Question 1

Property plant & equipment evidence - additions
Specify the evidence the auditor would review to satisfy himself or herself about each of the following assertions concerning property,plant,and equipment additions.
 A. I Muntion athit tarichl cast.
B. Firistance.
C. Prafantation an talnare shest
D. Riphts.

Accepted Answer

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Question 2

In evaluating control risk and effectiveness for intangible assets,controls should be designed for numerous purposes.Which of the following is not a usual control for intangible assets?
A)ensure that decisions are appropriately made as to when to capitalize or expense research and development expenditures.
B)develop amortization schedules that reflect the remaining useful life of patents or copyrights associated with the assets.
C)identify and account for intangible asset impairment.
D)all of the above are usual controls for intangible assets.

Accepted Answer

All of the listed controls are usual controls for intangible assets. A control to ensure appropriate decision-making regarding capitalization or expensing of research and development expenditures ensures the accuracy of the financial statements. Developing amortization schedules that reflect the remaining useful life of patents or copyrights associated with the assets ensures that amortization is properly allocated to the correct periods. Identifying and accounting for intangible asset impairment ensures that the financial statements accurately reflect the value of the assets.

Question 3

Capital leases
Identify the four criteria that have been provided under U.S.GAAP that the auditor will use to assess capital lease treatment.

Accepted Answer

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Identify the four criteria that have...

Question 4

Intangible assets - patents
Discuss what an intangible asset is and some audit procedures concerning patents that the auditor might use in connection with it.

Accepted Answer

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Question 5

Audit approach for lease
Describe the general audit approach for leases.

Accepted Answer

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Question 6

Repairs and maintenance
Why would the auditor be concerned about the repairs and maintenance account in relation to property plant and equipment?

Accepted Answer

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Question 7

In evaluating control risk and effectiveness for fixed assets,controls should be designed for numerous purposes.Which of the following is not a usual control for fixed assets?
A)identify existing assets,inventory them,and reconcile physical inventory with the property ledger.
B)periodically reassess the appropriateness of depletion categories.
C)identify obsolete or scrapped equipment and write it down to scrap value.
D)periodically review management strategy and systematically assess the impairment of assets.
E)all of the above are usual controls for fixed assets.

Accepted Answer

Periodically reassessing the appropriateness of depletion categories is not a usual control for fixed assets. It pertains more to natural resources or mining assets where depletion is an important accounting concept. For fixed assets such as property or machinery, the usual controls include identifying existing assets, inventorying them, reconciling physical inventory with the property ledger, identifying obsolete or scrapped equipment, writing it down to scrap value, periodically reviewing management strategy, and systematically assessing the impairment of assets.

Question 8

Useful methods to evaluate asset impairment of long-lived assets usually would not include which of the following?
A)current market values of similar assets.
B)estimated future economic benefits to be derived from the asset.
C)an independent assessment of the value of the asset.
D)all of the above are useful in valuing impairment.

Accepted Answer

All of the above methods are useful in evaluating asset impairment of long-lived assets. Current market values of similar assets, estimated future economic benefits to be derived from the asset, and an independent assessment of the value of the asset are all valuable tools in determining whether an asset has been impaired and if so, by how much. Therefore, choice D is the correct answer.

Question 9

As natural resources are used up the client has to recognize which of the following?
A)depreciation expense.
B)depletion expense.
C)amortization expense.
D)reclamation expense.

Accepted Answer

Depletion expense is the appropriate term used to account for the natural resources used up in the production process. This term is used for resources such as oil, gas, minerals, and timber. Depreciation is used for fixed assets like equipment and buildings, amortization is used for intangible assets like patents and copyrights, and reclamation expense is the amount spent to restore land after the completion of the extraction of natural resources.

Question 10

Capitalized natural resources,e.g. ,oil or coal,are usually written off over what period of time?
A)over a period not to exceed 40 years.
B)over an allocated useful life.
C)as assets are taken from the ground.
D)any of the above.

Accepted Answer

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Question 11

After a natural resource such as gas or coal is used up by the client,the client is responsible for restoring the land to its original condition.What is the cost of this restoration called?
A)depreciation expense.
B)depletion expense.
C)amortization expense.
D)reclamation expense.

Accepted Answer

Reclamation expense refers to the cost of restoring the land to its original condition after the depletion of natural resources such as gas or coal. The client is responsible for the reclamation expense.

Question 12

Periodically clients discontinue a particular line of operation by shutting down or selling a line of business or a company,which usually occurs over at least several months.In these situations the client is to write down net assets to a best estimate of net realizable value and do which of the following?
A)recognize a loss.
B)recognize a gain.
C)recognize a loss or a gain.
D)not recognize any gain or loss.

Accepted Answer

When a line of business is discontinued, the net assets are written down to their net realizable value, and any loss resulting from this write-down is recognized.

Question 13

Earnings management
Describe earnings management by an organization and discuss the implications of fixed asset accounting on earnings management.

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Question 14

Decommission costs for fixed assets,e.g. ,a power plant,must be recognized over what period of time?
A)when the plant is built.
B)over the life of the plant.
C)when the plant is decommissioned.
D)Either B or C is acceptable.

Accepted Answer

Decommission costs should be recognized over the life of the plant as part of the asset's depreciation expense, in accordance with accounting standards like IFRS and GAAP.

Question 15

Asset impairment
Describe what asset impairment is,why the auditor is concerned about it,and how it is dealt with by the auditor.

Accepted Answer

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Describe what asset impairment is,why the...

Quiz 13: Audit of Long-Lived Assets and Related Expense Accounts

In evaluating control risk and effectiveness for intangible assets,controls should be designed for numerous purposes.Which of the following is not a usual control for intangible assets?

Capital leases Identify the four criteria that have been provided under U.S.GAAP that the auditor will use to assess capital lease treatment.

Intangible assets - patents Discuss what an intangible asset is and some audit procedures concerning patents that the auditor might use in connection with it.

Audit approach for lease Describe the general audit approach for leases.

Repairs and maintenance Why would the auditor be concerned about the repairs and maintenance account in relation to property plant and equipment?

In evaluating control risk and effectiveness for fixed assets,controls should be designed for numerous purposes.Which of the following is not a usual control for fixed assets?

Useful methods to evaluate asset impairment of long-lived assets usually would not include which of the following?

As natural resources are used up the client has to recognize which of the following?

Capitalized natural resources,e.g. ,oil or coal,are usually written off over what period of time?

After a natural resource such as gas or coal is used up by the client,the client is responsible for restoring the land to its original condition.What is the cost of this restoration called?

Earnings management Describe earnings management by an organization and discuss the implications of fixed asset accounting on earnings management.

Decommission costs for fixed assets,e.g. ,a power plant,must be recognized over what period of time?

Asset impairment Describe what asset impairment is,why the auditor is concerned about it,and how it is dealt with by the auditor.