Question 1

An asset cost &#8364;16000,has no scrap value and a useful life of 4 years.Using the reducing balance method with a 40% rate what is the net book value at the end of year 3?&#10;A)&#8364;5,760&#10;B)&#8364;4,000&#10;C)&#8364;3,456&#10;D)&#8364;2,304

Accepted Answer

First, we need to calculate the depreciation rate:
Depreciation rate = 40% / 4 years = 10% per year
Year 1 depreciation = 10% x €16,000 = €1,600
Year 1 net book value = €16,000 - €1,600 = €14,400
Year 2 depreciation = 10% x €14,400 = €1,440
Year 2 net book value = €14,400 - €1,440 = €12,960
Year 3 depreciation = 10% x €12,960 = €1,296
Year 3 net book value = €12,960 - €1,296 = €11,664

Therefore, the net book value at the end of year 3 is €3,456 (Option C).

Question 2

An asset has been bought and the following figures apply; purchase price = €10 500,delivery charge = €250,installation cost = €175,annual maintenance costs = €150,spare parts = €100.What cost should be used for depreciation purposes?

A)€10 500
B)€10 750
C)€10 925
D)€11 075

C

Accepted Answer

The cost used for depreciation purposes includes the purchase price, delivery charge, and installation cost, totaling €10,925 (€10,500 + €250 + €175). Annual maintenance costs and spare parts are not included in the asset's capitalized cost.

Question 3

The terms 'carrying value' and 'net book value' are interchangeable.

Accepted Answer

Carrying value and net book value both refer to the same concept of the value of an asset after accumulated depreciation and impairment have been deducted.

Question 4

Which of the following would be classified as investment property under IAS40?&#10;A)Retail premises leased from the entity by shopkeepers&#10;B)Retail premises owned by the entity&#10;C)Retail premises leased to an agent who leases them to shopkeepers&#10;D)Retail premises under construction & for subsequent sale

Accepted Answer

Investment property under IAS 40 is property held to earn rentals or for capital appreciation. Retail premises leased from the entity by shopkeepers fit this definition.

Question 5

Gains on derecognition of non-current assets should be classified in the Profit & loss statement as revenue.

Accepted Answer

Gains on derecognition of non-current assets are typically classified as other income or gains in the profit and loss statement, not as revenue, because they are not part of the entity's ordinary activities.

Question 6

Why should the receipt of a government grant not be credited immediately to the income statement?&#10;A)It ignores the matching & prudence concepts&#10;B)It ignores the matching & objectivity concepts&#10;C)It ignores the prudence & objectivity concepts&#10;D)It ignores the prudence & continuity concepts

Accepted Answer

Crediting a government grant immediately to the income statement would ignore the matching concept, as the grant may be intended to cover future expenses or costs. It would also ignore the prudence concept, as the income would not have been earned yet and may not ultimately be received. Therefore, it is more appropriate to defer recognizing the grant until it can be matched with related expenses or until it is reasonably certain that the grant will be received.

Question 7

IAS 20 distinguishes between grants related to assets and grants related to income.

Accepted Answer

IAS 20 requires an entity to distinguish between grants related to assets and grants related to income.

Question 8

The purpose of depreciation is to spread the cost of an asset over its useful life.

Accepted Answer

The answer of The purpose of depreciation is to spread...

Question 9

Which of the following is NOT a qualifying asset under IAS 23?&#10;A)Construction work-in-progress&#10;B)Manufacturing plants&#10;C)Intangible assets&#10;D)Assets ready for use when acquired

Accepted Answer

Assets ready for use when acquired do not qualify under IAS 23 because the standard applies to assets that require a period of time to get them ready for their intended use or sale, which involves the capitalization of borrowing costs during this period.

Question 10

In the classification of assets between current and non-current the essential criterion is the intention of the owner.

Accepted Answer

The classification of assets between current and non-current is based on the expected time frame in which they will be used or converted into cash, regardless of the intention of the owner. Current assets are expected to be used or converted into cash within a year, while non-current assets are expected to be used or produce benefits for more than a year.

Deck 13: Fixed Non-Currenttangible Assets