Question 1

A non-current asset that is subjected to depreciation is no longer subjected to impairment testing.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Question 4

In accordance with AASB 116 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 5

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 6

Tantrax Ltd 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 7

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 8

What issues need to be addressed to determine how to allocate the cost of an asset?

Accepted Answer

A)  the depreciation method, the probable future benefit and the years to obsolescence 
B)  the depreciable base, its useful life and the method of cost apportionment 
C)  the cost of the asset, its residual value and the method of cost apportionment 
D)  the probable future benefit, the depreciation method and the depreciable base 
A)  the depreciation method, the probable future benefit and the years to obsolescence 
B)  the depreciable base, its useful life and the method of cost apportionment 
C)  the cost of the asset, its residual value and the method of cost apportionment 
D)  the probable future benefit, the depreciation method and the depreciable base

Question 9

Explain why the combined cost of acquiring land and building is required to be apportioned to each specific asset and accounted for separately as per AASB 116?
 What aspects of this provision is presumed inconsistent with the manager's view under Positive Accounting Theory?

Accepted Answer

The combined cost of acquiring land and

Question 10

Managers of some entities have resisted depreciating buildings in accordance with AASB 116.Which of the following is the grounds given by directors for failing to act in compliance with AASB 116?

Accepted Answer

A)  Depreciating buildings when their values are generally increasing over time. 
B)  Management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants. 
C)  Management considers that when the asset is sold the amount of gain or loss that will be reflected in the books will be incorrect. 
D)  Depreciating buildings when their value is generally increasing does not make economic sense and management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants. 
A)  Depreciating buildings when their values are generally increasing over time. 
B)  Management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants. 
C)  Management considers that when the asset is sold the amount of gain or loss that will be reflected in the books will be incorrect. 
D)  Depreciating buildings when their value is generally increasing does not make economic sense and management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants.

Question 11

Where an asset is revalued,the treatment of depreciation is to:

Accepted Answer

A)  recalculate and charge it to the income statement based on the revalued amount and the original residual value. 
B)  charge the original amount of depreciation to the income statement and transfer any change in value to the asset revaluation reserve. 
C)  recalculate and charge it to the income statement based on the revalued amount for the asset and the revalued residual value. 
D)  charge the original amount of depreciation to the income statement and calculate the new depreciation based on the revalued amount and treat it as a special item. 
A)  recalculate and charge it to the income statement based on the revalued amount and the original residual value. 
B)  charge the original amount of depreciation to the income statement and transfer any change in value to the asset revaluation reserve. 
C)  recalculate and charge it to the income statement based on the revalued amount for the asset and the revalued residual value. 
D)  charge the original amount of depreciation to the income statement and calculate the new depreciation based on the revalued amount and treat it as a special item.

Question 12

When sale proceeds are deferred the discount rate to be used is the rate at which the vendor could invest the amount under similar circumstances and conditions.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 dollar)?

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

Question 15

Intangible assets are not depreciated under AASB 116 because:

Accepted Answer

A)  they do not have a finite life. 
B)  they are now amortised under AAS 138, which provides specific guidance on intangibles. 
C)  intangible assets only appreciate and so cannot be depreciated. 
D)  intangibles are not physical assets and so are not subject to wear and tear. 
A)  they do not have a finite life. 
B)  they are now amortised under AAS 138, which provides specific guidance on intangibles. 
C)  intangible assets only appreciate and so cannot be depreciated. 
D)  intangibles are not physical assets and so are not subject to wear and tear.

Question 16

Pentec Ltd has just acquired five new computers for $29 000 in total,and paid a further $1000 to have additional zip drives added.The computers are expected to have a useful life of 5 years and their salvage value is expected to be $3000.Pentec Ltd has decided to apply the declining balance method of calculating depreciation.What is the first 2 years depreciation charge on the computers?

Accepted Answer

A)  Year 1: $3000, Year 2: $2700 
B)  Year 1: $18 928.7, Year 2: $6985.5 
C)  Year 1: $ 9964.2, Year 2: $6287 
D)  Year 1: $11 071, Year 2: $6985.5 
A)  Year 1: $3000, Year 2: $2700 
B)  Year 1: $18 928.7, Year 2: $6985.5 
C)  Year 1: $ 9964.2, Year 2: $6287 
D)  Year 1: $11 071, Year 2: $6985.5

Question 17

The depreciable amount is the historical cost of the non-current asset,or revalued amount substituted for historical cost in the financial report,less the net amount expected to be recovered on disposal of the asset at the end of its useful life.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Percy Ltd has a piece of equipment that has been depreciated for 3 years using the declining-balance depreciation method at a rate of 20%.The equipment cost $34 000 and has a salvage value of $4000.At the end of the third year the asset is sold for $24 000.What is the appropriate journal entry to record the disposal in line with the requirements of AASB 116?

Accepted Answer

A) 
$$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation-equipment } & 18000 & \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline \mathrm { Cr } & \text { Gain on sale of equipment } & & 8000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Cr } & \text { Proceeds from sale of equipment } & & 24000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Loss on disposal of equipment } & 4000 & \
\hline \mathrm { Dr } & \text { Carrying amount of equipment sold } & 15360 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation - machine } & 14640 & \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | r | } 
\hline \mathrm { Dr } & \text { Proceeds from sale of equipment } & 24000 & \
\hline \mathrm { Cr } & \text { Gain on sale of equipment } & & 6592 \
\hline \mathrm { Cr } & \text { Carrying amount of equipment sold } & & 17408 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation -machine } & 16592 & \
\hline \mathrm { CR } & \text { Gain on sale of equipment } & & 6592 \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation-equipment } & 18000 & \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline \mathrm { Cr } & \text { Gain on sale of equipment } & & 8000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Cr } & \text { Proceeds from sale of equipment } & & 24000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Loss on disposal of equipment } & 4000 & \
\hline \mathrm { Dr } & \text { Carrying amount of equipment sold } & 15360 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation - machine } & 14640 & \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | r | } 
\hline \mathrm { Dr } & \text { Proceeds from sale of equipment } & 24000 & \
\hline \mathrm { Cr } & \text { Gain on sale of equipment } & & 6592 \
\hline \mathrm { Cr } & \text { Carrying amount of equipment sold } & & 17408 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 24000 & \
\hline \mathrm { Dr } & \text { Accumulated depreciation -machine } & 16592 & \
\hline \mathrm { CR } & \text { Gain on sale of equipment } & & 6592 \
\hline \mathrm { Cr } & \text { Equipment } & & 34000 \
\hline
\end{array}$$

Question 20

Forwind Ltd has recently acquired a machine that cost $29 000.The machine normally remains productive for 6 years.It is expected to continue in the production process at Forwind for 8 years due to the excellent maintenance and operating policies in place at Forwind.The machine has the capacity to produce 20 000 units over a 6 year life and 27 000 units over an 8 year life.Its salvage value after 6 years is expected to be $2500 and after 8 years $1000.What depreciation would be charged in the first year of the machine's operation when 4000 units were produced (rounded to the nearest dollar)?

Accepted Answer

A)  $5600 
B)  $4148 
C)  $4296 
D)  $5300 
A)  $5600 
B)  $4148 
C)  $4296 
D)  $5300

Exam 5: Depreciation of Property, plant and Equipment

A non-current asset that is subjected to depreciation is no longer subjected to impairment testing.

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.

In accordance with AASB 116 the depreciation method applied to an asset shall be reviewed:

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:

Assets should be depreciated from:

What issues need to be addressed to determine how to allocate the cost of an asset?

Explain why the combined cost of acquiring land and building is required to be apportioned to each specific asset and accounted for separately as per AASB 116? What aspects of this provision is presumed inconsistent with the manager's view under Positive Accounting Theory?

Managers of some entities have resisted depreciating buildings in accordance with AASB 116.Which of the following is the grounds given by directors for failing to act in compliance with AASB 116?

Where an asset is revalued,the treatment of depreciation is to:

When sale proceeds are deferred the discount rate to be used is the rate at which the vendor could invest the amount under similar circumstances and conditions.

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:

Intangible assets are not depreciated under AASB 116 because:

The depreciable amount is the historical cost of the non-current asset,or revalued amount substituted for historical cost in the financial report,less the net amount expected to be recovered on disposal of the asset at the end of its useful life.

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.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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