Question 1

Profit on the sale of an asset is calculated:

Accepted Answer

A) by subtracting the disposal proceeds from the current carrying amount of the asset. 
B) after assessing the fair value of the asset and subtracting the proceeds on the sale. 
C) once depreciation has been applied to the date of sale. 
D) by subtracting the updated carrying amount from the net proceeds on disposal. 
A) by subtracting the disposal proceeds from the current carrying amount of the asset. 
B) after assessing the fair value of the asset and subtracting the proceeds on the sale. 
C) once depreciation has been applied to the date of sale. 
D) by subtracting the updated carrying amount from the net proceeds on disposal.

Question 2

If a company finds out years later that the expected pattern of consumption of future economic benefits of an asset had changed,how must a company deal with this accounting issue?

Accepted Answer

When there are changes in expectations a

Question 3

A company recently ordered a piece of machinery from Germany to be used to manufacture a new product.Which of the following are generally included as cost of an item of property,plant and equipment in accordance with IASB 16?

Accepted Answer

A)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price. } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\hline
\end{array}$$. 
B)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\hline
\end{array}$$. 
D)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { No } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price. } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\hline
\end{array}$$. 
B)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\hline
\end{array}$$. 
D)  $$\begin{array} { | c | c | c | c | } 
\hline \text { Purchase price } & \text { Import duties } & \begin{array} { c } 
\text { Share of fixed overhead } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Cost of marketing } \
\text { the new product }
\end{array} \
\hline \text { Yes } & \text { No } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$

Question 4

Tantrax Plc has just purchased a piece of equipment for £45 000.It is expected to operate at its normal output level for 20 years,but the product it is used to manufacture is expected to be marketable only for the next 13 years.The expected salvage values are £5000 after 20 years and £8000 after 13 years.The equipment is expected to generate output consistently over its life.What depreciation should be charged in each of the first three years of the equipment's life?

Accepted Answer

A) Year 1: £2846.15, Year 2: £2846.15, Year 3: £2846.15 
B) Year 1: £5285.71, Year 2: £4879.12, Year 3: £4472.53 
C) Year 1: £3461.54, Year 2: £3461.54, Year 3: £3461.54 
D) Year 1: £1850, Year 2: £1850, Year 3: £1850 
A) Year 1: £2846.15, Year 2: £2846.15, Year 3: £2846.15 
B) Year 1: £5285.71, Year 2: £4879.12, Year 3: £4472.53 
C) Year 1: £3461.54, Year 2: £3461.54, Year 3: £3461.54 
D) Year 1: £1850, Year 2: £1850, Year 3: £1850

Question 5

The depreciable base is the cost of a depreciable asset,or other amount substituted for cost in the financial statement,less its residual value.

Accepted Answer

A) True 
 B)False

Question 6

The useful life of an asset may be estimated based on:

Accepted Answer

A) the period of time over which the future economic benefits of the asset are expected to be consumed by the entity. 
B) the total service, expressed in terms of production or similar units that may most likely be obtained from the asset under normal operating conditions. 
C) the period of time over which the future economic benefits of the asset are expected to be generated in normal use by a typical entity. 
D) the total service, expressed in terms of production or similar units that may most likely be obtained from the asset under ideal operating conditions. 
A) the period of time over which the future economic benefits of the asset are expected to be consumed by the entity. 
B) the total service, expressed in terms of production or similar units that may most likely be obtained from the asset under normal operating conditions. 
C) the period of time over which the future economic benefits of the asset are expected to be generated in normal use by a typical entity. 
D) the total service, expressed in terms of production or similar units that may most likely be obtained from the asset under ideal operating conditions.

Question 7

Information is material if it has the potential,individually or collectively,to influence economic decisions of users taken on the basis of financial statements through:

Accepted Answer

A) non-disclosure. 
B) omission. 
C) misstatement. 
D) all of the given answers. 
A) non-disclosure. 
B) omission. 
C) misstatement. 
D) all of the given answers.

Question 8

On 1 January,Broncos Plc paid €20 million for a tract of land with a building.The building was in a bad condition and had to be refurbished for another €2 000 000.The adjacent vacant land is valued at €15 000 000.It is expected that the building will be in use for at 20 years.What is the depreciation expense for the first year?

Accepted Answer

A) €100 000 
B) €250 000 
C) €350 000 
D) €1 100 000 
A) €100 000 
B) €250 000 
C) €350 000 
D) €1 100 000

Question 9

IASB 16 requires that depreciation be reviewed:

Accepted Answer

A) at least annually. 
B) as soon as the expectations regarding the patterns of use of the asset change. 
C) only when changes in the depreciation calculation are material. 
D) immediately upon a revision of the useful life of the asset. 
A) at least annually. 
B) as soon as the expectations regarding the patterns of use of the asset change. 
C) only when changes in the depreciation calculation are material. 
D) immediately upon a revision of the useful life of the asset.

Question 10

Galway Plc purchased a computer for €6000,2 years ago.At the beginning of this year the motherboard was replaced to maintain its existing service capacity at a cost of €2000.The improvement to the computer will work only on the existing computer and it does not extend its useful service potential.Galway has been depreciating the equipment using the declining-balance method at a rate of 33%.What is the depreciation charge calculated at the end of the current year (rounded to the nearest euro)?

Accepted Answer

A) €1778 
B) €1549 
C) €2640 
D) €889 
A) €1778 
B) €1549 
C) €2640 
D) €889

Question 11

The useful life of the asset reflects the time from when an asset is built/acquired until it is no longer able to produce any benefits.

Accepted Answer

A) True 
 B)False

Question 12

French Co Plc has a machine with the following characteristics:
A more technically advanced machine is expected to be available in 8 years.
It is expected to continue operating efficiently for the next 13 years.
The product that the machine is used to produce is expected to have a viable market for the next 6 years.
What is the period of time that should be used as the useful life of the asset for the purpose of calculating depreciation?

Accepted Answer

A) 8 years 
B) 6 years 
C) 13 years 
D) 9 years 
A) 8 years 
B) 6 years 
C) 13 years 
D) 9 years

Question 13

Hugo Plc has acquired a machine for £26 000 and it cost a further £2000 to install and set up the machine for operation.It is expected to operate within normal parameters for 6 years.It will be technologically obsolete in 10 years.The expected salvage values are £1500 after 10 years and £2000 after 6 years.The benefits to be derived from the machine are expected to be greater in the early years of its life.What depreciation should be charged in each of the first two years of the equipment's life using sum-of-digits depreciation?

Accepted Answer

A) Year 1: £8000, Year 2: £6667.67, Year 3: £5333.33 
B) Year 1: £4818.18, Year 2: £4336.36, Year 3: £3854.55 
C) Year 1: £7428.57, Year 2: £6190.48, Year 3: £4952.38 
D) Year 1: £4333.33, Year 2: £4333.33, Year 3: £4333.33 
A) Year 1: £8000, Year 2: £6667.67, Year 3: £5333.33 
B) Year 1: £4818.18, Year 2: £4336.36, Year 3: £3854.55 
C) Year 1: £7428.57, Year 2: £6190.48, Year 3: £4952.38 
D) Year 1: £4333.33, Year 2: £4333.33, Year 3: £4333.33

Question 14

Which depreciation policy is likely to reduce debt-to-equity ratio?

Accepted Answer

A) sum-of-digits 
B) straight-line rate 
C) declining-balance 
D) sum-of-digits or declining-balance 
A) sum-of-digits 
B) straight-line rate 
C) declining-balance 
D) sum-of-digits or declining-balance

Question 15

Under the declining balance method of depreciation,the depreciable amount of an asset is determined by deducting residual value from cost or revalued amount.

Accepted Answer

A) True 
 B)False

Question 16

A non-current asset,for example,a building,has the following information available for valuation at balance date:
Depreciable amount €50 000
Accumulated depreciation €10 000
Residual value €5 000
Recoverable amount €35 000
Value in use €80 000
Which amount should be the carrying amount of this asset at balance date?

Accepted Answer

A) €5000 
B) €35 000 
C) €40 000 
D) €80 000 
A) €5000 
B) €35 000 
C) €40 000 
D) €80 000

Question 17

If the receipt of the sale proceeds on disposal is deferred for a period of time the consideration received is recognised initially at the fair value.

Accepted Answer

A) True 
 B)False

Question 18

The company has a depreciable asset with a purchase price of €500 000 and an estimated residual of €20 000.The company estimates that the asset will generate future economic benefits for the next 10 years.You are not sure about what depreciation method to adopt but would like to be aware of the effect of using different depreciation methods.Which of the following is correct with respect depreciation expense for Year 1?

Accepted Answer

A)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Lowest } & \text { Second highest } & \text { Highest } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Second highest } & \text { Highest } & \text { Lowest } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Lowest } & \text { Highest } & \text { Second highest } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Highest } & \text { Second highest } & \text { Lowest } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Lowest } & \text { Second highest } & \text { Highest } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Second highest } & \text { Highest } & \text { Lowest } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Lowest } & \text { Highest } & \text { Second highest } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Straight line } & \text { Reducing balance } & \text { Sum-of-digits } \
\hline \text { Highest } & \text { Second highest } & \text { Lowest } \
\hline
\end{array}$$

Question 19

Depreciation represents a decline in the market value of an asset over its life.

Accepted Answer

A) True 
 B)False

Question 20

Precious Gems Co purchased a diamond-cutting machine at a cost of £58 000.They bought it at a discount from the recommended price of £67 000 because of a drop in the demand for diamonds around that time.There were additional costs of £12 000 to get the machine operational.It was installed on 30 June 2007,but the machine was not used for 2 years.The operational life of the machine is expected to be 10 years at the end of which its salvage value is estimated to be £5000.On 30 June 2012,the machine was upgraded to allow a more sophisticated range of cutting styles to be used.The addition to the cutting machine cost £10 000,has an estimated life of 9 years and can be used on other machines.The addition is expected to have a nil salvage value.The machine and the addition are expected to generate economic benefits evenly over their lives.What is the depreciation expense for the diamond-cutting machine and addition for the years ended 30 June 2008; 30 June 2013; 30 June 2020 (rounded to the nearest pound)?

Accepted Answer

A) £6500; £7929; £1429 
B) £0; £7611; £1111 
C) £5417; £6527; £1111 
D) $0; $6829; $1429 
A) £6500; £7929; £1429 
B) £0; £7611; £1111 
C) £5417; £6527; £1111 
D) $0; $6829; $1429

Profit on the sale of an asset is calculated:

If a company finds out years later that the expected pattern of consumption of future economic benefits of an asset had changed,how must a company deal with this accounting issue?

A company recently ordered a piece of machinery from Germany to be used to manufacture a new product.Which of the following are generally included as cost of an item of property,plant and equipment in accordance with IASB 16?

The depreciable base is the cost of a depreciable asset,or other amount substituted for cost in the financial statement,less its residual value.

The useful life of an asset may be estimated based on:

Information is material if it has the potential,individually or collectively,to influence economic decisions of users taken on the basis of financial statements through:

IASB 16 requires that depreciation be reviewed:

The useful life of the asset reflects the time from when an asset is built/acquired until it is no longer able to produce any benefits.

Which depreciation policy is likely to reduce debt-to-equity ratio?

Under the declining balance method of depreciation,the depreciable amount of an asset is determined by deducting residual value from cost or revalued amount.

If the receipt of the sale proceeds on disposal is deferred for a period of time the consideration received is recognised initially at the fair value.

Depreciation represents a decline in the market value of an asset over its life.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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Exam 5: Depreciation of Property, Plant and Equipment

Profit on the sale of an asset is calculated:

If a company finds out years later that the expected pattern of consumption of future economic benefits of an asset had changed,how must a company deal with this accounting issue?

A company recently ordered a piece of machinery from Germany to be used to manufacture a new product.Which of the following are generally included as cost of an item of property,plant and equipment in accordance with IASB 16?

The depreciable base is the cost of a depreciable asset,or other amount substituted for cost in the financial statement,less its residual value.

The useful life of an asset may be estimated based on:

Information is material if it has the potential,individually or collectively,to influence economic decisions of users taken on the basis of financial statements through:

IASB 16 requires that depreciation be reviewed:

The useful life of the asset reflects the time from when an asset is built/acquired until it is no longer able to produce any benefits.

Which depreciation policy is likely to reduce debt-to-equity ratio?

Under the declining balance method of depreciation,the depreciable amount of an asset is determined by deducting residual value from cost or revalued amount.

If the receipt of the sale proceeds on disposal is deferred for a period of time the consideration received is recognised initially at the fair value.

Depreciation represents a decline in the market value of an asset over its life.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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