Question 1

On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?

Accepted Answer

The costs of several items of property, plant and equipment, acquired for a lump-sum payment, would normally be allocated based on the fair value at acquisition date, as per the International Financial Reporting Standards (IFRS) guidelines. This ensures that each item is recognized at its fair value, resulting in more accurate and reliable financial statements.

Question 2

The assumption underlying the reducing balance method of depreciation is:

Accepted Answer

The reducing balance method assumes that the asset makes a higher contribution to income in the earlier years of its life. This is because the method applies a higher percentage rate of depreciation to the asset's book value in the early years, resulting in a higher depreciation expense and a lower net income. As the asset gets older, the rate of depreciation decreases, resulting in a lower depreciation expense and a higher net income.

Question 3

In the financial statements prepared at the end of the accounting period the item accumulated depreciation appears on:

Accepted Answer

Accumulated depreciation is a contra asset account, which means it has a credit balance and is used to reduce the carrying value of an asset. Therefore, it appears on the balance sheet as a deduction from the related asset. It does not appear on the income statement as an expense.

Question 4

The factor that distinguishes fixed assets such as property, plant and equipment from other assets is:

Accepted Answer

Fixed assets are those assets that are intended to be used for future production of goods and services. This is what distinguishes them from other assets.

Question 5

Items of property, plant and equipment may be acquired for a lump-sum without identification of the cost of each asset. The total cost must be allocated to the individual assets on the basis of:

Accepted Answer

Allocating the cost based on fair value at the date of acquisition ensures that the cost is assigned to each asset accurately and fairly. It also reflects the current market conditions and recognizes any changes in the value of the assets. Independent valuation, market value, and replacement value may not accurately reflect the fair value of the assets at the date of acquisition.

Question 6

Accepted Answer

The number before the decimal point is $91,000 and the number after the decimal point is closer to 0 than 5, so we round down to $91,450.

Question 7

How many of these factors are required to calculate depreciation?
$\bullet$Estimated residual value
$\bullet$Estimated useful life
$\bullet$Cost or revalued amount
$\bullet$A method of depreciation

Accepted Answer

All four factors (estimated residual value, estimated useful life, cost or revalued amount, and method of depreciation) are required to calculate depreciation accurately.

Question 8

The correct entry to record the purchase of a motor vehicle for $25 000 cash, plus 10% GST is which of the following?

Accepted Answer

The purchase of a motor vehicle for $25,000 plus 10% GST would result in a total cost of $27,500 ($25,000 + $2,500 GST). Therefore, option B is correct as it correctly debits the motor vehicles account for the cost of the vehicle ($25,000) and also debits the GST outlays account for the amount of GST paid ($2,500), with a credit to the bank account for the total cost of the vehicle and the GST ($27,500). Option A is incorrect as it only debits the motor vehicles account for the cost of the vehicle and credits the bank account for the total cost, without accounting for the GST paid. Option C is also incorrect as it debits the bank account for more than the total cost of the vehicle and credits the GST collected account, which is not applicable in this scenario. Option D is incorrect as it debits the motor vehicles account for less than the cost of the vehicle and credits the bank account for less than the total cost of the vehicle and the GST paid.

Question 9

Depreciation is classified as a(n):

Accepted Answer

Depreciation is an expense that represents the decrease in the value of an asset over time, which is reported on the income statement. Option A is incorrect because depreciation is not a liability. Option C is incorrect because a contra asset account is used to offset the balance of an asset account, and depreciation does not create a separate contra asset account. Option D is incorrect because there is no such thing as a contra expense account.

Question 10

Delivery vehicles would be classified on the balance sheet of a transport company as:

Accepted Answer

Delivery vehicles are typically considered non-current assets as they are intended for long-term use and are not expected to be sold or converted to cash within a year.

Question 11

Which statement is untrue?

Accepted Answer

The cash at bank account is not affected by depreciation as it is a non-cash transaction.

Question 12

When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

Accepted Answer

The cost of installing an air conditioning system should not be debited to the building account because it is considered a separate asset that adds value to the property independently of the building itself. It should be capitalized as a distinct asset in the air conditioning system account.

Question 13

The equipment should be recorded in Blue Horizon's records at:

Accepted Answer

The equipment should be recorded at its fair market value of $16,000.

Question 14

IAS 16/AASB 116 requires all assets must be accounted for on acquisition at:

Accepted Answer

IAS 16/AASB 116 requires all assets to be initially recorded at cost, which includes all expenditures necessary to bring the asset to its present location and condition for its intended use. This includes the purchase price, import duties, and any directly attributable costs such as installation and testing costs. Depreciable value, market value and net realisable value may be relevant for subsequent measurement and recognition of the asset, but not for initial recognition.

Question 15

Which of these is not an example of a fixed asset for a company engaged in mining coal?

Accepted Answer

Stock of coal is not a fixed asset, as it is a current asset that will be sold or used up within a year. Land, storage depots, and mining equipment are examples of fixed assets as they are long-term assets that are used in the production process and are not intended to be sold in the near future.

Question 16

Accepted Answer

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Question 17

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

Accepted Answer

A) IAS 16/AASB 116 specifies that the cost of an item of property, plant, and equipment includes its purchase price and any directly attributable costs necessary to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. This includes costs such as delivery and handling, installation, professional fees, and the estimated cost of dismantling and removing the item and restoring the site.

Question 18

A popular method for an entity to acquire the benefits of property, plant and equipment is to lease assets. How many of these asset types are commonly subject to lease agreements?
$\bullet$Motor vehicles
$\bullet$Land and buildings
$\bullet$Machinery
$\bullet$Storage space

Accepted Answer

All listed asset types (motor vehicles, land and buildings, machinery, and storage space) are commonly subject to lease agreements.

Question 19

Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months. The journal entry to record the acquisition is which of the following?
$ $

Accepted Answer

The answer of Kamp Gravel Co purchased three trucks for...

Question 20

Ignoring GST, what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

Accepted Answer

When purchasing an asset with cash, the correct entry is to debit the asset (in this case, motor vehicles) and credit the cash account (bank). Option A is incorrect because it reflects the opposite entry, while options C and D are not relevant in this transaction.

Quiz 20: Non-Current Assets: Acquisition and Depreciation

On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?

The assumption underlying the reducing balance method of depreciation is:

In the financial statements prepared at the end of the accounting period the item accumulated depreciation appears on:

The factor that distinguishes fixed assets such as property, plant and equipment from other assets is:

Items of property, plant and equipment may be acquired for a lump-sum without identification of the cost of each asset. The total cost must be allocated to the individual assets on the basis of:

How many of these factors are required to calculate depreciation? $\bullet$ Estimated residual value $\bullet$ Estimated useful life $\bullet$ Cost or revalued amount $\bullet$ A method of depreciation

The correct entry to record the purchase of a motor vehicle for $25 000 cash, plus 10% GST is which of the following?

Depreciation is classified as a(n) :

Delivery vehicles would be classified on the balance sheet of a transport company as:

Which statement is untrue?

When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

The equipment should be recorded in Blue Horizon's records at:

IAS 16/AASB 116 requires all assets must be accounted for on acquisition at:

Which of these is not an example of a fixed asset for a company engaged in mining coal?

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

A popular method for an entity to acquire the benefits of property, plant and equipment is to lease assets. How many of these asset types are commonly subject to lease agreements? $\bullet$ Motor vehicles $\bullet$ Land and buildings $\bullet$ Machinery $\bullet$ Storage space

Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months. The journal entry to record the acquisition is which of the following? $ $

Ignoring GST, what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

Quiz 20: Non-Current Assets: Acquisition and Depreciation

On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?

The assumption underlying the reducing balance method of depreciation is:

In the financial statements prepared at the end of the accounting period the item accumulated depreciation appears on:

The factor that distinguishes fixed assets such as property, plant and equipment from other assets is:

Items of property, plant and equipment may be acquired for a lump-sum without identification of the cost of each asset. The total cost must be allocated to the individual assets on the basis of:

How many of these factors are required to calculate depreciation? ∙\bullet∙ Estimated residual value ∙\bullet∙ Estimated useful life ∙\bullet∙ Cost or revalued amount ∙\bullet∙ A method of depreciation

The correct entry to record the purchase of a motor vehicle for $25 000 cash, plus 10% GST is which of the following?

Depreciation is classified as a(n) :

Delivery vehicles would be classified on the balance sheet of a transport company as:

Which statement is untrue?

When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

The equipment should be recorded in Blue Horizon's records at:

IAS 16/AASB 116 requires all assets must be accounted for on acquisition at:

Which of these is not an example of a fixed asset for a company engaged in mining coal?

IAS 16/AASB 116 defines the cost of acquisition for fixed assets as:

A popular method for an entity to acquire the benefits of property, plant and equipment is to lease assets. How many of these asset types are commonly subject to lease agreements? ∙\bullet∙ Motor vehicles ∙\bullet∙ Land and buildings ∙\bullet∙ Machinery ∙\bullet∙ Storage space

Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months. The journal entry to record the acquisition is which of the following? $ $

Ignoring GST, what is the correct entry to record the purchase of a motor vehicle for $25 000 cash?

How many of these factors are required to calculate depreciation? $\bullet$ Estimated residual value $\bullet$ Estimated useful life $\bullet$ Cost or revalued amount $\bullet$ A method of depreciation

A popular method for an entity to acquire the benefits of property, plant and equipment is to lease assets. How many of these asset types are commonly subject to lease agreements? $\bullet$ Motor vehicles $\bullet$ Land and buildings $\bullet$ Machinery $\bullet$ Storage space