Question 1

Which of the following statement is applicable to the straight-line method of depreciation?

Accepted Answer

A)  The expense is variable 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 uniform over its expected useful life. 
A)  The expense is variable 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 uniform over its expected useful life.

Question 2

Red Enterprises purchased a vehicle for $35 000.A further $5000 was spent to prepare it for use.The useful life of the vehicle is expected to be 15 years,but Red Enterprises expects to replace it with a better model in 7 years' time.The salvage value is estimated to be $6500 after 15 years and $15 000 at the end of 7 years.What is the depreciation for the first 2 years using the declining-balance method of depreciation (rounded to the nearest dollar)?

Accepted Answer

A)  Year 1: $5230, Year 2: $4546 
B)  Year 1: $4564, Year 2: $4043 
C)  Year 1: $3990, Year 2: $3535 
D)  Year 1: $3269, Year 2: $2841 
A)  Year 1: $5230, Year 2: $4546 
B)  Year 1: $4564, Year 2: $4043 
C)  Year 1: $3990, Year 2: $3535 
D)  Year 1: $3269, Year 2: $2841

Question 3

Pursuant to AASB 116,what is the carrying amount of an asset?

Accepted Answer

A)  cost less accumulated depreciation 
B)  cost or revalued amount less the accumulated depreciation and any accumulated impairment losses 
C)  revalued amount less accumulated depreciation and any impairment losses 
D)  cost or revalued amount less the accumulated depreciation 
A)  cost less accumulated depreciation 
B)  cost or revalued amount less the accumulated depreciation and any accumulated impairment losses 
C)  revalued amount less accumulated depreciation and any impairment losses 
D)  cost or revalued amount less the accumulated depreciation

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The expenditure to modify an asset so that its service potential is improved should be expensed.

Accepted Answer

A) True 
 B)False

Question 6

The depreciation rate and useful lives of assets should not be revised during the depreciable life of the asset.

Accepted Answer

A) True 
 B)False

Question 7

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 8

The company recently acquired factory equipment.Which of the following costs should be included in the depreciable amount of the equipment?

Accepted Answer

A) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { Yes } \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { No } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { No } & \text { Yes } & \text { No } & \text { Yes } \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { No } & \text { Yes } \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { No } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { No } & \text { Yes } & \text { No } & \text { Yes } \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Staff training to } \
\text { operate equipment }
\end{array} & \begin{array} { c } 
\text { Installation } \
\text { costs }
\end{array} & \begin{array} { c } 
\text { Equipment modifications } \
\text { before it was ready for use }
\end{array} & \begin{array} { c } 
\text { Purchase } \
\text { price }
\end{array} \
\hline \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$

Question 9

Land that has a definite useful life should be depreciated.

Accepted Answer

A) True 
 B)False

Question 10

Super Industries purchased a new vehicle on 1 May for $28 000.Upon delivery the vehicle required a new two-way radio to be installed before it could be used.This installation was completed on 30 June.Assuming a residual value of $4000 and a declining balance rate of 20 per cent,calculate the depreciation expense recorded at the end of the first two financial years since purchase.(Financial Year ends on 30 June,round to the nearest dollar.)

Accepted Answer

A)  $5600; $4480 
B)  $0; $5600 
C)  $4800; $3840 
D)  $933; $5413 
A)  $5600; $4480 
B)  $0; $5600 
C)  $4800; $3840 
D)  $933; $5413

Question 11

Galway Ltd 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 dollar)?

Accepted Answer

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

Question 12

Discuss how the useful life of a depreciable asset is determined.

Accepted Answer

The useful life of a depreciable asset i

Question 13

All Saints Ltd 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 14

AASB 116 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 15

In accordance with AASB 116,how should a company treat additions,major repairs and improvements and replacements?

Accepted Answer

In accordance with AASB 116, which is th

Question 16

AASB 116 allows capitalisation of items of plant and property because these are considered prepayments.

Accepted Answer

A) True 
 B)False

Question 17

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

Exam 5: Depreciation of Property, plant and Equipment

Which of the following statement is applicable to the straight-line method of depreciation?

Pursuant to AASB 116,what is the carrying amount of an asset?

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

The expenditure to modify an asset so that its service potential is improved should be expensed.

The depreciation rate and useful lives of assets should not be revised during the depreciable life of the asset.

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 company recently acquired factory equipment.Which of the following costs should be included in the depreciable amount of the equipment?

Land that has a definite useful life should be depreciated.

Discuss how the useful life of a depreciable asset is determined.

AASB 116 requires that depreciation be reviewed:

In accordance with AASB 116,how should a company treat additions,major repairs and improvements and replacements?

AASB 116 allows capitalisation of items of plant and property because these are considered prepayments.

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

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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