Chapter 10 - Multiple choice quiz

A key feature of property, plant and equipment assets is that they:

A.	have a remaining life of less than one financial year;

B.	will expire within the current period;

C.	are non-physical in nature;

D.	are physical in nature.

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.	it is probable that future economic benefits will flow to the entity;

D.	the item has been received by the acquirer.

AASB 116 requires component assets to be recognised where:

A.	there are a number of individually insignificant items.

B.	there are a number of individually material items with different useful lives making up an asset

C.	there are a number of individually insignificant items with different useful lives making up an asset

D.	there are a number of individually material items making up an asset

The cost of an item of property, plant and equipment includes all of the following:

I.	Directly attributable costs.
II.	Purchase price.
III.	Costs of dismantling and removing the item.

IV. Costs of restoring the site on which the item is located.

A.	I, II, III and IV;

B.	I and II only;

C.	II, III and IV only;

D.	I, II and III only.

An entity acquired an item of Plant in exchange for an item of Equipment. The Equipment has a carrying value of $5 000 and a fair value of $6 000. The journal entry to record the acquisition of the Plant will show:

A.	a loss on acquisition of $1 000;

B.	a gain on sale of $1 000;

C.	proceeds on sale of Equipment of $1 000;

D.	proceeds on sale of Plant of $1 000.

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

A.	on which the acquirer obtains control of the asset;

B.	the contract to exchange assets is signed;

C.	on which the offer to acquire the asset becomes unconditional

D.	the consideration is paid.

Zhang Limited acquired the three non-current assets for a total consideration of $200 000. On acquisition date the fair values of the assets were: Land $73 500; Property $94 500; Equipment $42 000. The Property is recognised by Zhang Limited at the following amount:

$70 000;

$40 000;

$90 000;

$94 500.

The following costs may all be included in the costs of acquiring property, plant and equipment except:

A.	costs of site preparation;

B.	installation and assembly costs;

C.	costs of testing whether the asset is functioning properly;

D.	administration and general overhead costs.

Where restoration costs are associated with the use of land that is acquired, the costs are:

A.	expensed in the period in which they are incurred;

B.	charged directly into equity;

C.	regarded as contingent and are not recognised;

D.	capitalised into the cost of the land.

10.

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.	cost and revaluation;

B.	cash and accrual;

C.	tax and accounting;

D.	current and non-current.

11.

Under the cost model the carrying amount of an asset is determined as:

A.	cost plus accumulated depreciation;

B.	cost unadjusted for accumulated depreciation;

C.	cost less accumulated depreciation or amortisation;

D.	cost of replacing the item.

12.

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.	allocate the cost of an asset across its useful life to an entity;

C.	spread the cost of an asset across a period no greater than 5 years;

D.	reflect the change in value of an asset as a result of obsolescence.

13.

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.	a reduction in the estimated market value of the asset across the period;

D.	the consumption of economic benefits over the period.

14.

Wen Limited acquired an item of Property for $45 000 which it depreciated using the straight line basis. The Property had an estimated useful life of 9 years. Wen has owned the asset for a full 5 year period and has just completed the financial statements. The carrying amount of the asset at the end of the fifth year of ownership and use is:

$20 000;

$45 000;

$5 000;

$0.

15.

An appropriate journal entry to recognise a depreciation amount determined using the diminishing balance method is:

A.	DR Depreciation expense CR Non-current asset;

B.	DR Accumulated depreciation CR Non-current asset;

C.	DR Depreciation expense CR Accumulated depreciation;

D.	DR Accumulated depreciation CR Depreciation expense.

16.

The depreciation charge calculated using the diminishing balance method reflects:

A.	an increasing pattern of benefits over the asset's useful life;

B.	a decreasing pattern of benefits over the asset's useful life;

C.	a constant pattern of benefits over the asset's useful life;

D.	a fluctuating pattern of benefits over the asset's useful life.

17.

When determining the useful life of an asset of an entity for the purposes of estimating depreciation expense, there is no necessary relationship between useful life and:

A.	expiry date of the lease term under which the asset is acquired;

B.	the expected usage of the asset;

C.	the expected number of physical output of the asset while used by the entity;

D.	economic life of the asset.

18.

When the revaluation model is used the measurement basis that must be applied is:

A.	initial cost;

B.	fair value;

C.	net present value;

D.	market value.

19.

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

A.	may only be applied to current assets

B.	is applied permanently and may not be changed;

C.	is applied to individual assets within a class of non-current assets;

D.	applies to the entire class of non-current assets;

20.

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

A.	may only be applied to current assets

B.	is applied permanently and may not be changed;

C.	is applied to individual assets within a class of non-current assets;

D.	applies to the entire class of non-current assets;

21.

ABC Limited has a non-current asset with a carrying amount of $50 000. The asset is revalued to $60 000. The company tax rate is 30%. The journal entry to reflect this is:

A.	DR Asset $10 000 CR Asset revaluation reserve $10 000;

B.	DR Asset $10 000 CR Asset revaluation reserve $ 7 000 CR Deferred tax liability $ 3 000

C.	DR Asset revaluation reserve $ 7 000 DR Deferred tax asset $ 3 000 CR Asset $10 000

D.	DR Asset revaluation reserve $10 000 CR Deferred tax liability $10 000.

22.

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

A.	DR Building $30 000 CR Asset revaluation surplus $30 000

B.	DR Building $21 000 DR Deferred tax asset $ 9 000 CR Asset revaluation surplus $30 000

C.	DR Building $30 000 CR Asset revaluation surplus $21 000 CR Deferred tax liability $ 9 000

D.	DR Building $21 000 DR Asset revaluation surplus $ 9 000 CR Deferred tax liability $30 000

23.

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:

DR Plant

B.	CR Asset revaluation surplus

C.	DR Retained earnings

D.	CR Retained earnings.

24.

A revaluation decrement can be debited to a revaluation account in equity:

A.	if it is a material amount and would otherwise reduce the profit of the period

B.	to the extent of any surplus existing in the revaluation account in respect of that asset

C.	on an initial revaluation of an asset only

D.	only if the retained earnings account has a debit balance.

25.

Thunder Ltd has two blocks of land that are accounted for under the revaluation method. Details are as follows:

	Block A	Block B	Total class
Original cost:	$300,000	$850,000	$1,150,000
Current carrying amount:	$560,000	$810,000	$1,370,000
Fair value at 30 June 2009:	$590,000	$860,000	$1,450,000

Prior to revaluation to fair value at 30 June 2009 the balance in Thunder's asset revaluation reserve in relation to land was:

$154 000

$182 000

$220 000

$260 000

26.

Thunder Ltd has two blocks of land that are accounted for under the revaluation method. Details are as follows:

	Block A	Block B	Total class
Original cost:	$300,000	$850,000	$1,150,000
Current carrying amount:	$560,000	$810,000	$1,370,000
Fair value at 30 June 2009:	$590,000	$860,000	$1,450,000

The entry at 30 June 2009 to revalue Block B is:

A.	DR Land 50 000 CR DTL 15 000 CR ARR 35 000

B.	DR Land 50 000 CR Income tax expense 15 000 CR Gain on revaluation 35 000

C.	DR Land 50 000 CR Reversal of write-down 40 000 CR ARR 10 000

D.	DR Land 50 000 CR Reversal of write-down 40 000 CR DTL 3 000 CR ARR 7 000

27.

Thunder Ltd has two blocks of land that are accounted for under the revaluation method. Details are as follows:

	Block A	Block B	Total class
Original cost:	$300,000	$850,000	$1,150,000
Current carrying amount:	$560,000	$810,000	$1,370,000
Fair value at 30 June 2009:	$590,000	$860,000	$1,450,000

The entry at 30 June 2009 to revalue land is:

A.	DR Land 80 000 CR DTL 24 000 CR ARR 56 000

B.	DR Land 80 000 CR Write back of decrement 40 000 CR DTL 12 000 CR ARR 28 000

C.	DR Land 80 000 CR Write back of decrement 50 000 CR DTL 9 000 CR ARR 21 000

D.	DR ARR 35 000 DR DTA 15 000 CR Land 50 000

28.

Possible reasons for adopting the revaluation method for accounting for property, plant and equipment include:

I.	The positive effect on debt/equity ratios when assets are appreciating
II.	To improve the relevance of information provided
III.	Consistency with US GAAP

IV. Cost incentives as compared to the cost model

A.	I, II, III and IV;

B.	I and II only;

C.	II, III and IV only;

D.	I, II and III only.

29.

Derecognition of an item of plant & equipment is permitted under AASB 116 when:

A.	no future economic benefits are expected from disposal

B.	the remaining future economic benefits from future use are considered to be immaterial

C.	the asset becomes idle

D.	an item previously classified as held for sale is disposed of

30.

Which of the following disclosures is not required under AASB 116?

A.	capital commitments for the purchase of plant & equipment

B.	the depreciation method used for each class of depreciable assets

C.	details of assets transferred to 'assets held for sale'

D.	changes in the depreciation methods adopted

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