Question 1

When selecting a method of cost apportionment an accountant should choose:

Accepted Answer

A)  the method that best reflects how the asset is used, taking into account its total physical life. 
B)  the method that produces the best profit for the firm. 
C)  the method stipulated by the taxation department for submitting tax returns. 
D)  the method that best reflects the economic use of the asset. 
A)  the method that best reflects how the asset is used, taking into account its total physical life. 
B)  the method that produces the best profit for the firm. 
C)  the method stipulated by the taxation department for submitting tax returns. 
D)  the method that best reflects the economic use of the asset.

Question 2

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 3

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

Accepted Answer

Depreciation is indeed intended to track

Question 4

Depreciation is required because it is generally accepted that:

Accepted Answer

A)  Assets will decrease in value over time. 
B)  The economic benefits of an asset will not last indefinitely. 
C)  Wear and tear on an asset must be recorded as an expense. 
D)  Even though land may go up in value its cost needs to be recognised as an expense. 
A)  Assets will decrease in value over time. 
B)  The economic benefits of an asset will not last indefinitely. 
C)  Wear and tear on an asset must be recorded as an expense. 
D)  Even though land may go up in value its cost needs to be recognised as an expense.

Question 5

Explain how different methods of cost apportionment may unrealistically provide high values for non-current assets.

Accepted Answer

Cost apportionment is the process of all

Question 6

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 7

Magpie Ltd 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 8

Kent Express owns a fleet of delivery vehicles.They were purchased for $120 000 and are expected to have a useful life of 8 years.Their residual value is expected to be $20 000.What is the depreciation expense recorded using the sum-of-digits depreciation method in years 1 and 2 (rounded to the nearest dollar)?

Accepted Answer

A) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 22222 & \text { Year 2: } & \$ 19444 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 26667 & \text { Year 2: } & \$ 23333 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 25000 & \text { Year 2: } & \$ 21875 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 22222 & \text { Year 2: } & \$ 15124 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 22222 & \text { Year 2: } & \$ 19444 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 26667 & \text { Year 2: } & \$ 23333 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 25000 & \text { Year 2: } & \$ 21875 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | l | } 
\hline \text { Year 1: } & \$ 22222 & \text { Year 2: } & \$ 15124 \
\hline
\end{array}$$

Question 9

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 10

Swans Ltd 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 11

Hugo Ltd 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 twp 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 12

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 13

How are gains or losses on sale of depreciable assets accounted for in accordance with AASB 118 Revenue?

Accepted Answer

AASB 118 Revenue was an accounting stand

Question 14

Fast Movers Ltd purchased a machine on the first day of their financial year: 1 January 2009.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 2012 (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 AASB 116?

Accepted Answer

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

Question 15

Which of the following statements is applicable to the declining-balance method of depreciation?

Accepted Answer

A)  The expense is constant for the useful life of the asset. 
B)  The process is complex because you need to know the carrying amount, residual value and estimated useful life of the asset. 
C)  A company subject to political costs is more likely to select this depreciation method. 
D)  Assumes that the consumption of the asset is a function of time. 
A)  The expense is constant for the useful life of the asset. 
B)  The process is complex because you need to know the carrying amount, residual value and estimated useful life of the asset. 
C)  A company subject to political costs is more likely to select this depreciation method. 
D)  Assumes that the consumption of the asset is a function of time.

Question 16

Assets must be depreciated from the time they are acquired.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Yellow Ltd purchased an asset 6 years ago for $75 000.At that time it was deemed to have a residual value of $15 000 and estimated useful life of 6 years.After 4 years of use the asset was overhauled at a cost of $35 000.The overhaul extended the useful life of the asset by 4 more years but reduced its residual value to $7000.Assuming the straight-line method of depreciation is applied,calculate the depreciation expense in the year after the overhaul (rounded to the nearest dollar)?

Accepted Answer

A)  $8000 
B)  $10000 
C)  $8800 
D)  $10500 
A)  $8000 
B)  $10000 
C)  $8800 
D)  $10500

Question 19

On 1 January,Broncos Ltd 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 20

The profit or loss on the sale of an asset is calculated by deducting the cost of the asset from the sale amount.

Accepted Answer

A) True 
 B)False

Exam 5: Depreciation of Property, plant and Equipment

When selecting a method of cost apportionment an accountant should choose:

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:

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

Depreciation is required because it is generally accepted that:

Explain how different methods of cost apportionment may unrealistically provide high values for non-current assets.

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.

Profit on the sale of an asset is calculated:

Swans Ltd 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?

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

How are gains or losses on sale of depreciable assets accounted for in accordance with AASB 118 Revenue?

Which of the following statements is applicable to the declining-balance method of depreciation?

Assets must be depreciated from the time they are acquired.

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

The profit or loss on the sale of an asset is calculated by deducting the cost of the asset from the sale amount.

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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