Question 1

Where a non-current asset appreciates in value over time,no depreciation should be charged.

Accepted Answer

A) True 
 B)False

Question 2

Assets should be depreciated from:

Accepted Answer

A) the date the asset is ordered. 
B) the date the asset is delivered to the premises until it is no longer in use. 
C) the date the asset is first put into use or held ready for use. 
D) the date the asset is paid for until it is disposed of. 
A) the date the asset is ordered. 
B) the date the asset is delivered to the premises until it is no longer in use. 
C) the date the asset is first put into use or held ready for use. 
D) the date the asset is paid for until it is disposed of.

Question 3

Fast Movers Plc purchased a machine on the first day of their financial year: 1 January 2011.The machine cost £75 000 and has an expected useful life of 10 years at which time its salvage value will be £8000.An even pattern of benefits is expected to be derived from the machine.Then on 31 December 2014 (3 years later)the machine is sold for £65 000.What are the appropriate journal entries to record the disposal of the machine in line with the requirements of IASB 16?

Accepted Answer

A)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Proceeds from sale of machine } & 65000 & \
\hline \mathrm { Dr } & \text { Gain on sale of machine } & 30100 & \
\hline \mathrm { Cr } & \text { Machine } & & 75000 \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 20100 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 65000 & \
\hline \mathrm { Cr } & \text { Proceeds from sale of machine } & & 65000 \
\hline \mathrm { Dr } & \text { Carrying amount of machinery sold } & 54900 & \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 20100 \
\hline \mathrm { Cr } & \text { Machine } & & 75000 \
\hline
\end{array}$$ 
C)  $\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Cash at bank } & 65000 & \
\hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 20100 & \
\hline \mathrm{Cr} & \text { Profit on sale of machine } & & 10100 \
\hline \mathrm{Cr} & \text { Machine } & & 75000\\hline
\end{array}$ 
D)  $$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 20,100 & \
\hline \mathrm { Dr } & \text { Cash at bank } & 54,900 & \
\hline \mathrm { Cr } & \text { Machine } & & 75,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Proceeds from sale of machine } & 65000 & \
\hline \mathrm { Dr } & \text { Gain on sale of machine } & 30100 & \
\hline \mathrm { Cr } & \text { Machine } & & 75000 \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 20100 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 65000 & \
\hline \mathrm { Cr } & \text { Proceeds from sale of machine } & & 65000 \
\hline \mathrm { Dr } & \text { Carrying amount of machinery sold } & 54900 & \
\hline \mathrm { Cr } & \text { Accumulated depreciation-machine } & & 20100 \
\hline \mathrm { Cr } & \text { Machine } & & 75000 \
\hline
\end{array}$$ 
C)  $\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Cash at bank } & 65000 & \
\hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 20100 & \
\hline \mathrm{Cr} & \text { Profit on sale of machine } & & 10100 \
\hline \mathrm{Cr} & \text { Machine } & & 75000\\hline
\end{array}$ 
D)  $$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Accumulated depreciation-machine } & 20,100 & \
\hline \mathrm { Dr } & \text { Cash at bank } & 54,900 & \
\hline \mathrm { Cr } & \text { Machine } & & 75,000 \
\hline
\end{array}$$

Question 4

Swans Plc constructed a building on a property already owned by the football club.Which of the following items should be included in determining the depreciable amount of the building?

Accepted Answer

A) architect's fees 
B) interest during construction 
C) promotional expense 
D) architect's fees and interest during construction 
A) architect's fees 
B) interest during construction 
C) promotional expense 
D) architect's fees and interest during construction

Question 5

Magpie Plc purchased a building on a prime central business district site for €800,000.The value of the land is considered to be €350 000.The useful life of the building is expected to be 25 years after Magpie Ltd spends a further €80 000 on improvements.The residual value of the building at that time is estimated to be €60 000.The benefits from owning the land and building are expected to be derived evenly.What is the appropriate annual depreciation charge?

Accepted Answer

A) €18 800 
B) €32 800 
C) €15 600 
D) €14 000 
A) €18 800 
B) €32 800 
C) €15 600 
D) €14 000

Question 6

IASB 16 paragraph 73 states that financial statements shall disclose,for each class of property,plant and equipment the measurement bases used for determining the net carrying amount.

Accepted Answer

A) True 
 B)False

Question 7

IASB 16 requires disclosure of a reconciliation of the carrying amount at the beginning and end of the period for depreciable assets.This reconciliation includes:

Accepted Answer

A) additions and disposals. 
B) impairment gains recognised in the statement of financial position. 
C) depreciation. 
D) additions and disposals and depreciation. 
A) additions and disposals. 
B) impairment gains recognised in the statement of financial position. 
C) depreciation. 
D) additions and disposals and depreciation.

Question 8

Depreciation is intended to track the asset's declining value.Do you agree or disagree with this statement.Discuss.

Accepted Answer

This is a question seeking a student's o

Question 9

Using a 'net basis' means that the proceeds from the disposal of a depreciable asset should not be separately treated as:

Accepted Answer

A) revenue. 
B) gain. 
C) income. 
D) loss. 
A) revenue. 
B) gain. 
C) income. 
D) loss.

Question 10

Priceless Products Plc purchased some display stands for £5000.They were modified to make them suitable for the premises at a further cost of £1500.The expected life of the stands is 20 years,but Priceless Products expects to replace them in 5 years' time as the style of product presentation will change in that time.The stands are expected to have a zero salvage value in either case.The benefits from the stands are expected to be derived evenly over their life.Priceless Products reviewed the useful life of the stands as part of the process of assessing the amount to be depreciated in year 4 and decided that they could be used for an additional 2 years.The recoverable amount at that time is close to the net book value of the stands after depreciation is recorded for the 4th year.What is the amount of depreciation charge in years 3 and 5?

Accepted Answer

A) £1000; £500 
B) £325; £276 
C) £1300; £650 
D) £250; £213 
A) £1000; £500 
B) £325; £276 
C) £1300; £650 
D) £250; £213

Question 11

If market-value accounting (also known as CoCoA or exit-price accounting)were to be applied in a set of accounts,then typically the treatment for recording depreciation would be:

Accepted Answer

A) restate the residual value and the cost to exit price and recalculate the depreciation. 
B) restate the cost but leave the residual value unchanged and recalculate the depreciation. 
C) no depreciation is recognised. 
D) continue to charge the same depreciation and recognise any changes in value in the income statement. 
A) restate the residual value and the cost to exit price and recalculate the depreciation. 
B) restate the cost but leave the residual value unchanged and recalculate the depreciation. 
C) no depreciation is recognised. 
D) continue to charge the same depreciation and recognise any changes in value in the income statement.

Question 12

Where an addition to or extension of a depreciable asset is separable from the original asset and able to be used after that asset is disposed of,the extension or addition should still be depreciated over the life of the original asset.

Accepted Answer

A) True 
 B)False

Question 13

In accordance with IASB 16 the depreciation method applied to an asset shall be reviewed:

Accepted Answer

A) as determined by the company directors. 
B) every 3 years. 
C) at least at the end of each annual reporting period. 
D) as and when required. 
A) as determined by the company directors. 
B) every 3 years. 
C) at least at the end of each annual reporting period. 
D) as and when required.

Question 14

Depreciation of an asset is required when market value accounting is applied on a non-current asset.

Accepted Answer

A) True 
 B)False

Question 15

The depreciable amount of any addition or extension to an existing depreciable asset that becomes an integral part of that asset must be allocated over:

Accepted Answer

A) the life of the asset. 
B) the expected residual amount. 
C) the remaining useful life of the asset. 
D) the cost of the asset. 
A) the life of the asset. 
B) the expected residual amount. 
C) the remaining useful life of the asset. 
D) the cost of the asset.

Question 16

IASB 16 allows capitalisation of items of plant and property because these are considered prepayments.

Accepted Answer

A) True 
 B)False

Question 17

Managers often argue that property values appreciate and therefore depreciation is irrelevant.Discuss the contractual implications of building depreciation to debt covenants in place.

Accepted Answer

Reporting entities are frequently involv

Question 18

All Saints Plc acquired a machine for £50 000 on 1 January.This asset has useful life of 4 years and a residual value of £10 000.The declining balance rate adopted by the entity for similar machines is 40%.What is the depreciation expense for the first year,if the depreciation policy adopted is straight-line,declining-balance or sum-of-digits method,respectively?

Accepted Answer

A) £10 000; £20 000; £16 000 
B) £10 000; £25 000; £20 000 
C) £12 500; £20 000; £16 000 
D) £12 500; £25 000; £20 000 
A) £10 000; £20 000; £16 000 
B) £10 000; £25 000; £20 000 
C) £12 500; £20 000; £16 000 
D) £12 500; £25 000; £20 000

Question 19

Amortisation has the same meaning as depreciation,but conventionally is used in relation to intangible assets.

Accepted Answer

A) True 
 B)False

Question 20

How are gains or losses on sale of depreciable assets accounted for in accordance with IAS 18 Revenue?

Accepted Answer

When the receipt of the sale proceeds on

Exam 5: Depreciation of Property, Plant and Equipment

Where a non-current asset appreciates in value over time,no depreciation should be charged.

Assets should be depreciated from:

Swans Plc constructed a building on a property already owned by the football club.Which of the following items should be included in determining the depreciable amount of the building?

IASB 16 paragraph 73 states that financial statements shall disclose,for each class of property,plant and equipment the measurement bases used for determining the net carrying amount.

IASB 16 requires disclosure of a reconciliation of the carrying amount at the beginning and end of the period for depreciable assets.This reconciliation includes:

Depreciation is intended to track the asset's declining value.Do you agree or disagree with this statement.Discuss.

Using a 'net basis' means that the proceeds from the disposal of a depreciable asset should not be separately treated as:

If market-value accounting (also known as CoCoA or exit-price accounting)were to be applied in a set of accounts,then typically the treatment for recording depreciation would be:

Where an addition to or extension of a depreciable asset is separable from the original asset and able to be used after that asset is disposed of,the extension or addition should still be depreciated over the life of the original asset.

In accordance with IASB 16 the depreciation method applied to an asset shall be reviewed:

Depreciation of an asset is required when market value accounting is applied on a non-current asset.

The depreciable amount of any addition or extension to an existing depreciable asset that becomes an integral part of that asset must be allocated over:

IASB 16 allows capitalisation of items of plant and property because these are considered prepayments.

Managers often argue that property values appreciate and therefore depreciation is irrelevant.Discuss the contractual implications of building depreciation to debt covenants in place.

Amortisation has the same meaning as depreciation,but conventionally is used in relation to intangible assets.

How are gains or losses on sale of depreciable assets accounted for in accordance with IAS 18 Revenue?

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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