Chapter 05 - 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.

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.

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.

10.

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;

11.

When changing from the revaluation to the cost model of measurement for non-current assets, the model must be applied:

A.	in, and forward from the current accounting period;

B.	only to assets acquired after date of changing to the cost model;

C.	retrospectively;

D.	prospectively;

12.

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.

13.

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.

14.

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.

15.

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.

16.

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.

17.

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.

18.

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.

19.

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.

20.

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:

DR	Asset	$10 000
CR	Asset revaluation reserve	$10 000

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

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

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

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