

HRH 's balance sheet of 30 June 2007 shows a motor vehicle at a cost price of $72 000 less accumulated depreciation of $36 000. Depreciation is calculated on a straight-line basis. If the vehicle has a useful life of 6 years and a residual value of $6 000 what is its carrying amount on 1 July 2009?

$24 000

$25 000

$14 000

$26 000

16.

A machine was purchased by Ng Corporation on 1 January of Year 1 for $60 000. Its estimated useful life is 4 years and it is to be depreciated on a reducing balance basis at a rate of 50%. Calculate the written down value of the machine at the end of year 2.

$15 000

$30 000

$45 000

D.	None of the above

17.

The Egypt Corporation purchased a machine for $40 000 on 1 January 2009 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 for the calendar year 2010 is 8 000 ridgets, calculate the written down value of the machine as at 31 December 2010. The depreciation charge for 2009 was $10 000.

$26 000

$14 000

$16 000

$24 000

18.

Ryan Co purchased a computer for $15 000. Originally it had an estimated useful life of 4 years and a residual value of $3 000, but at the end of year 3 the estimated useful life was extended by two years and the residual value was reduced to zero. Ryan Co uses the straight-line method to depreciate its computer equipment. At the end of year 4, how much depreciation should be recorded for the computer?

$4 000

$3 000

$2 000

D.	None of the above

19.

The historical cost of an asset less its residual (scrap) value is called its:

A.	Depreciable amount

B.	Depreciation

C.	Accumulated depreciation

D.	Straight-line value

20.

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:

Greater

Smaller

The same

D.	Cannot say

21.

The statement concerning the sum-of-the-years'-digits method of depreciation that is true is:

A.	It results in a decreasing depreciation charge over the life of the asset

B.	It is the most common method of depreciation used in Australia

C.	It results in an increasing depreciation charge over the life of the asset

D.	The formula is carrying amount multiplied by remaining years of life

22.

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

23.

An asset bought for $168 000 was expected to last for 7 years before it needed replacing. If at the end of the third year it was decided to extend its total useful life by 4 years (new remaining life is now 8 years) calculate the new depreciation charge using the straight-line approach.

$11 000

$13 000

$12 500

$12 000

24.

Which of these should not to be recorded in the 'office equipment' ledger account?

A.	Fax machine

B.	Photocopier

Computer

D.	Office curtains and carpets

25.

For a clothing manufacturer which assets would be likely to be grouped together in a ledger account titled ‘factory plant and equipment’?

1. Sewing machines
2. Cutting tables
3. Motor vehicles
4. Office equipment
5. Buttonholer

1, 2, 3

1, 2, 5

3, 4, 5

2, 3, 4

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